Our firm receives many inquiries from parties who intend to bid at a foreclosure sale. Foreclosure sales most often occur when a party is unable to pay a mortgage encumbering a property, and a foreclosure judgment is obtained by the lender. What happens next? A foreclosure sale, or auction, is scheduled by the lender. This must be properly noticed by having all parties served with the Notice of Sale, as well as having the Notice published in a general circulation publication, which the Court will order, such as the Journal News in Westchester.
Once all notices have been given, the sale is usually held in the lobby of the Courthouse of the Supreme Court in the County in which the foreclosed property is located. Most courthouses in New York State set aside a specific area or room in their building to hold such auctions, which are open to all members of the public. Prior to the auction date, it is wise for potential bidders to have experienced counsel review the terms of sale.
The sale is then conducted by the Referee for the foreclosed property. The Referee is an individual, usually an attorney, who has been appointed by the Court to conduct the auction and transfer the property after a judgment of foreclosure has been obtained by the lender, who is the plaintiff in the foreclosure lawsuit. The Referee’s role is to prepare all documents, conduct the auction sale, and then prepare the property transfer documents and convey all funds to the lender after the auction.
Let’s now assume that all parties who wish to bid are assembled at the Courthouse for the foreclosure auction. The Referee will first read (out loud) the Judgment of Foreclosure. Then, based on the actual amount owed to the lender as reflected in the Judgment, he will request an opening bid. For example, the Judgment may be in the amount of $300,000.00. This sum would include the amount due on the defaulted loan, all accrued interest and late fees from the loan, the costs and attorneys fees incurred by the lender in bringing the foreclosure proceeding, plus the fees due to the Referee. Therefore, the bidding would start at $300,000.00. If no party (excluding the lender) feels that the property is worth this amount, and no one bids, then the lender’s representative will bid this amount and the lender will become owner of the property.
However, let’s assume in this instance, that the property is actually worth $400,000.00. Third parties will now bid above the lender’s “upset price” of $300,000.00 (usually bidding is in increments of $1,000.00), and the winning bid in this case may be $350,000.00. The winning bidder usually is required to immediately give the Referee a deposit of 10% of the successful bid. In our hypothetical, this would be $35,000.00. Personal checks are not accepted, so bidders must have a bank or certified check payable to the Referee available at the auction to cover this deposit. Obviously, a bidder does not always know in advance what the winning bid will be. Our firm recommends that bidders bring a series of bank or certified checks, one for 10% of the judgment amount, and several more, each for $1,000.00 or $5,000.00, so that the deposit can be paid to the Referee “on the spot.” The Referee will then give the successful bidder a receipt for their deposit, and, under most circumstances, the bidder will then have thirty days to close the transaction and obtain the deed to the property by paying the remaining amount of the bid to the Referee.
The legal procedures necessary for closing the transaction with the Referee after being the winning bidder at the foreclosure sale will be addressed in Part II of this post, so readers of this blog should “stay tuned.”