#4 - Judicial Sale and Deficiency Flashcards
When Does a Judicial Sale Occur for Personal Property?
Almost never, because secured creditors generally prefer Art 9’s procedures for non-judicial sale.
Oversecured vs. Undersecured
Oversecured = when debtor has equity
Undersecured = when debtor owes a deficiency
Anti-Deficiency Statutes
Some states like CA have statutes that forbid creditors from going after a debtor’s deficiency. These creditors can go after the collateral but not the deficient amount remaining if the property does not sell for enough to pay off the full debt. Generally this applies to the primary residence first and foremost.
If you breach the peace as a secured creditor, that could also eliminate your deficiency pursuit options.
Problems with Judicial Sales and Nonjudicial Foreclosure Sales
1) Bidders don’t know true value of asset
2) In most judicial sales, there will be a deficiency, because the property might be valued more than the debt but these sales don’t bring in the FMV
3) Bidders may think the estimated market price is way off (usually too high)
4) Legal notice advertising doesn’t bring in many bidders
5) Most potential buyers can’t inspect property
6) Buyers take subject to title defects and property condition
7) Debtor (title holder) may be hostile
8) Property may come with statutory right to redeem (debtor may even have possession rights)
9) Secured creditor (lender) has right to credit bid
10) Bidders can’t inspect the property - but still subject to CAVEAT EMPTOR (buyer beware), take subject to problems
First Bank v. Fischer and Frichtel
If foreclosed property is sold but the sale price does not satisfy the outstanding debt, the amount of the debtor’s deficiency is measured by the difference between the amount of the outstanding debt and the foreclosure sale price
What is credit bidding?
Creditors who force the foreclosure can bid up to the amount owed w/o actually using $USD.
BENEFITS OF HIGH CREDIT BIDDING
(1) minimize the likelihood the sale is set aside for inadequate sale price.
(2) minimize the likelihood the debtor exercises its statutory right of redemption (redemption = sale price)
(3) if outbid, creditor receives the total amount of the secured debt; if not outbid, it will have the property inspect, evaluate, improve, and resell at its leisure.
What is strict foreclosure?
Strict foreclosure does not result in a sale. The Secured Creditor becomes the owner of the collateral and the debtor’s equity right of redemption is extinguished.
Foreclosure Sale Procedure
(1) foreclosure sale.
(2) proceeds used to pay for sale
(3) proceeds used to pay debt.
(4) in surplus, remaining proceeds go to debtor.
Why are foreclosure sale prices so low?
FACTORS THAT DEPRESS FORECLOSURE SALE PRICES:
(1) advertising
(2) inspection
(3) title and condition (caveat emptor; buyer takes title subject to defects that could be discoverable via search)
(4) hostile situation
(5) statutory right of redemption
Sale Confirmation
In most foreclosure proceedings, the court must review the circumstances underlying the sale and confirm the sale to consummate the transaction. Once confirmed, the sheriff will execute a deed or bill of sale and convey property to the purchaser.
