Author Topic: How Do You Sheriff Sale?  (Read 1717 times)

Jon Bon

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How Do You Sheriff Sale?
« on: May 01, 2018, 05:57:02 AM »
What is your process for buying a sheriff sale home at auction?

How do you price it? How do you inspect it? Do you drive by the house and check out the outside? Do you try to bluff your way in to check out the inside? I have my eye on one that I am planning on bidding on. I have a max number that I will bid in mind. So I highly doubt I would lose a my shirt, but I also doubt with being conservative like that I will submit the winning bid!

This one currently is occupied so I assume most of the mechanical are at least functional. It is really old so my biggest concern would be foundation. But that is very hard to verify without getting into the house of course.  FWIW I am an experienced landlord but just have never bought a house without at least having some sort of inspection by me or professionals.


cooking

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Re: How Do You Sheriff Sale?
« Reply #1 on: May 02, 2018, 01:30:13 PM »
Sheriff's sales probably vary somewhat according to what state you're bidding in, but I can tell you a few aspects re sales in NJ, some of which would surely apply more widely (but as always, YMMV).

The vast majority of properties at these sales in NJ go back to the lender via a $100 bid, and there is a good reason for that.  The lender has an "upset price", which is usually the amount owed on the property, including all of the costs of the foreclosure itself, which can be higher than you might imagine.  So the lender will bid in itself if the bidding doesn't reach the upset level, in effect taking back the property.  If no one bids at all (this is generally because the investors at the sale have all determined that the upset price is greater than the value they're willing to mentally assign to the property, esp. w/all the unknowns of sheriff sale properties), then the lender bids $100 and takes the property back.  All of these REO's, or lender-owned properties, are the ones you see on the multiple listing service months (or in NJ, it can be years) after the sheriff sale.

The few properties that get the investor bids are the ones in high-value areas, where the value of the land alone almost justifies the purchase.

Another investor play involves more research.  This move considers the position of the lender who is foreclosing.  All mortgages coming after the foreclosing one are wiped out by the sale.  Therefore, in theory, say if you found a property with a very low first mortgage which is being foreclosed by the lender in 1st position, you could bid in at anything over that amount and get the property way below its true value.  In reality, of course, it doesn't usually work out that way.  In my example, a lender in, say 2nd position, would bid the amount of the lst mortgage and up to the amount of its own mortgage. 2nd position thereby captures the value differential for itself, rather than just sitting by and watching its mortgage get wiped out by some investor who's going to benefit by that amount.  And while we're talking reality, a property like this would only rarely make it to sheriff sale, for reasons you could probably work through in your own mind more quickly than I could mention them here.

I'm not trying to be a Debbie Downer on your idea.  Just asking you to keep in mind that these are all cash purchases, so taking cues from the investors who attend these auctions might be instructive.  They're aware they would be broke very quickly if they took on most of these properties, so they take a pass on the majority.

FWIW, I hope you wouldn't mind a respectful suggestion. Maybe attend a few auctions just to observe before laying down any of your precious money.  I wish you luck.   

Jon Bon

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Re: How Do You Sheriff Sale?
« Reply #2 on: May 02, 2018, 03:36:27 PM »
Sheriff's sales probably vary somewhat according to what state you're bidding in, but I can tell you a few aspects re sales in NJ, some of which would surely apply more widely (but as always, YMMV).

The vast majority of properties at these sales in NJ go back to the lender via a $100 bid, and there is a good reason for that.  The lender has an "upset price", which is usually the amount owed on the property, including all of the costs of the foreclosure itself, which can be higher than you might imagine.  So the lender will bid in itself if the bidding doesn't reach the upset level, in effect taking back the property.  If no one bids at all (this is generally because the investors at the sale have all determined that the upset price is greater than the value they're willing to mentally assign to the property, esp. w/all the unknowns of sheriff sale properties), then the lender bids $100 and takes the property back.  All of these REO's, or lender-owned properties, are the ones you see on the multiple listing service months (or in NJ, it can be years) after the sheriff sale.

The few properties that get the investor bids are the ones in high-value areas, where the value of the land alone almost justifies the purchase.

Another investor play involves more research.  This move considers the position of the lender who is foreclosing.  All mortgages coming after the foreclosing one are wiped out by the sale.  Therefore, in theory, say if you found a property with a very low first mortgage which is being foreclosed by the lender in 1st position, you could bid in at anything over that amount and get the property way below its true value.  In reality, of course, it doesn't usually work out that way.  In my example, a lender in, say 2nd position, would bid the amount of the lst mortgage and up to the amount of its own mortgage. 2nd position thereby captures the value differential for itself, rather than just sitting by and watching its mortgage get wiped out by some investor who's going to benefit by that amount.  And while we're talking reality, a property like this would only rarely make it to sheriff sale, for reasons you could probably work through in your own mind more quickly than I could mention them here.

