We happen to come across someone we knew that was having their home foreclosed and the house was scheduled for Sheriff Sale. The house had all the “necessities” we wanted a new home to contain (i.e. newer home, a fireplace, swimming pool, 4 bedrooms, finished basement, etc.). Plus we knew the house was well taken care of and would not be vandalized prior to the current owner leaving.
In the County where the home resided, the home was appraised by a drive-by appraisal for $165,000, and the rule is the opening bid was 2/3 of the appraisal, or $110,000. Considering the home was in an area where homes sold for $200,000+, and that we knew the person and the condition of the home, there was potential to build some decent equity in the home if we were to buy it at discount. However, we were not educated in buying a house through a Sheriff Sale, so we began to do our research.
We started by going online to the Recorder’s Office and pulling up all the public information on the property including the address, square footage, purchase/transfer history, tax payments, etc. Once we were familiar with the property, we started searching for comparables in the area through sites like Zillow.com. After review of all the information, we made a determination that it was something we were interested in, so we proceeded to the next step.
We scheduled a home visit with the property owner (we had an advantage of knowing them) to get familiar with the house and perform a self inspection of the property. We went through each room inspecting the floors, doors, windows, walls, electronics, plumbing, heating and air conditioning, etc. to determine their condition and what respective improvements would need to be performed. In most cases, an inspection of the home prior to the Sheriff sale is not an option because the bank doesn’t own the home and you are purchasing the home as-is.
After inspecting the house, we were determined to win the house at the Sheriff sale and continued to conduct research on the process. We called our insurance agent to determine what the new premium would be on the house. Since we own an existing home and wanted to consider renting it out if we purchased the new home, we also discussed this with the insurance agent since our premium would be adjusted as a landlord. We also listed our home for rent on Craigslist.org.
The next step was to meet with our bank to line up financing. In the County we were looking to purchase, the buyer is responsible for a 10% down payment upon winning the bid. The buyer is then responsible for the remaining balance within 30 days of confirmation of the sale. In addition, the buyer is responsible for 10% interest on the full bid amount if the remaining balance isn’t paid within 8 days of confirmation of the bid. If the remaining balance isn’t paid within 30 days, you forfeit your 10% deposit and could be found in contempt of court. At this point, many flags were going up and we determined this may not be such a great deal afterwards.
So we met with our banker and he pointed out the following items we needed to be aware of from his experience. If we are to win the bid at the Sheriff sale, we would be responsible for any back taxes that have not been paid on the property. In this particular case, the owner had not paid one installment of the taxes; therefore, we would need to come up with roughly $2300 additional dollars at purchase.
Since water and sewer service in our area is normally billed over a three month period, we would be responsible for any unpaid balances on both the water and sewer. Luckily, this would not be more than a couple $100. All other utility services are in the owner’s name, and we would not be responsible for them.
Going back to our existing home that we were looking to rent, our bank informed us that in order to write a new loan on the new home, they would need to see both a lease and deposit on the new home. This could easily be fabricated to satisfy the conditions of the loan.
Before a bank will underwrite a loan on the house, they will require an appraisal of the inside of the house with all the utilities services on. Therefore, if the house was vacant and we were to win the bid, we would need to have all service connections up and running within 2-3 days of the sale. Herein is a big problem because after the Sheriff sale, we still would not own the property until all of the funding went through and it was approved by the Judge. In our case, if the current owner was still in the house, which they likely would be post sale, we could perform the inspection with the utilities in their name.
The new home loan would require an inspection of the home. In most cases, the County will not allow you to make any improvements on the house while the Sheriff sale is being finalized. Therefore, if the furnace is bad, there is black mold in the house, etc., and the bank will not give you a loan with the deficiencies and the County will not allow you to make the improvements because you do not own the home, you are out of luck on securing a loan.
Lastly, going back to the appraisal, the County where we were looking to purchase will not allow a full appraisal of the property; the appraisal must be done from the outside because again we would not own the home until after the funding has been provided. Therein lays the biggest issue. A bank will not provide a loan on an outside appraisal.
Therefore, after all of the above issues, we determined that a Sheriff sale was not the best option for us. In actuality, the County makes it next to impossible for anyone to buy the home except the bank or those with cash to buy the property.