Buying Distressed Real Estate: The Sheriff’s Auction

There are many different forms of distressed real estate available to real estate investors today.  This article will focus on one of those forms, the Sheriff’s Auction, and will include the good and bad news about buying property.  With the economy slowly returning from the financial woes of the last 5 years, and foreclosures at an all time high, opportunities have shown up for individual real estate investors and people looking to get into real estate ownership.  Specifically, people are buying homes from banks and at Sheriff’s auctions all over the country, getting deals that would have been impossible two years ago.  It takes some skill, a willingness to do some research, some money (but not a lot) and you too can start buying property from the courthouse at a Sheriff’s auction.  There is good and bad to every investment in real estate, and here is what you need to know.

The Good News

The first piece of good news is that when buying a house at a courthouse auction, the price is right.  Homes up for sale at an auction will produce a winning bid that is far less than the current market value of the home.  So, regardless of whether you will live in the house or rent it out and sell it later, you save money.  Secondly, at a Sheriff’s sale, the property is often advertised well in advance.  You will have plenty of time to look at the property, evaluate the construction and the neighborhood and determine if you will bid.  You may know of a home going to auction six months or more from the date it is announced, so you have a lot of time to do your homework.  Finally, there are not many people bidding on homes at a Sheriff’s sale so you stand a better chance of getting the house.  Since there are so many Sheriff’s sales being held in a given area, one can rest assured that not too many people will show up to bid at these types of sales and their competition may be quite slim at times.  Key Tip:  Start investigating properties months in advance of the auction if possible.  See if the property is occupied, or if not, whether the owner or bank winterizes the place to avoid further damage.  If you can tour the home, start estimating the cost of any repairs needed to make the home habitable for either yourself, your tenants or a resale.


The Not So Good News

Of course, with good news, there is also some not so good news, or issues to consider when participating in a Sheriff’s auction.  First, you need to have cash or a cashier’s check to use as a down payment.  The down payment could be as little as $500 to $1000 up to 10% of the bid or more.  Secondly, you have to buy through the auction process.  There is no written offer and counter offer or acceptance like with a normal property purchase.  You will be bidding with other bidders on properties at the County Courthouse.  You need to know how the properties are referred to in the auction, either by common street address, or a simplified legal description, or by a number system.  You need to research the process.  Key Tip:  Attend a couple of auctions as an observer to see how it works, the time it takes to bid, the bid process, the rules for down payments, the location of the auction, etc.  You do not want to make your first auction your first auction.  You could end up not getting the property you wanted, or worse, getting a property you did not want.

Another big area of concern is how to deal with problems where there are tenants living in the home you just purchased, or land issues like zoning problems or environmental contamination.   Landlord Tenant Law is much more complicated than it used to be, so be sure to review any laws if you must take action to remove unauthorized tenants.  Also, when buying a house via a Sheriff’s auction, you will need to pay the balance of the purchase price for the home within a certain period of time, like 30-90 days from the auction.  These time frames are strictly enforced and if you don’t pay on time, you will probably lose the deal and your down payment.   Key Tip:  Make sure you have your financing secured before you bid on any property.  If you are paying cash from your own savings or taking money from other accounts you control, or borrowing from a bank, make sure you know what the cost of the money will be and how long it might take to access it.


Finally, and probably the biggest piece of not so good news is that properties sold through a Sheriff’s auction might not be easily accessed or inspected as they could be boarded up, closed up, or occupied by people who don’t want to lose their home.  You need to know if the home has a working furnace, plumbing and electrical wiring and appliances, (or if these are even still in the house!), or you may end up paying too much money for a house that is not worth it.  Key Tip:  If the house is occupied, talk to the tenants, who might also be the owners.  Either way, you will learn more about the condition of the house, the need for repairs, the challenges of taking possession and a true value for what it is worth.


The Sheriff’s Auction  

As I mentioned earlier, you will need to do some research before jumping into the Sheriff’s Auction sale.  First, you must research the Sheriff’s Auction process for the county where the home lies.  If you are looking at homes in two different counties, you need to know that the rules can be very different from one county to the next.  Attending one or two of these auctions before the specific one in which you will be bidding will take away the uncertainty.  You should also consider having a title search done on any home before bidding to see if you can get good title to the home.  A title search is not expensive and could save you all your money if the home has title problems you cannot easily fix. At the same time, I suggest you put together a checklist for due diligence concerning the homes you are interested in bidding on.  The checklist will include a review of the location, the condition of the home, the state of any zoning, the possibility of environmental issues (usually for commercial properties), the status of any other Sheriff’s Auctions in the area and the going rate for homes sold by auction near the home you want to buy.  These transactions are sometimes complicated and can require more expertise to ensure that everything goes smoothly.   Key Tip:  Consult with an attorney regarding the transaction, the title insurance, the status of any tenants, or any other question you might have about becoming a distressed real estate asset buyer.


If you have any questions about this article, or would like to talk about a real estate or distressed asset deal you are looking into, or have already purchased a Sheriff’s Auction sale home, call the Northwest Indiana Real Estate Attorneys at SFT Lawyers ( (219) 841-5683 and an Indiana attorney will be happy to discuss the situation with you.