Buying a Home Foreclosure in California

Foreclosure rates have sky rocketed in Southern California, including in San Diego , Orange County , Los Angeles and San Luis Obispo . DataQuick recently reported that foreclosures in California soared 33% from the first quarter to the second quarter of 2008, and are running 261% ahead of year-ago levels. In late July, the L.A. Times reported that the number of homes repossessed in California in the three months ended June 30 increased 33.5% from the same period last year. The increase was from the first quarter of 2008. The housing market still could face a new wave of defaults from other loans that will adjust to higher rates, including pay-option adjustable-rate mortgages and Alt-A loans, which are a step between subprime and high-quality prime loans.

While the California real estate news has been quite grim, it also offers opportunities for a savvy buyer or real estate investor. In California , 40% of existing homes sold in the second quarter were foreclosures, according to DataQuick, a provider of real estate information, compared with 5.4% a year earlier. The record number of foreclosures in California provides a unique opportunity to home buyers and investors by offering them a chance to purchase property for far less than its normal market value. In fact, you can often find savings ranging anywhere from 10 to 50% off market value by purchasing a foreclosure in California.

Banks are not the only one on which homes are foreclosed. You should also strongly consider buying a home foreclosure in California that was foreclosed by HUD (U.S. Department of Housing and Urban Development) or the VA (U.S. Department of Veteran Affairs). These are the top two sources of government foreclosures. Other government foreclosure sales are made by: FDIC (Federal Deposit Insurance Corporation), IRS (Internal Revenue Service), GSA (U.S. General Services Administration), SBA (Small Business Administration), Fannie Mae, Freddie Mac, U.S. Army Corps of Engineers, county taxation departments, Sheriff Offices and many other government agencies.

If you're new to foreclosures, it will probably be best for you to buy before the home goes to auction. "If you want to buy on the courthouse steps," said Duane LeGate, president of, "you'd better be a pro." So, if you're new to foreclosures, it would probably be best for you to buy the home before it goes to the foreclosure auction.

Buyers can find pre-foreclosures by poring over the delinquency notices that lenders file with county courthouses when a borrower misses a payment. Armed with this information, buyers can then go scouting for bargains. "You call them or knock on their doors and say, 'I know you're having a problem and I think I can help you,' " said Alexis McGee, co-founder of

Some owners facing foreclosure are willing to do a short sale. Often, banks are reluctant to do such deals, since it requires them to take a loss. It can take months and a lot of badgering before a deal goes through, and not every buyer is up for that kind of hassle. But as the housing market deteriorates, lenders are warming up to short sales, according to founder Brad Geisen. "It makes a lot more financial sense for them to liquidate early rather than go through the foreclosure process," he said, which can cost lenders about $50,000.

While there are plenty of bargains to be had in the California foreclosure market, there are also plenty of pitfalls waiting to trip up the unwary foreclosure newbie. Some of those pitfalls include:

  • If the property is occupied, the successful bidder is typically responsible for removing the occupants, who may not be the previous owners. They could be relatives or friends of the owners, renters or squatters.
  • Because these homes are purchased "as is" from the lender or the US Department of Housing and Urban Development (HUD), there is no guarantee of condition. Sometimes it is possible to inspect these homes prior to making an offer but sometimes access is not granted.
  • There is also no telling what kind of liens there are against the home, due to unpaid taxes and so forth, which can also jack up the cost of these homes.
  • Buyers need to come with 10%-20% down on the spot and able to pony up the rest in a matter of days.

We suggest that you get help from a professional realtor that is experienced with foreclosures. Under professional guidance, you too may be able to snap up on a great bargain.

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