California has the 10th highest foreclosure rate in the U.S. — 1 foreclosure for every 3,651 units. With nearly 14.4 million housing units in the state, that's a lot of foreclosures. And it's great news for buyers or investors looking for a deal in the nation’s second-most expensive housing market. So how does buying a foreclosure work?
The truth about buying a foreclosed home in California is that it can be a long, complicated process. That’s why the first step in your real estate journey should be to partner with an experienced local real estate agent who specializes in foreclosures. A good agent will help you navigate the purchase process, tell you what to expect, and help you get your foreclosure purchase across the finish line.
If you need help finding an agent that focuses on foreclosures, Clever Real Estate is an agent-matching service that can connect you with the top foreclosure experts in your area — no strings attached.
Finding foreclosures is hard enough — let us help simplify the agent-finding process. Get free local agent matches now!
What is a foreclosed home?
Foreclosure happens when a borrower misses their mortgage payments or fails to pay their taxes or other fees. The lender, government, or other organization can seize and take ownership of the property to recoup their losses.
Once an organization forecloses on a home, it usually sells the property to recover its investment. Usually, this comes in the form of a foreclosure auction or real-estate-owned (REO) sale.
How to buy foreclosed homes in California
1. Get preapproved for financing
Getting prepproved for a mortgage involves submitting your financial information to a lender. If you meet its loan standards, it'll issue you a preapproval letter telling you how much you can borrow.
If you’re curious how much you can get preapproved for, our friends at Rocket Mortgage can send you an estimate right away. Answer a few simple questions to see what you can afford!
If the foreclosure is livable, you can usually take out either a conventional loan or federally backed mortgage programs like FHA, USDA, and VA loans. California buyers can also use state-specific financing programs like California’s MyHome Assistance Program.
2. Hire a top California realtor with foreclosure expertise
Whether you’re looking to buy San Diego foreclosure homes or a foreclosure in Los Angeles, you’ll want to work with a local real estate agent who has experience with foreclosures.
A seasoned foreclosure-centric agent can help you:
- Monitor the fast-paced foreclosure market
- Leverage their professional network to find out about foreclosures before the competition
- Understand hyper-competitive foreclosure auctions
- Navigate the long closing process
Working with the right agent can give you some much-needed reassurance and peace of mind as you figure out how to purchase a foreclosed home.
Need help finding a California agent with foreclosure expertise? Clever is here to help. We have a large network of agents that work for brokerages like Century 21, Keller Williams, and more. They can show you how to buy a foreclosed home and provide you with the expertise you need to come out ahead with your offers.
Get in touch to learn more and find your perfect foreclosure agent today.3. Find foreclosed homes in California
Foreclosed homes can be difficult to track down. We highly recommend starting your search with a tool that does the searching for you, like Foreclosure.com. Simply search by state and county to see a list of foreclosed homes near you.
In California, state law requires all foreclosure auctions be advertised to the public for at least three weeks before the auction. This is usually done by publishing a classified ad or posting in the local courthouse. You can search and view foreclosure announcements from all California newspapers at capublicnotice.com.
Otherwise, to find the right foreclosure, you'll have to search government or bank foreclosure directories. These list all homes that have been foreclosed on by the government or lender.
Leading government foreclosure directories include:
- The U.S. Department of Housing and Urban Development (HUD) home store
- The Department of the Treasury’s list of IRS-repossessed foreclosures
- Fannie Mae’s HomePath
Sources of bank-owned or REO foreclosures include:
4. Tour foreclosures in person
Touring a foreclosure in person before you submit an offer is always a good idea, as it will give you a sense of the strengths and potential problems of the property. But properties in different phases of the foreclosure process offer different levels of accessibility.
- In pre-foreclosure: Buyers are often desperate to sell, so it’s possible they’ll let you take a look at the property if it will help close the sale. But they may also be unhappy about being forced out of their home — and not excited about enabling the process.
