When purchasing real estate in New York, it is your responsibility to perform “due diligence” before signing the contract. While there are cases where you may be able to back out of a contract due to fraud on the part of the seller, courts generally show little sympathy to buyers who do not do their homework first. This is especially true when a property is sold “as is” without any warranty, which is often the case when buying a property at a foreclosure or bankruptcy auction.
Always Check Before Bidding $4 Million on a Property
Here is arecent case on point. In January 2014, the owner of a commercial catering facility in Centerport, New York, filed for bankruptcy protection. When an individual or company files for bankruptcy, the court appoints a trustee to oversee the bankruptcy estate's assets. In this case, the trustee decided to sell the catering facility and the underlying land in order to pay the owner's creditors.
The trustee, with the court's permission, hired a broker to auction the property. The broker publicly advertised the property as a “21,000 Sq Ft Waterfront Catering Facility.” At the auction, held in September 2014, a buyer placed a winning bid of approximately $4.8 million and paid a “non-refundable deposit” of $350,000. In bidding, the buyer agreed to a court-approved document specifying the terms and conditions of the sale, including a detailed description of the real property based on Suffolk County's Land and Tax Map. This document further noted the property was sold “as is” and “without any representations, covenants, guarantees or warranties of any kind or nature.”
The bankruptcy court confirmed the sale in October 2014, and closing was scheduled for the following month. The buyer never appeared, however, and instead asked the bankruptcy court to rescind the sale. The buyer claimed he was misled by the broker's advertisement of “waterfront” property which, he claimed, was actually property with a view of the water. The buyer also cited a separate action by the Town of Huntington declaring the property “unsafe and unfit for human habitation,” which occurred after the auction.
The bankruptcy court refused to undo the sale. In an August 21 opinion, U.S. District Judge Arthur D. Spatt affirmed the bankruptcy court's decision. At the outset, Judge Spatt noted, “before participating in the public auction, the [buyer] recognized the need to perform due diligence with regard to the purchase of the Premises.” Yet the buyer never did so. Instead, he merely relied on the broker's representation of the property as “waterfront,” without conducting his own inspection or survey. The judge said it was “difficult to believe that the [buyer], before making a bid exceeding four million dollars, did virtually nothing to confirm the true boundary lines of the Premises.”
Nor did the town's post-sale condemnation get the buyer off the hook. As Judge Spatt explained, under the terms of sale, the buyer “expressly assumed the risk that the condition of the Premises may be in violation of certain local laws and/or regulations,” which would have to be corrected at the buyer's expense.
Need Help With a Real Estate Transaction?As this case illustrates, the time for due diligence is before you decide to purchase real property, not after. An experienced New York real estate attorney can assist you in performing due diligence and help avoid mistakes which might lead to cost litigation. Contact the offices of Waldhauser & Nisar, LLP, today if you would like to speak with someone right away.