August 1, 2018

by William L. Purtell
Lerner, Sampson & Rothfuss
USFN Member (Kentucky, Ohio)

Ohio enacted House Bill 391 (which was effective September 28, 2016), ushering the state’s foreclosure sales into the 21st century. This new legislation contained a novel feature for the foreclosure process: the private selling officer (PSO). A PSO is a licensed auctioneer and broker who can be appointed by the court to administer the foreclosure sale. More importantly, foreclosure sales can now be conducted through the Internet, displacing the traditional sheriff sale on the courthouse steps. Change can be slow, though, as less than 10 percent of this author’s foreclosures sales in 2017 were through a PSO. Despite that, in 2018 — almost two years later — the percentage is starting to climb as the “new” law is being used in significant volume.

Tradition — For two centuries Ohio law required the county sheriff to publicly auction real estate on the courthouse steps to those gathered for the sale. Spread over 88 county seats, attendance at foreclosure sales required a vast network of local agents. Advertisements for the sale were published in the local newspaper for the particular county. It was not until 2008 that the law was amended to allow the sheriffs to list sale information on their own website in addition to the newspaper publication. Suffice it to say that foreclosure practice was relatively staid as far as sales were concerned.

Today — The PSO can hold a sale of the property at any physical location inside the county, including at the courthouse steps or at the property itself. More importantly, the PSO can utilize an online platform to conduct the sale. Some PSOs use their own proprietary websites, while other PSOs enter into service agreements with national platforms (such as Auction.com or Hudson & Marshall). The PSO is authorized to incur expenses to market and advertise the sale in whatever ways they feel are appropriate. The PSO must advertise sales in the local newspaper; they also utilize Facebook, LoopNet, Zillow, and their own customer list. This creates additional expenses not normally incurred by the sheriff; but the goal is to generate more bidders and a higher purchase price, offsetting the increased expenditures. Plus these bidders can be located anywhere in the world — not just in the local county where the courthouse is located.

The major stumbling block to PSO sales is the judge, who must make the decision on each case about whether to appoint the PSO recommended by the lender. The PSO statute, ORC § 2329.152, provides no limits on the court’s authority to accept or reject the lender’s PSO candidate. This is in contrast to Ohio’s receivership statute, ORC § 2735.02, which provides that “In selecting a receiver, priority consideration shall be afforded to any of the qualified persons nominated by the party seeking the receivership.” Therefore, with 244 active judges in the various Common Pleas courts, this can lead to 244 different decisions. In off-the-record conversations with various judges, this author has determined that the judiciary is highly interested in this new law, but would like to see proven results before jumping on the bandwagon. Lenders have expressed the same concerns about wanting to observe results before pursuing PSO sales. Still, someone has to go first, or else the needed data will never be generated. Fortunately, some judges are willing to be vanguards in this new PSO process.

In contrast, other judges want to know why it seems that no one appreciates the local sheriff. As one judge in Cuyahoga County stated in a recent order denying appointment, “Plaintiff's motion to appoint private selling officer is denied. The Cuyahoga County Sheriff is capable of selling the subject property cheaply and expeditiously, obviating the need for a private selling officer. Plaintiff may order sale with the Sheriff.” This sentiment is echoed by a small, yet significant, portion of the judiciary.

What’s Ahead — The goal of the lending industry is to convince the courts that there is no animus toward the local sheriff and, instead, bolster a belief that online sales — with heightened marketing techniques — will increase the quantity and quality of bidders at sale. More bidders means more competition, which raises the final price for a property. Additionally, a higher sale price means more debt is paid off for the lender and more equity can be created for the homeowner. The promise of online sales is to increase the results for all parties involved in the foreclosure. The difficult part is gathering the raw data from thousands of sales to show that this trend is actually occurring. The appointment of a PSO on each new sale adds a new point of data that builds the business case for or against online sales. However, the true test will come when the sheriff goes online to compete against the PSO.

The county sheriff is already authorized to conduct an online sale under ORC § 2329.153, but (as of the writing of this article) the Ohio State has not launched a public website to conduct online sales. This effectively cedes the online market to the PSO for the time being. The court has no discretion to stop a lender from ordering an online sale with the sheriff under this rule. Further, once the public website is launched, this starts a five-year transition period under ORC § 2329.153(e)(1)(a) in which all sheriff sales must be handled online. The end of the five-year period will usher in a complete paradigm shift in which the default option will be an online auction, whereas only a specially appointed PSO will be authorized to conduct a sale at a physical location like the courthouse steps.

The industry is standing at the cusp of a new mode of sale that will alter hundreds of years of real estate practice. The first major step was the creation of the PSO process, with its immediate access to online selling. The second significant step will occur when the sheriff enters the online arena. In five years, Ohio will have fully made the transition from the courthouse steps to the virtual realm. It is certainly an exciting sign of the times!

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Note for consideration of the USFN Award of Excellence: This article is a "Feature."