Sheriff sales and existing mortgage

3 Replies

Hello, I am new to the website. I am not an investor yet, just trying to learn the basics and stay out of trouble. I have been watching Auction.com, there are a lot of REO's on that website many with large mortgages unpaid leading to Sheriff sale. Will someone explain what happens to a mortgage after the bank takes possession after a Sheriff sale? If the bank tries to auction the property, does the mortgage generally follow the title/deed or is it cleared after the Sheriff sale? I'm sure this varies by state and county? I am in PA.

Originally posted by @Jim H. :

Hello, I am new to the website. I am not an investor yet, just trying to learn the basics and stay out of trouble. I have been watching Auction.com, there are a lot of REO's on that website many with large mortgages unpaid leading to Sheriff sale. Will someone explain what happens to a mortgage after the bank takes possession after a Sheriff sale? If the bank tries to auction the property, does the mortgage generally follow the title/deed or is it cleared after the Sheriff sale? I'm sure this varies by state and county? I am in PA.

Deals with substantial margins may be rare the auction route. Whether or not the lender can go after the entity that defaults on the mortgage for any unpaid balance of the mortgage (insufficient funds from the sale) does vary by the state. There are also instances were there may be multiple lenders on a house that is being foreclosed on. In such cases, if there is insufficient funds from the sale to pay off all lenders, whoever doesn't get paid would then try to get a judgement against the defaulter and 'hope' the defaulter had some other asset to go after. The debt (unpaid lenders) doesn't go away although the lien got detached from the house with the foreclosure sale.

Jim, if a property does not sell at the sheriff's sale, it reverts back to the lender and becomes an REO. They then try to sell the property by a realtor or by auction. For a property to be eligible to be sold at auction, the title should be clear. No HOA's, back taxes or liens to the bidder/buyer. The reserve should be enough to make the lender whole, meaning they get at least the minimum they want or the auction sale does not happen. Please beware because many times the title is not clear and yet they sell it in an auction then you must have to wait to close while they get the title cleared. The auction terms should state there are no delinquent hidden costs yet once you buy, they sometimes ask for you to pay the late HOA fees, etc., even though the terms said it was free and clear. Here you would best get your attorney involved if this happens.