Sheriff's Sale auction and Short Sale under Contract & Financing

[Steve K.]

I'm interested in a property that is up for Sheriff's auction in couple of months. The property is in PA near and not in Philadelphia. I have also seen the property from inside because I got hold of the current owner, last year. They owe about the same money what the house is worth, I can't buy from them to make it worthwhile. Recently, it was listed on the MLS as short sale and I reached out to the listing agent and put an open offer, where they said the buyers need to willing to wait till end of 2021 for the short-sale process to complete. There are no guarantees. I put up a back up offer. Now, I'm thinking to buy it at Sheriff's auction to get it faster.

I've done preliminary Title search, Prothonotary searches. It looks like First Mortgage is foreclosing (How can I make sure that they are?). I will also have a reputed Title company run searches for me to back my findings. (I know one doesn't need a degree for searches but I want to be sure.)

I have been reading about Sheriff's sale for last few years. I have been to a few as well but never bid. Thanks to @Steve Babiak and @David Krulac and many others for great information in this forum.

Since this is first time that I actually plan to bid at Sheriff's Sales, I don't want to gamble that much money and I need your advise/confirmation. 

More about this property from my search: Here Senior Mortgage lender is foreclosing on the property. There could also be second mortgage with the same senior lender. I found no other recorded liens or juniors or involuntary liens on the property. The property has about $225,000 ARV, need $30,000 in repairs, debt owed is over $200,000. In 2017, an assignment of mortgage was recorded between Nominee "Assignor" M.E.R.T.S to "Assignee" First Mortgage lender for mortgage recorded in 2007 for $208,000.

From what I read and understand from the BP forums and elsewhere:-

1. Senior Loans (First Mortgages) will get wiped out if the property is sold. Correct? Beside any superior liens i.e. Water or Tax bills, any other liens could become my headache? (There are no mechanics liens, etc.)

2. If both Senior and Junior mortgage are with the same bank, can the bank decide to bring foreclose on the junior lien first? If yes, in that case the winning bidder will be stuck with Senior loan? Is that even allowed?

3. What happens to open ended AOS that I signed with the bank for the Short Sale? I assume it will void after the Sheriff's auction end, correct? Do you see possibility of another postponement since it's has been postponed several times? 

4. Besides local prothonotary search, where can I find IRS Federal and State Tax liens that are not yet recorded at the prothonotary?

5. In prior recorded sales, I also saw a Consideration amount/secure amount and taxable amount (which is understandable because property sold for lower price than what it's worth). How do they the come up with that Taxable amount? (It don't seem to be county's property assessed value) 

6. After my communication with the title company, they said they will not guarantee insurability of the title. They said typically that's not an issue. If I win the auction, I plan to go to a bank and apply for a mortgage to recoup/cash out funds as soon as the deeds is recorded, do you see any issues coming up because of Sheriff's deed and title not being temporarily insured? Do you know, anyone that can help and also provide a rehab loan?

 If we must talk offline please pm your contact info and I can give you a call. I truly appreciate your expert inputs.

[Greg Wilkins]

Steve:

I will attempt to answer your questions as you asked them:

1. Yes, the foreclosing mortgage will be divested (wiped out) by the sheriff’s sale. All other junior liens will also be divested provided that the foreclosing attorney provided those lien holders with proper notice.

2. A junior mortgagee can decide to foreclose, but the foreclosure is subject to the senior, so, yes, the purchaser would be responsible for paying the senior.  This is allowed.  The fact that the junior and senior are held by the same lender doesn’t really matter.  

3.  Correct, the AOS will become void once the property is sold at sheriff’s sale.  There is always a chance of further postponement. Right now many sales are being postponed because the lender does not want to proceed given the covid-19 situation. Call the foreclosing attorney, they may be able to tell you if they plan on taking the property to sale.  

4.  IRS liens and State liens must be filed with the prothy in order to be liens on the property.  Although there are some exceptions. PA inheritance tax comes to mind. 

5.  That amount is the county assessed value multiplied by the county’s common level ratio.  

6. People do this all the time. However, I would talk to lenders now to make sure they are familiar with what you want to do.  Once the deed is recorded you should have insurable title. I do not know any lenders.  

I hope this helps.  Good luck.