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Melbourne Property sold at Sheriff Auction for $1,000 reversed / cancelled

Wednesday, June 13, 2012 - Posted by Philip Harvey

It was widely reported in December 2010 in the Sheriffs auction rooms (Carlton, Melbourne) a six bedroom house was sold at auction for $1,000 after being seized by the sheriff.

Before going any further, it is important to deal with a possible misconception surrounding the $1,000 sale price. Under this sale process by the sheriff, the person who purchases the property also assumes the mortgage associated with it. In this case, the mortgage had an outstanding mortgage debt of approximately $465,000. If you factor in this mortgage, if the purchaser was to pay this out, the total cost of acquiring the property is actually $466,000 (plus any applicable stamp duties etc). The property was valued at around $620,000. So the real gain to the purchasers would have been approximately $160,000 (on the assumption it sold at the valuation figure).

The auction performed by the sheriff was set aside on appeal by Justice Vickery, noting that the sale price was so unfair that the sheriff did not act reasonably in accepting it.

Justice Vickery noted;

"It is important to note that, although the order of Associate Justice Mukhtar expressly authorised the sheriff to conduct a sale of the property without a reserve price, this was not an unfettered authority to sell at any price which could be obtained. The order expressly directed that any such sale must be conducted in a manner which did not “derogate from, or relieve the sheriff of a duty at law to the owner of the land when exercising power of sale”

“Whatever may be the inclination of the court to support a public officer in the unprecedented circumstances of this case, the sale as a matter of law cannot be allowed to stand,” it was ruled.

“Because the sale was not one which was properly concluded under Division 5 of the Sheriff Act for the reasons which have been explained, s 25(1) of the Sheriff Act cannot apply and [buyer Ronald] Kousal does not gain good title to the property under it."

“As to the breach of the common law duty, at the time of the second auction the value of the equity in the property was approximately $165,000.

“This was known to the sheriff’s officer conducting the sale, who announced the amounts owing on the property to the bidders prior to commencing the auction.

“The sheriff’s officer also had in his possession the kerb-side valuation of the Valuer General placing the market value of the property at $630,000.

“There was some $465,000 owing on the property.

“Nevertheless, it was knocked down to the highest bidder on the day, Mr Kousal, for $1,000.

“This price bears no relationship to the evident market value of the property or the Zhou’s equity in the sum of approximately $165,000 which was put up for sale.

“In my opinion, and after taking into account all of the relevant factors to which I have referred, this price was so unfair that the sheriff did not act reasonably in accepting it.

“The transaction cannot remain in place at common law.”

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