Foreclosing on a property

[Anh N.]

Hi!  I own a second non-performing note on a property in CA.  I'm foreclosing on the property.  If I want to keep the property, am I allowed to go to the auction and bid up the price so no one else will purchase it?  I realize I will then have to make payments on the first lien.  Thanks!

[Dion DePaoli]

A mortgagee is not entitled to ownership of the real property.  We always have to say that to make sure misunderstandings do not arise.  

Yes, you can go to the auction and bid on the sale.  When the property is set for sale you will define a reserve price.  As a mortgagee you can go to the auction and tender a "credit bid" which is a bid you would pay by way of the amounts due you under the note.  In the event you tender a full credit bid which is a bid equal to the total amounts due under your note you may alienate other strategies of collection such as claims on rents and insurance.  Since you paid yourself in full.

In addition, if you exceed your full credit bid you will have to deliver the cash for the surplus which you are not entitled to.  You are only entitled to the total amount due on the note, surpluses will go to the other interest parties in succession of interest in the property.  As I mentioned, full credit bid, if delivered, is a full satisfaction for what you are owed and is all you are owed.  

Also be aware, all interested parties can redeem the property.  

Last, if you are the successful bidder and gain ownership your obligations to the first lien are not simply periodic payments.  The first position has a right to call the entire loan balance due and if payment is not made in full to satisfy that amount they can foreclosure your ownership out.  A first lien lender does not have to accept monthly payments from you at all.  You have a right to redeem the property.  You do not have a right to step into the borrower's shoes.