Sheriff Sale - Confusing Trend
I started investing in Indiana foreclosures about 2 ½ years ago. Beforehand I consulted my attorney on the process Foreclosure, and of the ‘Sheriff’s’ or ‘Public’ Sale/Auction. It is the epitome ‘Buyer Beware’. Risky, but once I got started, I really like doing them.
My understanding of the process was that the Foreclosing Party or Lender:
1. Receives judgement
2. Does a Title Search
3. Advertises in newspaper
4. Notifies each interested party Listed on Title Search
5. Property Goes to Public Sale to the Highest Bidder
6. New Owner gets Sheriff’s Deed
7. Property is Completely owned to Sheriff’s Deed holder
My understanding was that any other Lien holders (Obviously excluding the government) that had duly registered their lien, must be at and participate in the Sale/Auction. Once the property was Sold, the other Liens were invalidated if due process had been followed prior to the Sale/Auction.
I have purchased 12 properties over that time, each time getting and duly recording the Sheriff Deed received following the sale. Afterwards financing has been available (after Title Searches by Lender) and all has gone pretty good.
Lately a disturbing trend has been creeping into the Auctions though. The Attorneys that represent the Foreclosing Lender, instead of making their opening (and usually their only bid), have been putting stipulations on theirs bids.
For instance, if they are they Second Lienholder, they state their bid (the Second Lien amount), and inform the audience the purchaser will be still liable for the First Lienholder’s lien.
In Today’s Foreclosure process I see many names of companies from Hospitals to Auto Body shop with Liens against these properties by the time they get to Public Sale.
Can anyone shed any light on what status that other Lienholders have once the property has been sold at Public Auction.
It sounds like perhaps the second lien holders are blowing smoke and buying the property for themselves. I agree with you, I understand all liens (except gov't) are extinquished at sheriff's sale. If anyone has experience to contrary please jump in.
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Thanks for the feedback. I have been trying to find others that have some knowledge on this subject. I prefer Sheriff Sales because I get immediate possession. I walk from the Sale right into the house. Much riskier process, but there are no Sellers or Realtors getting in my way.
But several recent attendees of these auctions have been repeating these statements that ‘other Liens are still applicable’. They are Newbies to these Auctions and I take all they say with a grain of salt. But when a Participating Attorney places a rather arbitrary and somewhat ambiguous bid out there, I start wondering.
From all my reading, they are incorrect. Also this particular Sale was probably Invalid, but since no wanted to get involved, it went back to the Bank anyway.
I hate running to an attorney every time I have a question, or need reinforcement.
I liked the Posts and Intuitive writing here so I thought I would join and make a Post.
Does anyone know any good Internet Info on this subject??
ROT !!!
(Rule of Thumb):
Any/all prior liens are NOT eliminated @ the foreclosure sale, and still are attached (like barnacles) to the RE...but any/all subsequent liens (hosp, body shop, etc.) ARE eliminated.
Interesting that you're running into those Sheriffs' sales where the 2d is forecloser, and it just sounds to me like their lawyers are just cautiously covering themselves by warning the buyers that the prior liens must still be reckoned with.
Hi John,
"Any/all prior liens are NOT eliminated @ the foreclosure sale, and still are attached (like barnacles) to the RE..."
If the first is foreclosing, and the 2nd doesnt show up to bid, wouldnt the 2nd be eliminated?
BAMZ
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I think BAMZ is correct.
If First is foreclosing then any other leans (except the Government) will be eliminated unless they are properly notified in foreclosure servings before the sale and show up at the action to bid and protect their interest.
Any other opinions?
PerlUser.
Any/all prior liens are NOT eliminated @ the foreclosure sale, and still are attached (like barnacles) to the RE...but any/all subsequent liens (hosp, body shop, etc.) ARE eliminated.
This is the same thing I had a title guy tell me.
So if the first is foreclosure the 2nd is wiped out because it happened after first was recorded not prior to.
Thanks for some clarity. Once I read these Posts, I realized that I already knew that. Sometimes I get lazy. Even experienced buyers sometimes forget to see for the forest, due to the trees in the way.
I have misconstrued the order of things. Prior Liens to the First are rare due to the fact the lenders Title Search and Title Insure that transaction with the buyer.
Seldom do I see the 2nd doing the foreclosing. So, I will be more wary from now on when they do.
That being said, what good does a Second foreclosing do? The First still is in force, the
Deed would remain safely in their name. Besides the Attorney bill for the expense of Foreclosure, what did the Second get for the effort?
MVincent:
In Indiana, unless the 2nd stipulates that the sale is subject to all liens Sr. to them, none of these liens would survive the sale.
Now why would the 2nd foreclose with stiplulations such as subject to all liens Sr to the Plaintiff....?
Answer: This allows them to protect their position, by attracting bidders like yourself, without attracting the 1st or Sr liens. If they attrct Sr. liens and no one else bids then the 2nd mtg in question will need to "bid in", up to the amount of indebtedness to cover any taxes due, the amount of the 1st mtg, plus fees and back payments, etc. All this risk is eliminated by offering their position subject to the 1st and all Sr. liens...
Can be pretty tricky, and once in a while they actually attract a potenitial investor/bidder who doesn't understand this, and gets burned... sound familiar...?
Most Jr lienholders will foreclose w/o stipulations and the foreclosure will clear the title. This may be a changing phenomenon in your area... Many DOT states have operated this way forever, but most judicial states foreclose to ge ttitle to the property, which names all liens, and then they must defend (bid) their lien.
