Novice Online Foreclosure Auction Buyer Wins Bid, Gets Soaked On Underwater Home Subject To Existing $220K Mortgage Lien

In Orange County, Florida, the Orlando Sentinel reports:

• OK, maybe it was too easy. With just a few clicks of the mouse, Orlando accountant John Dey bought a Lake Nona-area house that was auctioned off during one of Orange County's new, online foreclosure auctions. And get this: In the kind of deal espoused by get-rich-quick authors, he paid just $20,000 for a house worth close to $200,000.

• But as more than two dozen Florida counties have opened their foreclosure auctions in the past year to bidders from around the world via the Internet, inexperienced auction bidders such as Dey are learning the hard way that these troubled properties can be, well, troubled.

• The houses may be embroiled in property-line disputes, riddled with ownership complications or saddled with outstanding debt. For Dey, it was a lesson that cost him $20,000 for a house he'll never really own.

• The realauction.com website, which Dey used to pursue the 6-year-old house, included warnings about the risks associated with foreclosure-auction properties. He noticed that only one other bidder was competing against him. But he and his wife, a real-estate agent, had researched the house and carefully read the legal documents that would grant them ownership should they win the auction.

• "I said, 'This is great deal,' " said Dey, emphasizing that he is a certified public accountant. "They make it nice and easy to put a deposit down. They have the foreclosure judgment. I said, 'This is better than being at the courthouse steps, because you've got everything at your fingertips.' "

• And, as he said, there was Clerk of the Court Lydia Gardner's smiling face planted on the auction website, in a way that seemed to sanction the online-bidding process. Still, Dey became increasingly nervous about the deal during the bidding. He weighed his lack of experience and decided to back out of the bidding as soon as the price hit $20,000. But by then it was too late. The other bidder opted out.

• Immediately after the purchase, he went to the courthouse and plowed through the foreclosure case file for his new acquisition — only to learn that the house came with a $220,000 mortgage lien from Wells Fargo.

• It was actually the North Shore at Lake Hart Homeowners Association that had foreclosed on the property, for more than $7,000 in legal and delinquency fees.

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• Dey said it was nice that the court system wanted to speed up and expand access to the auction process by moving it from a room inside the Orange County Courthouse to the Internet, but the site should be more bold about warning of the problems online investors may encounter.(1)

For the story, see Online foreclosure auctions: Proceed with care.

(1) While I'm all for protecting consumers in consumer transactions, there's a limit to how much protection you can smother people with. The incident described in this story illustrates, in my view, where the line of protection should be drawn. Buying a house at a foreclosure sale auction is not a consumer transaction. It's not even an investment transaction. It's a business transaction, and if one doesn't know anything about the business of buying property at a foreclosure sale auction, one should do himself/herself a favor and either pay the price and get an education on this business, or simply stay away. The title problem reported in this story with the existence of a prior lien is merely one of the myriad of nasty surprises that might await. If a screwed-over novice in this type of deal is searching for someone at whom the finger of blame can be pointed, looking into the nearest mirror will promptly conclude that search.