Sheriff Sales

[Adriana L.]

Hi everyone,

I plan to attend a sheriff sale, in the coming weeks in some of the NJ counties. I have heard many stories such it rigged, or it's high risk if you have not done proper research before hand. 

I want to see if some of you have tried this strategy and what advice would you have for me to best prepare for it and avoid screwing up! 

Thank you in advance

[John Baptist]

So this is to clear up a few things on Sheriff Sales.

The most important thing to remember, especially when researching strategies on websites like this is every state is different.  I go to both NJ and DE and although they throw around the same terms, the laws and rules are very different.  I would not rely on someone's statements who operate in a different state than you.

In NJ I strongly suggest reading all 21 county's Sheriff Sale websites.  They provide some of the same information, but some provide different pieces to the puzzle that you may not see in the county you want to go to.  You will gain a good understanding of some of the processes involved.  

EACH COUNTY IS DIFFERENT!!!  Some will allow you to pay your 20% in cash, some want bank checks if the 20% is over $500.  Some the minimum bid is $100, some is $1000.  The state statutes are all the same, but each county has a lot of latitude in how its process runs.

Then there is the judgment amounts.  That is not what is owed in total, that is not what the bank will accept.  It is what the judge has set to satisfy the lien.  The lender may take 86% less than that amount (real example) or may bid you up 120%+ percent depending on the lender's appraisal of the subject property.  In reality all of the numbers thrown out are virtually meaningless (except your bid!!).  You have to appraise the property and determine what it's value is to you.  There in lies the risk.  You can't enter the subject property (including the land), so you go with what information you can obtain from other means and possibly drive-bys.

Some counties still allow an "upset" price to be announced/listed.  An upset price is supposed to indicate the maximum amount the lender is going to bid on the property.  After that, "technically" they will stop bidding.  It is important to note there is no law that holds the lender to that amount.  In reality it is a number used by the lender to either entice bidding to see what the lender can get or to shut down any bids (the sheriff takes his/her fee based on a percentage of the final bid amount--many times lenders want to discourage any bidding so the 6%/4% fee is off $100 or $1000, not 500k).  In NJ the upset price should be a meaningless number for the investor!!  Even if they list an upset of $400,000 my opening bid on the subject would still be the minimum amount (usually $200, $1100, or $2000 depending on county rules).  It drives them nuts, but I don't care.  The bids don't cost me anything but time.  They will also stop bidding when told to do so by the lender.  That may or may not be at or over the upset price.

They collect the 20% right then and there, with the rest due 30 days after--no exceptions.  If you don't pay, they keep the 20% and won't let you back in to any other sales (so I've heard).  Cash/certified funds only.

I've only bought via cash, but I don't see how a mortgage would ever get approved.  The lender won't be able to send in their appraiser and there won't be interior current pictures to even get an idea of the value.  You don't get possession until the Sheriff's Deed is issued, and that only comes when full payment is made.  I guess with enough down and a large interest rate someone may underwrite a mortgage, but if you're thinking owner/occupier, you'd get a better, more secure deal via purchasing a foreclosure.

Most people don't understand how a mortgage works.  You as the mortgagor are giving the mortgage to the lender, not the other way around.  You pledge the property for the loan.  You don't have any control over the property at a Sheriff's Sale until you fully pay for it.  Technically when you do a "normal" RE sale, you get the property free and clear for an instant before the mortgage kicks in (and there are clauses written into the contract that you have to abide by--its not like you can walk away free with the property).  It is completely different in a Sheriff's Sale.  There is no contract, etc., just a transfer of the deed to the purchaser upon full payment.

In NJ, the law requires disclosure of all attached liens prior to the sale.  The RTF-8 is the form the Sheriff uses for disclosures.  You NEED to know what is on that form.  They read it at the sale and you can get it from the Sheriff beforehand.  The way the liens work is prior to the sale happening is that all lien holders are notified.  Say there is a first mortgage, second mortgage, and a municipal tax lien.  The first mortgage is foreclosed on and a final judgment is issued for $100k (say same as what is owed on that mortgage).  The second mortgage is for 50k and the tax lien is for 10k.  It goes to Sheriff Sale and the final bid is $110k.  The Sheriff is first paid his/her percentage ($4500), then the first mortgage judgment is paid ($100k).  Whatever is left goes to the second mortgage holder ($5500).  If there is nothing left, they get nothing.  They however can bid and/or foreclose to secure some interest in the property.  All other liens (construction, UCC, etc) are wiped out and you get the property free and (possibly) clear.

One pitfall of this system is that pesky tax lien in my example. Municipal tax liens, IRS liens, and some HOA liens survive the Sheriff Sale process and attach to the property that you just bought (that 10k just got moved to your books)--you are required to pay them or they can foreclose on you. The Sheriff will disclose those liens prior to the sale, but you need to be aware when setting your max bid.

You may see a property listed at one of the sales, do all this research, get you max bid and bring the 20% to the sale.  You check the Sheriff's listings to see if the property will still be sold, and yes it is still on for sale today.  You sit down and get ready for bidding war with lender.  Your property is supposed to come up and what???  They just skip over it saying extension or "pending bankruptcy."  Just because a final judgment is listed doesn't mean the one you want will get sold.  The plaintiff can postpone any number of times and defendant can do it twice.  They can also file bankruptcy which stays the sale.  This is another problem with financing, unless you have a line of credit, because there is no guarantee the property will sell, ever.

There is also right of redemption and there can, rarely, be a stay of the execution of the sale, post-sale, but usually once a sale occurs they can't get the money together in time to pay it off.  You will get your money back with interest if this occurs.

Eviction occurs the same as if they were renters.  You need the possession order from the Sheriff.

You are not entitled to any personal property left at the property and you must store it, notify the former owner where the stuff is, and how to get it.  Once it becomes legally abandoned property (no one claims it) you can do what you want with it.

Sheriff Sales and Tax Sales are fun to go to, but if you're going to bid on either, you'd better know what your bidding on.  There is plenty of information about these properties out there, you will never have enough info to be sure.  It is very risky, but you can mitigate those risks if you learn the system and do your research.

Good luck!!