San Diego foreclosures are on the rise! They seem to be popping up everywhere and some people think that we could experience one of, if not the biggest, foreclosure boom in history over the next couple of years. I have a lot of people asking me questions about foreclosures and the nature of the foreclosure market. Are they different than a typical residential purchase? Yes they are!

First of all, many of the "foreclosures" out there are actually REO properties. This stands for Real Estate Owned. These properties are often owned by a client or investor that has allowed an asset management company to sell their asset. These properties have been foreclosed on and now have a new owner that is selling.

While REOs can often lead to good deals, there are some changes happening as the banks are seeing an increase in their inventory levels of REO properties. During slower periods of foreclosure activities, banks may let properties go for less money as they need to compete with the non-foreclosure residential listings that may not require as much work. The amount of equity in the property when it was foreclosed on or "Judgement Amount" can also play a factor as to how much loss the bank can take. If the debt on the home has been paid down and it was foreclosed on with a lesser amount of debt than the market value, the bank may have more room for negotiation. The current foreclosure market is due, in part, to borrowers using interest only loans to get into the property and no longer being to afford the payments when they adjust to principal and interest. Often times, the amount owed at the time of foreclosure is more than the property's actual market value. When this happens, the bank is already "taking a loss" to sell the property due to the depreciated value, costs to them of foreclosure process, escrow and title fees and real estate fees. REOs  are also becoming a hot trend for buyers in the current market. These REOs often need work and buyers are willing to try to get a good deal and fix up the property to gain some equity.

Dont get me wrong, there are some smoking deals to be had and I think that there will continue to be over the next couple of years. However, the media and "foreclosure auction" advertising that we all see and read can be very misleading. Everyone would like a $500,000 house for $100,000 but, deals like that are rarely the norm. I am not really sure that the ads that we see about homes like this example sold at auction are even creditable. I do know that if you are looking for a home to live in as your personal residence, an REO may work great for you! If you are looking to flip a house in San Diego and make a huge profit...you may have missed the market for that by a few years.

How are REO deals different that a typical residential transaction? Things can move a bit more slowly in a REO transaction. The banks typically have an asset management department that handles these properties. So, after the offer comes in, it needs to go to an asset manager for approval. They may need to go above themselves to have it signed off or approve it with a client that has the property. After it is looked over they need to factor in their bottom line or the amount of loss that they can take and counter anything else in the offer that does not work for them. After all of that is goes back to the listing agent to forward along to the buyers agent. By the time there is a counter offer it could have gone through the hands of 4 or more people! With a typical residential transaction, the agent presents the offer their seller, they discuss it and the acceptance or counter offer goes back to the other agent, much less time involved.

The escrow periods are also longer, in general, for a REO transaction. Since there are many more people to coordinate with and more paperwork to be done, the bank has to allow for more time to get things done so that they are not liable for the escrow running past the closing date. It can be up to about 60 days to close escrow in some cases.

Another thing to consider is that most of these REO properties are sold "as is." The banks will rarely make repairs to anything on the property. They also cannot disclose much about the history of the property as they have not lived there or even set foot in the house. Often times, the bank that is selling can be all the way on the other coast. This makes property inspections very critical! You need to make sure that all aspects of the property have been looked at so that you are not left holding the bag if there is a major problem after the escrow closes and you own the home. Aside from a home warranty, there are still many things that will not be covered if there is a problem after you close escrow.

While they can move a bit slower and require a more work than many residential homes, the right price on the right place can easily make it worth while!

While searching for foreclosures or REO properties can be very daunting and confusing for the typical consumer, Realtors and agents can find them relatively easily and save you from having to enter in a bunch of your personal information to get lame leads on where to find these properties. 

I invite you to check out the REO listings that I have by going to www.SanDiegoHomes.SquareSpace.com. If you have further questions or would like help locating the right REO property for you, please feel free to contact me at anytime through my website, no strings attached!

Thanks for reading!