I happen to live in Campbell and am very familiar with the good number to short sales and foreclosures that are available. Far fewer foreclosures on the market, than their precursor cousins - the short sale. When a bank takes over a house, it typically will order inspections so that a buyer can make an offer with good information and also "as-is". This is typical of the normal resale market anyway. On a short sale, the listing agent hopefully has suggested these reports too. If not, a competent buyer's agent can structure the offer to have this as a possibility. If you need some help, let me know.
Congratulations on getting ready to purchase your first home, how exciting! I am a realtor working in the Bay Area and I do understand how housing price here can be prohibitive for the first time home buyers and why you would want to consider foreclosure properties.
This is a huge question and I really don't know if it can be adequately answered by a quick forum. You are putting a lot of money at stake here. However, by posting your question on Trulia is definitely the first step.
Right now, a lot of people want to buy a foreclosed property and there are a lot of talks and classes for realtors and consumers alike about foreclosure properties. Some are able to invest in that successfully, others are not.
There are quite a few steps to go through before a house is formally foreclosed. For properties that are being foreclosed on or have already foreclosed, you will most likely be buying it 'as isâ€™ because some of the houses will not have disclosures; and the person who owns the house, whether it's the default owner or the bank just want to unload the property and are usually not interested in negotiating for repairs (the owner just don't have the money). If the house is foreclosed by the bank, sometimes the owner will tear up the house before the house is foreclosed - I have seen some pretty sad houses where it looks like a tornado was there). These are some of risks you will be looking at. Others are the title issue because there might be several liens against one house; generally, IRS being #1, the first loan being #2, the second loan being #3, then you could have other loans, such as mechanical loan, .,etc.
Not trying to scare you, but I always believe in preparing for the worst case scenario and then you will come out way ahead when the situation is much better than that
I want to caution you that just because a house is a foreclosed property, it may or may not be the best buy as you would have hoped. You really want to do a lot of research and/or go with somebody who knows about the current market condition and how the house you are interested in stake up against other houses that are on the market. Because we are pretty much in a buyers market now (or tilting toward buyers market), there are a lot of choice on the market and price reductions. I suggest you look at both before diving into the foreclosed arena.
So, back to my previous suggestion, do a lot of research and learn about the subject, or work with a knowledgeable, trustworthy and compassionate Realtor who can both advise you on foreclosed properties and local market conditions to ensure that you get the best deal on the right house for you.
Best of luck, and let me know if I can help you in any way.
Then there is the REO or bank owned property. This is where the bank has title to the property. You should be able to get an inspection contingency but again no repairs by the seller.
A true Foreclosure is a process where the seller is behind on their payments and the trustee (lender) must follow a specific procedure in order to sell the property. You will see notices of these in the paper and a time for auction. The seller may bring his/her payments up to date 5 days before the auction date. Once the home goes on auction the buyers will have to have cash or cashiers check in hand for the full purchase price. There are not inspections, no contingencies, and no warranties.
Finally, there is a real estate company who now uses "Auction" as a marketing tool. The will have a bid date with a starting bid amount. What buyers must understand is that there is a blind minimum bid needed in order for the seller to sell. So when you see a million dollar home with a start bid at $500,000 there is a "majic" number the seller is willing to accept. It is usually closer to the million range. They also will need to have at least two people willing to bid. If it doesn't sell then the Seller will go back to traditional marketing. Inspections may have been done and probably can be performed. What is also noteworthy that the Buyer will pay a 10% premium over the final accepted bid. This means the Buyer is paying all commissions and closing costs. Not such a bargain.
The beauty of short sales for buyers is they can come in with a low price and not offend the banker. It's all about the numbers.
Foreclosures can be profitable but does have risk involved. Foreclosures have many steps and depending how far along the foreclosure is you should be able to run inspections, however you more than likely will not be able to ask for repairs. If the contract is properly written, you should have time to get your inspections done and decide to proceed or not, wihtout jeopardizing your deposit.