Local Foreclosures with Sorting
Foreclosures - Playing The Game
All of us want a bargain
There are no better bargains in real estate today than the purchase of
distressed properties at substantially less than fair market value. The process
is not complex, but success in this field requires a large amount of time to
research and a more modest amount of money.
Five Ways to Acquire
In general, there are five basic ways to acquire foreclosures at discounted
prices. All but one of them permit the buyer to pay for qualified assistance
from other sources (such as a title and / or escrow company. Unfortunately, the
most popular technique (buying properties at the trustee's sales) allows no such
luxury. The purchasing process at the trustee's sale requires each buyer to make
his own thorough investigation of both title and debt on the chosen property
within a limited time frame.
Delinquent Seller
The first and simplest way to buy properties under the fair market value arises
when the delinquent (not defaulted) owner is uncovered. The delinquent buyer
will not have made recent payments of principal, interest, taxes or insurance
and / or may have reduced the value of the property through benign negligence or
lack of funds. When the delinquent owner realizes that he will be unable to meet
the commitments on promissory notes and trust deeds for an extended period, he
may choose to sell his property even at a discounted price rather than proceed
through the foreclosure process.
The wise buyer will point out to the delinquent (and later defaulted) owner how he will be harmed by proceeding through the brief foreclosure process to the trustee's sale. At that point, the owner will lose his property, lose his equity, reduce his credit standing as a result of the recorded foreclosure and may have taxable income due the IRS for the amount of the debt reduction (elimination of the trust deed debt) resulting from the trustee's sale. Selling to an interested buyer at a discounted price may well be the most convenient solution for the troubled, delinquent owner.
Defaulted Seller
The property owner becomes a defaulted owner when the trustee for the
beneficiary records a Notice of Default. During the following three month plus
three week periods, a Notice of Trustee's Sale also will be recorded and
published in a local adjudicated newspaper once a week for three weeks just
prior to the trustee's sale. Live-in buyers of the property of the defaulted
owner may negotiate any reasonable purchase price and terms for the property
with the defaulted owner. Investors who seek to purchase the primary residence
of a defaulted owner of one to four units and who are not related to that owner
must work with the equity seller under the restrictions of two California Civil
Codes which can make such purchases more difficult. These restrictions require
the use of a special contract with a Notice of Cancellation, permit the equity
seller to pursue the equity purchaser for unconscionable advantage for two years
after the sale, and eliminate the use of outside assistance in the pursuit of a
foreclosure property. Investors who unwittingly or intentionally become
foreclosure consultants to equity sellers may also place themselves in jeopardy
under certain conditions.
Trustee's Sale
Most purchasers of foreclosures prefer to acquire their properties at the
trustee's sale. At this time, it is possible to make property purchases without
being in contact with the defaulted owner or foreclosing lender. Money talks.
Anyone with money may make a purchase regardless of credit, race, religion, etc.
The verbal auction permits the highest bidder to acquire a property by paying
off only the remaining balance on the foreclosing loan regardless of the fair
market value of the property. Debt recorded after the date of recording of the
foreclosing loan is eliminated. Problems of unanticipated repair,eviction,
payoff of superior loan(s), possible IRS redemption and inadequate research can
present formidable obstacles to the inexperienced buyer.
REO Lender
When a trustee's sale is held with no bidder present, the property is said to be
"sold" to the foreclosing lender. The REO lender usually will sell the property
rather than retain the property as part of the lender's nonperforming assets.
Finding that lender who will well the property newly acquired at the trustee's
sale at a substantial discount is not easy although it is possible through a
careful selection of lender sources of such properties. Individuals (not lending
institutions) normally present better opportunities to purchase at a discount.
Friendly Junior Note
The fifth way to buy foreclosures is just a bit more complex but is an
attractive way to acquire properties with less competition than purchasing at
the trustee's sale. If the holder of the junior loan to the foreclosing loan
agrees to sell his promissory note and trust deed at a substantial discount, the
purchaser of the junior loan may cure the underlying senior loans and then
foreclose himself on the newly acquired junior loan. The sale of the property
through the junior loan can bring immediate return on the face value of the
junior loan of the acquisition of the property with attractive equity.