IN AN INDIANA SHERIFF'S SALE, CONSIDER THE OPTION OF USING A PRIVATE AUCTIONEER
March 29, 2007
In Indiana, mortgage foreclosures must be judicial (through the court system). As a general proposition, real estate collateral must be sold, pursuant to a judge's decree, by the county civil sheriff's office.
An alternative. Although not commonly utilized, Indiana has a statute giving parties the option, in mortgage foreclosure actions, to conduct sheriff's sales through a private auctioneer. In other words, an outside auctioneer can hold the sheriff's sale on the sheriff's behalf. The statute is Indiana Code 32-30-10-9(b), which states that either the debtor or a creditor may petition the court to require the property to be sold "by the sheriff through the services of an auctioneer" if: (1) the court determines a sale is economically feasible OR (2) all creditors agree to both the sale method and the auctioneer's compensation. Even if you can't get all the creditors to consent to the method, I think most courts would permit the use of a private auctioneer absent unique, compelling reasons to the contrary.
Costs. The auctioneer's fee must be reasonable and stated in the court's order. In the unlikely event such a sale occurs without the consent of all creditors, and if the sale price is less than the judgment, then the auctioneer only is entitled to $100 in fees plus any out-of-pocket advertising expenses. Amounts due the auctioneer (fees and expenses) must be paid as a cost of the sale from the proceeds before the payment of any other payments. So, as a practical matter, the auctioneer is paid by the senior lien holder. This is perhaps the major, if not only, downside to a privately-conducted sale - the fees of the auctioneer. So, be sure to explore the cost issue before even requesting such relief from the court. Although civil sheriff's fees may vary from county to county, generally speaking an auction conducted by a sheriff is going to be cheaper than one conducted by a private auctioneer. Needless to say, a lender's valuation of the collateral will play a significant factor in the decision to pursue the course of action afforded by I.C. 32-30-10-9.
A potentially good thing. I.C. 32-30-10-9(b) is a nice option for lenders foreclosing on commercial real estate collateral in Indiana. Some Indiana counties may not hold regular sheriff's sales, or their civil sheriff's offices may not be well-equipped to, or particularly interested in, conducting sophisticated sales of commercial real estate. Or, a private firm may be in a better position to market the collateral before the auction. Indeed there are a multitude of factors that may go into a lender's decision to utilize a private auctioneer versus a civil sheriff. The option should be analyzed on a case-by-case basis. As a lender seeking to squeeze as much cash as possible out of an Indiana sheriff's sale of commercial property, you should be mindful of your right to choose a private auctioneer and conduct a cost/benefit analysis accordingly.