Bought house at sheriff auction, someone else bought it day befor

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Bought house at sheriff auction, someone else bought it day befor

Luke Aubut
Flipper/Rehabber · Madison, WI · Member since 2017 · 49 posts · 14 votes

Help please! What are my options?

I was high bidder at a sheriff auction a few weeks ago. I paid my deposit immediately to the clerk of court. While preparing for closing, the title company finds out that the seller who was being foreclosed upon, sold the house the day before the auction. But get this, the deed was not recorded until the day after the sheriff sale. My deposit for the sheriff sale was recorded before the other buyers deed was recorded. (This sounds like something you learn about in RE class). My title company will not insure title. 

Who has rights to the property? Do I have any rights to the property and should I pursue it?

Info that MAY be helpful: There were 3 liens on title, 1st position mortgage was foreclosing. I was told by title company that my bid at auction would clear all liens. Based on the other buyers sale price, i don't think their sale amount would pay off all liens and fees.  The mortgagee did not cancel the auction, therefore assuming they were not aware of the seller selling. Is the other buyers purchase even valid?

Any other info that may be helpful to know in this situation? I have not officially talked with a R.E. attorney, I know some of you would suggest that.

This is a lower priced property (50K) and it's my first deal! Yahooooo!

Thank you for any suggestions, advice or opinions.

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Scott Schultz
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
7y
The borrower has legal right to sell the property right up to the confirmation of sale, so literally the borrower can show up at confirmation and settle the debt, you will get your 10% back from the clerk if the sale is legitimate and satisfies the foreclosing lender. This is something that happens, I have seen it before, just part of the game. 
  
Originally posted by @Luke Aubut:

Help please! What are my options?

I was high bidder at a sheriff auction a few weeks ago. I paid my deposit immediately to the clerk of court. While preparing for closing, the title company finds out that the seller who was being foreclosed upon, sold the house the day before the auction. But get this, the deed was not recorded until the day after the sheriff sale. My deposit for the sheriff sale was recorded before the other buyers deed was recorded. (This sounds like something you learn about in RE class). My title company will not insure title. 

Who has rights to the property? Do I have any rights to the property and should I pursue it?

Info that MAY be helpful: There were 3 liens on title, 1st position mortgage was foreclosing. I was told by title company that my bid at auction would clear all liens. Based on the other buyers sale price, i don't think their sale amount would pay off all liens and fees.  The mortgagee did not cancel the auction, therefore assuming they were not aware of the seller selling. Is the other buyers purchase even valid?

Any other info that may be helpful to know in this situation? I have not officially talked with a R.E. attorney, I know some of you would suggest that.

This is a lower priced property (50K) and it's my first deal! Yahooooo!

Thank you for any suggestions, advice or opinions.

3Reply
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  • Scott Schultz
    Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    7y
    The borrower has legal right to sell the property right up to the confirmation of sale, so literally the borrower can show up at confirmation and settle the debt, you will get your 10% back from the clerk if the sale is legitimate and satisfies the foreclosing lender. This is something that happens, I have seen it before, just part of the game. 
      
    Originally posted by @Luke Aubut:

    Help please! What are my options?

    I was high bidder at a sheriff auction a few weeks ago. I paid my deposit immediately to the clerk of court. While preparing for closing, the title company finds out that the seller who was being foreclosed upon, sold the house the day before the auction. But get this, the deed was not recorded until the day after the sheriff sale. My deposit for the sheriff sale was recorded before the other buyers deed was recorded. (This sounds like something you learn about in RE class). My title company will not insure title. 

    Who has rights to the property? Do I have any rights to the property and should I pursue it?

    Info that MAY be helpful: There were 3 liens on title, 1st position mortgage was foreclosing. I was told by title company that my bid at auction would clear all liens. Based on the other buyers sale price, i don't think their sale amount would pay off all liens and fees.  The mortgagee did not cancel the auction, therefore assuming they were not aware of the seller selling. Is the other buyers purchase even valid?

    Any other info that may be helpful to know in this situation? I have not officially talked with a R.E. attorney, I know some of you would suggest that.

    This is a lower priced property (50K) and it's my first deal! Yahooooo!

    Thank you for any suggestions, advice or opinions.

    3Reply
  • Jim Cummings
    Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes
    7y

    @Luke Aubut. Many good ideas shared on this thread - but it all boils down to you will have to engage an Attorney to get it all sorted out - if you want the property! 