- At foreclosure auction: You’ll rarely be able to inspect foreclosure auction properties in person. Many of these properties are still occupied, and those occupants won't want to help the bank sell their homes. Other properties may be abandoned or dilapidated and are being sold "as is."
- Bank-owned (REO) property: These properties are usually sold on the open market with an agent, so they’re usually very easy to tour in person.
If you can’t tour the property in person, drive or walk by to see if the home has been vandalized or is currently occupied.
5. Submit offers
Submitting an offer on a California foreclosure is a lot like submitting an offer on a conventional home. Here are some tips to make your offer competitive:
- Don’t lowball: The bank very likely knows what the property is worth on the market and is probably not desperate to offload it for pennies on the dollar.
- Include your mortgage preapproval letter: Your offer will be stronger if the seller knows that financing won’t fall through.
- Put as much money down as possible: A sizable down payment signals you’re a serious buyer.
- Be patient: If you’re buying from a bank, several different people and departments will need to sign off on the sale.
6. Conduct due diligence on the property
If and when your offer is accepted, the due diligence period begins. Here is how to perform due diligence:
- Get a title review: This is done by a real estate attorney or a title company. It investigates any claims or liens connected to the property.
- Purchase title insurance: This protects you from any undiscovered claims that may surface later.
- Don’t count on disclosures: In a conventional sale, you might receive disclosures about the home. But since the owner of a foreclosure has probably never occupied it, you won’t receive this information.
7. Get the home appraised if you're financing it
Your lender will order a home appraisal to confirm the property is worth what you're paying. If the appraisal comes in lower than the loan, your lender may deny your mortgage application.
This is a special risk with foreclosures since they’re often priced and sold by agents unfamiliar with the area.
If your appraisal comes in low, you’ll have a few options:
- Ask the seller to the lower the price to the appraised value.
- Make up the difference out of pocket.
- Ask for a different appraisal.
- Cancel the sale.
8. Close on the purchase
If you’re paying cash, closing should be fast and easy. If you’re not, here are some of the differences between closing on a foreclosure in California and a conventional closing:
- Closing can take a while: The bank won’t send a representative to the closing. Instead, you’ll have to mail the closing documents to the bank and wait for them to return them.
- Seller won’t cover closing costs: The bank has little incentive to share closing costs. That will leave you, the buyer, paying most or all of them.
- Closing may not be final: If you’re an investor, the law in California allows nonprofits and occupant-buyers to buy the property out from under you within 45 days.
Closing on a foreclosure in California can be confusing, so it’s wise to work with an experienced real estate agent who can help you navigate the process.
When you use Clever to find an agent, not only will you get a highly experienced professional, but you could also qualify for cash back. Eligible buyers will receive cash back after closing, which is a great way to get started on renovating your foreclosure purchase.
See if you qualify for cash back now!
Pros and cons of buying a foreclosed home in California
Pros
✅ You could get a bargain
In California, where the average home is worth more than twice the U.S. average home value, foreclosures are a chance to get an affordable home. Your odds of getting a deal are better if you search in one of California's top investment markets.
✅ You'll likely have a clean title
If you buy an REO property, the bank has already untangled the many claims and liens on the property. That means you can buy with confidence.
Cons
🚫 You could lose the property — even after closing
SB 1079, a state law passed in 2021, allows nonprofits and individual occupant-buyers to step in and supersede an investor’s winning bid or offer for up to 45 days. In addition, judicial foreclosures in California can be reversed for up to a year if the former owner pays off what they owe, plus sale costs.
🚫 Many foreclosures are in poor condition
Because they’ve been neglected or even vandalized by disgruntled occupants, many foreclosures are distressed. Foreclosures are typically sold "as is."
🚫 It's a competitive market
In a real estate market as expensive as California’s, there are a lot of other people looking for a deal.
🚫 It could take a long time to buy
California has one of the lengthiest foreclosure processes in the U.S., taking a minimum of around 200 days — and often dragging out for months or years.
