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Credit Bid

In short

A credit bid is a bid at a foreclosure auction that the lender places using the debt it is owed instead of cash. The lender can bid up to the amount of its debt without paying any money.

Who can make it
The foreclosing lender
Maximum
The total debt owed
Paid with
Debt, not cash
Common outcome
Lender takes the property as REO

Where it fits in a foreclosure

Credit Bid belongs to the auction stage.

  1. 1Missed paymentsThe owner falls behind; the servicer sends notices and may offer workout options.
  2. 2Pre-foreclosureA notice of default or lis pendens is filed. The owner can still sell, catch up or negotiate.
  3. 3AuctionThe property goes to a public sale, usually for cash, as-is and often without an inspection.You are here
  4. 4Bank-owned (REO)If no one outbids the lender, it takes the property back, clears most title issues and lists it.
  5. 5ResaleA buyer or investor purchases, repairs and occupies, rents or resells the home.

How credit bidding works

Because the sale proceeds would go to the lender anyway, the lender does not need to bring cash to a foreclosure auction. It can bid any amount up to what it is owed, including principal, interest, fees and costs. Third-party bidders must pay in cash or certified funds.

Why lenders bid below the debt

A lender may credit bid less than the full debt when the property's value is lower than the loan, so that outside bidders are more likely to buy. If the lender's credit bid wins, the property becomes REO. In some states, a credit bid below the debt can affect whether the lender may seek a deficiency judgment.

What it means for other bidders

You must beat the credit bid to win. Since the lender's bid costs it nothing in cash, the lender may bid up to its full debt if it believes the property is worth that much. Knowing the debt amount helps you judge how high the lender could go.

Example

Bidding against a credit bid

A lender is owed $230,000 and the property is worth about $260,000 as-is. The lender opens with a credit bid of $185,000 and is authorized to bid up to its full debt. An investor bids $190,000, and the lender's representative raises its credit bid to $200,000. The investor's maximum is $205,000, so the investor bids $205,000 and wins when the lender stops.

Credit Bid vs. Opening Bid

Credit Bid

A credit bid is a bid at a foreclosure auction that the lender places using the debt it is owed instead of cash. The lender can bid up to the amount of its debt without paying any money.

Opening Bid

An opening bid is the first bid at a foreclosure auction, usually placed by the lender. Other bidders must exceed it to buy the property; otherwise the lender takes it back.

The differenceA credit bid is the lender's non-cash bid using the debt owed. The opening bid is simply the first bid at the auction, which is often, but not always, the lender's credit bid.

Frequently Asked Questions

Related terms

Foreclosure AuctionForeclosure processA foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.Deficiency JudgmentForeclosure processA deficiency judgment is a court ruling that makes a borrower personally liable for the remaining mortgage debt when a foreclosure sale brings in less than the amount owed.TrusteeForeclosure processIn real estate, a trustee is the neutral third party named in a deed of trust who holds legal title for the lender and can sell the property at a trustee sale if the borrower defaults.Notice of Trustee SaleForeclosure processA notice of trustee sale is the public notice, in a non-judicial foreclosure, that sets the date, time and place a trustee will auction a property to repay the defaulted loan.Judicial ForeclosureForeclosure processA judicial foreclosure is a foreclosure that goes through the courts: the lender sues the borrower, a judge orders the sale, and the property is auctioned, often by a sheriff or court officer.Non-Judicial ForeclosureForeclosure processA non-judicial foreclosure is a foreclosure carried out without a lawsuit. A trustee sells the property at auction under the power-of-sale clause in the deed of trust or mortgage.LienTitle & legalA lien is a legal claim against a property that secures a debt. It must usually be paid off before the property can be sold with clear title, and the creditor can force a sale in some cases.

Learn more in the knowledge base

How Foreclosure Auctions Work: A Guide for First-Time BiddersGuide · 8 min readA foreclosure auction is the public sale where a lender's collateral is sold to repay a defaulted loan. Rules on notice, payment, title and redemption are set by state law, and buyers usually pay cash for a home they have never been inside. This guide explains how the process works so you know what you are bidding on.Auction Day Bidding Strategy for Foreclosure SalesGuide · 6 min readAuction day is where your research turns into a binding purchase, so preparation and discipline matter more than tactics. This guide covers what to do the night before, how bidding works in person and online, how to stick to your maximum and what to do right after you win or lose.Researching a Foreclosure Property Before the AuctionGuide · 6 min readAt a foreclosure auction you usually buy as-is, unseen and without contingencies, so research done before the sale is your only protection. This guide covers how to confirm the sale details, check title and liens, estimate value and repairs from the outside and turn it all into a maximum bid.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.