Rush of Foreclosures Inflates Sheriff’s Sales
So far this year, 6,700 properties handed over for monthly auction
The flood of foreclosed homes has stretched the staffing limits of the Marion County sheriff’s civil division and drenched the resale market with so many properties that it has nearly dried up profits for investors who deal in homes.
A record high 8,874 foreclosed properties, all but a small percentage of them homes, were handed over from the courts last year for the monthly sheriff’s sale in the City-County Building. This year’s numbers could go even higher, with 6,700 in sales so far this year.
“We do not see daylight now. We are working on three sales all the time” — the last and current ones, plus the next one, said Shirley Challis, commander of the civil division, which handles the foreclosure sales.
The flood of foreclosures in Indiana and elsewhere is the result of a collapse of the subprime lending market, which had pulled many new buyers into the home market with low interest rates that now have risen, making many of the loans un-affordable, industry experts say. A weakening job market and an uptick in interest rates haven’t helped.
Despite facing more foreclosures than any other county in the state, Marion County remains the only one that hasn’t capped the number of properties per month it puts into its sheriff’s sale. That’s done out of fear the county would never catch up.
“If we were to cap these, it would just be chaos,” said Challis.
To try to ease the burden on county sheriffs, whom the law makes responsible for processing foreclosures, a privately run foreclosure sale started in Indianapolis this year.
The Hoosier Auction, run by the Indianapolis law firm Feiwell & Hannoy, handles 100 to 125 properties a month in private sales, compared with a range of 500 to 900 properties handled by the Marion County sheriff. The Sheriff’s Department handles the legal paperwork from the private sale, as required by law.
At the September sheriff’s sale in Marion County, conducted in a public assembly room at the City-County Building, the crowd swelled to about 60 people, leaving a dozen or more empty seats.
A total of 721 properties went into that sale, but more than half were withdrawn by lenders or homeowners beforehand. Many were pulled because homeowners paid overdue mortgage amounts at the last minute, or struck some sort of deal with their mortgage servicers. Still others were withdrawn because homeowners filed for bankruptcy protection, which staves off a foreclosure. This left 21 open to bid.
The glut of properties for sale usually makes for rich pickings for investors, but given the oversupply of homes on the market, investors are reluctant to buy, said James E. Chalfont, an Indianapolis real estate investor who said he has attended all but two or three sheriff’s sales in the county over the past 22 years.
“The potential’s great to pick up a lot of properties. The problem is, who are you going to sell ‘em to?” he said.
Chalfont, who stood on the side of the room eyeing the bids and judgment amounts written in colored marker on wheeled whiteboards, bid on just one property in the most recent sale.
So far this year, only 3.5 percent of properties put into sheriff’s sales in Marion County have been sold to investors or homebuyers. With bidder interest lagging, more properties than ever are going back to the lender that holds the mortgage. The lender then usually tries to sell the home the conventional way, by hiring a Realtor or other agent to market the house to another buyer.
In years past, investors snapped up 8 percent or more of the properties that went into sheriff’s sale locally, estimates Joe Carvin, a real estate investor and consultant who has attended the Marion County sale for many years.
Bargain-hunting is made more difficult by lenders who send their own bidders to the sale to prevent desirable properties from being bought on the cheap.
During the September sale, bidders representing lenders stepped in to bid up prices for a half-dozen properties, winning most of them.
Lenders’ representatives tend to bid in $1,000 increments, a big-money tactic that often scares off individual investors who are used to increasing bids $50 or $100 at a time, said Aaron Adams, of Alpine Property Management, a frequent investor-bidder at the Marion County sale.
The private Hoosier Auction was set up in large part to try to attract more investor-buyers to bid on foreclosed properties, but “this has met with limited success, due to the saturation of available properties in the metro area,” and fewer investors willing to risk their capital in a weak market, said Douglas J. Hannoy, whose firm runs the auction every week or so.
Although foreclosure filings have more than doubled in number since 2001 in Marion County, more taxpayer money isn’t needed to process them. Just the opposite has happened. The county slapped a $200 processing fee on each property two years ago that has turned the sheriff’s sale into a money-maker for the Sheriff’s Department.
The fee will generate about $1.7 million this year, more than covering costs, Challis said.