I'm not trying to be a Debbie Downer on your idea.  Just asking you to keep in mind that these are all cash purchases, so taking cues from the investors who attend these auctions might be instructive.  They're aware they would be broke very quickly if they took on most of these properties, so they take a pass on the majority.

FWIW, I hope you wouldn't mind a respectful suggestion. Maybe attend a few auctions just to observe before laying down any of your precious money.  I wish you luck.

Thanks Cooking!

Yes I have attended a few auctions in person, The banks sit up front and end up with 90% of the houses. Because 90% of the houses are trash and no one wants them anyways! It is always a bit funny when a non-bank wins a house as the whole machine is turned on its head a little bit.

That being said my state has started putting them online, as this one is.

I know what the house would rent for thus what its value is to me. So I am not worried about overpaying, and if I get outbid, that is just fine.

However other then going and doing some minor trespassing im not sure how I would be able to address the condition of the house. Is that just buyer beware the game you play at these? I have heard of some guys that try to bluff their way in with a BS story but I dont think that is going to happen with me!

Also yeah most houses that are worth buying at an auction like this are usually purchased by someone else before they go to the courthouse steps.




REIgal

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Re: How Do You Sheriff Sale?
« Reply #3 on: May 02, 2018, 05:55:50 PM »
Ok, this is what I do for a living.  What state are you in?  It will definitely vary wildly by state.

Where I am (Oregon) the risks are making sure you're not going to get redeemed on, making sure title is clean, and making sure your values are solid.  This is NOT a game for the faint of heart!  It can definitely be rewarding though if you do it right.  What's your experience level?  What's your plan with the properties once you buy them (rental, flip, wholesale, etc)?  Happy to answer specific questions if you have them but you need to know that this is extremely risky unless you have this down.  Seriously, do not just show up at the courthouse without doing your homework.  I literally have a team of people that I work with to get this done.

cooking

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Re: How Do You Sheriff Sale?
« Reply #4 on: May 02, 2018, 11:50:25 PM »
Jon Bon, it sounds as if you've done your homework on this property (to the extent you can).  So I hate to rain on your parade again, but better you go in w/your eyes open, right?

As far as trying to inspect (or at least look at) the property, I have heard of investors who knocked on the door and were permitted to enter by the current occupant.  Might be worth taking the chance, b/c the occupant is usually aware of what is happening with the sheriff sale b/c they've already received numerous legal notices.  If the occupant is at least receptive to talking to you, this affords you an opportunity to talk to him/her about their plans for post-sale.  This is what I wanted to caution you about.  In NJ at least, the sheriff is not selling you a house that's guaranteed empty.  So in my state, getting the occupant out would be your responsibility if there is no voluntary exit.  Even worse, an action for eviction cannot be brought in the usual landlord/tenant court b/c there is no such established L/T relationship in this case.  Therefore, in NJ at least, the buyer would have to bring an action for ejectment in Superior Court, a bigger deal in terms of both time and money.  Maybe before purchase you could go through your local bar referral service (usually this gives you reduced lawyer rates for a consultation).  Get someone who specializes in this, though.  Ask how the issue I mentioned is handled in your jurisdiction. Then you'll at least know before knocking on the door what you might be in for if the occupant is willing to talk, but indicates a disinclination to exit after the sale.

Please keep us posted!

Jon Bon

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Re: How Do You Sheriff Sale?
« Reply #5 on: May 03, 2018, 05:15:52 AM »
Ok, this is what I do for a living.  What state are you in?  It will definitely vary wildly by state.

Where I am (Oregon) the risks are making sure you're not going to get redeemed on, making sure title is clean, and making sure your values are solid.  This is NOT a game for the faint of heart!  It can definitely be rewarding though if you do it right.  What's your experience level?  What's your plan with the properties once you buy them (rental, flip, wholesale, etc)?  Happy to answer specific questions if you have them but you need to know that this is extremely risky unless you have this down.  Seriously, do not just show up at the courthouse without doing your homework.  I literally have a team of people that I work with to get this done.

Ouch!

Ok on the hammer and nail side I am just fine. I can handle renovations, rental markets, real estate sales, leases, etc etc.

However on the legal side of this I am a newbie. So your telling me IF I buy this house there is a chance that someone else will have a legal claim to the property or perhaps a lien against the sale? I was under the impression (perhaps incorrectly) that these houses had basically 'declared bankruptcy' and all creditors would be wiped out?

I also thought that is what a title search and title insurance was for! Yes buying a house and finding out someone else still had some sort of claim to it would be terrible! Can you expand what being 'redeemed on' means?

I really appreciate the feedback.

