What Is a Sheriff's Sale?

If you fall behind on your mortgage payments, your lender may eventually begin the foreclosure process to recover the unpaid debt. This legal process can ultimately lead to your home being sold at a public auction (a foreclosure sale), which is usually a sheriff's sale or trustee's sale.

Understanding how foreclosure works, what to expect during a foreclosure sale, and your rights as a homeowner can help you find a way to keep your home or minimize your financial losses while getting through a foreclosure with as little stress as possible.

Why Do Sheriff's Sales Happen?

If you default on your mortgage loan, the lending bank can go through a legal process called "foreclosure" to sell your home and repay the outstanding debt. Depending on state law and the circumstances, the bank will either:

• file a lawsuit in court to foreclose (a judicial foreclosure), or
• follow specific out-of-court procedures, which are set out in state law, to complete a nonjudicial foreclosure.

After the bank fulfills all the legal requirements for foreclosure, the home is sold to a new owner at a public sale. With judicial foreclosures, a sheriff's sale is customarily used as this last step in the foreclosure process. In a nonjudicial foreclosure, the sale is typically called a "trustee's" sale because a foreclosure trustee conducts the sale. In some states, a "special master" (a person the court appoints) conducts foreclosure sales. The successful bidder at the sale becomes the new owner of the property.

The primary purpose of a sheriff's sale is to sell a property to satisfy an outstanding debt, such as an unpaid mortgage. But a sheriff's sale could also be held to recover unpaid property taxes or other unpaid property liens. This process allows lenders, banks, and other creditors to recoup their losses after the borrower fails to meet their repayment obligations.

How Is a Sheriff's Sale Different From a Foreclosure?

A "foreclosure" is the legal process a lender uses to recover the mortgage loan balance after a borrower defaults. A sheriff's sale is the public auction that typically occurs at the end of this process to sell the foreclosed property and satisfy the outstanding debt. The foreclosure process involves legal action by the lender to obtain a court order permitting the sale of the property, whereas the sheriff's sale is where the property is auctioned to the highest bidder as a result of that court order.

In short, foreclosure is the legal process leading up to the sale, and the sheriff's sale is the final step where ownership of the property is transferred to a new party. (Again, in a nonjudicial foreclosure, the process typically ends with a trustee's sale. A trustee's sale is effectively the same as a sheriff's sale. It is the last step in a nonjudicial foreclosure.)

What Happens During the Sheriff's Sale Process?

A sheriff's sale is usually an auction that local law enforcement conducts. The sale is open to the public. The sale typically either takes place in the sheriff's office or at the county courthouse, frequently on the front steps. Some auctions are held online. Online foreclosure sales are becoming more and more common.

Once completed, a sheriff's deed is issued, giving the home's title to the high bidder, and the deed is recorded in the county records.

Who Can Buy a Property at a Sheriff's Sale?

Anyone can attend and bid at a sheriff's sale. These auctions are open to the public and designed to allow a wide range of buyers to participate. Typical participants include the foreclosing lender, individual homebuyers looking for a deal, and real estate investors seeking investment properties. Because sheriff's sales are public auctions, there are generally no restrictions on who can bid, but they must comply with the auction's requirements and procedures.

Are Sheriff's Sale Rules the Same in Every State?

The rules of the sale and requirements for payment at a sheriff's sale vary depending on the jurisdiction. Sometimes, to participate in the auction, prospective buyers usually must provide proof of funds or a deposit, and the winning bidder is often required to pay a portion of the purchase price immediately, with the balance due shortly after the sale. In other cases, a buyer might be required to pay at least the amount of the opening bid right away, or even the full purchase price on the day of the auction. And there are sometimes different rules for online sales.

If the winning bidder fails to pay the full amount by the deadline, their deposit may be forfeited, and the next highest bidder who can promptly pay their total bid may be awarded the property instead. Always review the auction's specific payment requirements and bring the appropriate forms of payment, such as cashier's checks or money orders, as personal checks are usually not accepted.

What Are the Risks and Benefits of Buying at a Sheriff's Sale?

Buying a foreclosed home offers several potential benefits for homebuyers and investors. The main advantage is the chance to buy a property below market value. This lower purchase price can help buyers build equity faster and can provide a higher return on investment, especially if the buyer makes renovations that increase the property's value. Foreclosed homes also tend to have less competition than traditional listings.

