Property Auction Purchase Fell Through and Lost Your Deposit? Legal Steps to Recover Your Funds
Purchasing a property at an auction can, in some instances, be a great way to secure a bargain and avoid the delays that often arise from standard transactions. However, such purchases come with several risks. By way of example, purchase via auction can potentially leave you at risk of losing your deposit if the sale falls through.
Negotiating these risks can be a stressful experience, but there are ways you can mitigate them. This article explains property auction deposits and how to recover them. For more information and advice, contact Helix Law.
Understanding Property Auction Deposits & Legal Obligations
Before entering a property auction, you must secure a deposit, usually 10% of the property’s value. You must also be able to fund the remaining purchase price, whether that’s via a mortgage or cash payment.
If you are the successful bidder, a legally binding contract is usually formed at the fall of the hammer. You must pay the deposit immediately and complete the purchase within the specified timeframe. If you fail to complete, the seller is usually entitled to retain the deposit and may remarketthe property.
However, there are situations where you can seek repayment of these funds from the seller.
When Can You Recover Your Deposit?
Seller Misrepresentation
If the seller has made a false statement or misrepresented a material fact about the property, and you relied on this when deciding to purchase, you may have grounds to claim your deposit back on the basis of misrepresentation. The law of England and Wales has three categories of misrepresentation: fraudulent, negligent, or innocent.A seller could knowingly or recklessly make a false statement, or even have reasonable grounds to believe the information is accurate.
A successful claim is more likely if the misrepresentation was fraudulent or negligent. For example, if the seller was aware of a serious structural defect and failed to disclose it, or provided misleading information in the documents.
Seller’s Inability to Complete
Sometimes, the seller cannot complete the sale for various reasons, such as title defects, ongoing litigation, or financial and personal circumstances. If they pull out of the transaction, they will be in breach of contract, and they are usually then required to return the buyer’s entire deposit. You may also be able to claim additional damages depending on the specific circumstances and any actual loss you suffer as a result of the breach
Failure to Disclose Legal Documents
When someone markets a property at an auction, it must come with a legal pack of essential documents, including title deeds, local authority searches, and relevant planning permissions.
If a key document is missing or a material issue is not disclosed, and this affects your ability to complete or the validity of the contract, you may have grounds to challenge the contract and seek the return of your deposit. However, buyers are generally expected to review the legal pack and carry out due diligence before bidding
Non-Compliance with Auction Terms
Auction houses have terms and conditions that all parties must comply with to ensure legitimate bidding. Such terms include fixing and disclosing the reserve price and setting bidding conditions for the seller. If the seller fails to comply with any of the terms and conditions, you may have grounds to seek repayment of your deposit.
The auction house must also adhere to these conditions, so if the auctioneer conducts the bidding incorrectly, this could also give rise to a legal claim where you are entitled to seek a remedy, including recovering any losses suffered.
Legal Options for Recovering a Deposit
Negotiating with the Seller or Auction House- caution
You should first obtain legal advice before taking any steps. Otherwise there is risk that you inadvertently worsen your position by affirming a contract, or waiving a breach of contract. The first step before any negotiations are entered into should be to obtain clarity and certainty of your position.
Letter Before Action
Legal proceedings may be the only option. However, before starting court proceedings a letter before action containing details of your claim needs to be drafted and sent. The letter must state what the seller or auction house must do by a particular date to avoid formal court proceedings being issued against them. You should seek specialist legal advice before sending your letter before action to ensure it is compliant and to ensure your claim is pursued in the most thorough way. Pursuing a claim and later changing your position or approach can result in adverse findings against you later, including you ‘winning’ but still being ordered to pay the other sides costs. Accurate analysis at the outset avoids this.
Court Proceedings
If the relevant party fails to return your deposit or ignores the letter before action, the last option is to file a claim with the court. The court will consider the evidence and decide whether you are entitled to recover your deposit and/or any additional losses.
Frequently Asked Questions
Does the Consumer Rights Act Apply to Auctions?
The Consumer Rights Act 2015 generally does not apply to property purchases but rather to selling goods, services, and digital content. However, it may apply to certain aspects of the bidding process, as it protects against unfair commercial practices. The transaction itself will instead fall under contract and misrepresentation laws. There are many instances where these protections do not apply and so advice on your specific situation is fundamentally important.
Are Property Auctions Legally Binding?
Yes, a contract forms between the buyer and seller when the auctioneer accepts and closes the final bid. The buyer must pay the deposit immediately and transfer the remaining funds within the specified time frame, usually 28 days.
Can You Pull Out of a Sale at an Auction?
This is very fact specific including the type of auction and content of the agreements entered into. A buyer can sometimes withdraw from a property purchase after the auctioneer accepts their bid, but not always. Where they do it is very likely they will forfeit their deposit unless they can demonstrate a legal ground for withdrawal. For example, if the buyer misrepresents the property’s condition, the buyer may be able to pull out without any consequences. Advice on this should be obtained so you’re clear where you stand.
Final Thoughts
Purchasing a property at auction is a serious step and approach. In entering into a transaction in this way additional risks are encountered. Losing a deposit following a property auction can be distressing, so it’s crucial to understand your legal rights and the situations in which you can recover your deposit.
Sellers and auction houses must comply with specific terms, conditions, and laws. If you can demonstrate that either party has failed to adhere to such rules, you may have grounds to seek a refund of your deposit.
We have acted (and are acting) in numerous disputes involving auction properties both for the seller seeking to force a buyer to complete, and from a buyer seeking to escape liability to complete moving forwards.
If you’re involved in a property auction purchase that has fallen through and need advice, our team of experts can provide tailored guidance to help you minimise loss. Contact Helix Law today for advice.