Jon Bon

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Re: How Do You Sheriff Sale?
« Reply #6 on: May 03, 2018, 05:17:46 AM »
Jon Bon, it sounds as if you've done your homework on this property (to the extent you can).  So I hate to rain on your parade again, but better you go in w/your eyes open, right?

As far as trying to inspect (or at least look at) the property, I have heard of investors who knocked on the door and were permitted to enter by the current occupant.  Might be worth taking the chance, b/c the occupant is usually aware of what is happening with the sheriff sale b/c they've already received numerous legal notices.  If the occupant is at least receptive to talking to you, this affords you an opportunity to talk to him/her about their plans for post-sale.  This is what I wanted to caution you about.  In NJ at least, the sheriff is not selling you a house that's guaranteed empty.  So in my state, getting the occupant out would be your responsibility if there is no voluntary exit.  Even worse, an action for eviction cannot be brought in the usual landlord/tenant court b/c there is no such established L/T relationship in this case.  Therefore, in NJ at least, the buyer would have to bring an action for ejectment in Superior Court, a bigger deal in terms of both time and money.  Maybe before purchase you could go through your local bar referral service (usually this gives you reduced lawyer rates for a consultation).  Get someone who specializes in this, though.  Ask how the issue I mentioned is handled in your jurisdiction. Then you'll at least know before knocking on the door what you might be in for if the occupant is willing to talk, but indicates a disinclination to exit after the sale.

Please keep us posted!

Yes I guess the next step for me is to find a lawyer or at least a knowledgeable person in the business. I spoke with my title agency a 2 years ago or so about this , maybe I should give them a call again?

tralfamadorian

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Re: How Do You Sheriff Sale?
« Reply #7 on: May 03, 2018, 05:40:43 AM »
However on the legal side of this I am a newbie. So your telling me IF I buy this house there is a chance that someone else will have a legal claim to the property or perhaps a lien against the sale? I was under the impression (perhaps incorrectly) that these houses had basically 'declared bankruptcy' and all creditors would be wiped out?

Assumptions like this can literally cost you hundreds of thousands of dollars. There are liens that are not discharged such as tax and mechanics liens. And also the possibility that the lien being auctioned is a second or third. If that is the case, then the if you won the property, you would inherit the first (and possibly second lien).

Jon Bon

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Re: How Do You Sheriff Sale?
« Reply #8 on: May 03, 2018, 05:43:26 AM »
However on the legal side of this I am a newbie. So your telling me IF I buy this house there is a chance that someone else will have a legal claim to the property or perhaps a lien against the sale? I was under the impression (perhaps incorrectly) that these houses had basically 'declared bankruptcy' and all creditors would be wiped out?

Assumptions like this can literally cost you hundreds of thousands of dollars. There are liens that are not discharged such as tax and mechanics liens. And also the possibility that the lien being auctioned is a second or third. If that is the case, then the if you won the property, you would inherit the first (and possibly second lien).

I will do my best to avoid that....

Gotta go call some smart people.

Papa bear

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Re: How Do You Sheriff Sale?
« Reply #9 on: May 03, 2018, 08:35:00 AM »
I have entered some properties going to sherif sale when the current occupants allowed me access.  Knock on the door and ask.

I went to the auction to bid, but the listing was pulled the morning of and had not been updated on the auction site. Womp womp.


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REIgal

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Re: How Do You Sheriff Sale?
« Reply #10 on: May 03, 2018, 08:40:45 AM »
Ok, this is what I do for a living.  What state are you in?  It will definitely vary wildly by state.

Where I am (Oregon) the risks are making sure you're not going to get redeemed on, making sure title is clean, and making sure your values are solid.  This is NOT a game for the faint of heart!  It can definitely be rewarding though if you do it right.  What's your experience level?  What's your plan with the properties once you buy them (rental, flip, wholesale, etc)?  Happy to answer specific questions if you have them but you need to know that this is extremely risky unless you have this down.  Seriously, do not just show up at the courthouse without doing your homework.  I literally have a team of people that I work with to get this done.

When you buy at sheriff sale there is no escrow process where title is cleared and insured.  And a prelim won't necessarily tell you if all parties were notified properly of the sale and if paperwork was filed correctly.  You need to find out what position the foreclosing lien is, if anyone has redemption rights (I'm assuming this also applies in your state), what other liens are on title (tax liens, mechanics liens, etc) and get very clear on every piece.  As was previously suggested, you may want to go to a few sales and talk to some people.  There could be people there that will help you for a fee that know a lot more than you do about what's happening.

Ouch!

Ok on the hammer and nail side I am just fine. I can handle renovations, rental markets, real estate sales, leases, etc etc.

However on the legal side of this I am a newbie. So your telling me IF I buy this house there is a chance that someone else will have a legal claim to the property or perhaps a lien against the sale? I was under the impression (perhaps incorrectly) that these houses had basically 'declared bankruptcy' and all creditors would be wiped out?

