Foreclosures and Sheriff's Sales

We've talked about concerns in buying a home through a sheriff's sale in the past.

The new issues with some foreclosures being handled incorrectly by lenders like GMAC, Chase and Bank of America are creating worries for some purchasers of homes at sheriff sale. With so many notes being sold and resold these days, proper documentation regarding the current lien holder is not always in place. If a bank cannot document that they own the lien to a home, they cannot legally foreclose.

This is an issue right now because it has come to light that some home that were already foreclosed upon or that are currently on the market might have defective documentation. If a court determines that a foreclosure was not valid, the judgment could result in a sheriff sale being voided. If a court rules a sheriff sale void, the buyer can be required to relinquish the property.

The ramifications of this are huge. Unless a purchaser at a sheriff's sale lines up title insurance, and not all title insurance companies will cover this, there is nothing to guarantee title and protect a purchaser's investment. This can impact not only the person who bought a house at sheriff's sale, but also future buyers.

We've said it before, but it bears repeating:

Please proceed with caution and with guidance if you are purchasing a home through sheriff's sale. It is possible to find a wonderful home or investment through these sales, but someone navigating these waters for the first time should take the time to become fully educated on the process.

The Wisconsin Realtor Association advises "No one should ever purchase a property at a sheriff’s sale without a title commitment and the advice of their attorney." Realtors don't give this advice like this because we only want people to purchase homes with the help of a realtor, but rather because we are a little more aware of potential pit-falls and want to help people avoid these situations.

Pitfalls of Purchasing at Sheriff's Sale

One person's misfortune can be another person's opportunity, and no where is this more true than in the world of real estate right now. With foreclosure rates at recent historic highs, there are opportunities to purchase homes for lower than normal prices through either foreclosure listing or through sheriff's sales.

The increase in foreclosures nationwide has led to an increase in people purchasing homes through sheriff's sale. Purchasing a home through sheriff's sale seems like an easy process - show up with proper financing in order, bid, win - but there are some hidden pitfalls to be wary of.

It would seem like any home purchased through a sheriff's sale would have a title free from liens and encumbrances. This is not necessarily true. Most of the time, yes, the purchaser will obtain a home complete with a clear title. Most lenders will do a complete title search and name every lien holder in the foreclosure complaint.

However, some banks are handing foreclosure work over to asset managers. These asset managers may not be as complete at they should be, cutting a few corner and failing to do a complete title search. It is a rarity, but it is completely possible and likely to happen more often as the foreclosure rates peak. The Wisconsin Realtors Association is even making a point to warn that buyers purchasing at sheriff's sale should be careful and have an attorney review title. A sheriff's sale deed is similar to a quitclaim deed. It makes no promises and it passes along all liens other than those listed in the foreclosure complaint to the new owner of the property. If there were three lien holders on a property, but only two were listed on the foreclosure complaint, the third lien is still active and becomes the responsibility of the new property owner. Do not get stuck paying for the previous owner's debt.

Another concern with purchasing a property at sheriff's sale is price. There is a perception that bargains are to be found at a sheriff's sale. This is not the case in all circumstances. I am reminded of a property that was valued for fifty thousand less than than what was owed on it. A buyer purchasing for the opening bid at sheriff's sale would have vastly overpaid for it. Buyers should consult with a qualified appraiser before purchasing a home at sheriff's sale to insure that the price they pay is fair and just in today's real estate market.

Please proceed with caution and with guidance if you are purchasing a home through sheriff's sale. It is possible to find a wonderful home or investment through these sales, but someone navigating these waters for the first time should take the time to become fully educated on the process.