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Optimising Distressed Loan Books: Practical solutions for dealing with non-performing loans by John Michael Sheehan

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7. Collateral Solutions

7.1 Credit bidding (REO)

In most jurisdictions, when assets are foreclosed upon and auctioned, the lender has the right to bid for those assets in competition with other market participants. Instead of bidding with cash, the lender or debt holder can bid up to the full amount of their secured debt claim in order to acquire those assets. In the event that the lender wanted to bid above their legal claim amount the balance would need to be paid in cash. If the successful bid amount falls below the lender’s legal claim amount the debt is extinguished only up to the level of the bid and the borrower remains liable for the balance up to the legal claim amount. This practice is known as credit bidding.

Credit bidding ...

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