Important Information about Foreclosed Property in Palm Springs.

Buying a foreclosed property may sound like a good idea, but can you really get a good deal? You can if, and it’s a big if, you can find the right property in Palm Springs at the right price.

I recently listed a property that should have been worth about $900,000 except it needed some work so the price we arrived at was $850,000, still high, but for the area there would be some interest. As soon as the property was listed the seller stopped paying the mortgage.

The lender will usually let 3 payments go by before taking the first action of filing a Notice of Default (NOD) which starts the 3 calendar month clock. The seller only told me that this had happened a week after he had received the notice. The amount owed at the time was $625,000, plenty of room to reduce the price to a point where it would sell and still walk away with a few dollars, however the seller would not reduce the price even though it would have to be disclosed to any potential buyer that the property would be sold at auction for as little as $625,000.

The 3 month period is really only about 60 days as the seller needs to get the property in escrow in enough time to close no later than 5 business days before the sale date. While I have done escrows as short as 7 days, the normal time frame is at least 30 days and that can be extended for any number of reasons, usually beyond the control of the parties involved.

Once the 3 months is up (note that 3 calendar months is different than 90 days) is up the lender files a Notice of Trustee Sale (NOT), setting the auction date, no sooner than 21 days after the 3 months from recordation of the Notice of Default. The seller/owner has until 5 business days before the auction date to reinstate the loan by paying the back interest, late penalties and the trustee fees. Over 70% of owners in default will cure the problem, however, in this case the seller didn’t do anything and the property was auctioned for $625,000, a bargain for the location.

When searching for foreclosure properties the key thing to look at is how much the outstanding loan balance is compared to what the property is really worth. In today’s market many owners owe more than their property is worth because of a number of factors, including over paying, refinancing, equity loans, reverse amortization loans and other liens. Finding a property where the total outstanding balance is well below the value is very rare. The best time to buy is before the auction when the seller is anxious to avoid a default on their credit and the lender may be interested in taking a loss to keep from having yet another property to deal with. This is known as a ”short sale” and the lender may or may not agree to it. There are some restrictions and serious downsides to buying property like this, which we will cover next week.

Buying a foreclosed property
If you are considering buying foreclosure properties as an investment there are a few things you should know up front. This does not apply to someone who is buying the property to live in as their primary residence, only to an investor. There are three basic ways to buy a foreclosure property. Let’s start with REOs or Real Estate Owned, these are sometimes called “Corporate Owned” or “Lender Owned.” This is probably the safest way and you can use a real estate agent, escrow and title insurance, however you will not receive any disclosures from the lender. If something is wrong and you discover it after the sale there is a good chance that the lender will still be around and you may be able to work something out with them.

The next way to purchase a foreclosure property is during the pre-foreclosure period this is after the Notice of Default has been filed and 5 days before the Trustee sale. This is many times refered to a short sale as the seller owes more than the property is worth. Once you started the process you are at the mercy of the lender who has to approve the short sale. You are also up against the clock as the date is pretty much set for the trustee sale or auction.

Many sellers in this position will lie to you because they are desperate to sell. There may be tax liens you will be responsible for, big utility bills that you might be responsible for and the loan being foreclosed on, especially if it seems too good to be true, could be a second trust deed meaning that you will still have to pay off the first trust deed.

If the seller has filed bankruptcy or even files after you buy the property the court could force you to return the property to the bankruptcy estate. After all that the seller has two years to sue to reverse the sale if they can prove that they were taken advantage of or that you violated some aspect of the law in purchasing the property.

The last way to purchase is at the Trustee sale or auction. This is a cash deal only and you have to have the cash with you, usually in cashiers checks, not a briefcase full of cash. You have no escrow, no title insurance and no knowledge of the condition of the property. If the owners are still there then you have the issue of eviction, which can take awhile in California, and most former owners will vandalize and strip the place before they leave.

As you can see there are a lot of issues involved with investor purchasing of foreclosure properties. The up side is that if you can find the right deal you can do very well. If you have any questions, please feel free to call me at 760 485 0858 or click here to send me an email to request information.