Sheriff's Sale in Pennsylvania

18 Replies

Background:  We own a few rental properties, some being right next to each other on one road.  Our commercial property we rent back to ourselves is one of them in this strand, so we know the surrounding neighbors fairly well.  We've known since 2015 that one neighbor, next house in line,  would be foreclosed on at some point.  This neighbor told us he stopped paying his mortgage and would let us know when he was foreclosed on, b/c we have an interest in protecting our other properties, among some other things. 

Well the time has finally come, he called today and told us his house was going up for Sheriff's sale and gave us the date. I called the County's Sheriff's office and real estate division and they actually gave me a good bit of info how this will all work.  But of course, what he can say or teach is limited (he said anyway) so I'm left hanging.  I know we need someone to do a thorough title search for other liens and judgements and tax delinquencies.  But he said the successful bidder assumes all debt, including delinquent taxes and the mortgage.  I know for a fact this man is so upside down in his house it's unbelievable.  He refinanced 15 years ago for so far over the value, I don't even know how.  So let me say, all other things aside or being "ok", this house is worth about 25K.  The current mortgage is 75K (really rough numbers).  Does the successful bidder assume that 75K plus what they bid?  Or did he mean any additional mortgages, if there's a 2nd, 3rd, etc?  I would think this defeats the purpose to assume the mortgage of the mortgage holder who is foreclosing?  He did tell me that the representative from the bank would be the one to open the bid.  So if no one outbids them, then they own it still, correct?  Basically that opening bid is a reserve?

Another investor I talked to earlier today wasn't sure on that, but they said what they personally do, is let the bank buy the home, and then they go to the bank and try to purchase the home.  How do you buy from a bank?  Do all banks have a real estate division that do this? 

@Kristen T.  

I have gone to several sheriff sales, but have never purchased a property there.  I have never found anything with enough equity to make me want to pull the trigger.

These are my experiences: Each bank probably does it a little differently but this my experience has been that the bank representative will bid up to the sale price to the outstanding mortgage balance of the property.  If someone outbids that amount they will stop bidding and the winner gets the property (and any unpaid debt/taxes/judgments/liens/etc above and beyond the winning bid price).  In this situation it doesnt sound like you will buy at the sale.  Your question about buying directly from the bank is good.  These institutions are incredibly stupid, but thats ok.  If you are patient you will get a good deal.  After they foreclose on it, they will eventually list the property for sale at some ungodly high price.  I have seen them sit on properties for up to a year before they ever hit the market.  Their price will come down over time or they will put it up for auction.  I own a property now that I looked at when they first put it on the market.  It needed a big rehab, so I offered them $25k cash for the property.  They countered me at just above $100k.  I countered back with $25k because thats where my numbers worked at. It sat like 9 months and then they put it up for online auction.  I bought it for $20k cash from the auction.  Its only $5k, but when the bank owns it you are negotiating with the banks software program and likely a person that has never and will never see the property.  Their software told them that the amount of the loan that they had prior to foreclosure was $125k.  Now somebody offers them $25k cash and their software program spits out that the lowest they will accept is $100k based on that value and the time on the market.  So thats what they countered me with.  

A friend of mine buys a lot of these houses.  If he finds a bank owned house that he wants to add to his portfolio, he determines his maximum purchase price, subtracts $5,000 and then makes his offer.  Every week he puts another offer in on the house but for $100 more than the previous week.  Eventually his offer is above whatever formula the bank is using to determine value and they accept it.  That takes a lot of work though and if he wasnt his own agent I am sure an agent would quit before anything got accepted.

My 2 cents.  Good luck on landing the deal, but be patient.  Banks dont move very fast.

@Justin K. - haha, hey, we're neighbors!  I use Pgh as a general area, but we're in Sarver/Saxonburg area as well.  Thanks for all the info.  It's everything I needed to hear, but really didn't want to!  We really want this property ASAP because we're otherwise looking for one in the same area to house some summer workers for my husbands business.  But patience will pay off I'm sure, and we'll go ahead with the title search and everything and still go to the courthouse on the 5th to see what's up, but I guess with very low expectations.  I might try to get to the one in January just to see how they work.

Is the sheriff sale happening due to unpaid property taxes or municipal liens, or is it due to a mortgage foreclosure? In PA, the answer to that will determine whether any of the existing obligations are extinguished by the sheriff sale or whether obligations survive the sheriff sale. And even then some title searching would need to be completed to establish what will survive. If you are not confident in your own skills in title searching, then perhaps you should consider paying the nominal amount for a professional to perform a title search for you.

 @Kristen T.

It's hard to say without knowing all the facts. But as a general rule, the first-lien mortgage wipes out all the junior interests. A lot of the tax-related fees get paid from the proceeds But again, it get's complicated.

