In Avoiding the $475,000 Mistake – Entering the Credit Bid attorney John L. Hosack, Buchalter Nemer, and mortgages expert witness Joffrey Long write:
Full Credit Bids – The Problem:
If $575,000 is the total of your principal and accrued interest, late charges and other fees and costs, and the property reverts to you as beneficiary after you credit bid that amount, you’re deemed to have been “paid in full.” Having just acquired a $500,000 house in exchange for a $575,000 debt, you (and especially your investors) won’t want to consider this arrangement as “payment in full.”
There may be other ways to collect on your note, such as insurance proceeds, proceeds from title insurance claims, rents, personal property, or payments from a guarantor, if there is one. But if the property has reverted to you under a full credit bid scenario, providers of title or hazard insurance, guarantors, and anyone else you intend to pursue for your losses will point to the fact that you were already “paid in full,” when you acquired the property in exchange for a full credit bid. Any amount that you credit bid at the trustee’s sale is deducted from the total amount owing. Acquiring the property for a lower credit bid, ($100,000, for example) preserves the right to pursue other parties for the remaining unpaid portion of the debt.
Joffrey Long, President of Southwestern Mortgage, chairs the education committee, is a director and is a past president of the California Mortgage Association. He provides litigation consultation for, and is often called upon to testify as an expert in mortgage related litigation matters. See his profile here.