Credit Bidding: A Critical Tool for the Executing Judgment Creditor

A property execution is the device by which a judgment creditor forces the sale of the judgment debtor’s interest in specified non-exempt real or personal property. The sales are conducted by a sheriff (real or personal property) or in New York City, by a City Marshal (personal property only).

Some New York sheriffs, including, recently, the New York City Sheriff, have adopted a policy prohibiting judgment creditors from “credit bidding” at an execution sale without a court order. A credit bid permits a judgment creditor to bid in at the sale up the amount of the Judgment without having to pay the Sheriff in cash, because the cash would only be paid back to the judgment creditor after the sale closed, less the Sheriff’s fees (poundage). Rules preventing credit bidding present a risk to a judgment creditor. Without the ability to credit bid, valuable property may be sold for a pittance. If that happens, the debtor’s property is gone and there is nothing the judgment creditor can do except fume.

It is unclear where the no credit bidding policy came from, but regardless, it makes no sense and is not supported by law. It is time for our sheriffs to review their policies on credit bidding and allow it as a matter of course.

Execution sales are governed by CPLR 5233 (personal property) and CPLR 5236 (real property). Neither prohibits credit bidding. Execution sales of course require cash bids, Rowe v. Granger, 118 A.D. 459 (3d Dep’t 1907), but that only forecloses bidding based upon a loan or mortgage commitment, not a judgment creditor’s bid based upon the debt he is seeking to collect, which is a cash equivalent, as good as a certified or bank check, which are accepted at execution sales.

Though the CPLR is silent about the bidding process at execution sales, credit bidding by judgment creditors has been recognized in New York for more than 200 years. The leading case is Nicholas v. Ketcham, 19 Johns. 84, 1821 N.Y. Lexis 37 (Sup. Ct. Judicature 1821). There, New York’s then-highest Court (the predecessor to today’s Court of Appeals) held that “[i]t would be unreasonable, and injurious to debtors as well as creditors, to insist that the creditor on the execution should advance money on his bid, when the sole object of the sale is to put money in his pocket, by paying a debt due to him.” Id.

This Nicholas v. Ketcham precedent from New York’s highest court, while ancient, remains good law and should resolve any question about credit bidding, as recognized in the leading treatises. See B. Bergman, New York Mortgage Foreclosures § 2.13 (2014) (“the judgment creditor can apply his bid as a credit on the judgment, thus having to avoid the charade of paying cash and immediately getting it back”) (citing, inter alia, Richter v. Targee St. Internal Med. Group, P.C., N.Y.L.J., Jan 30, 2004, at 21 (Sup. Ct. Richmond County 2004), and Nicholas v. Ketcham, supra); Weinstein-Korn-Miller, New York Civil Practice ¶ 5233.03 (Sheriff’s sale is generally for cash, except where bid is from the judgment creditor) (citing Richter and Nicholas v. Ketcham).

Recently, in 255 Butler Assoc. LLC v. 255 Butler, LLC, 2023 NY Slip Op 33053[U] (Sup. Ct. Kings County 2023), Justice Leon Ruchelsman thoroughly reviewed the history and precedents on credit bidding and found no reason it should not be allowed at an execution sale. The Court reviewed and rejected critiques of credit bidding as “unpersuasive and “surely the minority view,” explaining:

First, it is inaccurate to assert a credit bid does not exactly match the same results of a cash bid. As some commentators have observed “the value of the secured creditor’s credit has a discrete and easily identified cash value. Forbidding credit bidding on the ground that credit is not cash is tantamount to prohibiting cash bidders from bidding with two fifty-dollar bills in lieu of a single, hundred-dollar note (see, Credit Bidding and the Design of Bankruptcy Auctions, by Vincent Buccola and Ashley Keller, George Mason Law Review [Fall 2010]). Further, concerning the argument credit bidding chills competition “there is nothing about the argument specific to credit bidding. Instead, the argument rests on the notion that bidders with deep pockets may deter bidders with limited resources. For instance, if a would-be bidder knows that Warren Buffett plans to attend an auction, she is also surely aware that Buffett can top her reservation price for any or all of the assets on the block. Yet nobody proposes to ban wealthy cash bidders from participating in a bankruptcy auction” (id.). . . Therefore, a survey of credit bidding demonstrates that there is no real basis to forbid its practice.

255 Butler Assocs. LLC v. 255 Butler, LLC, 2023 N.Y. Misc. LEXIS 5343, *6-7; see also FT Glob. Cap., Inc. v. Future Fintech Grp., Inc., 2025 U.S. Dist. LEXIS 19111 (S.D.N.Y. 2025) (“judgment-creditors may bid on credit”) (citing 255 Butler).

There are numerous unreported cases allowing credit bidding as well. See, e.g., Tecknowledgey Inc. v. Gala Power Tech., Inc., Index No. 601242/09 (Sup. Ct. N.Y. County 2012) (Scarpulla, J.); Property Clerk v. Baynes, Index No. 400422/10 (Sup. Ct. N.Y. County 2010) (Shulman,, J.); Wood v. Mediterranean Equities LLC, Index No. 604253/02 (Sup. Ct. N.Y. County 2003) (Moskowitz, J.).

As noted in Nicholas v. Ketcham, credit bidding protects both debtors as well as creditors, thereby making it less likely that a valuable property is sold for a small sum. The credit-bidding judgment creditor is there to ensure a fair value is bid. The creditor can place the highest bid, without having to marshal a large amount of cash that would only be paid back to him in the end by the Sheriff.

The winning credit bidder then takes title to the property, stepping into the shoes of the judgment debtor, the same as any other winning bidder. He will, like any winning bidder, have to pay the poundage due to the sheriff and will take title subject to prior liens on the property, such as a mortgage, and is responsible for taxes, repairs, and maintenance. He may need to commence eviction proceedings to oust an uncooperative judgment debtor or other occupant without a lease or right to be there, just like any winning bidder. He will be liable to pay (with cash) the amount of the homestead exemption to the debtor, if that is applicable. See CPLR 5206. The winning bidder can and usually will seek to liquidate the property through a normal course sale; for realty, most likely listing it for sale through a realtor, thereby obtaining a more substantial recovery in the end.

As things now stand, unless and until the sheriffs revise their no credit bidding policies, the wise judgment creditor should seek a court order allowing credit bidding well before the execution sale date. Such an application can be made by motion in the action under CPLR 5238, which grants the court broad authority to supervise a sheriff in connection with judgment enforcement, by order to show cause to allow for service on the sheriff. The application should be routinely granted. Experience indicates that credit bidding motions are not opposed by the sheriffs, which is another signal that there is no good reason for making judgment creditors file motions seeking a credit bidding order. Credit bidding should routinely be allowed at all execution sales.