New to Sheriff Sales - a few questions

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New to Sheriff Sales - a few questions

Mark Beekman
Investor · Phoenixville, PA · Member since 2008 · 257 posts · 18 votes

I attended a Sheriff Sale in Montgomery County, PA the other day just to observe. Things were slightly different than the neighboring Chester County, PA Sheriff Sale. I ran across a few things that didn't make sense to me, so I thought I'd run it by the BP crowd:

1. Each property listed had a "debt" amount, a "cost" amount, and an "upset price". I assume that the "debt" is what's owed on the foreclosing lien, the "cost" is the amount of attorney fees, filing fees, etc, and the "upset price" is basically the starting price for bids. Is this correct?

2. There were instances where the upset prices were well above the debt amount, but others were well below. This threw me off. I was doing my research on prospective properties based solely on the debt amounts that were within my budget. Had I known that the upset prices could be significantly lower than the debt, I would've researched way more properties. Is there a reason for the difference?

3. The vast majority of the properties were bought back by the attorneys for "cost", being that that's what the opening and only bids were. It was tough to hear and keep track so I may be mistaken, but there were a few instances of people bidding against the attorneys for over "cost", but under the upset price. Going back to question #1, I thought the upset price was the starting point for bidders. How/why would someone bid under the upset price?

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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
12y

1. The costs that the sheriff publishes do NOT include attorney's fees; they are simply the costs the county incurred in bringing the property to sheriff sale.

2. "Upset prices" can be below the published debt for lots of reasons. Happens more in certain areas (for example Pottstown and Norristown in Montgomery County) than others. Just consider the bank's motivation to sell to be inverse to the amount above the debt that they set the "upset price" to be; when it's less that indicates more motivation to sell. But many of those below the debt amount are STILL priced above market value = not a deal.

3. Bidders can bid any number above the previous bid (provided they exceed the previous bid by a certain amount per sheriff sale rules for the county). When the bank's attorney bids "costs", the next person can bid the next increment above costs in hopes that the bank's attorney might let it go below the "upset price". I haven't seen the bank's attorney let it go for less yet (although it almost happened once). What you saw is that this sort of bidding just wastes everybody's time, since the bidder isn't interested in exceeding the bank's "upset price", so they drop out almost always. Once I saw a guy bid below, and he went back and forth with the attorney in bidding, until the attorney actually bid the "upset" amount. Then that bidder bid the next increment above the attorney's bid; had the bidder just bid the "upset price" or a dollar over at first, he would have saved a few hundred dollars! So the "upset price" isn't the starting point, but most experienced buyers won't tick off the bank's attorney by this sort of bidding; they'll bid at the "upset price" or higher, or just keep silent. The bank's attorney gets ticked off for more than just because of the time wasted; the sheriff is paid "poundage" - a percentage of the winning bid - and the higher the bank's bid for a property, the more poundage to be paid.

@Mike H. - the bank will only try to collect what is owed at the sheriff sale, since the sheriff will collect funds over the liens and judgments owed the bank and distribute those overage funds to the other lienholders in order of lien priority. So the bank might be owed more than the debt due to paying for things like property taxes and HOA fees and forced placed property insurance and property preservation (think boarding up windows and winterizing when vacant), in addition to things like attorney's fees, late fees, interest, and missed loan payments.

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  • Mike H.
    Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
    12y

    I have no background at all in sheriff's sales. But I'd be curious to know that last part too. I mean, I could see how the upset price could be lower than what is owed. The bank has the right to sell the house for less than what they're owed.

    But its interesting that they set the price for more than whats owed to them. Essentially, I guess they have the right to do that as well because then the previous owner will essentially be made whole automatically (i.e. their debt will be paid in full so there won't be any deficiency issued to them) and maybe the bank just wants the house.

    Or is it possible that the upset price might be higher because an outside party put in a bid already above what was owed to the bank so they set it at that bid?