I also thought that is what a title search and title insurance was for! Yes buying a house and finding out someone else still had some sort of claim to it would be terrible! Can you expand what being 'redeemed on' means?

I really appreciate the feedback.

SumBum

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Re: How Do You Sheriff Sale?
« Reply #11 on: May 05, 2018, 09:23:43 AM »
Sorry to hijack.  I've been considering auctions recently because it's getting harder for me to get loans.  Do the issues discussed above apply to REO properties?  If a bank has already foreclosed and lists the house as vacant, do you still have to worry about surprise liens, etc?

Thanks for all the information you've shared here!

Jon Bon

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Re: How Do You Sheriff Sale?
« Reply #12 on: May 08, 2018, 07:43:34 AM »
Getting a title search done. Costs all of $200 bucks so feels like cheap insurance to me.

Which is of course the best kind!

Fishindude

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Re: How Do You Sheriff Sale?
« Reply #13 on: May 09, 2018, 08:10:52 AM »
I bought one right next door because I was tired of the hillbilly slob neighbors.   Did a title search to make sure the only lien was the mortgage, then bid for it on the auction day.   Pretty well decided I was going to buy it regardless of cost and probably paid a bit too much, but we got it.   Took about 6 weeks to get the deadbeats kicked out, then we bulldozed the mess and planted grass.   Peace and quiet next door now.

Jon Bon

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Re: How Do You Sheriff Sale?
« Reply #14 on: May 09, 2018, 08:12:10 AM »
I bought one right next door because I was tired of the hillbilly slob neighbors.   Did a title search to make sure the only lien was the mortgage, then bid for it on the auction day.   Pretty well decided I was going to buy it regardless of cost and probably paid a bit too much, but we got it.   Took about 6 weeks to get the deadbeats kicked out, then we bulldozed the mess and planted grass.   Peace and quiet next door now.

I am sorry that is the best real estate story ever!

Much respect, talk about putting your mind to something my friend.

CNM

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Re: How Do You Sheriff Sale?
« Reply #15 on: May 09, 2018, 09:27:55 AM »
This is highly state dependent.  I have some family members who purchase foreclosed properties to flip via auction.  They typically purchase redemption rights from the defaulting owner and then decide after the auction whether they want to exercise that right, depending on the price. 

My understanding of this process, which mind you is not great and this in no way should be considered legal advice or anything, is that once a property is foreclosed on and sold at auction, the defaulting owner has a certain number of days after the auction to come up with an equivalent amount money and buy it back, in cash.  This right is called redemption.  The owner can also assign this right to another person/entity.  The purchaser at the auction does not know at that time whether or not the owner will exercise his right of redemption or whether the right has been assigned to another person. 

A vast, vast majority of these homes are not good deals in terms of purchase price versus flipped market price.  A lot of these places need quite a bit of renovation, utilities turned on (and sometimes thousands of $ in back payments made), and usually the auction price is the amount of the outstanding mortgage-- which is often nearly the value of house as not much equity had been put in as you can imagine. 


Jon Bon

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Re: How Do You Sheriff Sale?
« Reply #16 on: May 09, 2018, 10:43:07 AM »
This is highly state dependent.  I have some family members who purchase foreclosed properties to flip via auction.  They typically purchase redemption rights from the defaulting owner and then decide after the auction whether they want to exercise that right, depending on the price. 

My understanding of this process, which mind you is not great and this in no way should be considered legal advice or anything, is that once a property is foreclosed on and sold at auction, the defaulting owner has a certain number of days after the auction to come up with an equivalent amount money and buy it back, in cash.  This right is called redemption.  The owner can also assign this right to another person/entity.  The purchaser at the auction does not know at that time whether or not the owner will exercise his right of redemption or whether the right has been assigned to another person. 

A vast, vast majority of these homes are not good deals in terms of purchase price versus flipped market price.  A lot of these places need quite a bit of renovation, utilities turned on (and sometimes thousands of $ in back payments made), and usually the auction price is the amount of the outstanding mortgage-- which is often nearly the value of house as not much equity had been put in as you can imagine.

Thanks for the info! I am specifically asking my lawyer about this.

But yes almost all the houses I see go up for auction are just dumper fires. Its why I have never even considered bidding on one up until this point. This one has a bunch of potential as a great rental, and I can easily price the house correctly. I just want to make sure that I own the damn thing after the auction closes.


CNM

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Re: How Do You Sheriff Sale?
« Reply #17 on: May 09, 2018, 12:14:28 PM »
Oh, one last thing.  Where I live, before an auction takes place, a Court-appointed special master produces a report.  That report contains the outstanding mortgage and the bank that is owed that outstanding mortgage.  You would probably want to see that report to gauge what the auction price will be, as 9 times out of 10, it will be auctioned back to the bank for the exact amount of $ owed.