A secured creditor who obtains a foreclosure judgment has the ability to “credit bid” at the foreclosure sale up to the full amount indicated in the judgment, without being required to deposit any funds with the Clerk of the Court. After the entry of the foreclosure judgment and prior to the scheduled sale, a creditor needs to determine the maximum amount that it will bid at the sale and develop bidding instructions for its attorney or other representative who will bid on its behalf.

A creditor’s maximum bid usually is determined as some percentage as the value of the property being foreclosed. For example, if a property recently appraised for $100,000, a creditor may want to bid a maximum of $90,000 to account for the 10% of the property’s value that may be spent holding it as “bank-owned property” as it tries to sell it to a third party. The rationale is that the creditor will recover more if a third party pays $90,100 for the property at the foreclosure sale than it would if it obtains title the property and then sells it to a third party at a later date.

Similarly, a creditor can develop its maximum bid by calculating its actual anticipated holding costs and deducting that figure from the property’s value. This would involve estimating the repair and maintenance costs, taxes, CDD fees, insurance, and any listing costs and legal fees for the particular property, calculated over the time frame that the appraiser estimates will be required to sell the property to a third party. This method is more time-intensive, but it may be worthwhile on larger commercial properties that require additional maintenance or are subject to CDD fees and taxes.

If the property is worth more than the amount of the debt, the maximum bid analysis would be different.  In such cases, it may make sense to bid the full amount of the judgment. (The decision to bid the full amount of the judgment should be approached cautiously, as it causes the creditor to waive its ability to seek a deficiency judgment.)