    I doubt I'll ever bid on a house at sheriff's sale. But I do find it pretty fascinating to see other people do it. :-)

    0Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    12y

    @Mark Beekman & @Mike H.

    1. you are correct.

    2. For the ones where the upset price is above the debt, there can be interest, penalties, fees, etc, added onto the mortgage balance. For the ones where the upset price is lower than the debt, the lender is saying, we know we can't get what is owed, this is what we will take. The latter would be similar to a short sale case where the property is under water or the debt exceeds the current value due to market decline or physical features ie needs work.

    3. Most of the properties actually offered at the sheriff sale do go back to the lender. The "cost" figure does not include the mortgage balance, interest, late fees, penalties or attorney fees. The costs include the sheriff costs such as advertising to bring it to sale. The Sheriff doesn't work for free and the purchaser whether the bank or a third party pays the Sheriff's fees which are the costs. If the lender has announced the upset price they almost never stop bidding until that minimum figure is reached. So you can bid starting at $1 over costs, but I've never seen a property sell for $1 over costs, maybe $1 over upset, but never $1 over costs. Its funny when there are newbies at the sale and they bid $1 thinking that they can buy a house at sheriff sale for only $1. Several times I've seen this happen and the Sheriff gets irate and chews out the bidder. for the most part the bidders at the sheriff sale are attorneys representing the banks or professional bidders who always frequent the sale. It a tough business to crack, some sheriff sales require 100% cash the day of the sale, some within a couple days, some a week or 10 days. But the very nature of Sheriff Sales are a no financed cash on the barrel head business where there are no mortgages, no home inspections, no home warranties and most times you can't even get in to see the inside of the property.

    hth

    2Reply
  • Mark Beekman
    OP
    Investor · Phoenixville, PA · Member since 2008 · 257 posts · 18 votes
    12y

    David - At the neighboring County's Sheriff Sale they don't have a "cost" amount. There's an upset price and the attorney bids $1.00. I've seen some of the newbies try to bid over $1.00, but under the upset price and they get shut down. I guess things are slightly different county-to-county.

    Knowing that the upset price can be significantly lower than the debt, I'm going to start analyzing more properties where the debt amount is slightly out of my price range. Maybe there are some good deals that fall through the cracks because of this???

    1Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y

    1. The costs that the sheriff publishes do NOT include attorney's fees; they are simply the costs the county incurred in bringing the property to sheriff sale.

    2. "Upset prices" can be below the published debt for lots of reasons. Happens more in certain areas (for example Pottstown and Norristown in Montgomery County) than others. Just consider the bank's motivation to sell to be inverse to the amount above the debt that they set the "upset price" to be; when it's less that indicates more motivation to sell. But many of those below the debt amount are STILL priced above market value = not a deal.

    3. Bidders can bid any number above the previous bid (provided they exceed the previous bid by a certain amount per sheriff sale rules for the county). When the bank's attorney bids "costs", the next person can bid the next increment above costs in hopes that the bank's attorney might let it go below the "upset price". I haven't seen the bank's attorney let it go for less yet (although it almost happened once). What you saw is that this sort of bidding just wastes everybody's time, since the bidder isn't interested in exceeding the bank's "upset price", so they drop out almost always. Once I saw a guy bid below, and he went back and forth with the attorney in bidding, until the attorney actually bid the "upset" amount. Then that bidder bid the next increment above the attorney's bid; had the bidder just bid the "upset price" or a dollar over at first, he would have saved a few hundred dollars! So the "upset price" isn't the starting point, but most experienced buyers won't tick off the bank's attorney by this sort of bidding; they'll bid at the "upset price" or higher, or just keep silent. The bank's attorney gets ticked off for more than just because of the time wasted; the sheriff is paid "poundage" - a percentage of the winning bid - and the higher the bank's bid for a property, the more poundage to be paid.