    0Reply
  • Luke Aubut
    OP
    Flipper/Rehabber · Madison, WI · Member since 2017 · 49 posts · 14 votes
    7y

    @Scott Schultz  thank you! I wanted to hear from someone who has seen this before.

    (Since they can sell right up until the confirmation of sale, sounds like a bit of a loophole, eh?)

    0Reply
  • Luke Aubut
    OP
    Flipper/Rehabber · Madison, WI · Member since 2017 · 49 posts · 14 votes
    7y
    Originally posted by @Jim Cummings:

    @Luke Aubut. Many good ideas shared on this thread - but it all boils down to you will have to engage an Attorney to get it all sorted out - if you want the property! 

     @Jim Cummings exactly! If I want the property. The cost of an attorney cuts into my bottom line.  A 10K projected profit over 3 months could turn into ....who knows, 5K over 5 months because of a suit involved? or zero, IDK.  

    And THAT is why I did not run off a spend money for legal advice before I had a good grasp on a likely outcome. 

    0Reply
  • Davido Davido
    Rental Property Investor · Olympia, WA · Member since 2012 · 543 posts · 311 votes
    7y

    @Jenifer Levini,  May your trust in a good lawyer serve you well.    I've found that the hope that a good Lawyer can routinely tell you how to proceed is justified only in the simplest of matters, and not always even then.  Good lawyer's disagree about the requirements of the law more often than they agree, as is demonstrated by the fact that there are considerably more dissenting opinions written by appellate level lawyers (judges) than there are unanimous agreements.  Good luck with following exactly what they tell you.

    1Reply
  • Mohammed Elzagha
    Rental Property Investor · Madison, AL · Member since 2018 · 19 posts · 18 votes
    7y

    I agree with the people recommending you seek legal advice from a lawyer. Guessing and learning the hard way is always riskier and more expensive. You are looking at it as "wasting" money on a lawyer, but in reality you are paying a professional to guide you with accurate information for this investment and the knowledge to apply towards future investments. As many have said, the laws vary by state, so one persons experience may not apply to you.

    I ran into a similar situation. A property foreclosed through a sheriff's auction for an unpaid lien and the buyer was issued a sheriff's deed. Then the property was foreclosed on by the bank for the unpaid mortgage and auctioned at the courthouse steps, where I purchased it. Which foreclosure was the first to be auctioned was irrelevant. The date the lien or mortgage was originally recorded was more important. In my case, since the mortgage was issued and recorded before the lien, the mortgage foreclosure wiped out the lien and the sheriff's deed was worthless paper. However, had the lien been recorded before the mortgage, I would be responsible for paying all liens prior to the mortgage being issued. Again, this was just based on my one experience and there are other variables that play into the equation, especially your particular state's laws. 

    I also, don't know what happened to the buyer's money that purchased the sheriff's deed, since my foreclosure deed trumped his. I suspect his money was wasted buying a lien in 2nd position.

    Long story short, spend a couple hundred dollars and talk to a lawyer.

    1Reply
  • Andy Mirza
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Luke Aubut:
    Originally posted by @Jim Cummings:

    @Luke Aubut. Many good ideas shared on this thread - but it all boils down to you will have to engage an Attorney to get it all sorted out - if you want the property! 

     @Jim Cummings exactly! If I want the property. The cost of an attorney cuts into my bottom line.  A 10K projected profit over 3 months could turn into ....who knows, 5K over 5 months because of a suit involved? or zero, IDK.  

    And THAT is why I did not run off a spend money for legal advice before I had a good grasp on a likely outcome. 

    I think that throwing out the "just seek legal advice" in virtually every situation is lazy advice and you see so many people here on BP do it. The OP is doing his research to make an informed decision, which is ultimately what all investors do and need to get better at. There's enough information for him to decide to get his deposit back and move on to the next deal. Does he need to spend another $200-$500 talking to an attorney who has no skin in the game? I don't think so. If the sale of the property before the Sheriff's Sale was legit, then this is not worth any more effort or fight. If the sale was merely a scheme to defraud the lender, then it's a different story. Then the lender and borrower will get tangled up in court trying to sort it out. As a 3rd party bidder, get your deposit back and move on to the next deal.

