That “75% of the anticipated gross sale price upon re-sale” may be less than the amounts owed the mortgagee and other superior liens makes no difference. If the mortgagee bids more than “75% of the anticipated gross sale price upon re-sale”, he invites two evils. First, the mortgagee discourages other bidders from overbidding the mortgagee and relieving the mortgagee of the inconvenience of holding and re-selling the property when it is highly probable that upon re-sale, the property will not net the mortgagee anything above this 25% discount. Secondly, if the property does not re-sell for this amount, the net to the mortgagee may be less that this “75% of the anticipated gross sale price upon re-sale”. This is an additional loss that cannot be collected as part of a deficiency.

If a mortgagee’s “debt plus costs” are less than this “75% of anticipated gross sale price upon re-sale”, the mortgagee should bid its “debt plus costs”. It is likely that the mortgagee will be overbid, thereby getting the mortgagee paid-off quickly and avoiding the inconveniences, expenses and risks of holding and re-sale. A “debt plus costs” bid contains an assumption that must be understood. Specifically, “debt plus costs” must include the amounts owed on all superior mortgages, liens and taxes.

Therefore, a mortgagee’s bid at a foreclosure sale will be governed by the foregoing and regardless of whether the foreclosure sale is: (1) the foreclosure sale of the mortgagee’s own mortgage; or (2) the foreclosure sale of a superior mortgage held by someone else. If the foreclosure sale is the foreclosure sale of an inferior mortgage, there is no reason to bid because the sale will not affect the mortgagee’s mortgage. Therefore, the RULE is – never bid more than the lesser of “75% of the anticipated gross sale price upon re-sale” and “debt plus costs”. More specifically:

(1) The opening and only bid at the foreclosure sale of the mortgagee’s own mortgage (1st, 2nd, 3rd, etc.) is the lesser of “75% of the anticipated gross sale price upon re-sale” and “debt plus costs”, including what is owed on prior liens.

(2) Your bid must be in certified funds and the opening bid of the mortgagee at another superior mortgagee’s foreclosure sale is: (a) The amounts owed on superior liens (mortgages, liens, taxes), plus $1.00 if that bid is lesser than “75% of the anticipated gross sale price upon re-sale” and “debt puls costs” including what is owed on prior liens. (b) If there are competitive opposing bids, the mortgagee’s bid should increase until it reaches the lesser of “75% of the anticipated gross sale price upon re-sale” and “debt plus costs” including what is owed on prior liens.

What happens to the “Deficiency” (i.e. the part of the mortgagee’s “debt plus costs”, including what is owed on prior liens in excess of “75% of the anticipated gross sale price upon re-sale or “debt plus costs”, including what is owed on prior liens”)? It is lost and generally cannot be collected if the state in which the foreclosure takes place prohibits its collection. This does not lessen the validity of this bid. The reason is that this bid can encourage other bidders to overbid the mortgagee, thereby giving the mortgagee the property’s net value more quickly than by re-sale by the mortgagee and without its risks. Put differently, the value above this bid will probably not be realized out of a property and it cannot be realized out of the mortgage’s liable parties when state law prohibits it.

If the state where the foreclosure sale occurred allows the mortgagee to legally pursue the collection of the deficiency, a bid in accord with this article preserves that right and is mandatory. In the pursuit of that collection, the mortgagee will be able to justify the deficiency for the reasons already stated. They reflect economic reality and validate a deficiency as fair and the deficiency as a true loss which the liable parties are legally bound to pay.

Related Materials:
Mortgagee’s Bid Worksheet | Deficiency Judgment Table | Postponement Table