    @Mike H. - the bank will only try to collect what is owed at the sheriff sale, since the sheriff will collect funds over the liens and judgments owed the bank and distribute those overage funds to the other lienholders in order of lien priority. So the bank might be owed more than the debt due to paying for things like property taxes and HOA fees and forced placed property insurance and property preservation (think boarding up windows and winterizing when vacant), in addition to things like attorney's fees, late fees, interest, and missed loan payments.

    2Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y

    BTW @Mark Beekman - if we had a photo of you here so I'd know what you look like, I would have said hello :)

    0Reply
  • Mark Beekman
    OP
    Investor · Phoenixville, PA · Member since 2008 · 257 posts · 18 votes
    12y

    Thanks for that, Steve!

    I think I read on here somewhere that you're a regular at the Sheriff Sales. Do you go in with a long list of potential properties, or do you only have a few that you concentrate on and hope they don't get stayed or continued?

    0Reply
  • Mark Beekman
    OP
    Investor · Phoenixville, PA · Member since 2008 · 257 posts · 18 votes
    12y

    I'll have to find one. It's about time I put one up.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y

    I've done both - and I hope to not be out-bid too!

    0Reply
  • Account Closed
    Souderton, PA · Member since 2015 · 1 post · 0 votes
    11y

    How do I see upset price for the property? Sheriff office releases prior to sale?  i am looking list of properties, doesn't show upset price column.

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y
    Originally posted by @Account Closed:

    How do I see upset price for the property? Sheriff office releases prior to sale?  i am looking list of properties, doesn't show upset price column.

    The sheriff does not set the upset price - the lender does that; the sheriff just sets the costs for conducting the sale. The sheriff does publish the debt owed; sometimes that is close to the upset price and sometimes it is nowhere near. 

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  • Jess Ryan
    King Of Prussia, PA · Member since 2015 · 8 posts · 1 vote
    11y

    @steve babiak @david krulac I was told the only way I can find the Opening bid is by calling the real estate attorney office three days prior to the auction. Is the opening bid the same as the upset price? Is there another way of finding this out earlier? I will be attending the sheriff sale in Chester county on 8/20 and really don't want to tick off the attorney by not knowing how to bid. Around 400,000 is said to be owed on the property but I was able to get into it because I know the owner and there is a HUGE mold issue amongst Mainy other problems. We had our contractor come and give us an estimate and he said it needs close to 200,000 dollars worth of work. We're hoping to get it for in the 2's at the sheriff sale but have no idea. Any help would be appreciated! 

    1Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Jess Ryan

    A friend of mine was an attorney who went to the Sheriff Sales for the foreclosing banks.  He got paid $75 a property and usually didn't know what the bank's high bid was until the afternoon before the sale and sometimes the morning of the sale.

    Call the attorney and see what their opening bid is, BUT its their high bid which is much more important.  Usually the first bid is "costs".  Usually $1,500, or $2,000.  It used to be that the banks would almost always bid up to the amount owed, but today that often times is discounted to a lower figure.  That's where you can possibly make some money.  but in general if the bank bids what is owed there is no equity and you're bidding above market price.

    Let us know how it works out for you.  Good Luck

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  • Jess Ryan
    King Of Prussia, PA · Member since 2015 · 8 posts · 1 vote
    11y

    Thanks @David Krulac I appreciate this quick response! I'm assuming since around 400,000 is owed they won't sell it for 200,000. But it's also been vacant for almost 4 years. I'll call the attorney's office three days prior to the auction and see what they say. My family loves the house and we wild love to live there, so we will see what happens. You said something about ticking off the attorney if you bid incorrectly, how do I bid "correctly"?

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  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Jess Ryan

    they may, the 4 year vacancy could be an indicator.  Only one way to find out go to the sale prepared with funds to bid.

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y
    Originally posted by @Jess Ryan:

    @steve babiak @david krulac I was told the only way I can find the Opening bid is by calling the real estate attorney office three days prior to the auction. Is the opening bid the same as the upset price? Is there another way of finding this out earlier? ...

    The lender's attorney usually doesn't have the bank's bid until late in the afternoon of the day prior to the sheriff sale. Occasionally, they don't even have it then!

