A certificate of sale is a court-issued document awarded to the winning bidder at a mortgage foreclosure auction. These kinds of certificates are unique elements of United States law, and the terms and conditions of issue of a sale certificate usually vary by state. In almost all cases, a certificate of sale entitles the bearer to take possession of the named property as of a certain date. How that date is calculated, as well as any terms of conditions that must be met before a certificate can be converted into a deed, are typically matters of local law.
Mortgages are popular ways for people to finance the purchase of a home. They are essentially long-term loans, repayable in monthly installments. In a mortgage situation, the mortgage lender, usually a bank or other financial institution, provides the money upfront to buy the house in exchange for a lien on the title. If payments are missed, the lender can foreclose in order to recoup the remainder of its initial investment. Selling the mortgaged property in a foreclosure sale is one way for a lender to raise these funds.
Foreclosure sales are usually conducted by the courts, or by a county sheriff closely affiliated with the courts. Most of the time, sale is by public auction. The highest bidder must usually be able to pay the winning bid price in cash at the time of the auction, or within a finite period of time thereafter. If the bidder comes up with the money to back his bid, he is issued a certificate of sale.
The certificate does not usually entitle the bidder to take immediate possession of the premises, nor does it establish ownership as would a deed or land title. Rather, it simply indicates that the property has been sold, and that the bidder is first in line to claim it. The bidder must usually wait until the court and the mortgagor settle the final terms of the transfer in order to assume physical ownership. Legal documents solidifying that ownership will come once those settlements have been made.
A certificate of title can, in some places, be overcome by an original owner’s right of redemption. Some states grant original owners a certain amount of time after a foreclosure to remedy the problem, and come up with the money to pay back the mortgagor. This is known as a “right of redemption.” Not all states have rights of redemption, but in those that do, the amount of grace time can run from a few weeks to a few years. A lengthy right of redemption can make owning a certificate of sale a risky investment.
It is important to distinguish a certificate of sale from a certificate of retail sale, which pertains to taxes, and a bill of sale, which pertains to direct ownership transfer. Certificates of retail sale are issued by retailers, primarily car dealers, at the point of sale. They are usually designed to prove that sales tax was paid on the purchase price. A bill of sale is essentially a title transfer instrument through which an owner transfers outright ownership to another by passing on the property’s title. Certificates of sale, on the other hand, are unique to the mortgage and foreclosure space.