If, as a lender, you tender a full credit bid at your sheriff’s sale, make sure you don’t unwittingly overbid. If you do, you later could be forced to pay cash to cover the difference. This is what happened in Stoffel v. JPMorgan Chase, 2014 Ind. App. LEXIS 34 (Ind. Ct. App. 2014).
Setting. Stoffel arose out of a post-sale motion by a borrower/mortgagor to compel the plaintiff lender/mortgagee to pay an alleged surplus. In Indiana, the sheriff must pay any surplus back to the mortgagor. The borrower in Stoffel wanted to recover the alleged “difference between the face amount of the judgment and the amount bid at the sheriff’s sale,” even though the sheriff did not hold any excess sale proceeds.
Foreclosure judgment. The lender and the borrower in Stoffel entered into an agreed foreclosure judgment that awarded the amount of the debt, together with “any additional costs of collection, expense, and disbursements incurred from the date of the [lender’s pre-judgment affidavit of debt] to the date of the Sheriff’s Sale, including, but not limited to, Sheriff’s Sale costs, disbursements for real estate taxes, bankruptcy fees and costs, and disbursements for hazard insurance premiums.” These additional items could not be specified until the sale.
Credit bid. The lender submitted a winning “credit bid” (a/k/a “judgment bid”) in the amount of $152,121.72. The Court noted that a “credit bid” is made “by the judgment creditor in which no money is exchanged.” The bid is not backed up by cash but rather the amount of the judgment. The lender in Stoffel believed that the judgment amount was enough to cover its bid.
Post-sale proceeding. At a hearing on the borrower’s motion, the lender explained how its credit bid had been calculated. The lender offered documents to verify certain post-judgment recoverable costs incurred by the lender. The trial court denied the borrower’s motion, and the borrower appealed.
Evidence. The Court of Appeals pointed out what usually happens when amounts need to be added to a judgment after the fact:
We acknowledge that judgment creditors routinely include post-judgment costs and expenses in their sheriff’s sale bids and demonstrate those calculations by affidavit. In a typical case, the judgment creditor’s post-judgment costs and expenses are easily determined and the mortgage foreclosure proceeding ends with the issuance of a sheriff’s deed. And where, as here, post-judgment costs and expenses are awarded in the foreclosure judgment, there is no question that the judgment creditor is entitled to recover those costs and expenses, which are usually readily ascertainable and undisputed.
The problem in Stoffel was that the judgment included elements that were not really “readily ascertainable and undisputed.” After delving into a technical discussion about the inadmissibility of the lender’s evidence, the Court concluded that much of the evidence was inadmissible. For example, to prove certain facts, the lender simply tendered a letter instead of a sworn affidavit.
Shortfall. The lender paid the price, albeit a small price, for its technical error. The Court studied the terms of the judgment and applied the limited amount of admissible evidence to those terms. The Court calculated the amount of the judgment at the time of the sheriff’s sale and held that the lender overbid. Ironically, in a case where the borrower owed the lender $152,121.72, the Court entered a post-sale judgment against the lender in the amount of $374.58.
Takeaway. Lenders and their counsel should articulate damages elements within the judgment with as much simplicity and clarity as possible. Any contingent amounts should be written so the sheriff and the trial court can later plug and chug the numbers with ease - eliminating room for interpretation or proof hurdles. For example, lenders must pay any delinquent real estate taxes before the sale. Frequently, the amount of the tax liability is unknown at the time of the judgment and will not be paid until the day before the sale. Judgments can (and should) grant an award for tax advancements, which will be readily ascertainable and undisputed. On the other hand, the less ascertainable and more disputed the post-judgment damages items are, the more lenders set themselves up for scrutiny and proof problems later.