Difference Between Tax Sale And Sheriff Sale.

[David]

Hi -

Just out of curoisty. What are some of the inherent differences between these two types of auctions? There is information on tax sales property on the web, however to find out general information on Sherrif sales seems to be difficult  For Example -  message boards, the law concerning sherrif sales. Can anyone provide any information pertaining to these types of sales?

Regards -

David.

[Pfm1011]

There isn't much info out there. The basic deal with them is you are buying as it sits, you are stuck with all bills , mortgages etc except for the specific claim which is being enforced at the sheriff sale.

The sales can be caused by the ex-wife wants her money , contractor built an addition and wasn't paid or the owner lost a civil suit.

So if the property is being sold on behalf of citi bank for outstanding debt on credit cards. When the property sells at auction the proceeds are used to pay the lawsuit , however if the Royal bank has a mortgage on the property, you will still have to pay that off.

As with all debts, only debts registered on title are enforceable. ( except for property tax and utilities which don't need to be registered)  I expect on many pieces  you will get a pile of guys claiming that they are owed money after you buy. IE plumbers and electricians etc (as generally someone who has the sheriff take his house has screwed more then just one person) however the workers have no claim under the RSLA if they didn't register the lien on title prior to the sale. They will be a pain but they cant come in and tear down the addition after you buy and all their rights to do so ended after the auction hammer fell.

As with taxsales you have no right to inspect or enter the property and everything is "as is" and you must do a pile of diligence prior going to auction.

The listing for the auctions are in the Ontario Gazette, same as the tax sales.

The big advantage is of course the properties are  in better shape then taxsale property but the best deals out there ( or safest ) are the POS ( Power of Sale) listings as they are delivered free and clear and you can inspect. Of course  POS listings have absolutely insane asking prices and needless to say don't ask the realtor if the price is fair...... might as well ask a barber if you need a haircut or  a great white shark if the lagoon is safe to swim in.

There are tons of POS listings on MLS of course they arent listed that way. Some will say "as is" but most listings fail to mention the POS and try to keep it as a insider deal . There are now some agents who will send out daily listings of the POS sales but they are "rebels" as us victims arent supposed to know about the POS. 

In all types of sales you must have a very very good knowledge of the local markets or you will be a victim

[David]

Thanks PFM for the response -

So basically your buying the 'equity' someone has in a property. and if there is a mortgage(s) on the property and any liens you will be liable?.

 So for example if the equity in the property is 50,000$ and a mortgage for 250,000$ with a lien on the propety for 20,000$ , you end up winning the auction for 10,000$, and the property is worth 300,000$ all other things being equal you sell the house for 300K.

Would your return on the 10K (winning bid) be 20K after the sale (Bid + Lien + Mortgage)  - (Sale Price) ?

[twinn1]

This a risky route to go on.  Years ago I attended many of these auctions, a lot of times there are no bidders and the auction gets reschduled.  The Banks stay on the title so you are still responsible for the mortgage amount.  Usually these people are still living in their properties so good luck getting them out.  I spoke with a few regulars at these auctions, some of them said that they have made money but have also lost money on some deals.  Better hope that the first one you buy is a money maker.

A freind of mine ( a contractor) had to go through this porcess as well when one of his clients failed to pay him for the work done, work was well in excess of $150K.  It took him three auctions to get his money back.

Its impossible to know your return because you do not know the condition of the house, how long it will take to evict the owners etc...  The ones that I had gone too had a profit margin of 20-30K after all costs.  Thats not a lot of money considering that you do not know how much money will be have to spent on the inside.

[Pfm1011]

Twinn1 has it about right. Alot of potential downsides so the deal better have a huge upside. Presume the interior is a writeoff . In your example of a 300k house, I would not touch the deal unless it appears you have a max exposure of 200 including reno's.  In todays market a 300k house could easily turn to a 250K house , then lose the realtors commission, cost of money, property tax, potential eviction costs, etc etc. This can eat up profit fast.

Remember deals come along every couple weeks . Never jump into a deal that has risk. Why would you even look at this stuff unless the profit is a "sure thing"  Citi Bank can afford to lose money, we cant . One  bad deal can set you back years.  Lose 50K on a deal and then look how long it will take you to save 50K.. Would take an average working man 10 years to save 50k

Thats why I like the POS. At least the numbers are there and you don't have to guess if you are about to spend 30 K on kitchen and bath. You know what you are buying, You just have to get the right price

[twinn1]

POS or power of sale (not piece of sh..) although sometimes they are is also riskier.  Canadian laws state that the lender has to attempt to get top market value for the property or the former owner can sue the bank.  The former owner gets the excess money after the sale once banks/lawers/real estate fees get paid. 
They tend to sit on the market for a while as the banks list them close to comparables although they need a lot of work.  Much safier route to go on a power of sale then on a sheriif auction. 

Most POS properties ask for a schdule B to be included in the offer, as well as the power/lights might be out.  The best stragedy is to put an offer of 30-40% less then the asking price and see if the bank bites.  DO NOT let the real estate agent dissaude you, no matter what the offer is they have too present it to the bank, don't be shy. 

Another way around it (although questionable as far as business ethics are concerned) would be to put an offer 40% below asking price to test it, bank might come back with a signback at 10%, you walk away.  Get a friend or relative to put in another offer through a diff Real estate agent at 35% below(one week later), this way you are setting an approximate floor for the value of the house.  Repeat again if needed. This gives the banks more leverage to sell the property as the market as set a floor for the value of the house.  The risk is that this takes time and someone else might come along and buy it.

[Pfm1011]

They tend to sit on the market for a while as the banks list them close to comparables although they need a lot of work.

They actually list them 20% higher then any comparable . The comparables are usually in substantially better shape so the POS asking is totally off in lala land.

The owner generally  cant come back after them if the house was MLS for 24 hours or more. But you are right that the first offer generally wont get the deal as bank has a hard time justifying a low dollar sale with only one offer. The double offer is not unethical, whats unethical is asking 20% above market just to protect the bank and the agents blowing smoke up you dispite knowing the house is hugely overpriced.  I have had an agent actually deny it is power of sale while spewing the BS about owner is in no rush to sell..they certainly are a trustworthy lot...and with the slowdown they will get worse

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