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 non performing 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.
Lists of foreclosed properties
Government Foreclosed
Properties
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