John:
To my knowledge there is no amount that the defendant is entitled to except in one case. In some states there is a “two-thirds” rule, meaning that the property being sold at the sheriff’s sale must have a minimum bid of 2/3 of it’s appraised value. This appraised value is not usually a true appraisal. It is usually comprised of three independant appraisers that do a cursory comp check and a drive-by. It’s been my experience that they come in remarkably similar to county assessor’s tax values. this means that they will most likely be lower than true market value. Regardless of the amount owed, the bidding for EVERYONE (even the bank) starts at 2/3 the appraised value. It is very important that you get to the property owner BEFORE the sale if they fall into this category if they don’t have a ton of liens that the lienholders don’t want to discount. This will allow you to give them anywhere from zero to a few thousand dollars to sign the place over to you and thereby eliminating the competition
The property is sold at sheriff’s sale(and after a confirmation period in some states) and the proceeds are used to pay for (in this order): 1)the costs of the sale; 2)the plaintiff’s defaulted note + interest, attorneys’s fees and costs; 3)the remainder, if any, is sent to the court to determine disposition. If the defendant has a large equity position he could retain the remainder of the proceeds of the sale.
If you are looking into these types of deals…BEWARE that the owner may have a ton of active liens junior to the foreclosing entity and if you buy the property from the owner without doing proper research you could find yourself a bit ‘upside down’. The liens junior to the foreclosing party are wiped away after confirmation of the sale.
Consult a local attorney for the ins and outs in your area, it is usually more than worth the money you spend.
Posted by Ray(OH) on November 19, 1998 at 22:44:04:
Scott,
I have a different question on foreclosures.
When a property goes to sheriff’s sale and nobody bids on it, are the liens (other than the foreclosing lien)wiped out or do they still follow the property? We were under the impression that they are wiped out prior to going to the sale,but now I’m not so sure.
hmmm, I guess I’d better double check, so I’m darn sure.
I sure would appreciate any help on this question, Thanks,
Ray
Posted by John L on November 16, 1998 at 22:55:47:
The reason for my asking such a plain question was to see if anyone else has ever heard what I heard yesterday. I do have an Indiana brokers license, and in keeping with Indiana statutes I was sitting in a class for continuing education when the subject of foreclosures came up. Ironically I am now in the process of buying my first foreclosure (a small property that was listed for sale through the MLS). Normally I buy properties that are one city council meeting away from being condemned (rough, no salvage shape…but dirt cheap), then I rebuild the place from top to bottom (it may sound like a lot of work, but when I’m done I have a house brought up to the 90s and I saved the money for the framing and foundation and ususally a lot more).
On the foreclosure issue though, the only thing that I could come across to buy for the time being was a property snatched away from someone by a bank. Very, very, very rough shape…virtually no salvage. The work doesn’t bother me, what bothers me is the thought that someone lost this house because for one reason or the other they couldn’t make the payments.
Now back to the foreclosure issue and what I heard. During the conversations on foreclosures the issue of equity came up. In a nutshell, we were told about a ‘27% rule’ that basically says that if the owner of the foreclosed property had more than 27% equity in the property, the bank or foreclosing party HAD to pay the owner for their equity. We were given a story of an actual couple who had lived in a house for years and years when they were foreclosed upon. It was shown that they had 95% equity in the property (what was owed vs market value). The bank sold the property and was going to gingerly keep the money when an attorney came to the rescue of the folks and showed them the rule that says if the foreclosed upon owner had more than 27% equity in the property, there was no question as to whether they had money coming…they did and there was nothing anybody could do about it.
Now I know that over and above costs the owner has something coming from the sale of a property. What I’m wondering is if someone has ever heard of this ‘27% rule’ for the owners equity? Any thoughts?