No Full Credit Bids!
Here is even another case from the faraway state of Missouri which confirms that no mortgage company (nor even a private lender) should make a full credit bid at a foreclosure sale. I have been preaching this to my California clients for years. In the Missouri case, the borrower’s home sustained fire damage. Countrywide, the lender, foreclosed on the borrower, making a full credit bid at sale. The fire insurance company subsequently gave an $8700 check payable to Countrywide and a $96,000 check payable to the borrower for the fire damage. The borrower forged the endorsement on the Countrywide check and deposited the $96,000 check. Countrywide sued the borrower for the amount lost by the borrower’s forgery of a check intended to make Countrywide whole for fire damage.
Held: Countrywide loses. By making a full credit bid for what it was owed on the property, Countrywide extinguished its debt against the borrower. Countrywide is denied the insurance coverage because by making a full credit bid at the foreclosure, it basically told the world that it had been fully repaid for its loan, and any recovery after that full credit bid would amount to a “windfall” for Countrywide. Essentially, the law is the same in California. Don’t ever make a full credit bid if you haven’t been fully repaid!