Q. How is a Sheriff’s sale different from a foreclosure?
Richard Klass: A foreclosure action is brought by a party who has a lien on real property (typically, a mortgage lender or mechanic’s lienor), where that party is seeking to “foreclose” on its lien through the sale of the real property at a judicial auction sale. A Sheriff’s sale is conducted when a party who has a judgment lien against the real property issues an Execution to the Sheriff to sell the property.
Q. Does this involve only residential properties?
Klass: The Sheriff can auction off the judgment debtor’s interest in real property, whether in whole or in part. This may include both residential and commercial properties.
Q. How do people hear about Sheriff’s sales?
Klass: Sheriff’s auction sales are typically conducted through an auctioneer at the Sheriff’s Office (with locations in each of the City’s boroughs). Advertisements of auctions are published in newspapers of general circulation or through contacting the Sheriff’s Office for the next sale date (they typically bunch a few properties together for auction sale).
Q. If you win an auction, how do you pay? By check? Do you need to pay the entire amount at the auction?
Klass: It is generally required that a bidder present a bank check for 10% of the bid amount as a deposit in order to bid on a property.
Q. How quickly do you have to pay? Is it possible to take out a mortgage on the property?
Klass: The successful bidder will get 30 days within which time to close. It might not be enough time to apply for a mortgage loan, however.
Q. What’s the closing process?
Klass: Once the bidder wins the bid and makes the 10% bid deposit, the bidder may order a title search from a title company in order to insure title upon closing. The title company can provide an estimate of title charges and, if the bidder is borrowing a portion of the purchase price from a mortgage lender, the lender will provide an estimate of charges.
Q. Are Sheriff’s sales perhaps too risky for a first-time home buyer?
Klass: It can be risky to purchase properties through this method. The Sheriff is only selling the judgment debtor’s interest in the property and, therefore, it is subject to existing mortgages and liens. Also, the buyer is not able to enter into the property to inspect the interior (drive-by exterior viewing only). Also, if the successful bidder can’t raise the rest of the purchase price by the closing date, then the 10% bid deposit will be forfeited.
Q. Speaking generally, what sort of buyers might prefer to avoid Sheriff’s sales?
Klass: Those that don’t have the remainder of the purchase price in cash. Those that don’t want to buy a house sight-unseen. Those unwilling to deal with evicting occupants of the house.
Q. To put it in a nutshell, what might be one or two primary pros or cons to buying real property at a Sheriff’s auction?
Klass: One pro is that the purchase price may be lower than the fair market value of the house. Cons are that buying a house in this way is like the old expression of buying a “pig in a poke,” where it is unknown what the buyer is actually getting.
by Richard A. Klass, Esq.
Law Office of Richard A. Klass
Copyright 2019 Richard A. Klass, Esq.