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Sheriff's sales yield few bargains and are no place for beginners

Saturday, December 01, 2001

By Gretchen McKay, Post-Gazette Staff Writer

Even in the slowest real estate markets, opportunities like this don't come around very often: a two-story brick colonial in Mt. Lebanon selling for a mere $25,000.

During a sheriff's sale at the County Courthouse, Cheryl Bauer, a paralegal with the Bernstein Law Firm, asks for a delay on a property involved in bankruptcy. (Darrell Sapp, Post-Gazette)

The deal is especially sweet when you consider the four-bedroom house, built in 1935 and graced with central air-conditioning and a brick patio, sold for $135,000 in 1999.

Turns out there's a catch -- several catches, really.

The property, which is scheduled to be offered tomorrow at the Allegheny County Sheriff's Office's monthly tax and mortgage foreclosure sale, has at least one tax lien, for $8,000, and maybe a second mortgage and other debt. Though it might look OK from the street, you can't walk through it to check its condition. (The former owner may still be living there).

And last but certainly not least, you would have to come up with the total amount of the house, liens and other costs within a week.

For these and other reasons, few of the hundreds of properties the county offers each month are sold to anyone other than the mortgage holder. There are bargains out there, say authorities and sheriff's sale regulars, but finding them is a time-consuming and difficult process.

The first Monday of every month, the sheriff's office auctions off properties on which the owners have failed to pay their property or school taxes and/or defaulted on their mortgage. A decade ago, the county auctioned maybe 80 commercial and residential properties a month, says Marty Madigan, supervisor for the real estate division. Over the past several years, however, as home buying has become easier, the number of mortgage delinquencies has gradually increased.

GLS, the Florida company that bought 600,000 tax liens from the county in 1997, has also been "very aggressive" in collection and foreclosure, says Madigan.

As a result, the sheriff's department now regularly auctions more than 300 properties a month. And as the economy slips further into recession and the unemployment rate rises, the number of foreclosures most likely will grow.

That has drawn increasing interest from neophytes looking for bargains. Madigan says he gets 50 to 60 calls a month from people asking about specific properties.

But very few of those callers end up buying. According to Madigan, nearly all of the dwellings end up being bought back by the foreclosing lenders, who then typically list the houses with local real estate agents at full market value.

The remaining few are picked up by veteran investors such as Nick Kavalieratos of Kavalieratos Rentals or David Bundy, a Moon developer.

Potential buyers listen to the listings of properties being read off during a monthly tax and mortgage foreclosure sale held by the Allegheny County Sheriff's Office in the Gold Room at the County Courthouse. (Darrell Sapp, Post-Gazette)

An auction regular who fixes up homes and resells them, Bundy says he has purchased hundreds of properties from the county since 1988, including three at the Nov. 5 sheriff's sale. Bundy, who has had to cough up as much as $57,000 on a property in surprise liens, says it's not a game for beginners.

"If you can't afford to put what you're spending on the ground and set a match to it, you shouldn't be bidding," he says.

But if you're still determined to try, here's how:

For starters, you need a lot of cash. Successful bidders must pay 10 percent of the purchase price at the time of sale (cash, certified check or cashier's check) and then come up with the balance by the following Friday. If you can't, you forfeit your earnest money and the property goes back up for sale the next month.

Before you get to the auction, you'll probably have to spend time doing research, or paying someone else to do it. The amount published in the newspaper is the judgment amount owed by the defendant (or homeowner) but it's not the entire debt that goes with it.

"There could be a lot of other debt out there," Madigan says.

That could include judgment liens, income tax liens, senior mortgages or deeds (loans taken out prior to the one in default) and unpaid real-estate taxes.

Companies like AAA Closing Inc. in Carnegie charge $250 for a title search and basic report. If you do it yourself, you would have to make six checks: county prothonotary's office, recorder of deeds, register of wills, clerk of courts, federal clerk of courts and local municipality or school district.

Now, get ready to spend more time holed up on a Monday in the Gold Room of the Allegheny County Courthouse, waiting for your target property to come up for bid. And be prepared to come back. If a property goes into bankruptcy, the sale is automatically postponed for 90 days. The homeowner could also settle the debt or enter into a new agreement with the lender.

If it all sounds pretty hopeless, it is. Most of the properties are burdened with a long list of liens or judgments while others, neglected over the years or simply abandoned, are just plain "junk," officials says.

Bona fide grand slams -- where a house in good condition sells for far less than market price -- are pretty rare, says sheriff's solicitor William Stockey. But some people are willing to take a swing.

Savvy buyers attend several auctions to figure out how the process works, who the players are and to get a feel for the market. That's what Jay Belcher of McMurray is doing. Belcher has always known about sheriff's sales, but it wasn't until two months ago that he attended his first auction in hopes of finding a property he could rehab and rent out. He went to the Nov. 5 sale to learn which properties sold and which were postponed.

Lt. Kathy Pahler of the Real Estate division, reads a list of properties offered at sheriff's sale. (Darrell Sapp, Post-Gazette)

"It's complicated and you have to be alert," he says, adding that it would be a "couple more months" before he would feel safe actually bidding. One property Belcher checked out had 13 liens on it.

One of the scariest things about foreclosure sales is that the prospective owner can't see what he is bidding on. Sure, it's relatively easy to determine the exterior condition of the house simply by looking at it. And the Allegheny County real-estate Web site provides the basics, such as number of bedrooms and bathrooms, square footage, tax information, prior sales and assessed value.

In addition, the local building inspector can tell you about any building permits issued for renovations or repairs. But for most buyers, the interior is almost always a mystery until they actually take possession.

Last week, a man who bought a condominium, sightunseen, at a sheriff's sale in Warminster, Bucks County, found the badly decomposed corpse of the former owner in the living room along with three years' worth of mail. And horror stories abound about vengeful homeowners damaging walls, breaking windows and sinks or pulling up floors before they're evicted.

"You just never know," says Madigan.

Another drawback: If the homeowners refuse to leave after the title has been conveyed, you will be responsible for evicting the occupants -- a process that not only costs money but is almost always painful for everyone involved. The new owners must also provide the evicted homeowners with a moving truck and pay to put their possessions in storage for up to 30 days.

Finally, if you purchase a house that was auctioned for failure to pay taxes, keep in mind that the owners still have a 90-day period to pay up. If they do, you lose the house.

A much safer option, says Madigan, is to approach the mortgage company immediately after the foreclosure sale, before the property is listed with a real-estate agent. Because of liability and tax issues, many institutional lenders are eager to unload foreclosed homes as quickly as possible, and often for 10 percent to 15 percent less than the cost of the debt.

Not only will that allow you to arrange for financing, freeing up your finances for any repairs or remodeling, you'll get a clear title, worry-free. That's worry-free, not free:

"Depending upon the institution and the market value of the property, banks are often willing to make a deal," says Vince Zappa, a Metz Lewis real estate attorney who regularly represents lenders at sheriff's sales. "But no bargain-basement prices. They're not stupid."

A sheriff's sale is no place for rookies, he says.

"It's a minefield."


The Allegheny County Sheriff's Office will hold its next tax and mortgage foreclosure sale tomorrow at 9 a.m. in Room 410 (Gold Room), Fourth Floor, Allegheny County Courthouse, 436 Grant St., Downtown. Property listings are published the last three Mondays of the month alternately in the Post-Gazette print edition and the Tribune-Review. For more information, call 412-350-4739.

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