In 2016, Mengxi Liu participated in a real estate auction where she bid $1.1 million for a property owned by Max Spann Real Estate. Liu subsequently made a deposit on the property in the amount of $121,000. Unfortunately, Liu was not able to consummate the sale after making the deposit and Spann refused to return the funds as Liu was in breach of the contract.
Max Spann sued for breach of contract and Liu counterclaimed in an attempt to regain the $121,000 deposit. Liu argued that Spann’s real estate practice had been unlawful because there was no three-day review period included in the contract, and because her name and address had been filled out in a template by the seller’s agent.
Liu argued that according to NJ law, a licensed real estate broker or salesperson who prepares a contract for the sale of residential real estate is required to include a three-day attorney review period during which either party may cancel the contract without consequence. However, when Liu signed the contract, she was informed more than once that because it was an auction sale, the contract was not subject to the attorney review period.
The trial court ruled in favor of Spann, declaring that the three-day review period was not necessary as it was an auction sale, which is distinctly different from a traditional residential real estate transaction.
Liu appealed arguing that the contract was unenforceable. The Appellate Division and the Supreme Court found that Liu was in breach of contract and that the three-day review period does not apply to absolute auction sales. The Court found that Liu and her husband had extensive experience in purchasing real estate from auctions, so this was not a matter of inexperience. The contract that Liu signed also explicitly stated that the review period would not apply.
This is an important lesson for real estate purchasers in auction sales, and another example of how important it is to read and understand a contract before signing. It is always best to have an attorney review your contract before signing. The expense of paying an attorney to review a contract may save you from signing something you should not have.
If you have any questions about real estate or contracts, please contact Ward, Shindle & Hall.