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What are the legal risks of buying property at an auction?

What are the legal risks of buying property at an auction?

The list of problems that can arise during a property transaction is lengthy and without an attorney to handle those problems, should they arise, the process can be risky. Whether you are a first-time buyer, a seasoned house flipper, or selling a home that you inherited, there will be legal stipulations from the outset if you don’t get advice from a professional attorney. During the transfer of ownership, it is the responsibility of an attorney to point out any legal factors that are involved in the OTP such as purchasing a lease-back from the seller and handling existing tenants.

Let’s break down different types of auctions


  1. Voluntary auction

    A voluntary auction is where the seller has freely decided to put the property on auction, hoping to get the best deal by playing buyers against each other in a live venue or online. These auctions usually favour the seller rather than the buyer.

  2. Bank auction

    A bank auction is organized by the bank, usually on behalf of a seller who is in arrears with his or her bond. This type of auction benefits the buyer as the property is sold at a reduced price and the rates and taxes are handled by the seller.

  3. Sheriff auction

    A sheriff’s auction occurs when the bank is unable to recover the funds from the current bondholder and instead applies to the court to auction the property. This is usually the best source of value for buyers as the properties are sold at a significant discount, sometimes up to around 50% of the property’s value.

There are a few challenges that investors face and struggle with when they purchase property at an auction

Common Challenges for Beginner Investors

  1. Generally, beginner investors are more concerned about the conditions of sale that are stated in the OTP.
  2. They also want to know if there’s a lease agreement in place or if there is a tenant in the property.
  3. Not having adequate knowledge is also one of the challenges that beginners face.
  4. So often buyers sign an agreement with the seller not knowing that the property is still advertised on the market. As a result, when they finally get the bond there are chances that the seller has found a new purchaser who has a cash offer. And therefore, the buyer ends up with a bond and wasted legal fees.


Property attorneys ensure that certain provisions are stipulated in the contract that protects their client’s interests, as well as to make sure that state laws have complied with the contract.

An investor should be educated about the process and take steps to mitigate the risks whenever possible. Get in touch with Bruno Simao Attorney at to assist you.

Common Challenges for Current Investors

  1. Buyers must be aware that they will be responsible for all unpaid levies, rates, utility costs and taxes related to the property.
  2. Structures are important. Investors should do proper research about keeping their assets in their personal name, a trust or a company.
  3. Investors should be knowledgeable about asset protection, as this could pose a massive risk going forward.
  4. Investors should understand how the law can protect their assets, if they have debt in the future.


TIP: Investor are advised to keep their assest in a trust or a company because it helps with asset protection and liability when it comes to debt, if anything does happen at least your property is safe. However, If it’s a residential property, clients are advised to put it in their name.

When you think about how much unnecessary taxes you may be paying, the idea of not investing the time and effort simply becomes unacceptable. And therefore, it is important to establish an ownership structure that works for you. You can connect with Bruno Simao Attorney at to mitigate all the risks involved when you decide to buy property at an auction.

How does an attorney assist investors who did not involve an attorney at the beginning of their investment?

There is never a time in a property journey where a property attorney cannot help a client. So often, clients purchase property at an auction and later find out that the property owes municipality money because the previous owner was in arrears and they don’t know what to do next. In this case, the municipality will not provide the services before the new owner pays the overdue account of the previous owner.

What should buyers look out for?

First and foremost, make sure that your legal adviser examines the buying agreement before you sign it. The seller must provide adequate proof that all municipal debts have been settled in full. That is a clearance certificate showing debts of up to two years in good standing. You should also obtain indemnification from the seller for any other historical municipal debt that could surface after the transfer.

A piece of advice,
ask your attorney to contact the municipality and get confirmation that there are no historical debts that they still want to recover from the property.

Do you negotiate on behalf of the investor during the purchasing process?

When it comes to a contract, such as an offer to purchase, an attorney makes sure that the terms of the deal are properly recorded in a contract for them to be legally binding. An attorney can negotiate on your behalf and also make sure that the contract adheres to all state laws.

Furthermore, they can address any specific issues that might affect the future use of the property. That is a negotiation process itself because in the end an attorney will give conditions to the seller and the seller will also give their conditions back. They will do the back and forth conduction until they get to the final agreement.

How do you protect the investor in the buying process?

When it comes to purchasing properties, attorneys take all the little aspects into account. If you buy the property that is tenanted, it is the attorney responsibility to honour the lease agreement. In addition to that, they look into an offer to purchase and to tick all the necessary boxes such as:

  • Does the lease agreement specify that you are the owner?
  • Does the lease agreement carry existing tenants?
  • Are tenants paying rent every single month?
  • Are there any renovations taking place at the property?

In a nutshell, the attorney takes the burden and the stress that clients might face when they buy property at an auction. So, when you decide to buy or sell the property at an auction, get in touch with Bruno Simao Attorney at to run the whole process smoothly. Bruno Simao Attorney is a leading provider of legal counsel on commercial matters, specialising in property law.


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