RealtyTrac is misleading at best and downright wrong at worst. RealtyTrac DOES NOT list houses for sale. What they provide is foreclosure information, obtained from public records, and they do not update it once posted. Many, if not most, of these homes are NOT listed for sale. I will try to be brief in my explanation (and please note, this is not legal advice or a legal opinion, just my knowledge from many years of experience working with people in foreclosure).
1. When a homeowner defaults on their loan, their lender must file a Notice of Default ("NOD") to pursue their remedies under the Deed of Trust. This NOD becomes public record AND this is is what RealtyTrac is reporting.
2. The original NOD lists the amount of the delinquency. In other words, if your payment is $2,000 per month and you have missed 5 payments, then you owe $10,000 plus late fees, defaul interest, legal fees, collection fees, etc. totalling, let's say, $15,175. This is the amount that RealtyTrac posts as the "purchase price".
3. The NOD gives the home owner 90 days to pay what they owe, negotiate some other solution with the lender, or sell their home, before the lender files a Notice of Trustee Sale ("NTS") against the property. Many of these homes NEVER get listed for sale, and many of the ones that do come on the market as Short Sales.
4. When the lender files the NTS, this document shows the total amount owed, as of the date of filing of the NTS, on the loan in default. The operative words here "on the loan in default". You see, there could be other loans against the property, tax liens, mechanic's liens, etc. owed in addition to the loan in default. That being said, lets say the original loan amount was $250,000. When the NOD was filed the homeowner already owed an additional $15,175. It has now been another 3 months, so there are 3 more payment, plus, plus, plus owed, let's say $10,000. The NTS will show, estimate amount due $275,175 and the auction date. This is the amount RealtyTrac will show as the "purchase price".
5. Just for argument sake, let's say this home is in Beverly Hills, is worth $5.0 million today, has a $3.5 million 1st TD, a $1.5 million 2nd (the owner started a business and used his home to finance it) and the loan that is in defaul is in 3rd position. Additionally, due to the failure of the owner's business, property taxes have not been paid in 2 years ($70,000) and their is a mechanic's lien filed against the property for the new kitchen ($110,000), which was started before the owner took out the 3rd TD. This home is now a short sale candidate. If you were to go to the courthouse steps and pay $275,175 (the minimum bid amount), you would take the home subject to all the senior liens. This means you would be paying, at best $5.46 million for this home that is worth $5.0 million. Remember, if the owner is in default on the 3rd TD, they probably are also in default on the 1st and 2nd. RealtyTrac will only show the $275,175 as "purchase price". Very WRONG and MISLEADING.
Garry, your realtor is correct in advising you that these homes are NOT FOR SALE in most instances. If you are interested in pursuing "pre-foreclosure" properties, which is what we call these, you will need to get an education on the pitfalls and then tell your realtor that you want to focus on this type of property. You will have to kiss a lot a frogs to find a prince in the pre-foreclosure market today. However, when you find the great deal, it will be a great deal.
If you are basically looking to purchase properties without so much headache and time, then have your realtor show you REO and other current listings. With inventory high and interest rates at an all time low, you can still get a great deal through "normal" purchasing channels.
Okay, not so short, but hopefully informative. Your home is out there. Keep working with an aggressive, knowledgeable REALTOR and you will find it. Dare to Dream.
Real Estate Consultant
RE/MAX Palos Verdes Realty