Foreclosure Property Guide

The Best Foreclosure Property Buyer Guide [Los Angeles, California]

For both buyers and sellers alike, understanding the key takeaways of home foreclosures will set you up for success in all your real estate ventures! This includes truly grasping the concepts associated with a foreclosed home and how much money can be saved by people who are willing to buy them when they’re in the market for a new residence in the beautiful Los Angeles area. There are various pitfalls that many new buyers and sellers fall into when trying to make the most out of their next step in real estate. Fortunately, this 2021 guide is going to help you make the best decisions when it comes to purchasing a foreclosed home.

How to Buy a Foreclosed Home in Los Angeles

As you’re trying to decide whether purchasing a foreclosed home is the right choice for you, make sure you understand the foreclosure laws that exist specifically for the state of California. If you decide to wait out the home and make a bid once it goes up for public auction, make sure you know the long list of potentially complicated steps you have to go through to officially become the property owner. Through the right of redemption, California allows homeowners to reclaim their property for certain situations. Due to this complex possibility, many people choose to purchase a property during its pre-foreclosure period.

Pre-foreclosure Properties

During this time, the lender has not taken full possession of the property yet so the ownership still lies within the hands of the original owner. The pre-foreclosure period is a great time for most prospective homebuyers to purchase this discounted property. Short sales can also occur on these homes when an agreement is made between the prospective buyer and the lender who will allow them to purchase the home at a price that is below the debt owed value.

Waiting any longer than the pre-foreclosure period will allow a larger number of other prospective buyers the opportunity to place their bids on the home as well at the public foreclosure auction. To purchase the foreclosed homes, you can complete any of the following methods to initiate contact with people connected to the property:

Ask your real estate agent to get in direct contact with the current owner of the home to make an appointment with them. This will give you the perfect chance to view the property with your real estate agent and talk with the homeowner about you potentially purchasing it from them. Your real estate agent will help you complete this initial contact in a way that is not inconvenient for the current homeowner or invasive to their privacy.
Your real estate professional will contact the real estate agent who originally listed the property if you found it on a listing. This professional will have a detailed understanding of the specific situation the seller is in and may even allow for a discounted brokerage commission to ensure the home is sold quickly.

Schedule a Professional Inspection

After your agent has helped you complete these steps and allowed you to successfully make positive contact with the seller or broker, your real estate agent will help you schedule a time to walk through the property with them. Once this is complete, your agent/broker will schedule a time with an independent professional who will thoroughly inspect the property for any defects or contingencies you should be aware of before purchasing.

If the inspection goes well, your real estate agent can then gather the proper information and documents for you to make an educated offer on the property. This includes the standard contract of sale forms held by most real estate brokers or an attorney. Ensure you have an attorney present and a knowledgeable real estate agent when you are preparing the legal contracts for this purchase.

When making your offer, your real estate agent will ensure the current homeowner knows the exact terms and conditions that must be met for you to purchase the property. Your real estate agent will lay out your contingencies so the homeowner can successfully complete your demands before the final purchase is made.

PUBLIC FORECLOSURE AUCTION SALES

The competition is usually really intense when people are trying to buy a foreclosed home at a public auction. Additionally, the prices are usually higher during this stage of the foreclosure to cover the legal costs accrued by the lender. At this point, the homeowner will most likely not be able to avoid the foreclosure of their home and the property will be given to the highest bidder.

California state statutes determine the time, date, and location of these auctions that must also be announced to the public in newspaper notices before they can legally occur. If you would like to try your hand at purchasing a home at a public foreclosure auction sale, follow the guide below:

