The end result of a foreclosure proceeding is a sale of the property. Money
from the sale goes to satisfy the outstanding debt plus accrued interest and
expenses. If there is any money remaining, it is used to pay any junior lien
holders on the property and , finally, the borrower. If, as often happens, the
proceeds are not enough to cover the debt, a deficiency judgment may be brought
against the borrower.
The foreclosure sale is conducted as an open auction where anyone interested
in the property may enter a bid. Procedures for conducting a sale are set by the
courts or within state law and vary from state to state. However some features
are universal. Adequate notice of the time and place of sale, as well as
description of the property, must be given to both the borrower and the public.
This may include an official notice at the county court house and some type of
advertisement in the local legal newspaper. This is to insure that the public is
notified of the sale and any interested party may bid. Procedures used for
entering bids and accepting a winner are written in the law as well.
When a judicial foreclosure is used, the sale is conducted under the
instructions and supervision of the courts. In some state, a minimum acceptance
price will be set by the court. Some states regulate how much a lender can
recover through foreclosure. In all cases the court must accept the result of
the sale before it finalized. This requirement is to protect the borrower from a
large deficiency judgment resulting from too low sales prices.
Nonjudicial foreclosure sales are conducted by the trustee or designated
person in the mortgage contract. Procedures are described in the contract and
are consistent with state law. There is some potential that nonjudicial sales
will be set aside because of a challenge from the borrower. However , most
borrower who feel aggrieved by the sales proceedings will sue for damages rather
than set aside the sale. Therefore, as a practical matter, nonjudicial sales are
as safe for the successful bidder as are judicial sales.
In almost all foreclosure sales, the lender is the successful bidder on the
property. A lender may bid a specific dollar amount. Outside bidders are
encouraged to bid so that the sales is more fair and less likely ro be
challenged. The winning bidder receives the property in the same legal condition
the property was in prior to making mortgage. The foreclosed mortgage and any
junior mortgage made afterwards are eliminated. However, the title may still be
clouded by any right of redemption provided to the borrower by state law. This
can be a serious drawback to bidders in states that provide a lengthy right of
redemption.
An individual investor may feel intimidated bidding against institutions at a
foreclosure sale. Most lenders, however, will be pleased to see the property go
to an outside party, alleviating them of receiving the property and reselling
it. The primary objective will be to assure that the winning bid is not too low
and that they do not receive what is owed on the mortgage. If you feel confident
that the property can be obtained at a good price, bid. You may find it more
advantageous, however, to buy from the lender after the foreclosure sale is
consummated.