    The opening bid is required to be at least the costs the sheriff incurred in conducting the sale. Most of the time that is what the lender's attorney will actually open bidding with by saying "costs". Occasionally they will actually open bidding with a much higher number, but that is uncommon. Before bidding "costs", the lender's attorney will announce the "upset" price - the price required to outbid the lender. Now, after the opening bid, you can bid any amount more than the previous bid as long as your bid will exceed the previous bid by the minimum bid increment. But if you bid under the upset price, don't expect the lender's attorney to stop bidding until the upset number is exceeded. 

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  • Jess Ryan
    King Of Prussia, PA · Member since 2015 · 8 posts · 1 vote
    11y

    thanks @Steve Babiak  so once the lender bids "costs" should I automatically bid the upset price? (That is if it's in our budget) I don't want to tick of the attorney. Also, I won't know the upset price until I get to the sheriff sale is that right? I will know the opening bid most likely but not the upset price...

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y

    @Jess Ryan - even if you can have the high bid at the 200K number you seek, be aware that you will have to make a deposit on the spot in cash or certified funds. And be prepared that the balance will be due in less than a month, in cash or certified funds; there will probably not be enough time to come up with funding after the sale - I suggest you have enough money on hand to cover your bid. 

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  • Jess Ryan
    King Of Prussia, PA · Member since 2015 · 8 posts · 1 vote
    11y

    @Steve Babiakoh yes. Well aware. Thanks! So should I bid the upset price right after the lender bids costs?

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y
    Originally posted by @Jess Ryan:

    thanks @Steve Babiak  so once the lender bids "costs" should I automatically bid the upset price? (That is if it's in our budget) I don't want to tick of the attorney. Also, I won't know the upset price until I get to the sheriff sale is that right? I will know the opening bid most likely but not the upset price...

    Usually the sheriff wants to first acknowledge the bid before allowing any additional bid. But that would be the idea. The costs are always published so that number is known in advance, but it is usually meaningless if you want to actually be high bidder on a property. 

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  • Jess Ryan
    King Of Prussia, PA · Member since 2015 · 8 posts · 1 vote
    11y

    thanks! @Steve Babiak

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y

    @Jess Ryan - here is some further reading for you; you definitely want to be certain that you are budging on a fist mortgage and not a junior lien; @Mark Updegraff wrote down in his blog the basics of doing that from when we spoke over the phone. 

    http://www.biggerpockets.com/forums/41/topics/6897...

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  • Jess Ryan
    King Of Prussia, PA · Member since 2015 · 8 posts · 1 vote
    11y

    @Steve Babiak @David Krulac I did a title search on the property and it shows a 35,000 federal tax lien. She said this is the only lien that showed up that wouldn't be covered by the sheriff sale. So the previous owners didn't pay their income taxes and they placed a lien on the house. The woman said the government has 120 days to request the money from the new owners. She couldn't say whether they will or not but just said it's a possibility. I'm not sure where to go from here or who to talk to to find out more information. Have you had any experience with this before? Or know someone I should talk to? I really don't want to lose the house...but don't want to pay an additional 35 grand either. 

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y

    @Jess Ryan- when there is an IRS lien, you want to be certain that the U.S. Attorney has been named as a defendant in the lawsuit/docket so that the gov't gets served properly. 

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  • Jess Ryan
    King Of Prussia, PA · Member since 2015 · 8 posts · 1 vote
    11y

    @Steve Babiak it just names the debtor as the previous owner. It doesn't say anything about defendant. It says 

    " a federal tax lien in favor of the United States of America recorded June 7th, 2013"

    Debtor:owners name and address 

    Amount 35,000

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  • Jess Ryan
    King Of Prussia, PA · Member since 2015 · 8 posts · 1 vote
    11y

    @Steve Babiak however the address doesn't correlate with the address we want to purchase. I called the title company about this but haven't heard back yet. 

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