Have your real estate agent contact the representative of the lender to see what exactly is required to purchase the property being auctioned off. Usually, the prospective buyer will have to pay an earnest money deposit as a money order or cashier’s check.
Request a clear copy of the contract of sale or purchase agreement you will have to sign if you end up winning the auction. This request will be completed by your real estate agent as well which will allow them to advise you on any negotiations that need to be made within the documents. It’s good to note that the seller does not have to agree to any potential changes you would like to make.
Vacant properties should be inspected by your real estate agent before you put down a deposit for the public auction. If the current owner is still living there, they may not be very willing to allow your entry into their home. Just be aware of this possibility.
If available, inspect the property with your real estate agent by completing a thorough walkthrough. Take pictures and notes as you deem fit to remember all potential issues you see with the property. Once again, the homeowner doesn’t have to agree to any changes you would personally like to make to the purchase agreement.
Have your real estate agent schedule an independent inspection with a professional. You can make this happen by allowing your skilled real estate to work with the broker or agent who is responsible for selling this particular property.
Bid at the public auction if you’ve thoroughly followed the steps above. Your real estate agent will accompany you to a meeting with the lender’s representative at the courthouse on auction day to show them your earnest money deposit and a valid ID. Make sure you and your real estate agent have previously discussed the highest value you are willing to bid before the auction starts and then bid until you’re not comfortable with the price anymore. If you win the auction, your real estate professional will then help you complete whatever following steps are designated by the lender’s representative which usually includes officially submitting your deposit and signing the purchase agreement. You will need to rely heavily on your real estate agent throughout this entire process as they have many years of knowledge that will allow you to make the best decisions in every stage of the homebuying process.

An auction sale requires you to buy the home “as is” so you must take the necessary steps before the auction to make sure you have a skilled real estate agent that will ensure you’re getting good value out of the price you’re agreeing to pay!

WHAT YOU SHOULD LOOK FOR IN A FORECLOSED HOME: BUYER’S GUIDE

The easiest way to purchase a foreclosed home is to get it when it’s in the REO status. This means the bank has already taken possession of the property. The banks are usually happy with listing these homes on the MLS so they can get a reasonable offer on the property. During this step real estate agent will browse the MLS for you to find the REO homes that best fit what you’re looking for. These properties are the most sought-after by prospective buyers because you can purchase them just like you would buy any other home in California. If you would like to purchase a home that has already been possessed by the bank, they usually prefer all-cash offers to be made on the property. Most foreclosures and auctions are made with all-cash offers which means no loans or mortgages are necessary! The entire step-by-step process is explained below.

Step 1: Get a Professional Real Estate Agent with Foreclosure Experience

The bank that has possession of the property in question will give it over to the real estate-owned agent. The REO can work with numerous general real estate agents that will be able to find the right buyer for the home. Your agent will be directly contacted by the REO agent and foster business conversations on your behalf.

Step 2: Find the Perfect Foreclosed House for You

A skilled real estate agent will be able to complete all the research for you when it comes to finding the perfect foreclosed home. This includes utilizing different websites and resources to find foreclosure property including the MLS.

Step 3: Schedule an Appraisal and All Necessary Inspections

Once you’ve chosen the foreclosed home you believe you want to purchase, your real estate agent will schedule times to get professional appraisals and inspections completed on the home. The appraisal is going to allow you and your real estate agent to fully understand how much the property is worth. This is especially helpful when it comes to making an offer on the property and negotiating the resolution of various contingencies or defects within the purchase agreement. These repairs and restorations need to be completed before you officially purchase the home given the seller is responsible for completing these fixes.

Step 4: Become a New Homeowner

After your real estate agent has successfully guided you through the inspection and appraisal of the property, you can decide if it’s worth your time and money to purchase! This is the point in time when your real estate agent will help you prepare a fair offer as well as gather and sign all the necessary documents to close on the house.

Types of California Foreclosures: Nonjudicial and Judicial Foreclosures

The two ways a residential property is foreclosed in California is through a nonjudicial or judicial foreclosure. If a home is involved in a nonjudicial foreclosure, the former homeowner will not be able to redeem their property. A judicial foreclosure is the exact opposite situation.

Judicial Foreclosure: Right to Redeem

For a judicial foreclosure, there are specific criteria that must be met for the former homeowner to have the right to redeem their property. These stipulations are further explained in the information below. The former homeowner can redeem their property if:

It’s been no longer than three months since the official foreclosure sale and the money paid during the sale was enough to cover the full amount of debt that was owed on the property.
It’s been no longer than one year since the official foreclosure sale with a deficiency. A deficiency is denoted by a foreclosure sale price that is less than the total amount of debt owed by the homeowner. The court will be able to tell you if the foreclosure sale resulted in a deficiency of any kind.

If there truly is a deficiency on the property, the lender can choose to waive the right of the former homeowner to have a “deficiency judgment”. The laws set in place by California can also cause the prohibition of a deficiency judgment. In both scenarios, the former homeowners will not be allowed to have a redemption period or claim the “right to redeem” their old home. This means the current homeowner is in the clear and they will be able to keep their new home!

