Morris County Sheriff Sale / Auctions

[Curtis Eckhardt]

So I'm planning on attending tomorrow's Morris county auction in Morristown. I'm going for more of a learning experience to see how they proceed. Anyone familiar with auctions? Any tips or things I should be paying attention to? The basics are covered on the state website: 

https://sheriff.morriscountynj.gov/civil/about_sal...

What I'm more interested in are the unwritten rules or the how's and why's people are bidding. Are there usually representatives from the bank bidding up the price to get something better than what the reserve is set at? What information is important to be armed with before entering the room?

[Ryan H.]

I have attended the sheriff sale in Bergen County several times.  I have bid on a couple of properties, but have not won any properties yet (other people in the room seem to be willing to pay A LOT more than I am).  A couple of things I have learned:

1.  The list of properties to be auctioned changes until the last moment.  No new properties are added to the list for a particular auction date, but many properties are removed from the list.  This could be for any number of reasons: the homeowner and the bank may be trying to work out a deal, the homeowner may declare bankruptcy, the bank may decide to reschedule it, etc., etc., etc.  This can make it difficult and time consuming to do your due diligence for a particular sale.  For example, a week prior to the sale date there may be 60-100 properties on the list.  I would typically narrow that down to maybe ten that met my investment criteria.  From there, I would drive by the properties, do my due diligence online, go to local town halls and building departments and pull any relevant records.  The trouble is, by the time you actually get to the date of the sale maybe only one or two of the initial ten remain on the schedule -- and everyone else is bidding on them too.  It ends up being a lot of leg work to bid on one or two properties. 

2.  There are typically just one or two attorneys there representing all of the banks/plaintiffs.  They have a special 'pooling' arrangement with the banks so that each bank does not need to spend the money to send their own attorney to cover the auction.

3.  The attorney representing the bank will announce the maximum amount the bank is willing to bid for the property.  This essentially sets the bidding minimum.  It would be fruitless to bid an amount less than the bank's maximum, because the bank will just bid against you.  All the auction regulars seem to know and understand this.  If no one is willing to bid more than the bank's maximum, then the property is sold back to the bank for a nominal fee of $100.  (Note: The bank is not actually 'paying' additional funds to 'bid' on the property.  Instead, the bank is permitted to 'credit bid' up to the maximum amount of the foreclosure judgment.  So... you may ask, 'why does the bank not just bid the maximum amount of the foreclosure judgment on each property?'  Good question.  Remember that the bank does not want to own a whole bunch of residential properties.  The bank does it's own internal analysis and essentially determines at what price it would let the property go.  Less than that amount, the bank should just 'buy' it back.  More than that amount, the bank is content to let someone take it off their hands.)

4.  There are different meanings for the term "upset."  The sheriff's officer will generally use the term "upset" to refer to the total amount of the foreclosure judgment plus allowed fees and costs -- i.e., the total amount owed to the bank.  The attorney for the bank may use the term "upset" to mean the maximum amount the bank is willing to bid.  In Bergen County, at least, the bank's attorney generally avoids using the term "upset" and just says "the bank will bid up to a maximum of $xxx,xxx" in order to avoid confusion.  If the bidding starts and someone calls out "upset!" or "minimum bid" it means they are bidding the maximum amount the bank is willing to bid.

5.  You have to put down a 20% deposit RIGHT THEN.  The sheriff's officer conducting the auction will typically ask the winning bidder if he/she intends to bid on the next property in which case the sheriff's officer will take a short pause until the bidder is finished putting down their deposit so they can participate in the bidding on the next property.  Because a bidder does not know in advance the amount of their winning bid, many bidders seem to bring a stack of cashier's checks in varying denominations so they can hand over their 20% bid (e.g., if a bidder wins a property with a bid of $300,000, then a deposit of $60,000 would be due immediately, and the bidder may have cashiers checks in the amount of $20,000 + $20,000 + $10,000 + $5,000 + $2,500 + $2,500).

6.  You are required to pay the remaining 80% within 30 days.  This would seem to make it nearly impossible for someone to use traditional bank financing to purchase a property at a sheriff sale.  You would probably need either have cash or access to hard money to complete the purchase within 30 days and then refinance thereafter.