Purchasing an Orange County Foreclosure - How Does a Foreclosure Work?
Have you been considering purchasing a bank owned foreclosure in Orange County? If you have, then it's important to understand how this type of purchase differes from a traditional, equity sale.
How does a bank foreclose?
REO is another name for a forelosure, and it is a result of the bank/lender taking a property back after a borrower stops making payments on the mortgage.
California allows for two types of foreclosures - judicial and non-judicial. A juducial foreclosure requires the filing of a lawsuit. However, most foreclosures in California are done by non-judicial foreclosure, meaning that a lawsuit is not filed. Instead, a Notice of Default is filed and then 90 days later, a Notice of Trustee Sale is given, and then the house is put up for auction. If nobody meets the minimum bid, the bank takes the property back and it becomes an REO, Real Estate Owned.
Eventually, the REO is put back on the market.
Is a foreclosure a good deal?
Typically, the banks price the REOs to sell quickly. Because of this and the perception that foreclosures are a great deal, there is typically a great deal of competition for these homes and numerous offers are the norm.
How do you get your offer on a foreclosure accepted?
If you are fortunate, you may be one of the hopeful buyers who are offered a counter offer. Often, several other potential buyers will receive a counter offer at the same time. At this time, you will be asked to make your highest and best offer. The bank will then make a decision and choose a buyer.
The bank's decision on which offer to accept on the foreclosure may be based on several different factors in addition to purchase price, including: the down payment, the earnest money deposit and other terms in the purchase offer such as the number of days that the buyer has before contingencies to purchase the home are removed.
To give your offer the best chance of being accepted by making it the most competitive, consider putting down a larger amount earnest money deposit and offer to remove contingencies in a short period of time, such as 5 days, but make sure that you can get your inspections done during the contingency period.
Once the bank chooses the buyer, the buyer will need to sign several addendums, which are favorable to the bank. They usually give the bank the ability to back out of the purchase at any time until closing, for whatever reason.
Another aspect of buying a foreclosure that you should be aware of is that banks do not usually make repairs on the property. Still, it is very important that you take the opportunity to do inspections on a foreclosure prior to the removal of contingencies. As the fact that you are buying a property as is, does not mean that you may not back out if there are more issues in the house than you realized. For more information on this, see buying a house as is. This is especially important as the bank does not have the same obligation, nor knowledge, to give full disclosures on the conditon of the property as a typical seller would.
Should you buy a foreclosure?
When deciding whether or not to purchase a foreclosure, be aware that many of them may be in disrepair. Sometimes, the previous owner has removed fixtures such as lights, appliances and toilets. The previous owner may not have done maintenance as they moved towards foreclosure, not wanting or not having the money to do the necessary work. The property may have been abandoned. All of this can lead to a state of disrepair. You may find a foreclosure in good condition; however, many are in a rough state.
If you are fortunate enough to have your offer accepted on a foreclosure, you may get a great deal, but in determining how good a deal it really is, consider the amount needed for repairs and make sure competition hasn't caused you to over bid the price.
If you would like to discuss if buying a foreclosure is the best option for you, please contact me at 714.319.9751 for a free consultation.
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