Purchasing good title at a Sheriff’s sale is little tricky, but it can be done. In Iowa, a buyer would want to get at least a title report from a qualified abstractor. It may also be possible to borrow an abstract from the attorney for the foreclosing lender.
The problem is that you may not get a full picture of all of the potential problems unless you get a full abstract (which is generally cost prohibitive) or have the time and expertise to spend a day in the recorder’s and clerk of court’s offices figuring out what the problems may be. The take away is this: You will only get as good a title as the foreclosure plaintiff is getting. If the plaintiff screws up, you buy the screw up. The foreclosure plaintiffs are not paying large amounts for the foreclosure actions, so honestly, they may not be spending a lot of time on title issues. On the other hand, the foreclosure plaintiff has an incentive to try to clear title as best it can so that the plaintiff can flip the property quickly. The last thing they want is some smarty-pants title examiner saying that they didn’t get all of the proper parties served.
Might a buyer at a sheriff’s sale get a bargain as opposed to buying the same property in a private sale? It is hard to say. I have no empirical analysis to prove it one way or the other. It seems to me that the analysis is something like this: (a) At the sheriff sale you may be able to sneak in and pick up a bargain if the lender isn’t expecting a second bidder. (b) If the lender takes the sheriff’s deed and markets the property, it will need to do it in a commercially reasonable way, which in Iowa means providing an abstract, title warranties, and probably having it in a somewhat salable condition. (c) Clearly, the longer the lender sits on the property, the lender will accumulate greater holding costs and deeper losses. (d) How will a particular lender try to minimize the loss: Will the lender try to sell it quickly at a low price to staunch the bleeding or will it hold the line on the cost to collect as much of the holding costs as it can?
