What is 'Sheriff's Sales'
A sheriff’s sale is a public auction where mortgage lenders, banks, tax collectors, and other litigants can collect money lost on property. A sheriff sale occurs at the end of the foreclosure process when the initial property owner can no longer make good on his or her mortgage payments. A sheriff sale can also occur to satisfy judgment and tax liens.
BREAKING DOWN 'Sheriff's Sales'
In order to understand the steps that precede a sheriff’s sale, we must understand mortgages and the foreclosure process.
Mortgages are debt instruments that are secured by specific property. The borrower must meet the obligation of the amount of payments agreed to in the contract. In everyday life we see homeowners take out mortgages to leverage large portions of their home’s cost they cannot purchase upfront. The buyer uses the home being purchased as collateral to the lending institution. In the event of a default on the mortgage, the lending institution has a claim on that property.
A foreclosure is the legal act where the property which was used as collateral in the mortgage document is sold to satisfy the debt when the owner defaults on his or her mortgage payments. Ownership is then passed to the holder of the mortgage or a third-party that has now purchased the property free and clear at a foreclosure sale.
Foreclosure proceedings can also be initiated by a taxing authority. When income and property taxes go unpaid, the federal government, municipalities and other taxing authorities can attach tax liens to real estate. Whoever attaches the lien to the property now has a claim on that property. If these liens go unpaid, taxing authorities can pursue this unpaid debt through the court system and foreclosure proceedings.
Sheriff Sales are Initiated by the Courts
If the property is sold through a regular foreclosure auction, the lender is usually selling a property it repossessed on its own. If the property is being auctioned off through a sheriff’s sale, the foreclosure took place in the court system as a sheriff’s sale cannot take place without authorization from a court.
Once the lending institution or taxing authority receives a judgment, the court will issue a directive for the sheriff’s office to auction the property.
In many states, the owner of the defaulted property is given the opportunity to regain the property – even after the auction – by paying in full the lien and any associated costs. Called the ‘right to redemption’, this law varies from state to state or even among counties and municipalities.