Sheriff’s Sale

What Is a Sheriff’s Sale?

A sheriff’s sale is a public auction at which property that has been defaulted on is repossessed. The proceeds from the sale are used to pay mortgage lenders, banks, tax collectors, and other litigants who have lost money on the property.

Sheriff's sales happen at the end of the foreclosure process when the initial property owner can no longer make good on their mortgage payments. They can also occur to satisfy judgment and tax liens ordered by a court.

How a Sheriff’s Sale Works

A sheriff's sale auction occurs only after the lender has notified the borrower of default and has allowed for a grace period for the borrower to catch up on mortgage payments. The auction is designed for the lender to get repaid quickly for the loan that is then in default.

These auctions often occur on a city’s courthouse steps, managed by the local law enforcement authorities, which is why they are called sheriff's sales. The property is auctioned to the highest bidder at a publicly announced place, date, and time, with notices of each auction found in local newspapers and on many online venues.

To understand the steps that precede a sheriff’s sale, you first must understand how mortgages and the foreclosure process work. A mortgage is a debt instrument that is secured by a specific property called collateral. The borrower must meet his or her obligation to repay the number of interest and principal payments agreed to in the loan contract in a timely manner.

Homeowners, in turn, take out mortgages to leverage a large portion of the cost of their home that they cannot pay upfront. The buyer uses the home as collateral to the lending institution. In the event of a default on the mortgage, the lending institution has a claim on that property.

Foreclosures

A foreclosure is a legal act in which the property used as collateral in the mortgage document is sold to satisfy the debt when the owner defaults on the mortgage payments. Ownership is then passed to the holder of the mortgage or a third party that has now purchased the property at a foreclosure sale.

Enforcement of foreclosures, including related evictions for the property, are carried out by local law enforcement. The sheriff’s office is not interested in hanging onto a house, and banks don’t want to be in the landlord business. Therefore, auctions are conducted quite rapidly once the foreclosure has wrapped up.

Foreclosure proceedings can also be initiated by a tax authority. When income and property taxes go unpaid, the federal government, municipalities, and other tax 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, tax authorities can pursue this unpaid debt through the court system and foreclosure proceedings.

The owner of a defaulted property generally has the right of redemption, meaning the owner can regain it by paying in full the lien and associated costs even after it is auctioned off, though the law varies depending on location.

Special Considerations

If the property is sold through a regular foreclosure auction, the lender is usually selling a property it repossessed on its own. However, if the property is to be auctioned off through a sheriff’s sale, the foreclosure 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 may be able to regain it — even after the auction — by paying in full the lien and any associated costs. Called the “right of redemption,” this law varies from state to state or even among counties and municipalities.

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).