Buying foreclosed properties at a sheriff’s auction can land you a great deal, but it can also leave you owning a so-called "money pit." The latter is less likely when you do your research beforehand, and that includes attending a few such sales to learn the ropes before placing a bid. Remember that such properties are always sold “as is.”
Also known as sheriff’s sales, laws regarding sheriff’s auctions differ by state. It is the final stage in the foreclosure process, which begins when the homeowner fails to make timely mortgage payments. A parcel may also end up at a sheriff’s auction because the owner did not pay their property taxes and a tax lien is put on the house. In either case, the lender or the municipality wants to recoup the money owed. You can find listings of upcoming sheriff’s sales on a county sheriff’s website or in the legal notice sections of local newspapers. The website should include the regulations for that particular auction jurisdiction.
Difference Between Sheriff Sale and Foreclosure
Sheriff’s sales and foreclosure auctions are similar but not synonymous. For the former, a court must authorize the sale. The lender or the tax authority receives a court order to conduct the sale, while such court involvement does not occur in an ordinary foreclosure auction. Some states refer to the difference as “judicial” and “non-judicial” foreclosure.
Sheriff Sale Procedure
In some places, sheriff’s auctions take place on courthouse steps, but most occur within a sheriff’s or court’s offices. You must register as a bidder beforehand. You must also either have the cash available or a certified check up to a certain percentage of the bid. For example, if you win the house at $100,000 and the sheriff’s office requires a 20-percent down payment, you must have $20,000 either in cash or a certified check. Find out the amount required beforehand. If you intend to finance the property, make sure your lender guarantees your financing. Otherwise, you could end up losing much, if not all, of the money outlaid for your bid.
If you win the bid at a sheriff’s sale, you generally have about 30 days in which to close on the house. Keep in mind that if you win a bid at a tax sale, as opposed to a foreclosure, the owner has a right of redemption. The right of redemption means that owners have a specific period in which they can go to court, pay the taxes owed, reimburse your winning bid and recover the property.
Sheriff’s Auction Preparation
Do your research and find out the current value of comparable houses in the area. You should also conduct a title search, either online or by visiting the assessor’s office in the county in which the house is located. A title search tells you about liens and back taxes owed on the property, for which you are responsible if you are the winning bidder. Most sheriff’s sales will not guarantee that the winning bidder receives a clean title, so you must do your homework.
Before making a bid, visit the property in question. In most situations, you are not able to actually enter the house to see its condition, so you must conduct a drive-by and view the house from the street. If the exterior of the home is dilapidated and the yard unkempt, it’s a good bet the inside is also not in great shape. Consider that even if the exterior doesn’t look too bad, the interior may prove a different story. If you’re lucky, the home won’t require extensive rehabbing, but that is the exception rather than the rule.
- Many homes are pulled from auction prior to it beginning. This usually happens because the bank has purchased the home or the homeowner has remedied his default. Be prepared for the possibility that the home you are interested in may not be available for bidding after all.
- If there are people living in the home, you may need to work with the sheriff's office to evict them before you can take up residence in the home yourself.
- The amount of money you will need to have for repairs can vary widely from property to property. You have to decide how much you can afford for repairs and if you think the property can be made livable with that amount.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.