101
Forclosures
Buying distressed properties is not like typical homebuying, but it’s rewarding.
Types of foreclosures
understanding the process
Notice of default
The Property Sale
Opportunity for Investors
due diligence
Buying distressed properties is not like typical homebuying, but it’s rewarding. After Auction Bid is committed to your success and here to provide providing helpful tools, education, and support to guide you through this process.
Underwriting, due diligence, or doing your research, is one of the most important steps you can take before acquiring a property. It is even more crucial when acquiring a foreclosure property. Here are the most vital steps to take before placing a bid.
Title and Document Review
The first step, for many, is to order a title report. This report shows the documents of record, as of the date requested. Alternatively, the documents may be available directly from the county recorder, in which they may be searched from the general index. It is important to verify the lien position of the subject foreclosed property to ensure clear title as to the acquired property or knowledge as to the open liens which may remain after the property is acquired.
In real estate, the general term ‘title’ references documents of public record relating to a given property. However, property is not the most correct term for this statement as ‘real property’ is the right or interest that a person has in the land, and anything affixed or attached to said land. Property is often defined as the rights and interests which a person has in the thing owned. It is important to verify that all the owners of record are those which signed the security documents at the time of origination.
A buyer takes the trustor’s (owner’s) interest which was sold at the foreclosure sale (i.e., the priority of the Deed of Trust foreclosed on at the time it went on the property, unless there is a subordination or other matter affecting the priority). The buyer takes title subject to all senior liens. Liens junior to the foreclosed Deed of Trust are usually eliminated (foreclosed out). The buyer will also have to pay any transfer tax and recording costs of the subsequent Trustee’s Deed which is not included in their bid.
Documents are recorded in the respective county recorder’s office where the property is located. Recording is the legal process of making an instrument an official part of the records of a county, after it has been acknowledged. Recording gives constructive notice as to the existence and content of these instruments to the public.
Estimate the Homes Value and Repair
Marketing
If you plan on flipping a home, you need to know what similar homes sell for in the area. You can review the property information report to view available property details or contact a real estate agent.
Management
You will also need to know how much it will cost to renovate the property, which may be tricky if the home is occupied. Most investors do a drive by and see if it needs a new roof, paint or other visible repairs. Contractors can give rough estimates and are essential team members.
Investors
If you plan on making cosmetic repairs like replacing the carpet/floors, upgrading appliances and painting the interior, you can call a contractor to get a ballpark figure or do your own research.
Marketing
If you plan to buy the property and hold it as a rental, you will need to know the market rents and rental vacancy rate.
Management
You will, however, need to know the renovation costs. You can reach out to a contractor to get a ballpark figure or do your own research.
Investors
If you’re going to rent out the property, consult with a real estate attorney to see if there are any local ordinances (like rent control or Air BnB restrictions) or laws that might make it difficult to be a landlord.
QUALIFICATIONS
Perspective Owner Occupant
“Prospective owner-occupant” means a natural person who presents to the trustee an affidavit that
(A) They will occupy the property as their primary residence within 60 days of the trustee’s deed being recorded.
(B) They will maintain their occupancy for at least one year.
(C) They are not the mortgagor or trustor, or the child, spouse, or parent of the mortgagor or trustor.
(D) They are not acting as the agent of any other person or entity in purchasing the real property.
Eligible Tenant Buyewr
“Eligible tenant buyer” means a natural person who at the time of the trustee’s sale:
(A) Is occupying the real property as their primary residence.
(B) Is occupying the real property under a rental or lease agreement entered into as the result of an arm’s length transaction with the mortgagor or trustor on a date prior to the recording of the Notice of Default against the property.
(C) Is not the mortgagor or trustor, or the child, spouse, or parent of the mortgagor or trustor.
Eligible Non - Profit Bidder
“Eligible bidder” means any of the following:
(A) A nonprofit association, nonprofit corporation, or cooperative corporation in which an eligible tenant buyer or a prospective owner-occupant is a voting member or director.
(B) An eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing.
(C) A limited partnership in which the managing general partner is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable housing.
(D) A limited liability company in which the managing member is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing.
(E) A community land trust, as defined in clause (ii) of subparagraph (C) of paragraph (11) of subdivision (a) of Section 402.1 of the Revenue and Taxation Code.
(F) A limited-equity housing cooperative as defined in Section 817.
(G) The state, the Regents of the University of California, a county, city, district, public authority, or public agency, and any other political subdivision or public corporation in the state.
(b) Nothing in this section shall prevent an eligible tenant buyer who meets the conditions set forth in paragraph (1) of subdivision (a) from being deemed a prospective owner-occupant.
(c) A trustee’s sale of property under a power of sale contained in a deed of trust or mortgage on real property containing one to four residential units pursuant to Section 2924g shall not be deemed final until the earliest of the following:
(1) If a prospective owner-occupant is the last and highest bidder at the trustee’s sale, the date upon which the conditions set forth in Section 2924h of the Civil Code for the sale to become final are met. The trustee shall require the prospective owner-occupant to submit the affidavit described in paragraph (1) of subdivision (a). The trustee may reasonably rely upon this affidavit.
Determine Financing
Properties are sold on a “Cash Only” and “As-is” basis at the foreclosure auction. While bidding after the foreclosure sale, many lenders are not willing to provide loans on occupied properties or without an interior inspection. There are lenders who will collateralize the purchase, mostly hard money, whereas most buyers use said funds to acquire property and refinance out shortly after purchase with a traditional loan from institutional lenders.
