Buying non-performing note of abandoned property

[Rob Street]

I am interested in buying a non-performing note of a property in California that is tied up in BK and has been abandoned for several months. Ultimately I would like to foreclose and acquire the property. The former owner (borrower) has left the country and is unlikely to dispute any foreclosure proceeding. The property has no equity (worth less than 50% of the first) and thus is of little interest to the BK trustee/court. There is no 2nd and some relatively small liens and tax default amounts involved.

Can someone on this forum please explain 'credit bid' and how that comes in to play at the foreclosure auction? How does the amount that I pay for the note affect the outcome? For example; if I pay $100k for a note of $300k and the property is worth $150k can I bid above what I paid for the note at auction (without adding any additional money) since the original note was for $300k?

Thanks for any input!

[Bill Gulley]

OK, the note is purchased at a discount, the cost to acquire the note is irrelevant.

The amount to bid in, or deamnd is the outstanding principal plus accrued interest to the date of demand as stated in the demand, plus costs of collection and any amounts that were expensed in safeguarding the property, such as weatherization, title search, paying hazard insurance premiums, taxes or other such reasonable expenses in protecting the collateral security. The total of such amounts less any escrows held which can then be applied to offset amounts due in accordance with the note and security agreement. The remaining total is the amount to bid in as the amount to be indemnified from the sale, no more.

A note holder can ask for less, depending on the market. Bidding in a lower amount may be done to move the property, but if the note holder agrees to take less than the amounts owing, they will be limited in seeking any deficiency from that sale. In order to seek a deficiency the note holder needs to make an attempt to collect the full amount due. Don't get a short sale confused with foreclosure where less is agreed to but where a deficiency can be required or sought.

The BK Trustee has a duty to collect all that the market will bear for the benefit of other creditors. If any claim is made that an amount is greater than what is actually owed, that would simply be fraudulent. Having someone bid at the sale over the amount owed is clearly acceptable and paying the total amount of the winning bid.

Did that do it? sorry if I missed it...thanks Steve!