Every county in Pennsylvania conducts periodic sheriff’s sales of real estate. Real estate is sold to satisfy tax liens, judgments, defaulted mortgages and other liens. The sales are conducted in an auction format with open bidding. Real estate investors are tempted by the prospect of acquiring a property at below-market prices that can be later flipped for a big profit. While there are many opportunities, there are also big risks. We recently talked with a client who experienced the risks of bidding on properties at sheriff’s sales and lost big.
Our client purchased a property at an upset tax sale. She conducted what she referred to as a “quick title search” prior to the sale and found no liens. She paid over $20,000 to satisfy the delinquent taxes. Shortly after the upset sale, a lender filed a mortgage foreclosure action involving the property. Judgment was entered on the foreclosure action and the lender bought the property at the subsequent foreclosure sale and received a deed to the property. After the foreclosure sale, that lender again sold the property. How could this happen? What are her rights to the property? Can she get the $20,000 that she paid back?
This client has the nightmare scenario after buying property at a sheriff’s sale. To minimize the risks, we have a few helpful tips.
Know What Kind of Sale Is Taking Place
There are many different types of Sheriff Sales and each of them have rules and rights that have an impact on the value of the property. There are mortgage foreclosure and judgment sales. There are no less than four different kinds of tax sales: upset sales, judicial sales, sales arising from writs of Scire Facias, treasurers’ sales in Philadelphia and Allegheny counties. There are even IRS lien sales. Each of these sales has its own set of procedural rules. Some of them, such as an upset sale, result in title to the winning bidder that is subject to all other liens of record. That’s what happened to our client in the above situation. Others have a right of redemption – meaning that the taxpayer has the right to match the amount paid by the winning bidder and get the property back. The right of redemption, in some cases, can last for nine months after the sale. To know what you’re buying; you must know the type of sale that’s taking place.
Order a Title Search and Examination
Before the sale takes place, have the public records are searched and examined to determine ownership, limitations to that ownership, encumbrances, and any adverse matters affecting title to the property. These records are searched by examining the official courthouse records, where all recorded documents, judgments, liens, tax assessments (such as street or sewer), special taxes, and other matters, such as divorce and bankruptcy, are filed. A title examination can identify problems with the title that could impact your ability to resell the property or use it as collateral for a loan. These problems could include: someone else owns an interest in the title; a document is not properly signed, sealed, acknowledged, or delivered; defective recording of any document; lack of legal right of access to and from the land; there are restrictive covenants limiting the use of the land; there is a lien on the title because of a mortgage, deed of trust, judgment, tax or special assessment; others have rights arising out of leases, contracts, or options; someone else has an easement on the land.
Inspect the Property
The successful bidder buys the property “as is”, no disclosures about problems with the property, no advance inspections and no contingencies. You can drive by and at least look at the property to assess whether it’s going to need costly renovations. A visual inspection may also allow you to determine if someone is residing in the property. Prior owners or tenants may not leave voluntarily, necessitating a costly and possibly protracted eviction proceeding.
Contact the Foreclosing Creditor
Contact the attorney for the foreclosing creditor or owner of the property regarding the creditor’s minimum bid since the creditor can credit bid its judgment. The creditor doesn’t really want the property because they must sell it to get paid the money they are owed. They’ll have to pay the carrying costs of the property, including taxes, maintenance, insurance, etc. until its sold. There’s no guarantee that they’ll be able to sell the property for enough to satisfy the underlying security interest plus all those additional costs. The creditor may be willing to sell it to you for less than you could get the property at the sale or you can work out a deal in advance and allow the property to go through the sale process to clear it of unwanted liens. Talking to the foreclosing creditor may also give you a better idea of whether the sale will take place.
Get Your Money Together
You must have ten percent (10%) of your bid in cash or certified check at the time of the sale. If you’re the successful bidder, you’ll have to pay the balance of the bid price within a short period of time (in Allegheny County, its within the same week). There are no mortgage or financing contingencies allowed. You must have your cash together and available.
Following these basic steps will help you avoid disaster situations like that of our client. Her pre-sale homework was not thorough, or she was not savvy enough to know the implications of an upset sale. She’s left with a handful of bad options. She can negotiate with the current owner to purchase the property and get credit for the taxes that she paid and that the current owner would have had to pay but for her mistake. Maybe there was a defect in the original upset sale and she could work with the original owner to challenge the sale and have it set aside, possibly resulting in a refund of the tax money that she paid. None of these are great options. All of them involve additional expense in legal fees and costs without any guarantee of a positive outcome.
Please keep in mind that this list does not identify all potential risks. The first and best tip is that you should contact a Fiffik Law Group real estate attorney. They’ll discuss the particular property you’re interested in and can give you specific advice relating to that property.
Want a consult on a real estate matter? Contact a member of our real estate team today.