As the name might suggest, a sheriff sale is a court-ordered sale of property, if the property owner is unable to make good on paying for that property.
A sheriff sale is a public auction where property, in real estate obviously this is typically a house, is repossessed. The proceeds from the sale are used to pay mortgage lenders, banks, tax collectors, and any other people that may have lost money on the property. When the property owner is not able to fulfill their mortgage payments, the foreclosure process starts, and the sheriff sale happens at the end of that process. Sheriff sales can also occur to satisfy judgment and tax liens too.
What is the foreclosure process?
To understand the steps that ultimately produce a sheriff sale, you first must understand mortgages and the foreclosure process. Homeowners get approved for and take out mortgage loans in order to afford a large portion of the cost of their house that they are typically unable to pay upfront. The homeowner must then meet the obligation previously arranged with the lender concerning the number of payments and the minimum amount per month agreed to in the mortgage contract. The homeowner uses the home as the main collateral to the lender. In the event of a default on the mortgage, where the homeowner is not able to keep up on payments for the mortgage, the lender then has a legal claim on that house.
A foreclosure is a court-ordered legal act where the property used originally as collateral for the mortgage loan is then sold to satisfy the debt when the owner defaults on the mortgage payments. Ownership is then passed to the holder of the mortgage loan or to a third party that has now purchased the property at either a foreclosure sale or a sheriff sale
Foreclosure proceedings can also be initiated by a tax authority. When income and property taxes go unpaid, the federal government, municipalities, and other tax authorities can attach tax liens [link to lien blog when finished] to real estate. Whoever attaches the lien to the property now has a claim on that house. If these liens go unpaid, tax authorities can pursue this unpaid debt through the court system and through the foreclosure process.
What’s the difference between a foreclosure sale and a sheriff sale?
The foreclosure process can then end up one of two ways. Either the property is sold through a regular foreclosure auction or sale, where the lender is usually selling a property it repossessed on its own. Or the property is sold through a sheriff sale, where the lender or tax authority receives a court-ordered judgment. Again, the lender must receive a court order in order to initiate the sheriff sale process.
What are the steps in a sheriff sale?
Buying a home purchased at auction is much different from a traditional sale. Since the auction is open to the public, anybody can attend and make a bid on a list of properties made available some time prior to the auction date. Properties that end up on the list will range from condos to duplexes to single-family homes and so on. But buyer beware: what these properties will often have in common is some inherited problems with them (not just including the reason for the sale). Before attending the auction to bid on the house, for example, you should look at the list, often available on the website for the county sheriff or in local publications, to see if the house still has outstanding liens on it, in addition to what it’s already being auctioned for.
If your bid on the property turns out to be the highest bid in the auction, you’ll likely need to put down a money order or certified check for a percentage of the property price. And this will vary depending on where the property is located. Every sheriff’s office has different requirements.
From there, you as the highest bidder typically have 30 days to close from the auction sale date. This rather quick time frame, which includes the title search, might not be a long enough time frame for many people to get their own mortgage loan for this property. So if you do it, make sure you get your loan lined up with a pre-qualified loan and the right lender.
If you then fail to come up with the rest of the purchase price within the 30-day period, your deposit paid at the auction will be forfeited. In that case, the second-highest bidder will then be given the chance to purchase the property. This process will continue until a bidder is found that’s able to complete the 30-day sale.