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Can A Borrower Bid At Foreclosure Sale? (TOP ANSWER)

Mortgage lenders on seller-financed properties sometimes ask questions like “If I start a foreclosure on this property, then when do I get my property back?” This question makes little sense because the lender may never get the property back. This question may be asked by someone who doesn’t understand foreclosures, seller-financing, and how they work. It is impossible for the lender to be certain that it will return the property. It is true that the lender gets to make the opening bid at the foreclosure auction (referred to as the “credit bid”). The lender is the winner if the credit bid exceeds it. It isn’t true, however. The lender might not get the property. A mortgage lender has no surefire way to “get the property back.” That right does not exist. Instead, the mortgage lender is allowed to sell the property. Property off on the courthouse steps (or such other area as the County Commissioner’s Court has designated for the foreclosure auction to occur) 🙈 The purpose of the auction is to sell the property to the highest bidder so that the proceeds from the auction can go towards paying down the balance owed on the mortgage loan 😎 [1]
The entry of the a credit bid at a foreclosure sale reduces, if not eliminates, many of the lender’s rights, extreme caution should be taken to see that the lender does not needlessly reduce its rights. If the lender claims that they are the beneficiary of a valid and enforceable Deed of Trust which is a first priority lien on the subject real property, the opening bid at the foreclosure sale is frequently recommended to be between 20% and 30% of the lender’s equity in the property. See, Restatement of the Law Third, Property (Mortgages), § 8.3 Adequacy of Foreclosure Sale Price: Bernhardt and Hansen, California Mortgages, Deeds of Trust and Foreclosure Litigation § 2.87 (Calif. Cont. Ed. Ed. And Hansen: “The Full Credit Bid ‘Rule’ and Occam’s Razor,” 30 Cal. Real Prop. J. 32 (No. 4, 2012). If the lender has not been granted a valid and enforceable first priority lien on the property then the lender cannot be the beneficiary. Credit bid of materially less than 20% of the equity in the property could be an option. [2]
The auction is the most common type of sale. Open to the public. The foreclosure sale results in the property being sold or returned to the lender. All proceeds go to repay the borrower’s outstanding debt. Some states allow the winner to take possession of the property with a redemption period. In this case, either the lender or the homeowner might be able repay the loan and keep the property. A lender could seek a judgement against the home owner if their winning bid exceeds the amount of the borrower’s entire debt. This depends on the state and situation. Last modified by Karna Barrth, Nanchong China 32 days ago [3]
The experts at investopedia.comLenders may be able to foreclose if homeowners fail to make their mortgage payments. For a foreclosure order to become legal, lenders have to follow specific steps. They must first send a default notice, informing the borrower that the loan has fallen behind due to missed payments. The homeowner is then given a specific time frame to repay any unpaid payments and prevent foreclosure. The homeowner will be responsible for late payments and any balance. If the borrower isn’t entitled to foreclosure, the bank may allow them to use that time to stop it. [4]

Refer to the Article

  1. https://ghristlaw.com/blogs/the-basics-of-what-a-foreclosure-is-and-how-it-works/
  2. https://www.buchalter.com/publication/the-full-credit-bid-at-a-foreclosure-sale-dont-make-one-without-the-advice-of-knowledgeable-counsel-2/
  3. https://www.alllaw.com/articles/nolo/topics/how-does-a-foreclosure-sale-work.html
  4. https://www.investopedia.com/terms/r/right-of-redemption.asp
Kelly-Anne Kidston

Written by Kelly-Anne Kidston

I am a writer of many words, from fiction to poetry to reviews. I am an avid reader and a lover of good books. I am currently writing my first novel and would love to find some beta readers who are interested in getting an early look.

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