    3Reply
  • Jenifer Levini
    Attorney · Santa Cruz, CA · Member since 2015 · 345 posts · 358 votes
    7y

    @Davido Davido your doubts in lawyers may be well founded. However your justification because they dont all agree is not. It's definitely true that lawyers dont agree. That is the entire reason that there are multiple justices on appeals courts and the Supreme Court. The disagreement among lawyers, the ability to peer into the cracks to find the details and different solutions to a problem is what makes hiring a professional worth it. The law is not stagnant. It is not a set of codes. It is a series of precedents that change each time new decisions are made in court. That's exactly why laymen dont understand the law. Because they think it is a static series of rules to which there is only one right interpretation. Just like there may be many routes to get to your destination, there could be many legal processes to get to your desired results. People who fail out of law school frequently do it exactly with your thinking - that there is one right answer. 

    1Reply
  • Andy Mirza
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Jenifer Levini:

    @Davido Davido your doubts in lawyers may be well founded. However your justification because they dont all agree is not. It's definitely true that lawyers dont agree. That is the entire reason that there are multiple justices on appeals courts and the Supreme Court. The disagreement among lawyers, the ability to peer into the cracks to find the details and different solutions to a problem is what makes hiring a professional worth it. The law is not stagnant. It is not a set of codes. It is a series of precedents that change each time new decisions are made in court. That's exactly why laymen dont understand the law. Because they think it is a static series of rules to which there is only one right interpretation. Just like there may be many routes to get to your destination, there could be many legal processes to get to your desired results. People who fail out of law school frequently do it exactly with your thinking - that there is one right answer. 

    "That's exactly why laymen dont understand the law." Ouch.

    At the end of the day, the client is the one paying the attorney for his or her counsel. The client is the one who is making the ultimate decision and has to deal with the consequences, not the attorney who advises him. Maybe @davido davido was referring to the quality of the advice or counsel differing from one attorney to the next. That's been my experience. Just because someone has "esq" at the end of the their name, doesn't mean he or she will provide good counsel or work ethic. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Andy Mirza:
    Originally posted by @Jenifer Levini:

    @Davido Davido your doubts in lawyers may be well founded. However your justification because they dont all agree is not. It's definitely true that lawyers dont agree. That is the entire reason that there are multiple justices on appeals courts and the Supreme Court. The disagreement among lawyers, the ability to peer into the cracks to find the details and different solutions to a problem is what makes hiring a professional worth it. The law is not stagnant. It is not a set of codes. It is a series of precedents that change each time new decisions are made in court. That's exactly why laymen dont understand the law. Because they think it is a static series of rules to which there is only one right interpretation. Just like there may be many routes to get to your destination, there could be many legal processes to get to your desired results. People who fail out of law school frequently do it exactly with your thinking - that there is one right answer. 

    "That's exactly why laymen dont understand the law." Ouch.

    At the end of the day, the client is the one paying the attorney for his or her counsel. The client is the one who is making the ultimate decision and has to deal with the consequences, not the attorney who advises him. Maybe @davido davido was referring to the quality of the advice or counsel differing from one attorney to the next. That's been my experience. Just because someone has "esq" at the end of the their name, doesn't mean he or she will provide good counsel or work ethic. 

    One play that no one has mentioned is that someone may have jumped into claim overages..   if the bid from the buyer results in overage the owner of record ( new deed day before the sale) can claim them..  this happens a lot on the west coast I have personally done it.. its not a well known strategy but a strategy none the less..  you pay the owner 200 bucks for the deed and hope like hell that there is spirited bidding LOL and you have checked title no junior positions .. overages are the title owners.

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    7y

    Lawyers are not trained to be right... they are trained to zealously and diligently represent their clients. They do their best (especially in bench trials) with good facts. In this case which is essentially a deposit vs. a recorded deed, the facts suck and the deposit loses every time. I highly doubt any lawyer would suggest pursuing it further than making sure the deposit is refunded.

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  • Bryan Devitt
    Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Andy Mirza:
    Originally posted by @Jenifer Levini:

    @Davido Davido your doubts in lawyers may be well founded. However your justification because they dont all agree is not. It's definitely true that lawyers dont agree. That is the entire reason that there are multiple justices on appeals courts and the Supreme Court. The disagreement among lawyers, the ability to peer into the cracks to find the details and different solutions to a problem is what makes hiring a professional worth it. The law is not stagnant. It is not a set of codes. It is a series of precedents that change each time new decisions are made in court. That's exactly why laymen dont understand the law. Because they think it is a static series of rules to which there is only one right interpretation. Just like there may be many routes to get to your destination, there could be many legal processes to get to your desired results. People who fail out of law school frequently do it exactly with your thinking - that there is one right answer. 

    "That's exactly why laymen dont understand the law." Ouch.