The Pros of a Foreclosed Home: Cheaper Price and Faster Closing

Prospective buyers love to have real estate agents experienced with home foreclosures search for foreclosed homes because they can usually be purchased for a much cheaper price than homes being sold on the traditional real estate market. If you are in the market to purchase a new home but don’t want to pay the typical market value, this is a great option for you.

Faster Closing

The closing process for foreclosed homes is usually much faster. If you are purchasing the home during the pre-foreclosure timeframe, the current homeowner is most likely trying to quickly sell the home before it goes up for public auction. This will allow them to save their credit score from plummeting from the official foreclosure of their home.

Make a Profit

Maybe you’re not necessarily in the market to buy a new home and you’re more interested in the investment opportunity it can provide you! Prospective buyers who are experienced in the retail landscape will renovate their newly purchased foreclosure home to increase its market value. Then, they’ll sell the home for the marked-up price and make a nice profit.

The Cons of a Foreclosed Home: What Are the Risks?

Whenever you are looking to buy a foreclosed home, you should expect to purchase it “as is”. This means that whatever state the home is in when you agree to buy it, that’s exactly how you’re going to get it! Not being able to inspect the home before purchasing it can be a large risk given you don’t know what defects lie beneath the surface before you’re officially transferred ownership of the property.

What to Do About Repairs

If you purchase the property “as is” without completing the necessary inspections, you may find yourself needing to make numerous different repairs that cost a lot of money. The home is most likely being foreclosed on after the former homeowners have been vacant from the property for a very long period of time. This means necessary property upkeep hasn’t happened and you’re going to take on that burden once you decide to purchase the home. Depending on the home you purchase, this could end up costing you more than the property is even worth.

Fierce Competitors

The level of competition you experience will depend on the stage at which you decide to make an offer on the home. If your real estate agent can help you catch the property during the pre-foreclosure period, then you won’t have to worry about as much competition. Once the property goes up for public auction, you’re in deep waters! Anyone who is looking for a foreclosed home in the local newspaper will be able to see the foreclosure note and make a bid on the home. The home goes to the highest bidder on auction day so you should have your mind made up about how much cash you are willing to spend when this day comes.

THE NEW LAW (SB 1079): AN EASIER WAY TO BUY FORECLOSED HOMES

The new law titled “SB 1079” was created to make it easier for prospective home buyers to purchase one to four-unit homes that are sold at public foreclosure auctions. Investors have a great chance to make a profit from this new arrangement. The new law provides a necessary modification to the old foreclosure procedures that used to allow larger corporations to make bulk-purchases on numerous different homes in the span of a single auction without giving tenants the opportunity to purchase the property.

SB 1079 allows tenants, owner-occupants, nonprofits, and local governments a much more equal opportunity to purchase homes at auction. This provides the chance for investors to retain the ownership of their owner-occupied homes. Additionally, this persuades larger corporations to stray away from these bulk-purchase ideals given the new law enforces much higher fines than ever before. This level playing field is the open-door new investors need in order to purchase foreclosed homes at a low price and then utilize the help of their real estate agent / broker to perform the necessary renovations that will make the property sell quickly to a prospective buyer.

How to Make a Bid

Now you may be wondering how you can take advantage of this new law. Check the foreclosure auction website to see what the highest bid is so you can make your competitive offer! Of course, there are always precautions you should be aware of when trying to take advantage of deals like this. Make sure there are no existing liens or defects on the property that may cause you to be susceptible to potential litigations. If at all possible, a good rule of thumb is to always inspect the house before you buy it! The government website link below gives you direct access to the official transcript of this law: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB1079

Conclusion

There are many opportunities that stem from the purchase of a foreclosed property given they are some of the cheapest properties on the market! When you are ready to purchase a new home, having a skilled real estate professional is going to be vital throughout your entire home buying process. Although purchasing a foreclosed home can allow you to save a lot of money, trying to navigate all the nuances and documents that come along with this is too difficult to complete on your own. Utilizing our skilled services will allow you to catch these amazing homes in the pre-foreclosure stage to gain a competitive edge against others on the market. Contact us today to find the home of your dreams.

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