Why Carleton Sheets Is Wrong About Buying A Duplex At A Sheriff’s Sale

carleton_sheets_reflectI’m a big fan of Carleton Sheets. In fact, it’s because of his late night real estate investment infomercial that I first became interested in aquiring duplexes.

He’s creative. He thinks outside the box. He inspires people to dream. He’s well-spoken…

But he’s flat wrong about some things; especially buying duplexes at the sheriff’s sale in Minnesota.

When a duplex owner falls behind on mortgage payments, the bank issues a notice of default (NOD) and schedules a sheriff’s sale. The NOD usually occurs when the property owner is 3-4 four months behind, and the sheriff’s sale when he is six months behind.

At the sheriff’s sale, the bank “buys” the property back. Now, they don’t show up with a suitcase full of cash to pay themselves. Rather, it’s a paper transaction. Most of the time, their opening bid is equal to the amount owed on the duplex.

So, if a duplex sold for $450,000 in 2005, and the investor put just 10 percent down, there would likely still be something just under $400,000 outstanding on the mortgage.

You are welcome to bid and buy the property at the sheriff’s sale. You just have to show up with enough in cashier’s checks to pay for the property in its entirety. In other words, you’d need to walk into the sheriff’s office with $400,000 on you; to buy a duplex you’ve likely never been inside.

Even if you had that kind of money, in all likelihood that duplex is no longer worth anywhere near that amount. In fact, it may be worth as much as 30 or even 40 percent less.

Worse yet, you can’t just take possession of it. In Minnesota, property owners have six months to redeem the property, which constitutes paying the winning bidder at the sheriff’s sale the amount bid plus penalties, attorneys fees and interest.

In other words, you tie up your $400,000 for six months and hire an attorney to make sure all your t’s are crossed and i’s dotted in continuing foreclosure proceedings.

Worst case scenario, the duplex owner pays you back in full before the end of the redemption period. Or they trash the place just before they move out.

Best case? Six months later you own a property that’s pristine and worth way more than you paid for it; which in this market, is unlikely at best.

Are there alternative ways to get great deals on distressed properties in Minnesota? Absolutely.

Contact me. I’d be happy to talk with you about them.