ARTICLE 19: The Pros and Cons of Investing in Properties Acquired via Sheriff's Deed

The Pros and Cons of Investing in Properties Acquired via Sheriff's Deed

A sheriff's deed is a property transfer through foreclosure auction conducted by the county sheriff. When a homeowner defaults on their mortgage, the lender forecloses. The property is sold at public auction. The winning bidder receives a sheriff's deed—a legal document granting property ownership.

Sheriff's deeds offer major advantages: properties sell at 30-70% discounts and buyers don't need bank financing. But risks include title defects, redemption rights (original owner can reclaim property after sale), unknown property conditions, and junior liens that survive foreclosure.

For savvy investors, sheriff's deed auctions represent consistent opportunities to acquire deeply discounted properties. This comprehensive guide reveals how sheriff's sales work in Illinois, advantages and disadvantages of sheriff's deed investing, exact due diligence processes, redemption rights implications, and strategies to profit from sheriff's deed acquisitions.

What is a Sheriff's Deed? Your Gateway to Below-Market Illinois Properties

When a property owner defaults on a mortgage, the lender forecloses. In Illinois (a judicial foreclosure state), the process works like this:

  1. Lender files suit in county court to foreclose
  2. Court determines the homeowner is in default
  3. Property is sold at public auction conducted by the sheriff
  4. Winning bidder pays the auction price
  5. Sheriff executes deed transferring property to the winning bidder
  6. Bidder becomes owner (subject to redemption rights)

The sheriff's deed is the legal document proving the bidder owns the property.

Key Differences from Regular Deeds

A sheriff's deed differs from a regular deed because:

  • It's executed by the sheriff (a government official), not the property owner
  • It's issued pursuant to a court foreclosure judgment
  • It may be subject to redemption rights (original owner can reclaim property within specified period)
  • Property is sold "as-is" with no warranties

Unlocking Deep Discounts: The 3 Major Pros of Sheriff's Deed Investing

Advantage #1: Steep Discounts from Market Value

Properties at sheriff's sales often sell at 30-70% discounts because foreclosed owners are desperate, property condition is unknown, and buyers fear title complications.

Example:

  • Market value: $200,000
  • Sheriff's sale price: $120,000 (40% discount)
  • Investor profit potential: $80,000

Advantage #2: No Bank Financing Required

Traditional purchases require bank approval. Sheriff's auctions are cash sales—if you have proof of funds, you can bid and close quickly. This speed is valuable: close in 30 days instead of 45-60 days, reducing carrying costs.

Advantage #3: Predictable Auction Schedule

Sheriffs conduct foreclosure sales on predictable schedules (often first Tuesday of the month in Illinois). This allows systematic, repeatable acquisition processes.

Buyer Beware: The Critical Cons of Sheriff's Deeds

Disadvantage #1: Redemption Rights

Critical issue: In Illinois, foreclosed owners have the right to redeem (reclaim) the property within a specified period after the sheriff's sale (typically 6-12 months).

Impact: You buy at auction for $150,000 and invest $20,000 improving it. Original owner redeems six months later. You lose your entire $170,000 investment.

This redemption right is the biggest sheriff's deed risk.

Disadvantage #2: Title Defects and Junior Liens

Sheriff's foreclosure sales eliminate the first mortgage lien but do NOT eliminate junior liens (second mortgages, judgment liens, tax liens recorded after the first mortgage). You acquire the property subject to all junior liens.

Disadvantage #3: Unknown Property Condition

You cannot inspect the property before auction. You're buying "as-is" with no warranties. The property could have structural damage, foundation problems, unpermitted additions, code violations, or environmental contamination.

Disadvantage #4: No Title Insurance

Title companies are often reluctant to insure sheriff's deed properties because of redemption rights and potential title defects. The property becomes difficult to refinance or sell.

Your Due Diligence Checklist: How to Safely Invest in Sheriff's Deed Properties

Before bidding at sheriff's sales, conduct thorough due diligence.

Due Diligence Step 1: Understand Redemption Period

Determine:

  • Is this residential or commercial property?
  • What is the redemption period?
  • Can the owner redeem?

Due Diligence Step 2: Search for Junior Liens

Conduct title search identifying:

  • All liens recorded after the first mortgage (these survive foreclosure)
  • Tax liens
  • Judgment liens
  • Mechanic's liens
  • Other encumbrances

Due Diligence Step 3: Estimate Redemption Likelihood

If owner redeems, they must pay the original judgment amount plus court costs, sheriff's sale price, and sometimes interest. Estimate redemption cost—if high, redemption is unlikely; if low, it's more likely.

Due Diligence Step 4: Property Inspection

You cannot enter the property, but you can view it from the street:

  • Note visible structural damage
  • Look for code violations
  • Check neighborhood condition
  • Talk to neighbors about property history

Due Diligence Step 5: Research Property History

Check:

  • Previous sales prices and dates
  • Number of foreclosures (multiple = problematic)
  • Property condition reports
  • Code enforcement or housing complaints

Due Diligence Step 6: Calculate Maximum Bid

Determine maximum bid based on:

  • Market value: $180,000
  • Redemption probability: 60%
  • Expected holding period: 12 months
  • Carrying costs: $5,000/year
  • Junior liens: $25,000
  • Remediation costs: $10,000
  • Profit margin: 20%

Maximum bid: $95,000

Real-World Sheriff's Deed Profit Formula

Successful sheriff's deed investments:

  1. Identify property: Market value $250,000
  2. Due diligence: Junior liens $20K, 40% redemption chance
  3. Calculate max bid: $180,000
  4. Win auction: Bid $180,000
  5. Wait redemption period: 12 months, carrying costs $4,800
  6. Owner doesn't redeem: Property yours free and clear
  7. Pay off junior liens: $20,000
  8. Resell: $250,000
  9. Profit: $45,200

The Bottom Line

Sheriff's deed investing requires understanding redemption rights, junior liens, and property condition risks. But for investors conducting thorough due diligence and bidding conservatively, sheriff's sales offer some of the steepest real estate discounts available.

Master sheriff's deed investing and discover a systematic, repeatable source of deeply discounted properties that most investors completely avoid.

Related Resources