The Old Ways Just Don’t  Work Anymore
Until recently, recovery through foreclosure in Ohio had relatively predictable outcomes.  The property would be appraised and offered for sale by the sheriff with a minimum bid of two-thirds of the appraised value.  If not outbid by a third-party bidder, the creditor would acquire title to the property and then sell the REO, to make at least a partial recovery. 

Now, due to the stagnant real estate market and the disappearing availability of credit for potential buyers, third-party bidders at sheriffs’ sales have become an endangered species.  REO inventories have become bloated, compounding the loss.  Creditors must seek more creative ways to achieve maximum recovery on the debt.

Ohio Law Allows Licensed Auctioneers to Conduct Foreclosure Sales
The county sheriff, as an officer of the court, typically conducts foreclosure sales in Ohio.  However, a law that is seldom used authorizes the court to order the sale to be conducted by a licensed auctioneer.   Auctioneers’ efforts to publicize the sale, and often conducting the auction at the premises, might attract more bidders than would ordinary sheriff’s sales. 

The request for the sale to be conducted by an auctioneer can be made by motion and/or can be included in the foreclosure complaint.  The court, in its discretion, may or may not grant a request for a sale by an auctioneer.  If a request for a sale by an auctioneer is unopposed, we anticipate that many, but not necessarily all, judges will be amenable to it. 

Just as some lenders have had some success in conducting auctions to dispose of REO’s, our firm has been successful in arranging for foreclosure sales by auctioneers in some commercial property foreclosures.  For some residential properties, a foreclosure sale by an auctioneer might also be economically viable.  A sale by an auctioneer might also avoid delays due to backlogs of sheriff’s sales in some counties.

Compensation and Reimbursement of Auctioneer's Expenses
Auctioneers, of course, charge fees and incur costs to publicize the sale, and therefore, sales by auctioneers are more expensive than sheriff’s sales.  The law states that the auctioneer shall receive such compensation and reimbursement for the expenses of advertising the auction as the court finds reasonable and proper, which shall be charged as costs in the case. 

The cost should be measured against the potential benefit in order to decide whether a foreclosure sale by an auctioneer might be economically beneficial in a particular case.  

Pre-Foreclosure Open Houses for Vacant Properties
A sale to a third-party bidder is always desirable.  An opportunity to view the interior of the premises might promote additional bidding by third-party bidders.  The new foreclosure law authorizes, although does not require, the sheriff to arrange and conduct an open house if the property is vacant. 

So far, it does not appear that the sheriffs will take any such action on their own initiative.  After all, the sheriffs’ departments are all struggling to keep up with their ordinary duties in foreclosure cases.  However, we can take some additional action in the case, including seeking a court order, to prevail upon the sheriff to do so.  The sheriffs will charge a fee to conduct an open house, which will be paid from the proceeds of the sale.   There may be vacant properties with presentable interiors, where an open house might be beneficial.

More Details
Both foreclosure sales by auctioneers and pre-foreclosure open houses involve more specific procedures, cost-benefit analysis and other issues.  Please contact us for advice about these cutting-edge initiatives to improve your foreclosure results.

If you have any questions on this information, please contact Larry R. Rothenberg, the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section for the treatise, “The Law of Distressed Real Estate,” published by The West Group. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan. Larry can be reached at (216) 685-1135 or via e-mail at lrothenberg@weltman.com.

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation.  The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship.  Contact any of our offices or visit our website at www.realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. (c)2008