My IRA funded a note, borrower defaulted, and now I am not sure the IRA can even pursue foreclosure without tripping something

The prohibited-transaction question you buried at the end is the one that needs immediate attention. Paying attorney fees personally on behalf of the IRA is a contribution to the account outside the normal contribution channel, and depending on how it is characterized, that could constitute a prohibited transaction under IRC 4975. You need a tax attorney or ERISA specialist on this today, not a general real estate attorney. One sentence and I am moving on, because that is a licensed-professional question and I am not in a position to go further on it.

On the bidding question: the IRA bidding at its own trustee's sale using IRA funds is generally understood as the account acting as a creditor protecting its own asset, which is structurally different from a self-dealing transaction, since you as the account holder are not receiving a personal benefit from the bid. The complication is that the direction comes from you, and the custodian's approval chain is what creates the operational problem you are already living through. Confirm the current custodian's specific written position on credit bids versus cash bids at the sale, because those two mechanics can land differently depending on how the custodian interprets their own policy. Get that in writing before the sale date.

The assumption doing the most work in your original underwriting is that the IRA could enforce its own paper on the same timeline as a personal note. SDIRA lending creates a principal that requires a custodian layer on every action, and in a default scenario that layer compounds every delay. That is the structural risk this strategy carries that your note terms almost certainly did not price in.

The risk you have not named yet is what happens if the parcel comes back at the sale and the IRA takes title to real property. At that point you have an OREO situation inside the IRA, with its own maintenance, tax, and eventual disposition questions, all subject to the same custodian-approval chain.

What is the trustee's current estimated sale date, and has the custodian confirmed in writing that they will execute a credit bid instruction within that window?

You are in a genuinely unusual situation, and the operational friction you are describing is real and documented. Let me work through the pieces.

Can the IRA foreclose? Yes, an SDIRA can pursue foreclosure on a note it holds. The IRA is the lender of record, so it is also the party with standing to foreclose. Your custodian is correct that the IRA, not you personally, must be the named foreclosing party. The attorney takes direction through the custodian because the custodian holds legal title to the asset on the IRA's behalf. Finding counsel who understands that workflow is genuinely hard, and six weeks is not unusual.

Can the IRA bid at the trustee's sale? This is the question you need answered by a tax attorney who works with SDIRAs, not by me and not by your custodian's general support line. The concern is whether directing the IRA to acquire the property converts a passive lending position into something that triggers a prohibited transaction or UBIT exposure. The answer depends on facts specific to your account structure and your role. Get that opinion in writing before the sale date.

The legal fees paid personally. This is the piece worth flagging immediately. If the IRA owns the asset, its expenses are supposed to flow through the IRA. Paying attorney fees out of your personal funds could be treated as a contribution to the IRA or, worse, a prohibited transaction. A tax attorney needs to look at this now, before the fees accumulate further.

The strategy guide for this entry covers the UBIT and prohibited-transaction framework in more depth under the Guide tab if you want the fuller picture.

Which state are you in, and have you been able to reach a custodian escalation contact rather than front-line support?

Paying the attorney fees personally out of pocket is the part I would stop and get a clear written answer on before the next invoice. I had a situation with my Cleveland property where I commingled an expense that seemed minor and it created a documentation headache that took three months to untangle with the custodian. If those fees should be coming out of the IRA's cash balance and you are fronting them personally, that could look like a contribution or a prohibited transaction depending on how the custodian characterizes it. The IRA bidding at the trustee's sale is a separate question but most of the SDIRA attorneys I eventually found after wasting two weeks on generalists told me the IRA can bid using IRA funds as long as the direction is coming through proper channels and you are not personally guaranteeing anything or putting in personal money alongside it. The self-dealing trap is usually about personal benefit flowing back to you, not about you directing the investment, but that line gets blurry fast when you are also the disqualified person and the one writing the checks for legal fees out of your own account. What does your IRA's current cash position look like, because if there is not enough liquid in there to cover both the bid and the ongoing legal costs that is a whole different problem.