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How to Buy a Foreclosed Home in California

Buying a foreclosed home in California is no small task — the process is rife with complications and filled with risks. However, with careful planning most of these issues can be minimized or avoided.
Buying a foreclosed home in California is no small task — the process is rife with complications and filled with risks. However, with careful planning most of these issues can be minimized or avoided.

If you’re looking to buy a home on the cheap or invest in a new property, looking at houses that have been foreclosed on will provide you with the absolute lowest prices in the area. Because of their below-market-value prices, foreclosed homes offer a great opportunity to make a huge return on investment — if you know what you’re doing that is.

However, despite the huge upside potential, buying a foreclosed home is one of the most difficult and risky real estate purchases you can make. There is much more paperwork involved than usual, and depending on the stage of the foreclosure, you may not see the home before you buy it. This means you can end up buying a home and then needing to spend much more on repairs than you had intended.

In order to navigate the purchase of a foreclosed home, you must understand what a foreclosure is, the different stages of home foreclosures, and what’s required to make a purchase. If you want to learn more about buying a foreclosed home, be sure to fill out our form to set up a no-obligation consultation with a real estate agent in your area.

What Is a Foreclosure?

A foreclosure is a process that a lender begins when a borrower does not pay back their mortgage. The lender will seize the property and put it up for sale hoping to turn a profit and recouping the rest of the borrower’s outstanding balance.

The laws regarding foreclosure vary from state to state: in Alabama, a home can be foreclosed upon in as little as 30 days, while foreclosing on a home in New York can often take over a year. In California, home foreclosures can often take over 200 days, so it is not a quick or easy process.

Most foreclosures in California are non-judicial, meaning they don’t go through the court system. The state uses several protections for homeowners who have had their homes foreclosed on, including the ability to pay their debts and regain ownership of the house up to five days before the home is sold. This can make things complicated for buyers looking at this type of home.

Stages of a Foreclosure

The way one goes about purchasing a foreclosed home depends on what stage in the process the house is in. Each phase needs to be approached differently.

Pre-Foreclosure

When a home is in pre-foreclosure, it means that the owner has been notified that their home will be foreclosed on if they do not make the required payments. If they cannot come up with the funds on their own, the only way to avoid a foreclosure is to sell the house before the lender seizes it.

That’s where you come in. Home buyers can approach the owner of a home in pre-foreclosure and negotiate a deal with them. This can be a huge help to owners of a home that’s being foreclosed on as it will save their credit score. You’ll also be able to tour the house which helps reduce some risks associated with buying a foreclosed home.

Foreclosure Auction

If a homeowner can’t make the payments on their home and can’t sell it during pre-foreclosure, the house will go up for auction. While home buyers will find fantastic deals at foreclosure auctions, they won’t be able to view the house beforehand or check for any title issues. This makes buying a home in a foreclosure auction a major risk: it’s easy to end up buying a home that will cost far more in repairs and renovations than you expected.

Bank-owned or Real Estate Owned Properties

If a home makes it through the first two stages without being sold, the lender will seize it and try to sell it just like any other home. They’ll fix it up, clear the title, and go through the state regulations. Buying a home in this stage of the process will lead to bargains like the ones that can be found in the other two stages.

How to Buy a Foreclosed Home

Unless you’re buying a home in an auction, purchasing a home that’s been foreclosed upon is very similar to buying a traditional home.

First, you must get pre-approved for a mortgage. This means you submit your financial information to a lender. If you’re pre-approved, it means they’ve agreed to give you a mortgage up to a certain amount.

Next, you should find an experienced real estate agent who can negotiate on your behalf and help you navigate the complex home buying process. Your real estate agent will inform you on any local regulations you need to be aware of, help you draft an offer letter, and inform you of any issues you need to look out for when buying a foreclosed home. Finally, you must perform an inspection, get the home appraised, and sign the closing paperwork.

If you’re interested in buying or investing in a foreclosed home, Clever can help. All Clever Partner Agents are top-notch real estate agents from major brands like Keller Williams, Century 21, and RE/MAXX. Our Partner Agents will help you get the best deal on your new home or investment, and you’ll even be eligible for a $1,000 Home Buyer Rebate to help cover closing costs. To get in touch with a local real estate agent, just fill out our form and we’ll be in touch with you shortly.

 

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Ben Mizes

Ben Mizes is the co-founder and CEO of Clever Real Estate, the free online service that connects you with top agents to save thousands on commission. He's an active real estate investor with 22 units in St. Louis and a licensed agent in Missouri. Ben enjoys writing about real estate, investing, personal finance, and financial freedom. He's a serial entrepreneur, having run several successful startups before Clever Real Estate. Ben's writing has been featured in Yahoo Finance, Realtor News, CNBC, and BiggerPockets.

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