Credit Bidding in Foreclosure Cases in Ohio: SURPRISE - Maybe Not!!
Suppose a foreclosing lender had to come up with the CASH for EVERY deposit required in foreclosure sales in which it was the foreclosing plaintiff and successful bidder at sheriff's sale. It shouldn’t take long to realize that we are talking about a MESS OF DOLLARS here. Could that cause a cash flow issue and maybe slow down the pace of foreclosures? Well maybe.
About a year ago, Ohio made several significant changes to its foreclosure law. Then and probably even more now, foreclosures (particularly of the residential variety) were widely being perceived as increasingly serious epidemic. And so various foreclosure mediation programs were born, backlogs legitimately produced delays, and courts in some areas of the state started instituting procedures such as referring every single foreclosure case to a magistrate which promised to slow the entire process down considerably.
Now from a lender standpoint, none of this was good news. But apparently, in the view of some, this wasn’t enough. And so, in some courts now – primarily in northeast Ohio which has been hit hardest, additional measures have been taken to make foreclosure a more difficult process for lenders.
I mentioned the other day that I’d made a trip down to a Franklin County, Ohio sheriff’s sale in a pending foreclosure case I am handling for a client. And part of the reason I went myself was that it involved bidding for a junior lienholder in a situation in which we were anticipating contested bidding. Which squarely raised the question: could I credit bid on behalf of this junior lienholder or was my client going to have to come up with the full amount of the deposit typically paid by third party purchasers?
Now, you think you know things… and then you find out that well, maybe, you don’t or at least the whole world isn’t the way you thought – and if you’re anything like me, that starts to concern you at least a wee little bit ‘cuz now you start to worry ‘bout what you CAN rely upon. And what I learned this week was that while fortunately here in Franklin County, the world of foreclosures and sheriff’s sales was indeed precisely as I thought, it’s a “whole ‘nother ball game” elsewhere in Ohio.
Specifically what I found out was that the concept of “credit bidding” whereby a lienholder did not have to come out of pocket so long as the amount of its bid was no more than the amount owed it was not quite so universal a truth as I had heretofore believed. Here in Franklin County and Central Ohio, sanity – from the lender perspective – reigns. First lienholders needing or wishing to bid in a property brought to sheriff’s sale in a foreclosure proceeding need only bring a much smaller specified amount to successfully “bid in” property. In addition, junior lienholder (such as my client) are also not required to pay more than this.
In Cuyahoga County (i.e. Cleveland), it’s a whole different story. There, NO ONE is allowed to credit bid AT ALL. Local Rule 27 governing foreclosure sales requires a 10% deposit (based on the appraised value of the property being offered) to be made by the successful bidder at sheriff’s sale. It also states:
When the purchaser is the lien holder after the lien of costs, taxes and assessments, the Court may order, if the lien holder or assignee is the successful bidder at sale, that the required deposit be waived and thar all costs, taxes and assessmenof ts be paid upon receipt of a statement from the Sheriff of Cuyahoga County
However, the Foreclosure Terms of Sales available on the Cuyahoga County Sheriff’s website make it absolutely clear that NO WAIVERS willl be granted, stating "There shall be no waiver of Deposit for any Sheriff Sale.".
A similar procedure has also been adopted in Erie County. In Lucas County (i.e. Toledo), however, lienholders are only reqired to come up with $1000 plus the amount of real estate taxes due. And in Montgomery County, Local Rule 2.23 permits credit bidding for first lienholders, but not for jumior lienholders, So I suppose the practice point here is to be sure to check the local rules before showing up at a sheriff's sale.
Why is this happening? it arises from the interpretation of revised Ohio Rev. Code 2327.02 which provides in reelvant part:
If the property is sold under an order of sale or transferred under an order to transfer, the officer who conducted the sale or made the transfer of the property shall collect the recording fee and any associated costs to cover the recording from the purchaser or transferee at the time of the sale or transfer and, following confirmation of the sale or transfer and the payment of the balance due on the purchase price of the property, shall execute and record the deed conveying title to the property to the purchaser or transferee. For purposes of recording that deed, by placement of a bid or making a statement of interest by any party ultimately awarded the property, the purchaser or transferee thereby appoints the officer who makes the sale or is charged with executing and delivering the deed as agent for that purchaser or transferee for the sole purpose of accepting delivery of the deed
Not certain the statute actually forbids credit bidding? Well, neither am I. Now, rationally and logically, here is what I can see. If counties want a deposit to be made to cover real estate taxes, well O.K. maybe I can see that. However, beyond that, when it comes to the first lienholder, it doesn't even make sense to require additional payments into the Court, It doesn’t make sense because the lienholder is PAYING ITSELF at this point!!
For junior lienholders, I suppose I can see some logic here, but as a practical matter , it still makes very little sense. Junior lienholders in one case are likely to be seniore lienholders in another case so it is unlikely that there will be any actual problem with payment of these amounts at the time the deed is ready. And not infrequently, given the delays experienced in completing the foreclosure process, the successful lender bidder will have already assigned its bid and sold the property to a third party in any event , thus complicating the financial accoounting for these transactions.