In terms of how the banks get to the number to bid at the sale, it really depends on the type of loan. If it is a Freddie or Fannie loan, then Freddie and Fannie tell the banks what the opening bid should be and how much they should bid up to. Sometimes the number makes sense; other times, it's stupidly high. In those cases, there really is no "negotiating" room on that. The bank is just following directions. 

If it's a portfolio loan, then the bank has more wiggle room. But since this sounds like a residential home, I doubt that's the case. 

In terms of whether you can talk to a live human being at a bank with decision-making powers, that depends on the size of the bank. For smaller banks, you probably could find someone. For national banks, you virtually have no chance speaking to anyone with actual authority to sell you this property outside their standard system. Many people have the idea that a bank is a bank --- but there is a world of difference between a small community bank (say that has a few billion in assets) and a mega bank (that have trillions in assets). Once you get to the later size, it's like trying to navigate through Dante's Inferno. 

@Steve Babiak gave good advice on what to look out for. I would add that you can try to look at the information on what law firm is handling the foreclosure. If it's a local attorney, he or she might be able to help you. If it's a foreclosure mill like Phelan Hallinan, you are unlikely to talk to a live human being unless you know the local attorney for the firm. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Steve Babiak - it's happening due to mortgage foreclosure - he stopped paying in 2015 and I just contacted a company we've used before to start the title search process -- it's worth the bit of money at this point to us to possibly save tons of headaches

@Chris K.   also thank you for that information.  This all helps me to understand the process much better.  I appreciate you all letting me know this isn't going to be nearly as easy as we had originally thought 2 years ago when we waited for this to happen.  Where would we find what law firm is handling the foreclosure?

@Chris K. - actually, some of the "foreclosure mill" attorneys can be contacted, as long as the person contacting has the borrower's authorization to release information properly completed and signed, as well as some sort of agreement with the borrower on an arm's length purchase and ability to close quickly. The attorney would much prefer the property be sold prior to sheriff sale - saves the attorney's lender client lots of money when that happens (no poundage, no ejectment, no listing and sales commission, etc.).

Originally posted by @Kristen T. :

@Steve Babiak - it's happening due to mortgage foreclosure - he stopped paying in 2015 and I just contacted a company we've used before to start the title search process -- it's worth the bit of money at this point to us to possibly save tons of headaches

The plaintiff name on the lawsuit is one way to determine if it is a mortgage foreclosure or not; two years up unpaid municipal bills is enough to trigger a sheriff sale for those not being paid in some municipalities.

@Kristen T.

It depends on the county. If you can find the sheriff's sale listing for that county, they typically list the attorney's info. Or you could also try to look at the prothonotary's website if your county has it. 

@Steve Babiak  

That's true. KML even provides all the basic information on their website. Pretty handy and a smart idea on part of the firm. I don't have the data to prove, but I do think more banks are hiring KML to handle the foreclosure. I'm sure KML is making that pitch to the banks when they try to get the work.  

But from what I can see, the Phelan style is still the "gold" standard for foreclosures mills. Despite easily being the most dominant foreclosure law firm in PA, Phelan doesn't even have a functioning website. For better or worse, that's the kind of the style that other smaller firms tend to adopt. 

Part of that has to do with the corporate culture at the banks. If you look at Phelan's clientele, they do a majority of work for many of the largest banks in the world. For those banks, the theoretical savings they would get from selling the property before the foreclosure sale probably doesn't even show up on their balance sheet even if you looked at the entire Commonwealth in a given year. That, in turn, probably means that saving that money probably doesn't lead to a promotion or a raise for the decision maker at the bank. So when a decision maker from those banks are looking at what foreclosure firm to work within a given state, they are not always motivated by firms that offer innovative strategies. Instead, the decision makers often go for the "safest" option to not disturb the status quo. 

This is incidentally why it's so hard for smaller firms to steal mega clients (e.g. WalMarts, Microsoft, etc.) from larger firms. Even if you have a hot-shot smaller firm with the best lawyers at half the price, decision makers at megacorporation often still go with the more expensive, but more established law firm. One part of the reasoning is that if something goes wrong, the decision maker can simply say "Hey, I hired the best law firm in the world to handle this. Blame them --- not me." By contrast, if the decision maker decides to go with a smaller firm and something goes wrong, there is a good chance that he or she becomes the sacrificial lamb.  

One day, firms like KML may take over a firm like Phelan. But from what I can see, the "old" style still appears to prevail in Pennsylvania when it comes to foreclosure sales. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Well, I checked KML website on the off chance they had it, and no go.  But their site sure is easy to use!  Sheriff's info isn't up yet for February, so we have to wait I suppose for now.  I'll keep on looking though and I appreciate any and all of your advice!

