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How to Buy a Foreclosed Home in Los Angeles

Foreclosed homes are an opportunity for buyers to acquire properties at below market rates. Here's what you need to know about buying a foreclosed home in Los Angeles.

Foreclosed homes are an opportunity for buyers to acquire properties at below market rates. Here's what you need to know about buying a foreclosed home in Los Angeles.

Foreclosed homes are often available at much lower rates than the market standards for an area. That’s because banks are trying to make their money bank on these properties after the previous owner has stopped making the mortgage payments. The asking price for such houses is often the outstanding mortgage amount (with interest) along with the penalty amount and attorney fees.

Although foreclosed homes are priced under market value, it isn’t always an easy process to purchase them. You must put in a lot more legwork than you would while purchasing a home off the market. But done right, you could walk away with a house priced as low as 70% of its market value.

Benefits of Buying a Foreclosed Home

The most obvious benefit of purchasing a foreclosed home is that you will get it at a price that’s below market value. This makes such properties attractive to those looking for a primary residence and real estate investors.

Since you can purchase a foreclosed home at a lower price, that also means being able to get more favorable financing options. The lower the selling price is, the greater your ability to negotiate a lower interest rate given the reduced risk involved. Your down payment and monthly installments will also be more manageable if you acquire a house at a reduced price.

For real estate investors, foreclosed homes serve as an opportunity to make a high return on investment. That’s made possible by the lower purchase price of the foreclosed property. Such homes also offer an opportunity to make high-impact renovations. This can contribute to the appreciation in the home and further increase the home’s ROI.

Disadvantages of Buying a Foreclosed Home

Buying a foreclosed home in the first place is not an easy undertaking. There is a high amount of competition to purchase these properties since they sell under market value. You will often go up against seasons real estate investors who know how the process works. This makes it hard to buy foreclosed homes if you don’t have experience in this niche of the real estate business.

If you buy a foreclosed home, the next step is to determine what repairs you need to make. That’s because you will often find foreclosed homes in a state of disrepair or neglect since the previous homeowners gave up on it. So you will have to put in some work and money to get the home back in shape once you have bought it. It’s important to take this into account if you’re buying a foreclosed home as an investment property.

Foreclosed homes can be a risky investment if you’re not well-versed with the industry. Banks list such properties in a way that makes them look like enticing, high-return investments. They may disclose nothing about the state of the home and possible defects with key components like the roofing and wiring. It’s up to buyers to judge the home and assess whether it is a good investment.

Buying a Foreclosed Home in Los Angeles

The first stage at which you can buy a distressed property is when it goes into pre-foreclosure. This is when a homeowner who has defaulted on mortgage payments is informed about foreclosure being imminent. In California, homeowners are given a Notice of Default 90 days after missing a payment.

You can buy a pre-foreclosure property by contacting the owner and making an offer for it. Most owners will take you up on a good offer since it gives them an opportunity to get some return for their equity in the property without taking too much of a hit to their credit score. If you offer less than the owner’s outstanding mortgage amount, then you’re attempting a short sale and that needs to be approved by the lender.

180 days after missing a mortgage payment in California, homeowners are sent a Notice of Trustee Sale. That means they have three months after receiving a Notice of Default to make their loan current. If they don’t, the home is put up for auction.

Foreclosure auction in Los Angeles are held between 9 am and 5 pm on business days. The auction locations for specific homes will be available on the foreclosure listing. The highest bidder at these auctions acquires the home. With judicial foreclosures, the owner has a right of redemption and can repurchase the house within a year of the sale.

You can also buy a foreclosed home from the lender. These are known as real estate owned (REO) properties and comprise the homes that didn’t sell at foreclosure auctions. You can use an online services like REO Vendor and REO Network to find REO properties in Los Angeles.

Buyers should always work with an experienced real estate agent while purchasing a foreclosed home. The process is more complicated than buying a home on the market. An agent will help you identify foreclosed homes that can be a good investment and guide you through the entire process.

Clever Partner Agents are experienced real estate professionals who have extensive knowledge of their local real estate markets. You can get a rebate worth $1,000 by working with one of our agents. Visit our website to connect with a Partner Agent who can guide you through buying a foreclosed home in Los Angeles.

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Luke Babich

Luke Babich is the co-founder and Chief Strategy Officer of Clever Real Estate, the free online service that connects you with top agents to save money on commission. He's an active real estate investor and licensed agent in St. Louis, with 22 units currently. Luke graduated from Stanford University and subsequently ran a historic data-driven campaign for University City City Council. Luke's writing has been featured in Homeland Security Today, Mashvisor, Payments Journal, and Bigger Pockets.

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