Demystifying Judicial Foreclosure Sales

So your association has filed a foreclosure lawsuit against a delinquent homeowner and obtained authorization from the court to conduct a foreclosure sale. Now, what happens next? Rather than explaining the relatively complicated procedure and statutes associated with the process, let’s talk about the basics.

After a foreclosure judgment is obtained, the association’s attorney needs to prepare and submit paperwork to the county sheriff’s office to assist them in conducting the foreclosure sale. Depending on the county where the property is located and how many foreclosures the sheriff is processing, the foreclosure sale is normally scheduled between two to four months following the time that the sheriff receives the paperwork. It can also take several weeks for the sheriff to provide the sale date.

At least 48 hours prior to the foreclosure sale, the association is required to place a bid on the property. Assuming that there is sufficient equity in the property, the amount of the bid normally reflects the balance owed to the association including any costs incurred to conduct the foreclosure sale. If there is little to no equity in the property, a deficiency bid may be placed instead. With a deficiency bid, a bid is placed for the amount of any remaining equity in the property. If there is no equity, then the bid can be for $100 or some other nominal amount. The difference between the amount of the bid and the total balance owed to the association at the time of the sale is called the ‘deficiency’. If the association specifies a deficiency in its bid, it may be able to pursue collection of that amount against the delinquent owner(s) following the foreclosure sale.

Foreclosure sales are open to the public and it is not uncommon for investors to attend and bid on properties. The sale is conducted as an auction with the highest bidder becoming the owner of the foreclosed property. Assuming that the association places a bid for the entire balance it’s owed, it will receive payment in full as long as another investor bids at least $1 more. If nobody else places a bid on the property, the association will soon become the lucky owner. A Deed is typically issued by the sheriff nine business days following the sale.

Stay tuned for my next article which will discuss what to expect after an association takes title to a property through a foreclosure sale and also provide suggestions on how to minimize the association’s liability and maximize income.