As @Chris K. stated, go to the county Prothonotary to look this up; if you know the property owner's name you should be able to look up the case by defendant name that way.

@Kristen T.

Shoot me a PM with the address for the property. I'll try to see if I can get it for you. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Kristen T.

Here are a few terms that I think would be helpful to you as you learn the process of successfully buying a property at sheriff’s sale:

Opening bid - where the sheriff will start the bidding. Some counties start at sheriff’s costs (a few even use a nominal number like $1) and others start at costs plus outstanding taxes. This amount is virtually insignificant because the number that matters is the upset price.

Upset price: the foreclosing creditor will be bidding against you to acquire the property. They set a maximum bid on the property and it is often referred to as the upset price. Once the bank hits this number they will stop bidding thus allowing a 3rd party bidder win the bid. Most foreclosure firms will tell you this number the day or so before the sale. This number is not always the amount total amount due to the bank.

Conditions/terms of sale: each county has these and they are set by the sheriff. They can vary and you should be familiar with them. If I am not mistaking, Allegheny county requires you to pay 10% of your winning bid immediately and the remaining 90% by noon on the Friday following the sale. The funds have to be certified. No personal or business checks. If you don’t pay your remaining 90% you are supposed to forfeit your deposit.

Lien priority: liens on property have a priority. Generally priority is established in chronological order. The older the lien, the higher up on the priority chain. The big exceptions are county/local/school taxes and municipal claims like water and sewer.

Divest / divestiture: the beauty of a mortgage foreclosure sale is that if completed properly it will divest or wipe out all the liens on the property. Generally liens are divested by a mortgage foreclosure sale if they get paid by the proceeds of the sale or were junior to the foreclosing lien and received proper notice of the sheriff’s sale. There are many quirky scenarios that can happen when it comes to lien priority and divestiture, but the quirky scenarios do not come up often (if they did they wouldn’t be thought of as quirky).

Sheriff’s distribution: when the sheriff’s office receives money from a buyer they must prepare a schedule of distribution showing how they are going to distribute the funds. Generally the order goes something like this: sheriff’s costs (usually including their commission/poundage-2% of the winning bid and transfer taxes), taxes and municipal claims, foreclosing creditor, junior lien holders in order of priority.

For what it’s worth, I would attend a sale before you go to bid at one so you can see how they work and get answers to any questions that might arise.

Feel free to send me a message or ask additionally questions on this forum.

@Steve Babiak

Just a little tidbit: the sheriff is still entitled to commission/poundage when a sale is cancelled. They are entitled to 2% of the amount received in consideration for the stay. I don’t disagree with your sentiment, but wanted to clear that up. To my knowledge Philadelphia is the only county that doesn’t collect it on cancelled sales.

Good post by @Greg Wilkins . The one thing I would say is that more and more law firms are refusing to disclose the upset bid in advance of the sale; soon it might be most firms refuse to disclose.

Greg being in S NJ would be aware of this firm - Udren is now among those refusing to disclose upset bids in advance after many years of being quite the opposite. And Milstead as well.

@Steve Babiak    Thank you.     True.  For now the largest firms: Phelan, KML, and McCabe will still release them.

Originally posted by @Greg Wilkins :

@Steve Babiak   Thank you.     True.  For now the largest firms: Phelan, KML, and McCabe will still release them.

That is correct, for now.

I just helped @Kristen T. locate the information for the property. She couldn't find any information on it because the lender did not yet list the property for sale at a sheriff's sale. Here is a quick guide on what to do in those situations (using tools that most people have available):

  • Assessment Records.  When you have the physical address of the property, I typically start by doing an assessment search. Even the smallest PA counties tend to have this information available online. In this scenario, the property was in Allegheny County. Just typing "Allegheny County Assessment" in Google gave me the correct link as its first search result. Doing a search on this database gave me all the information I need to identify the property (e.g. current deed number, the name of the current record owner, tax id/lot number etc.). 
  • Court of Common Pleas Record. Once you have that record, you can take a look at the Court of Common Pleas record. Some counties have this information available online that you can basically access for free (e.g. Allegheny County). Depending on the quality of the website, you can do a search based on different data. In Kristen's case, I found the lot number using the assessment and the County's website allowed me to search based on that lot number. So that's what I did. If the particular county does not have online records for the Court of Common Pleas, you will need to call or even visit the Court of Common Pleas to get the relevant information. 

The above steps should help people find the right information 90% of the time. The other 10% will require more due diligence and know how (e.g. a vacant property in the middle of the woods with no street address and a deed from 100 years ago). 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

To add to the most recent post from @Chris K. , the Court of Common Pleas records are usually available from the county's Prothonotary in PA.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here