    At the end of the day, the client is the one paying the attorney for his or her counsel. The client is the one who is making the ultimate decision and has to deal with the consequences, not the attorney who advises him. Maybe @davido davido was referring to the quality of the advice or counsel differing from one attorney to the next. That's been my experience. Just because someone has "esq" at the end of the their name, doesn't mean he or she will provide good counsel or work ethic. 

    One play that no one has mentioned is that someone may have jumped into claim overages..   if the bid from the buyer results in overage the owner of record ( new deed day before the sale) can claim them..  this happens a lot on the west coast I have personally done it.. its not a well known strategy but a strategy none the less..  you pay the owner 200 bucks for the deed and hope like hell that there is spirited bidding LOL and you have checked title no junior positions .. overages are the title owners.

     So you're buying the amount (by purchasing the deed) the bidding goes over what is owed on the property? 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Tom Gimer:

    Lawyers are not trained to be right... they are trained to zealously and diligently represent their clients. They do their best (especially in bench trials) with good facts. In this case which is essentially a deposit vs. a recorded deed, the facts suck and the deposit loses every time. I highly doubt any lawyer would suggest pursuing it further than making sure the deposit is refunded.

    Ya not over 4k deposit that would be silly.. and you cant really make a case about hey I am losing out.. that will fall on deaf ears in these HIGH risk caveat emptor foreclosure auctions.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Bryan Devitt:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Andy Mirza:
    Originally posted by @Jenifer Levini:

    @Davido Davido your doubts in lawyers may be well founded. However your justification because they dont all agree is not. It's definitely true that lawyers dont agree. That is the entire reason that there are multiple justices on appeals courts and the Supreme Court. The disagreement among lawyers, the ability to peer into the cracks to find the details and different solutions to a problem is what makes hiring a professional worth it. The law is not stagnant. It is not a set of codes. It is a series of precedents that change each time new decisions are made in court. That's exactly why laymen dont understand the law. Because they think it is a static series of rules to which there is only one right interpretation. Just like there may be many routes to get to your destination, there could be many legal processes to get to your desired results. People who fail out of law school frequently do it exactly with your thinking - that there is one right answer. 

    "That's exactly why laymen dont understand the law." Ouch.

    At the end of the day, the client is the one paying the attorney for his or her counsel. The client is the one who is making the ultimate decision and has to deal with the consequences, not the attorney who advises him. Maybe @davido davido was referring to the quality of the advice or counsel differing from one attorney to the next. That's been my experience. Just because someone has "esq" at the end of the their name, doesn't mean he or she will provide good counsel or work ethic. 

    One play that no one has mentioned is that someone may have jumped into claim overages..   if the bid from the buyer results in overage the owner of record ( new deed day before the sale) can claim them..  this happens a lot on the west coast I have personally done it.. its not a well known strategy but a strategy none the less..  you pay the owner 200 bucks for the deed and hope like hell that there is spirited bidding LOL and you have checked title no junior positions .. overages are the title owners.

     So you're buying the amount (by purchasing the deed) the bidding goes over what is owed on the property? 

    To clarify the person in title who is being foreclosed on sells you the house via a deed  warranty deed  being best in most states in CA a grant deed.. you are now the owner of record the person who was being foreclosed accepted 200.00 to sign the deed.. If no one bids over the banks bid there is no overage..  if there are junior liens there are no overages usually..  if the banks bid is 150k and it bids up to 175k those funds are called overages and are  due whoever owns the house at the time of the sale.  AT least on the west coast.. I will add that caveat. 

    So when trustee gets the funds in.. they go through the lenders title guarantee to see who is owned money . the bank  a  second a lien etc. the money left over is send to the owner of record.. if they cant find the owner of record which happens of course.. then the funds are sent to court in Washington.. and in Oregon I believe they go to some department at the state that handles surplus monies. but reality is if your working this strategy you will call the trustee who handled the sale or Sherriff and give you new address and contract info.

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  • Bryan Devitt
    Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
    7y
    Originally posted by @Jay Hinrichs:

    So when trustee gets the funds in.. they go through the lenders title guarantee to see who is owned money . the bank  a  second a lien etc. the money left over is send to the owner of record.. if they cant find the owner of record which happens of course.. then the funds are sent to court in Washington.. and in Oregon I believe they go to some department at the state that handles surplus monies. but reality is if your working this strategy you will call the trustee who handled the sale or Sherriff and give you new address and contract info.

     Thank you for the explanation Jay, that is fascinating, I never knew such a thing existed

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