However, buyers should be aware that properties are sold as is, without the opportunity to make an inspection of the premises. Foreclosed properties are often in poor condition. They also come with risks such as existing liens, unpaid taxes, or occupants still living in the home.

If you're considering bidding at a sheriff's sale, you should conduct thorough due diligence and understand the specific rules and timelines set by the local sheriff's office or court overseeing the auction.

Foreclosing Bank Is Usually the High Bidder at Sheriff's Sales

The foreclosing bank submits the first bid at the auction, which is a "credit bid." With a credit bid, the bank gets a credit in the amount of the borrower's debt. The bank can bid the full amount of the debt, including foreclosure fees and costs, or it might bid less.

The bank is usually the winning bidder at the sale because no one else tries to buy the property. If the bank buys the property at the sale and gets title to the home, the property is considered "real estate owned" (REO).

However, after the bank makes its credit bid, another person or entity can submit a higher bid and win the auction.

Notice of a Sheriff's Sale

Homeowners generally get notice of a sheriff's sale in the foreclosure paperwork or through a mailed notice of sale. Also, advertisements of foreclosure sales are normally published in newspapers of general circulation, typically four to six weeks before the sale. Many county sheriffs also maintain a list in their office or on a website of the properties going to auction.

Do Homeowners Have Any Rights After a Sheriff's Sale?

After a sheriff's sale, the foreclosed homeowner might still have certain rights, depending on state law and the specifics of their situation. Some states have a post-sale redemption period, during which the former homeowner can reclaim the property by paying the foreclosure sale price or the full amount owed. Sometimes, the foreclosed homeowner gets the right to live in the home during the redemption period, even if they don't exercise their right to redeem.

What Happens After a Sheriff's Sale Is Completed?

However, in other places, once the sheriff's sale is complete and the deed is issued to the new owner, the former homeowner must vacate the property. If they don't voluntarily move out, the new owner can initiate eviction proceedings to remove them from the home.

Challenging a Sheriff's Sale

Under limited circumstances, a foreclosed homeowner might be able to challenge the sheriff's sale by filing a motion to set aside (nullify) the sale. A court might set aside the sale if they can show that there was fraud, mistake, or irregularity in the conduct of the sale. For instance, if the bank failed to send an appropriate notice or the auction wasn't properly advertised in the newspaper as required, these failings can be grounds for an objection to the sale.

Summary of Steps in a Sheriff's Sale

Here are the typical steps involved in a sheriff's sale, from mortgage default to the transfer of ownership after the sale:

• After the borrower defaults on their mortgage payments, the foreclosure process begins.
• The lender obtains a court order or judgment permitting the property to be sold at auction.
• A sheriff's sale is scheduled and publicly announced, with notice provided to interested parties and published in newspapers and/or online.
• The foreclosure auction is held, typically at a courthouse, sheriff's office, or online, and the property is sold to the highest bidder in as-is condition.
• The winning bidder pays the required deposit or full amount according to auction rules, and the balance is paid within a specified time frame.
• After the sale, a sheriff's deed or confirmation deed is issued to the new owner, and title is transferred once any redemption period or legal requirements are fulfilled.

Foreclosed Homeowner Might Be Liable for a Deficiency Judgment

When the winning bid at the sheriff's sale is less than the borrower's total debt, the bank might be able to seek a deficiency judgment against the foreclosed homeowner. Whether the bank can get a deficiency judgment depends on state law.

Can You Stop a Sheriff's Sale From Happening?

As a homeowner, you can take action to try to prevent a sheriff's sale from happening and keep your home. You could potentially, depending on your circumstances, as well as state and federal law:

• challenge the foreclosure in court (check the foreclosure papers you received or consult with an attorney to find out the deadline to respond to the foreclosure action)
• apply for a loan modification or other loss mitigation option (be sure to apply before any deadline under state law or federal law expires)
• reinstate the loan (again, don't miss the deadline set by state law or your mortgage contract)
• file for bankruptcy, or
• pay off the full amount of the mortgage debt.

Getting Help From a Foreclosure Attorney

As with any legal situation, the law has many nuances and complexities that vary from state to state. If you're going through a foreclosure and have further questions about the process, consider talking to a local foreclosure lawyer.

If you want to learn about different alternatives to a foreclosure, like a modification or short sale, a HUD-approved housing counselor is an excellent resource that will help you at no cost.