Answer: When a property owner loses his property through foreclosure the courts can take it over and liquidate it in order to recover as much as possible for interested parties. As the final step in the foreclosure process, the property is turned over to the county sheriff to sell in a public auction. This is essentially called a sheriff sale of a house in foreclosure.
Sheriff sale foreclosures can be opportunities for profit.
Why Do Lenders Use A Sheriff Sale?
In an effort to reclaim some of the money they lost on the mortgage that was issued on that home, lenders will place the home up for auction in hopes of a quick sale. In most cases, the opening bid for the property is made by the lender and is for the amount that is due on the mortgage. Any bid that is higher than the opening bid will be seen as valid and the home can be sold. Mortgage lenders are nearly always the interested parties in question, and any recovery of funds through the auction will first go to satisfy the court costs and then the lender’s judgment.
Are Sheriff Sales Open to The Public?
Yes. The procedure for conducting the sheriff’s sale will differ from county to county. The Sheriff’s Office will run notifications online, in the local newspaper and place postings at the courthouse notifying the public when they are going to conduct a foreclosure auction. It is very important that potential buyers read the information surrounding the terms of the sale so that they are prepared to bid. Some offices will require payment in full at the time of the sale. Other offices may only require a deposit with the balance due within a certain time period.
Where Do These Auctions Take Place?
The Sheriff’s office normally conducts these auctions on steps of the County Courthouse. Bidders must be present at the time of the sale to place a bid. In some cases, the Sheriff will conduct the sale on site. This will depend on local and state laws as well as any contractual requirements from the mortgage. Real estate investors interested in pursuing opportunities through sheriff’s sales should contact the sheriff’s office in the county in which the property is located. That office can provide information about properties being offered, and the time, the place, and the procedures for bidding. The real estate investor must register as a bidder prior to the auction.
Can I Pre-Inspect the Home or Property?
No. When you purchase a home in this manner, you are buying it AS-IS. The lender and the Sheriff’s Office cannot be held accountable for any damages or other issues to the property. Bidders are warned to keep this in mind when bidding. Additionally, bidders may find that they will have to evict the previous owners once they assume ownership of the property.
Are There Any Fees Attached To Purchasing A Home In This Manner?
You may have to pay recording fees for the new mortgage as well as any special fees required by local laws. You can verify any fees that you may be responsible for by reading the rules and regulations of the Sheriff sale for your local area. All Sheriff’s departments will have this information available prior to the sale.
What Happens If the Property Does Not Sell at Auction?
If no one places a bid on the property, the lender will assume title to the home. At that time, the property will become Real Estate Owned (REO) property, and will become available for sale at a later date directly from the lender.
Sheriff’s sales frequently offer excellent opportunities for real estate investors to acquire a property at below market prices. The first thing to remember is that sheriff’s sales are conducted as a result of some sort of distressed situation, (most often because of a borrower default on a mortgage loan, but there may also be real estate tax liens involved). Financial distress on the borrower’s part, combined with the lender’s disadvantages, spells opportunity for a real estate investor.
Persons interested in purchasing properties in sheriff’s sales are pretty much on their own when it comes to researching what value to place on a property. Frequently there will be no opportunity to make an interior inspection, so items of deferred maintenance will remain a question. The condition of the title to the property is also a concern. If the property has been foreclosed because of delinquent mortgage installments, it is reasonable to assume that other obligations such as real estate taxes and homeowner association fees are also owed. This should be researched in advance. While the sheriff’s sale will wipe out the delinquent mortgage, liens superior to that mortgage such as real estate taxes and homeowner fees will not be eliminated.
Among the advantages provided through sheriff’s sales are the following:
Properties can often be acquired at below market prices
There are no real estate broker fees
Property can be tied up for as little as 10% to 20% at the sale
A note of caution: When determining the value of a foreclosed property with a view toward bidding, only use other foreclosed properties as comparables. Homes sold at retail are not good comparables for distressed sales. Further, if the home being auctioned is occupied, the potential for an eviction action and owner’s rights of redemption must be considered.
Sheriff sale of a property can be a profitable investment for the person who is willing to do his homework, research the property and comparables, and, preferably, personally inspect the property. Once the due diligence has been performed, an informed decision can be made for the transaction to be profitable.
Take an organized approach to help simplify the process of bidding on foreclosure properties, use the checklist at this location: Click to get the Home Buyers Checklist