Foreclosure in San Francisco>Question Details

Sharon Go, Real Estate Pro in San Francisco, CA

How complicated can buying a foreclosure get and is it even worth it?

Asked by Sharon Go, San Francisco, CA Tue Mar 3, 2009

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I have a bit of a different take. Buying property at foreclosure means that you will be bidding at an auction, often held at the steps of the court house. The lender will be bidding at the auction an amount equal to the amount of its loan. You will have to bid more and against others who may be bidding. If you win, you will take title to the property subject to any superior or earlier liens on the property. In order to find foreclosure sales you will either need to subscribe to a service who monitors the Recorder's records or scan the new papers want ad section to find the publication for the Notice of Sale. Its a bit hit or miss. And, you really can't inspect the property prior to bidding. For that reason, bidding on property being foreclosed upon is a risky business and not recommended in general.

As for REO property, the bank/seller can arrange to allow you to inspect the property and when you close escrow, you will take title to the property free and clear of any liens just like buying regular property. The thing about REO property is that often, there will be a tenant or foreclosed owner in the property. If it is a tenant, often, the bank will know nothing about the tenant which makes it hard to evaluate how hard it will be to evict such tenants, assuming you are buying to live in the premises. Banks will often not know how much rent the tenant pays, or even their name. Its is also risky, but less so than buying at a foreclosure sale.

So why even consider buying tenant occupied REO property? Price. The list price is often very low and you can negotiate an even greater price reduction. If you're interested in buying REO property, you 'll need a Realtor to help you.

Good luck.

Jeffery P. Woo, Esq.
Sedgwick, Detert, Moran & Arnold, LLP
415-627-3607
jeff.woo@sdma.com
3 votes Thank Flag Link Thu Mar 5, 2009
I agree with Gene. A general real estate agent will know little or nothing about foreclosures, REO, and short sales.

Tax liens is a different animal - and how those work varies by state. What works in NJ is completely different in PA. Gene's out of AZ but perhaps he knows how these work for CA - and perhaps they are worth your time to investigate.
2 votes Thank Flag Link Fri Mar 13, 2009
Hi Sharon,

Well you are getting some good advice and some advice I really do not agree with. And then there are aspects to foreclosures that turn your seemingly simple question into a very detailed multi-faced answer - entire books are written on INDIVIDUAL aspects of different types of foreclosures.

REOs (Real Estate Owned) are technically not really foreclosures - they are bank-owned property. You can look around in them, get them inspected and get financing. They are much easier to do as a transaction. Usually there is no one living in them anymore. And so one one for you to evict ... (former owners can really destroy a place during the "kick them out" process). But ... just because a bank doesn't "want to own real estate" does NOT mean they want to give away that place - they are well aware of how much the property is worth but they can be good deals.

The typical "pure foreclosure" - if you will - and what you may be asking directly about - is one that has been foreclosed and is available at sheriff's auction. Note - the tenant (usually former owner) MAY still be living there. This can make things complicated - very - depending on your state. NJ is aweful - PA less so. I'd guess that CA is bad but only a guess.

These are listed right on your local counties web site. Depending on your area, these may be held weekly, bi-weekly or monthly. If you want to buy at one of these then you need CASH and lots of it. Typically you will have to have either 10 or 20% of your offer in cashiers checks (made out to you) WITH you. Then you will have to close the remaining % shortly - I'm not sure about SF - here it's 10 days in one county and 30 days in another.

These foreclosures can be fantastic deals or the worst nightmare of your entire life - or anywhere in between. If you can sit in at an auction, do so - just watch and it's quite interesting (without bidding).

I nearly got a fantastic deal at one of these but the damned township actually bidded against me instead of letting it go for the default amount plus legal fees ($ to satisfy the debt). This would have been an amazing 1 BR condo with insanely low taxes - all in walking distance to the Princeton train station - and for $40K. It was easily worth $130K - and much more after I upgraded the kitchen, bath, floors, etc.

But ... I had to really do my homework and do a full title search. The town rep bidding against me actually threatened me with a lawsuit right there during the auction "should I win the bid" (unit was part of NJ "moderate income" allocation for that town). I then calmly responded that the deed restriction was wiped out in the event of a foreclosure, this is in plain language in the deed (I patted my knapsack to indicate it was with me, smiled and asked if he wouldn't like to read it". He turned pale and his mouth fell open. Unfortunately he also had a large budget assigned to him to buy it and then turn it back into that stupid moderate income program - these costs the taxpayers in NJ a FORTUNE each year. I'm moving to PA shortly.

Auctions have LOTS of listings that "look good". Few of them really are. Just because the listing says $150K does NOT mean that you won't actually PAY $350K if you "buy it at $150K". This is because how the Liens work. Take a look at this - it will explain things. this is NOT my site - it's just a resource to illustrate things.

http://www.foreclosureuniversity.com/studycenter/freereports/lien_p…

There's this GREAT townhouse over here in PA that's foreclosing at $120K - it's worth $325K+ (after repairs). BUT - the $120K is the 2nd lien ... the FIRST lien (around $250K) still needs to be satisfied ...

So ... 250+120 = 370K - NOT a good deal - that would have cost me a lot more than it was worth.

All I'm saying is you need to do some learning - BUT this is NOT rocket science. It is totally do-able. So long as you have a bunch of cash to use, figure out your risk model, do title searches (someone can run the abstract for you for about $125 each - but it's good to learn how for yourself too). You will have competition from investors and experts. BUT - if you are looking to buy FOR YOU - to live in - you can pay a bit more than an investor and be very happy with it. They have a different perspective.

Consider just buying a home from a "distressed seller" - they are straight-foward and can be a good value. some of these are "pre-foreclosure" - the paperwork isn't filed yet but they are behind on payments.
2 votes Thank Flag Link Fri Mar 13, 2009
Hi Sharon,

Buying a "foreclosed" home is no much more difficult than a normal transaction. The main difference being, you are dealing with the bank as the owner rather than an individual.

A skilled agent will be able to walk your through the process step-by-step, making certain you cover all bases and meet time deadlines. Yes, the effort can be well worth your effort. This is currently the market faction that buyers are persuing to save money with their real estate transactions.

Find a local real estate professional to support your needs.

Good luck
1 vote Thank Flag Link Fri Mar 6, 2009
The bank owned homes have already been foreclosed and most liens have been wiped out. The issue you will have is with the property condition and the ability to finace the building. The risk of purchasing is reduced when buying a REO (Real estate owned =bank owned) property.

With a home in foreclosure, they owner has to agree that they want to sell the property. The bank has to approve the deal if the owner owes more than property is worth, there may be other lien holders that want to be paid, the owner may file bankruptcy, and ther may be work required or code violations on the property. The property may not be viewable or not depending if the owner wants to sell. If the property is not viewable, you bid at the auction blind and take it as it is with all it problems and most likely have to evict the owner.

I think this gives you a good idea how complicated it can get. Decide on the amount of risk you are willing to take.
1 vote Thank Flag Link Wed Mar 4, 2009
If you don't have enough cash to buy a foreclosure home outright, get an agent to guide you through. Even if you do have the cash, you'll probably want representation. Foreclosures auctions are not easy. Bank-owned homes are much more straight-forward.
1 vote Thank Flag Link Tue Mar 3, 2009
Thanks for the prompt response Sam! How are bank owned homes easier to purchase than foreclosures?
0 votes Thank Flag Link Tue Mar 3, 2009
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