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.
- 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.