Once a lender has finalized its foreclosure action, the Court orders that the real estate be auctioned off to satisfy the outstanding indebtedness. Usually this means that the, now, judgment holder must wait for at least thirty days prior to the sale to cash in on their judgment. However, any experienced lender will tell you otherwise. A device employed by institutional lenders and private lenders alike is called “An Assignment of Right to Bid.”
Assignment of Right to Bid:
This assignment is exactly as the name would imply, the assignment of the judgment holder’s right to bid the judgment amount at the auction. So, let’s say Wells Fargo has a foreclosure judgment against John Doe. Wells Fargo’s judgment says John Doe owes Wells Fargo $200,000.00 and the property will be sold off to satisfy the judgment amount. If Wells Fargo does not want to wait to have the property sold at the auction, a third party who was not part of the lawsuit can come to Wells Fargo and buy Wells Fargo’s judgment. At this point, Wells Fargo has sold its right to bid at the foreclosure auction but nobody else knows this. Enter the Assignment of Right to Bid. Wells Fargo executes one of these assignments and states that it is assigning its right to bid at the foreclosure auction to a third party. Like magic, Wells Fargo is paid and some third party who had nothing to do with the foreclosed loan, the lender, the borrower, or the foreclosure action, now has the absolute right to bid at the foreclosure auction just like Wells Fargo did.
The primary benefit for a lender like Wells Fargo in a situation like this is they will be paid, and paid quickly. After who knows how long of maintaining a non-performing asset on their balance sheets, they finally have some finality. Further, lenders are not in the business of owning real estate, otherwise they would be landlords instead. Thus, by utilizing the Assignment of Right to Bid, Wells Fargo did not have to appear at the foreclosure auction, never ran a risk of being an owner of the property, and, most importantly, cleared a non-performing asset off of its balance sheets.
Assignment of Bid:
Now, take the same situation as above, Wells Fargo has a foreclosure judgment against John Doe for $200,000.00. Except this time, Wells Fargo goes to the foreclosure auction and wins the property at auction. On the day of the auction, the Clerk of the Circuit Court files a certificate of sale which states how much the property was sold for, who won the property at auction, and the date the property was auctioned off. Between the certificate of sale and the issuance of title to the winning bidder, there is a 10-day statutory period for objections. In this time period, Wells Fargo can assign its bid to some third party. When Wells Fargo assigns its bid to a third party, the third party will ultimately receive title to the purchased property at the end of the 10-day waiting period. Essentially, Wells Fargo has just resold the property without having to pay real estate agents, documentary stamp taxes, or recording fees that traditionally accompany the sale of real property. Upon recording the assignment of bid, and the end of the 10-day waiting period, the title is issued by the Clerk of the Circuit Court to whomever Wells Fargo has assigned their bid to. This means that the new party will be responsible for paying any taxes due to the Court and State of Florida. Further, this new third party is responsible for paying the Court any unpaid amounts still due and owing post foreclosure.
The primary benefit to using the Assignment of Bid, as opposed to the Assignment of Right to Bid, is that now Wells Fargo has resold the property for, hopefully, an amount that is close to the fair market value, as opposed to the foreclosed value. While Wells Fargo’s judgment may have been for $200,000, the property may have been worth $350,000. Most third parties are not going to pay over and above a judgment amount prior to a foreclosure sale, in hopes of becoming an owner. However, after the sale has occurred, it is more common to receive amounts above and beyond the judgment amount. And, just like with the Assignment of Right to Bid, Wells Fargo is not becoming a landlord/property owner.
Whether you are purchasing the Assignment, or selling the Assignment, knowing how to navigate the convoluted process is key. Failure to follow the appropriate timelines may result in a lender unintentionally becoming an owner of real estate as opposed to a lender. Moreover, if you are purchasing as an investment, it can become a complicated process to remove the homeowner or tenant that just had their home foreclosed. With 45 years of real estate experience, the attorneys at Chiumento Dwyer Hertel Grant know how to help you navigate this process.