Just the way that I view things...
JT-IN
Hi MVincent,
A second will foreclose if the BPO shows a strong value on the property. If they know that they can get theri full investment back with a little effort, they may do that.
The 2nd of course still has to pay off the 1st, (or buy the property at the sale), and then they can resell it to get their ivestment back.
Best of Success!
BAMZ
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All discussion here is greatly appreciated.
BAMZ & JT-IN ... You seem to have good points. Seems to me the 2nd is still only going to get attorney fees for their trouble, as no property is going to change hands.
The point that would seem to be the one most ominous and disconcerting to me is the:
JT-IN: “they actually attract a potenitial investor/bidder who doesn't understand this, and gets burned... sound familiar...?”
Searching my memory of the many Sheriff Auction experiences I have had, this is probably the one I had best keep the closest eye on. As my original Post eluded to, I have sensed a new trend. Attorney’s making bids with extra verbiage attached.
With the growing number of Lienholders left holding the bag, they just might be finding ways to sucker someone.
This topic is hard to get good feedback on in my area, even with Attorneys.
Discussion on the Topic allows my head to clear a bit. Much appreciated.
MV:
The Plaintiff has the right to set the terms of the auction, so to speak... What you have most likely seen are 1st mtg holders foreclosing, in which case the terms are that all liens and encumbrances are removed, taxes paid and deed transferred to the highest bidder. This way all parties notifed that have an interest in the property, including all Jr. liens, then either bid or are foreclosed... thereby losing their security interest in the real property.
In the recent case you refer to, the Plaintiff must beleive there to be some equity bolstering their secured position, therefore they begin foreclosure proceedings. Lets say the property is worth 100K, and the taxes are current and the 1st mtg is owed appx 60K. The 2nd is owed 25K... Surely the 2nd would open it's bid at 60K, and you would bid 61K, right...? Then they go 65K and I go 66K, and they go 70K and you go 71K, and they go 75K, and I go 76K and you go 77K... then quiet... (How about that for an auction... LOL).
Now lets sort out what happened... The 1st mtg is still in place, and taxes are current and all other liens are cleared from the property... assuming the 2nd was truly in 2nd position... All Jr liens to them are released... and the 2nd will harvet 27K from the sale, less any of their fees... (If we had not bid then at least the 2nd would have removed any of the Jr liens agaisnt the property and had title subject to the 1st mtg, themselves...)
Now you can either pay off the 1st, pay up the first and have title to the property subject to the 1st mtg...
See how that works...?
JT-IN
Woops, mis-stated something here...
I had forgotten how much I aid the 2nd mtg was... In the example that I used it was for 25K, and that is all they would have received, plus any fees... so they may have gotten the whole 27K from sale proceeds, but only if expense of back interest or Atty fees totaled 2K, which would be likely. Otherwise, the Plaintiff is entitled only to an amount up to their indebtedness, plus fees and costs.
If there is surplus bid beyond that amount, then the additional proceeds would go to the next lien holder... up until there are no more lien holders, then the surplus proceeds go to the homeowner...
JT-IN
Quote:
On 2003-11-03 13:23, JT-IN wrote:
In the recent case you refer to, the Plaintiff must beleive there to be some equity bolstering their secured position, therefore they begin foreclosure proceedings. Lets say the property is worth 100K, and the taxes are current and the 1st mtg is owed appx 60K. The 2nd is owed 25K... Surely the 2nd would open it's bid at 60K, and you would bid 61K, right...? Then they go 65K and I go 66K, and they go 70K and you go 71K, and they go 75K, and I go 76K and you go 77K... then quiet... (How about that for an auction... LOL).
Now lets sort out what happened... The 1st mtg is still in place, and taxes are current and all other liens are cleared from the property... assuming the 2nd was truly in 2nd position... All Jr liens to them are released... and the 2nd will harvet 27K from the sale, less any of their fees... (If we had not bid then at least the 2nd would have removed any of the Jr liens agaisnt the property and had title subject to the 1st mtg, themselves...)
Now you can either pay off the 1st, pay up the first and have title to the property subject to the 1st mtg...
See how that works...?
JT-IN
Haven't you just paid the sheriff or trustee $77K for the 2nd and still have the 1st to deal with? In effect paid $137K for this property?
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yes assuming someone bid 77k for the second you'd still have to contend in paying off the 1st mortgage lien of 60k for a total purchase price of 137k...assuming there were no other lienholders after the second mortgage the homeowner would havea surplus of 77k-25k= 52k... thats how some newbies get caught.....they bid not knowing it is a 2nd mortgage foreclosing or simply think that any surplus will automatically go to the first mortgage...
Thanks LP,
I was certainly hoping that was not another area I was still confused on.
I am confused about the terminology referring to the 'sheriff's sale'. In this state (Washington), a sheriff's sale is held to satisfy a court judgement, not foreclose a lien. The buyer at the sheriff's sale is buying the deed and I am not sure what the status of the liens are. Maybe someone on the BB knows??
If a lender is foreclosing a lien, it is normally done through a 'trustee' at a 'trustee's sale'. This is where the question of jr. and sr. liens come in. One my first purchases was an IRS auction and that was sub-2 a first, I suspect the sheriff's sale for judgements are probably the same.
Anyone have any experience with sales to satisfy court judgements??
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