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Sheriff’s Sale of Foreclosed Home Set Aside Because Appraisal Failed to Take into Account Home’s Interior Condition

A Publication of Skidmore & Associates, A Legal Professional Association

By: Spiros Vasilatos, Jr. (1)

Buying a foreclosed home from a sheriff’s auction is risky. Many potential buyers do not have the opportunity to inspect the homes and must rely on the sheriff’s appraiser as to the home’s value. Homes subject to these sales are not sold at less than two-thirds appraised value and this is why the accuracy of the appraisal is so important.

On April 23, 2004, the 2nd District Court of Appeals affirmed a trial court’s decision to vacate the sale of a foreclosed home upon motion of the purchaser when the home’s interior was found to be covered with mold, thereby seriously affecting its appraised value. Huntington National Bank v. Burch, 157 Ohio App.3d 71 (2004).

In December of 2001, Huntington National Bank (“Bank”) filed a foreclosure complaint against its borrower because she was in default of her loan obligation. The trial court later awarded judgment in favor of Bank and ordered the property be sold. The Clark County Sheriff’s Department had three appraisers determine the home’s value to be $50,000.00, however, none of the appraisers examined the interior of the home. The sheriff’s sale was held in May of 2002. Robert Burton (“Buyer”) placed a bid for $41,500.00 which was accepted. The Buyer had previously only inspected the exterior of the home himself.

In June, prior to the sale’s confirmation, Buyer filed a motion to vacate the sale. Buyer alleged that the interior of the home was a health hazard due to excessive mold and that this condition rendered the home almost worthless. Since Buyer had relied on the sheriff’s defective appraised value of the home and the home had no subsequent value, the trial court found that confirmation of the sale would be unconscionable. Bank appealed this decision.

Buyer argued that the appraisers failed to conduct the appraisal in conformity with Ohio Revised Code 2329.17 which states that, “when execution is levied upon lands and tenements, the officer who makes the levy shall call an inquest of three disinterested freeholders, residents of the county where the lands …are situated, and administer to them an oath impartially to appraise the property…upon actual view”. (Emphasis supplied).

The 2nd District Court has previously ruled that a trial court should not confirm a sale of property where “the interior of the house was not examined during the sheriff’s appraisal, and the interior condition of the house would have an impact on the value of the property because the sheriff’s appraisers failed to appraise the property as they were sworn to do in conformity with Ohio Revised Code 2329.17” Glendale Fed. Bank v. Brown, 1994 WL 12475 at *3 (Jan. 21, 1994).

At trial, a sanitarian with the Clark County Combined Health District testified that almost every inch of the interior of the home had mold growth and the easiest and most cost-effective remedy would be to demolish the home. Also affecting the trial court’s decision was that Buyer had no opportunity to inspect the interior of the home before bidding on it. The notice of the sheriff’s sale also did not include a warning to potential bidders that the $50,000 appraisal did not include an inspection of the interior. The 2nd District Court affirmed the trial court, finding in favor of the Buyer. The Bank was left with a worthless piece of collateral and the borrower was unable to retire the debt owed.

Although the Buyer eventually prevailed in this particular case, the primary goal of a foreclosure sale is to protect the interests of the bank and liquidate the collateral to retire the debt owed. Foreclosure sales customarily follow the doctrine of buyer beware. The court’s decision in this case is very fact specific and the court only protected the purchaser to avoid “gross injustice.”

It is best for potential purchasers to arrange for their own inspection of residential property. This is sometimes difficult to do when one is dealing with a large bank that administers many mortgages and foreclosure actions. Often times the best way to gain access to the home is to contact the debtor. Debtors still in possession of the home may be willing to allow potential purchasers an opportunity for inspection because they are interested in the home being sold, which in turn will be used to satisfy their debt with the bank. In this case, the 2nd District Court decision protected the unsuspecting Buyer from the perilous and unforgiving clutches of the doctrine of caveat emptor (buyer beware) based upon a technical interpretation of “actual view” under ORC 2329.17.

  1. I would like to thank Megan Reinhart for her substantial contribution to the preparation of these materials. Ms. Reinhart has been a law clerk for Skidmore & Associates for approximately one year and will be entering her third year at the University of Akron college of Law in the Fall of 2004..

This article has been prepared for the purpose of disseminating information only and should not be interpreted or construed in any way as legal advice.