October 4, 2019
When most people think about the judicial system, they immediately think about criminal law and people going to jail.
Another very important purpose of the judicial system is to ensure that commerce can flourish. The courts enable companies and people to enter into contracts and other financial dealings with reasonable assurance they can rely on the contract and dealings being enforced. One such example of this role of the judicial system is sheriff sales.
Sheriff sales are typically associated with unpaid mortgages, so let’s use that as our example. When a mortgage goes unpaid, the lender must have a means of satisfaction. We do not want a lender to be able to just show up and kick individuals out of their house when they have missed mortgage payments. Eventually, this type of lender power would be abused by someone or a mistake would happen, and innocent people would find themselves without a home. Instead, we look to the judicial system to provide a process to protect everyone’s interest.
Lawsuit, judgment entry, auction
When a lender determines payments have been missed and the borrower is not likely to catch up on payments, the lender will file a lawsuit against the borrower. The lender will be required to show that the borrower has missed payments and is in violation of the mortgage agreement. The court (judge) will issue a judgment entry, which basically finds that the lender has proven the borrower owes money and is behind on payments. The judgement entry will direct the sheriff to sell the property.
The sheriff then proceeds to advertise the day, time and conditions for the sale. The property will be sold at an auction held by the sheriff. The initial bid must be at least two-thirds of the appraisal price of the property. The appraisal is conducted by an appraiser appointed by the sheriff and may be different than the value established by the county auditor. If the property does not bring at least two-thirds of appraisal price at the auction, the property will be sold at a later auction — with a lower starting bid or no minimum bid at all.
If the property is purchased at the sheriff sale, the court will issue a confirmation, which names the purchaser, orders the sheriff to execute a deed to the purchase and identifies who is to receive the proceeds from the sale. Upon receiving the deed from the sheriff, the purchaser will record the deed, which completes the process.
The sheriff sale extinguishes all liens on the property. Even if there is more than one mortgage on the property and/or the property does not bring enough to pay off the entire mortgage, the buyer receives the property clear of liens. The sheriff sale will typically not extinguish deed restrictions or easements. For example, if the property includes an easement to allow the neighbor to cross the property, the easement will remain after the sheriff sale. Also, most sheriff sales are “as is,” so there is no guarantee as to the condition of the property.
Right of redemption
The foreclosure law includes a right of redemption. This allows the party being foreclosed upon to pay off the debt at any time up to the confirmation order and receive the property. The court allows the foreclosed party every opportunity to keep the property, as long as the debt is paid prior to the confirmation order. Also note that the buyer at a sheriff sale is not guaranteed to receive the property until the confirmation order is issued by the court.
None of us ever want to be the subject of a foreclosure, and it’s unfortunate many foreclosures occur due to circumstances outside the control of the borrower. However, we do need a process to ensure lenders get their money so lending continues to be viable. The foreclosure process at least provides a process to mostly avoid lender abuses and to give the borrower every chance to redeem the loan.
Contact Moore, an attorney with Wright & Moore Law Co. LPA, at 740-990-0751 or [email protected].
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