Sheriff sales

[Mark Davis]

How exactly does a Sheriff sale work? Are they selling seized property from raids or something?

[Jim K.]

@Mark Davis

If you don't pay your mortgage on your home, officers of the bank accompanied by brawny bank thugs can't come and take your home away from you, as many believe.

If you don't pay taxes on your home, the city doesn't send specially designated tax police out to your house  to throw you out and put a lock on the door.

What happens instead, in most places is that you go through a legal process called a "foreclosure."

In the case of a mortgage, the bank forecloses on the house that guaranteed the mortgage. In most places, or at least traditionally, they go to the county court system and they present evidence that the mortgage has not been paid. With enough time and no action take on the property, a judge rules that the property can be sold at a foreclosure auction to pay off the mortgage plus cost and taxes, with the remainder being given to the former owner (who, after the auction, has no house). Traditionally, these auctions are run by the county sheriff, and so they are called sheriff's sales.

Pretty much the same thing happens when you don't pay property taxes. The entity that you didn't pay the taxes to goes to the county court system, talks to the judge, and the judge makes a ruling that the property can be sold at a foreclosure auction to recoup the taxes that caused the foreclosure, with the remainder given to the former owner of the house (who now has no house, of course). It's traditionally the same sheriff and the same auctions.

So the houses being sold at sheriff sales are the ones that the owners didn't pay their mortgage on and the houses that they owners didn't pay their taxes on.

Now, this is what actually happens at a traditional sheriff's sale.

A bunch of people sit in a courtroom and a sheriff's deputy sits at a desk in front of them. There are four kinds of people in the audience. Experienced real estate investors, lawyers for the banks and the counties/municipalities/entities that didn't get paid their taxes, lookie-lookies, and quite a few owners of the properties being auctioned trying to convince the lawyers not to foreclose on their houses. 

The very ugliest part of a sheriff sale is seeing a former owner,  half-mad with the overwhelming psychological trauma of losing their home, trying to beg a bank's lawyer to just give them another chance to pay, or disrupting the proceedings to protest the house being brought to auction.

The investors hate the lookie-lookies. The lawyers hate the lookie-lookies. The former owners hate the lookie-lookies. The lookie-lookies still show up. You can spot the worst lookie-lookies because when the proceedings are disrupted for any reason, they always lean forward eagerly and try to ask around. When they see a man or woman in ragged clothing begging not to have their home sold from under them, they tend to make cheap little moral judgments and smile at each other. Sometimes, they titter at the gauche antics of the former homeowner. Sometimes, you can hear them say things aloud like, "Oh well, they should have paid on time, it is what it is!" This is when I wish the lookie-lookies dead and I am glad they search us for weapons at the courthouse entrance.

The sheriff runs the auction. Each property is introduced for sale. If it is a mortgage foreclosure property, typically the bank that brought the property to foreclosure ends up with the property. Bidding against the bank is often a poor idea.

On tax sales, things get a bit weird. Sometimes, the amount of the tax that the property owner was supposed to have paid and didn't is incredibly high because the taxes haven't been paid for years, and no one would ever want to buy the property at that price. The property is exposed for auction once, and then the lawyers who brought the property go back to the judge and insist that they'll never be able to sell it for the amount of the back taxes. The county judge makes a ruling that all taxes and costs and fees should be dismissed and the bidding should start at a very low amount, just to get the bidding going. The property is sold "free and clear" of all debts  that are secured by its value (or property liens). The title is clean.

That's where you hear about people buying expensive properties for trivial amounts like $5000, when these properties are obviously worth much more.

It's also where you hear about the not-so-lucky buyers walking into the property and finding the former owner's rat-gnawed corpse rotting on a couch in the living room.