Stages of a foreclosure in California
Pre-foreclosure
Pre-foreclosure is the period before the bank or government takes ownership of the home. The timeline breaks down like this:
- First mortgage payment is missed: Pre-foreclosure begins
- Mortgage falls 90 days behind: Loan enters default
- 120th day after the first mortgage payment is missed: Lender can legally serve notice of default
- After notice of default: Owner has 90 days to get current on mortgage, or lender can schedule house for auction
Buying a house in pre-foreclosure can yield a great deal since the seller likely just wants to sell quickly to avoid foreclosure. But as you can see from the timeline above, you’ll be on the clock to close the deal.
Foreclosure auction
In California, a foreclosed property can be auctioned off 20 days after the notice of trustee sale is delivered to the borrower. However, many foreclosures in California are delayed for up to a year, or even longer.
At a foreclosure auction, the property is sold to the highest bidder.
Bank owned or real estate owned (REO)
If a foreclosure doesn’t sell at auction, it becomes a real-estate-owned (REO) or bank-owned property.
Buyers purchase these properties directly from the lender or bank, which can be difficult. Banks have layers of bureaucracy that each have to approve a sale, and ownership of these properties can be muddled. If you’re looking to buy an REO property, you’d be wise to partner with an experienced California agent who can let you know what to expect.
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California foreclosure laws for buyers
California Civil Code Section 2924 is the main section of California state laws that define how the foreclosure process works. However, there are a few other laws that provide useful context on buying California foreclosures.
The California Homeowner’s Bill of Rights (HBOR)
Passed in 2012, HBOR applies to nonjudicial foreclosures of residential properties and offers homeowners specific protections against foreclosures. It defines foreclosure-prevention options and also gives tenants the right to stay in the home, even after the sale, if they had a pre-existing fixed-term lease.
The Homes for Homeowners, Not Corporations Act (SB 1079)
Passed in 2021, this law allows individuals and nonprofits to overrule an investor’s winning bid or offer on a foreclosure for up to 45 days — meaning that they can essentially take the property from the investor for up to a month and a half after the sale is ostensibly finalized.
The Servicemembers Civil Relief Act (SCRA)
SCRA offers foreclosure protections to military servicemembers, including a generous right of redemption that can reverse a foreclosure months or years after the fact.
HOA foreclosures and the right of redemption
In California, homeowners associations (HOAs) can foreclose on homes that fall behind on dues. However, former owners have a 90-day right of redemption during which they can reclaim the property by paying off their debts. In certain cases involving a judicial foreclosure, they may have up to a year!
FAQs about buying a foreclosed house in California
How does buying a foreclosed home work in California?
If you’re buying a foreclosed home in California, you’ll buy from a homeowner who’s in pre-foreclosure, bid on a property at a foreclosure auction, or purchase a foreclosed property directly from a bank. Learn more about the pros and cons of buying a bank-owned foreclosure.
How do you find foreclosures in California?
To find pre-foreclosures, search for the keyword "pre-foreclosure" on sites like Zillow or Redfin. To find foreclosure auctions, search online directories like Auction.com. And for bank-owned properties, survey lists of REOs on major bank websites. Check out our list of the best foreclosure websites to find more resources.
Are foreclosures worth buying in California?
Yes! Although the foreclosure market is very competitive in California, a foreclosure can offer a huge discount compared to market value. Learn more about how to decide if buying a foreclosed home is right for you.
How long does it take to buy a foreclosed home in California?
How long it takes to buy a foreclosed home in California depends on how you’re paying (cash buys are fastest), what phase of foreclosure the property is in (auction purchases are instantaneous), and who you’re buying from (for example, buying from a bank takes the longest). See more about how long it might take you to close on your home.
Why trust us?
Clever Real Estate has spent hundreds of hours researching foreclosure law and interviewing licensed agents with experience buying foreclosures to create this guide. We utilized authoritative sources including the California Civil Code and the California Homeowner Bill of Rights.
The author, Lindsay Stefan, has over eight years of experience writing, editing, and copywriting for various websites, publications, and advertisements.
