Lenders can typically credit bid at sheriff’s sales in an amount well in excess of the minimum bid requirements, as a result of which some real estate investors shy away from attending and bidding at sheriff’s sales because they feel like they won’t necessarily get a “bargain”.  Accordingly, lenders are typically the successful purchaser at sheriff’s sales.  However, the epic credit meltdown that began in 2008 resulted in lenders’ REO (real estate owned by the lender) spiking to the point where, beginning in 2009 or 2010, lenders—especially on the residential real estate side–no longer wanted to be the purchaser at foreclosure sale.   This caused them to consider—particularly after being bombarded with pitches from real estate auction houses–using a “special master” instead of the sheriff to conduct foreclosure sales, with the thought that the sales would be well attended by buyers not concerned with being outbid by the first mortgagee.

Pursuant to Revised Code § 2329.34, a master commissioner may be appointed by the court to sell real property. Such sales often work more like a private auction than a public sale, with specialized brokers performing targeted advertising prior to the sale.  Although auction companies usually don’t mention this when marketing their services to lenders, the scenarios under which a court may appoint such a special master are limited, however, to those situations where “there exists some special reason why the sale should not be made by the sheriff of the county where the decree or order was made, which reason, if the court finds any to exist, shall be embodied in and made part of the judgment, order or decree for such sale.”  See Huntington National Bank v. Conservatory Associates, LLC, 2011-Ohio-3249 (order for master commissioner sale overturned because trial court did not specifically incorporate special reasons for the sale into the final judgment, but rather glossed over the issue by indicating that the plaintiff’s motion was “well taken” and “granted”). Examples of possible “special reasons” may include:

  1. An inordinate length of time in a particular county between the date foreclosure decree is entered and the date of the foreclosure sale;
  2. The property was previously offered at sheriff’s sale but resulted in a “no bid no sale”; and
  3. The nature of the property is such that it would be best for all parties that it be sold by a master commissioner instead of the sheriff.

It is important for lenders to make sure they support any motion for sale by special master with appropriate reasons why the particular property ought to be sold by a special master instead of the sheriff, and for the court order granting that motion to contain specific findings with respect to those reasons.  Otherwise, the sale could be attacked by the borrower after the fact, or a title company might refuse to insure the buyer’s title.