Just when I think I’ve got a foothold on certain aspects of real estate investing, I read something that just doesn’t make sense to me. I got this from the weekly Bob Bruss Q & A column of my local paper. Hopefully someone can help me decipher this. Here it is:
Q: Our neighbor sold her property and carried back a $20,000 mortgage on the $120,000 sale. When the neighbor moved out of state, we assumed that mortgage and installment note. We thought if the borrower defaults, we could foreclose and the property would become ours. But a friend told us a public auction is required and we would have to outbid any other bidders to retain the property. Is this correct? The payments are now four months in arrears.
A: Don’t worry. As the foreclosing lender, you can submit a “credit bid” for the amount that is owed to you including attorney or trustee’s fees and other expenses of foreclosure. With the monthly payments already in arrears, it’s time you consult a real estate attorney to proceed with foreclosure. A public auction is required. If someone shows up at the auction and bids $1 more than the amount owed to you, including costs, then you receive that cash and walk away happy. If no bidders show up, you get title to the property subject to any first mortgage, hopefully for a profit.
Now, let’s go back to the original question – When they say “our neighbor sold her property and carried back $20,000 on the $120,000 sale. When the neighbor moved out of state we assumed that mortgage and the installment note.”
– Which neighbor? From whom? Did they assume that mortgage from the original owner? Or did they assume it from the people who bought it from the original owner – the ones who moved out of state? Is this a poorly worded question, or am I missing something?
– When the questioner says, “we thought if the borrower defaults, we could foreclose and the property would become ours…”
– Aren’t they the borrower? Didn’t they just say they assumed it? If not, why wait for the process of foreclosure for the property “to become ours” ? If that’s their goal, why didn’t they just buy it to begin with?
- In the answer portion, Bob says “As the foreclosing lender, you can submit a ‘credit bid’ for the amount that is owed to you, including attorney fees and other expenses of foreclosure.”
– Huh? How are they the ‘foreclosing lender’ ?? What’s a ‘credit bid’ ??
Maybe I haven’t had enough coffee yet for this one, but it just doesn’t make any sense to me. Help?