WINDFALL TO BANKS: Credit Bid Still Not Drawing Attention to Defective Fraudulent Foreclosures

The only party that can make a credit bid (i.e., use the foreclosure judgment instead of paying cash) is one who is still a senior secured creditor as to the property being auctioned.

In my review of the results of many auctions it is apparent that a credit bid was submitted by a party relying upon a dubious claim as the actual creditor at the time the auction was held. The clerk is committing error when it accepts a credit bid from a party who is not the creditor.  The question is whether the right to attack the certificate of sale or the auction process is preserved when the homeowner has failed to object to the credit bid.

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In a judicial state, most people treat the actions and events after judgment as ministerial acts of no consequence. But upon review, as pointed out by me in 2011, based initially upon the research by Charles Koppa (in San Diego), it seems that the initial problems with the loan documents persist even at auction.

This is revealed in one of three flavors: (1) a credit bid submitted by someone other than the Plaintiff in the foreclosure action and who is not the secured creditor at the time of the auction and (2) the certificate of title is issued to a party who was neither the plaintiff nor the party who submitted the credit bid and finally (3) a credit bid is submitted by the Plaintiff but the Plaintiff is no longer the senior secured creditor. All three can overlap as we have repeatedly seen in Florida and several other states which have come under our review.

In Branch Banking v Tomblin, a 2015 case dealing with the issue of who can submit a credit bid the logic of allowing a credit bid was explained:

Credit bidding is allowed because “no useful purpose [is] served in requiring a bondholder or a mortgagor to pay cash to a court officer conducting a judicial sale when he would be entitled to immediately have it paid back to him under the decree authorizing the sale.” Grable v. Nunez, 66 So. 2d 675, 677 (Fla. 1953). However, credit bidding would not appear to be available to a senior mortgagee that has not foreclosed its mortgage. (e.s.)

So the upshot is that in a situation where a party claims to be the senior secured creditor it must have been the Plaintiff in a foreclosure action. Any other reasoning would allow what we already know is happening: widespread fraudulent foreclosures performed by entities whoa re indemnified against charges that it intentionally mislead the court and the borrower.

So the bottom line is that the credit bid may ONLY be submitted and should not be accepted by the clerk unless the Plaintiff submits the credit bid and where the Plaintiff is still, at the time of the auction, the senior secured creditor on the property that was subject to the foreclosure action — in short the real party in interest.

At this point the issue is NOT whether they are the “holder” or “owner” of the promissory note. They must be the party to who would be entitled to immediately have it paid back to him under the decree authorizing the sale.” Grable v. Nunez, 66 So. 2d 675, 677 (Fla. 1953).

This seems to be where the rubber meets the road. If the party submitting the credit bid is not entitled to the actual monetary proceeds of the sale (because they are in fact financially damaged by the defendant’s failure to pay) then if they want to bid they must do so in cash.

This is exactly opposite to the strategy employed in foreclosures today. The foreclosing party seeks and obtains a foreclosure judgment, an auction follows and NOBODY pays any cash for the bid. Instead the foreclosing party receives a windfall having absolutely no money in the deal either for origination of the alleged loan or for the purchase of the alleged loan (an event that clearly has not happened in 99% of all “loans” subject to claims of securitization).

Thus it would seem pretty clear that anyone, including the homeowner, could object to the auction and the certificate of title and demand they be set aside. And if the next highest bidder would be the one awarded the property, or depending upon the court, the auction might be reset along with a finding of who, if anyone, can submit a credit bid. Is anyone listening?

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