Mortgage Lender is Entitled to Proceeds from Sale
Question: After we refinanced our Glendale home a year ago my husband was injured in a car accident, and was unable to work for three months. We could not make our mortgage payments, and we have now lost our home to foreclosure. Our mortgage lender was the only bidder at the foreclosure sale and now owns our home. In our neighborhood the home prices have been appreciating, and when the mortgage lender sells our home the mortgage lender should be able to make a profit, i.e., sell the home for more than the amount of the mortgage loan plus the foreclosure costs. Are we entitled to any of this profit?
Answer: Probably not. A foreclosure sale is generally a public auction at the office of a title company or at the courthouse. If a buyer purchases a home at the foreclosure sale for more than the amount of the mortgage loan plus the foreclosure costs, the former owner of the home is entitled to those excess proceeds (after fulfilling statutory requirements). As a practical matter, however, usually the only “buyer” at a foreclosure sale is the mortgage lender, and the mortgage lender makes a “credit bid” in the amount of the mortgage loan plus the foreclosure costs. The mortgage lender then has a deed to the home. If the mortgage lender as the new owner of the home thereafter sells the home for a profit, the mortgage lender is entitled to all of this profit. Therefore, your mortgage lender is probably entitled to all of the profit from any sale of your home.