Buying a home is a major goal for many people and likely the most substantial transaction they will ever undertake. So when a foreclosed property becomes available at a sheriff’s sale, it often appears at first glance as a great bargain, especially since many of these properties can be purchased at a price well below market value.
A foreclosed property is one in which the homeowner defaulted on mortgage payments, and the bank or another lender has taken the home back under a foreclosure process. Under federal law, no foreclosure can begin until the owner has been delinquent for 120-days. Foreclosed homes are typically sold at low prices because they are often in poor condition, need major renovations, and may come with liens against the property. A sale can also be held to satisfy tax liens or judgments that have attached to the property. All foreclosed homes are sold “as-is” with no warranties. This means you buy the property with any liens or other encumbrances.
In Wisconsin, foreclosed homes are sold at a public auction conducted by the sheriff at the courthouse and in the county where the property is located. An auction offers people a chance to bid on the property with the bidding starting at a certain price. If your bid is the highest, you will receive a “Sheriff’s Deed”.
But before you get too excited about seeking to buy a home at a sheriff’s sale, there are a few things to consider:
Right of Redemption
Wisconsin law allows the defaulting homeowner a right of redemption, meaning that the owner has a period of time to reclaim the property by paying off the mortgage or satisfying the lien. The foreclosure judgment will specify the length of the borrower’s redemption period.
The length of the redemption period will depend upon the type and size of the property, whether or not the lender is seeking a deficiency judgment and whether the property is owner-occupied or abandoned.
For residential properties, the redemption period depends on the type of property:
- Type R foreclosure includes one to four family owner-occupied residential properties
- Type C foreclosure includes all other properties that are not owner-occupied or have more than 4 units
If the lender is seeking a deficiency judgment on Type R foreclosures, the redemption period is 12 months. If not seeking a deficiency judgment and the property is 20 acres or less, the redemption period is 6 months.
For Type C foreclosures, if the lender is not seeking a deficiency judgment, the redemption period is 3 months. If the lender is seeking a deficiency judgment, the redemption period is 6 months.
The redemption period will be 2 months in all cases where the property is abandoned.
Be aware, though, that the owner has until judicial confirmation of the sheriff’s sale to redeem the property.
If you are the high bidder, you will be handed a “Sheriff’s Deed”. Although the sale is supposed to deliver the property free and clear of all interests and liens, this is not always the case. A Sheriff’s Deed is not the same as a Warranty Deed. A Sheriff’s Deed is similar to a Quit Claim Deed because it provides no warranties.
The sheriff’s deed passes the former owner’s title after barring all parties named in the foreclosure action holding liens and encumbrances on the property and barring any parties filing any liens after the lis pendens is filed with the register of deeds. However, lien holders may be missed and not identified in the foreclosure process, and accordingly, this type of lien holder’s lien would not be extinguished. If you are considering buying a property at a Sheriff’s Sale, you should meet with an attorney to review title and the litigation documents to determine if there are any liens that were not extinguished by the foreclosure.
Certain types of liens are not extinguished by foreclosure and will remain against the property, such as tax liens, federal liens, or child support liens. Additionally, there may be city violations and unpaid utilities.
One solution is to buy title insurance on the property. Title insurance, however, is not the perfect solution and won’t eliminate all risks. Title policies will contain “exceptions” from coverage, and the exceptions typically include claims for adverse possession, boundary line disputes, construction liens, or matters not shown in the public record (among others).
Cost of Remodeling and Sale
Before you bid on a property, you will want to inspect the property as well obtain estimates on the cost of remodeling. For some properties, it may not be worth the price of renovation. Even if you get an estimate, you should always expect additional costs for issues you or your contractors will discover once you move in and begin remodeling.
Be aware that not all properties are available for visible inspection.
The sheriff’s office does not know whether or not the properties for sale are occupied and cannot give permission for prospective bidders to enter and inspect the home. Some people will drive around the neighborhood or see if they can talk to neighbors. Be aware, however, that going onto the property or trying to look in windows could result in a trespass charge.
Should you decide to bid at a sheriff’s sale, you need to review the county court’s website for the date and time of the sale and to review the Notice of Sheriff’s Sale and its terms and conditions.
Most counties have such sales at the same time and place on a weekly basis. You may not need to be personally present to make a bid.
You will have to bring personal identification with you and provide a deposit as outlined in the terms and conditions of the Notice of Sheriff’s Sale. Typically, the deposit is 10 percent. Deposits have to be either in cash or in the form of a cashier’s or money order.
If you are the highest bidder, your deposit will be taken by the Clerk of Court as the down payment. At a later date, there will be a Confirmation of Sale hearing. Once the court confirms the sale, you will have to pay the remainder of your bid price. Most sheriff’s sales require closing on the property within 30-days of your winning bid and deposit. If you have any questions regarding buying a foreclosed home, feel free to speak with a real estate attorney from Schloemer Law Firm.
There is no financing contingency in a Sheriff’s Sale. If you fail to pay the balance of the sale price within 10 days after the Confirmation of Sale, the deposit is forfeited, and a resale is held. The purchaser must pay the recording fees and Real Estate Transfer Fees when the Sheriff’s Deed is recorded.