Why Buying Properties at Sheriff Sales in Minnesota is a Bad Idea
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There is so much information out there in books, television, and seminars about buying properties going into foreclosure. Many “experts” recommend that you buy the properties at the sheriff sale or “on the courthouse steps”. There may be great opportunities in other states, but in Minnesota, buying properties at the Sheriff sales is typically not a good idea and it can turn out to be a terrible situation. Here’s why:
At the Sheriff Sale:
You, as the investor, would need to show up at the Sheriff sale with the entire amount of the outstanding mortgage amount to “buy” the house. The foreclosing bank would be excited! Unfortunately, you do not receive the deed at the sheriff sale (and therefore do not own it). You will receive a certificate of redemption. After the sheriff sale, you will enter the next phase, which is:
The Redemption Period:
In Minnesota, the owner of a house in foreclosure has 6 months after the sheriff sale to “redeem” the property by securing new financing and paying off the bank that foreclosed on the property. This is not the area of concern, because if the owner secured new financing, you would simply receive your investment back. The concern is that during the redemption period, the owner still has full use of the house. They can remove all the cabinets, the furnace, and even plumbing pipes. They could kick holes in all the walls and doors. At the end of the redemption period, the bank (or the investor) receives the deed to the house AS-IS. That cute house could now be a rehab nightmare. You just overpaid for a destroyed house.
Alternatives:
1. Wait for the house to go into foreclosure and for the bank to own it. In Minnesota, 99% of all bank-owned property listed through real estate brokers and can be found on the MLS. Buy it then.
2. Contact the homeowner directly and work with them to sell the house to you in a short sale. You way want to work with a qualified Realtor that is experienced in handling short sales as there can be many speed bumps along the way.
Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment property in Minnesota. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.
is it illegal to remove a furnace from your (formerly) house in the redemption period? seems like quite a scam..
Nope. You legally still have all the rights as the owner of the house. You could paint it pink, remodel it, even sell it.
It doesn’t happen often, but I do see it. Usually it is not about the materials (furnace, cabinets, etc), it is about the owner being frustrated at the system/bank and wanting “to show them”.
Rumor has it that they bank can sue the owner for the damages, because it does violate the clause in the mortgage that you must maintain the house in livable condition, but I can’t imagine the bank ever does that as they are already taking it back.