You’ve never set foot in the house. How risky would it be to buy it? You have a full-time job. How much time would it take to invest in a foreclosed property? 
These homes are auctioned off in front of various government buildings in Orange County virtually every day. The auctions attract investors who seem to know what they’re doing, bidding pennies over an opening bid for properties without the benefit of listing agents, open houses or even inspections.
At a recent seminar in Huntington Beach on buying property at foreclosure auctions, or trustee sales, longtime investor Ward Hanigan told the more than 100 people in the audience that doing it with any success would mean quitting their day jobs, because too many tasks need to be handled during working hours.
He also said most of them would wash out.
If that sounds daunting, that’s the way Hanigan likes it. The fewer of you, he says, the more deals for him.
Given that, I compiled this basic primer to answer some questions from readers about how these auctions work. The information is excerpted from a Huntington Beach-based company, CountyRecordsResearch.com, which for a fee helps people buy property in foreclosure.
Q. What are the main things people need to know to do this?
A. There are three key elements to buying cheap real estate: Knowing which properties are in trouble and what stage of the foreclosure process they’re in, knowing how much time the owner has left, and knowing all the loans against the property.
Q. Can someone see the house ahead of time or get a title report before bidding at the auction?
A. No, there’s no provision for a buyer to look inside the home prior to the trustee’s sale. Nor do trustees make title reports available to bidders on upcoming foreclosures. People have to do their own research or pay for a professional to do it for them.
But here’s a way to get inside: Sometimes the home has been on the market or offered as a short sale, for less than what the owner owes on the loan, before it winds up at a trustee sale.
Q. When should someone try to buy the property before the auction?
A. When a property has a lot of equity, the general rule is to approach the owner during the notice-of-default stage with an offer. It’s in his or her interest to accept, before losing everything at the foreclosure sale.
Q. What is required to bid?
A. The bidder must qualify with the auctioneer at the time of sale with cash, a cashier’s check, or another type of payment that’s designated in the notice of sale as acceptable. The check is in the amount they’re willing to bid up to. If the check winds up being higher than the successful bid, the surplus is returned.
Q. What happens to other loans on the property?
A. The main advantage to buying at an auction is that with the sale, all loans junior to the foreclosing loan are wiped off the property. The winning bidder will pay off the foreclosing loan and then will take title subject to taking over payments on all trust deeds above that loan, if there are any.
Q. Can an interested buyer approach the lender after the auction if no one bids on the property?
A. Yes. No bidders show up for 80-90% of all properties at these types of auctions (which are different from the mass auctions held by companies that get repo’d homes in bulk from banks later on). When no bids are made at the auction in front of the city hall or courthouse, the foreclosing lender becomes the owner. Lenders are getting these properties back all the time, and it’s expensive for them. A prospective buyer can stress that their offer helps the lender avoid paying for commissions, cleanup and repairs, which add up. Plus, it would fall to the new owner to evict any tenants.
Of course, people trying this can also consult real estate agents and other housing types for help.
So, what do you think?
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“cheap” - that is still way far away.
We have not even seen capitulation yet!
Wait until the pension funds collapse into insolvency, then we will see a massive liquidation as desperate gomers, flippers, and depleted trust-fund babies realize that they are holding a depreciating asset and they can’t even torch the Albatross because the insurers are insolvent too!
You’re forgetting that this is southern California, not the middle of BFE somewhere. (Go to urbandictionary.com for the meaning of BFE. It’s unprintable here) Property values here will always go up. Always have. Always will. You’re not paying for the property - you’re paying to not have to shovel yourself out and/or dress like an Eskimo 9 months out of the year.
Homes are still way overpriced even after the initial drop in value. Plus they won’t be appreciating anytime soon. Used cars may have a better investment value than used homes these days.
Sort of an odd question. You can go really cheap…but if your neighbors are gangsters that are going to cut your throat because you don’t want to be part of the clan, bario, whatever. Then clearly its not worth it. So this question is relevant to where this “cheap” home is.
I don’t think quality properties are cheap yet, even in foreclosure in nice areas. Although I agree that beach areas in So Cal will continue to be much more attractive than other parts of the country, we are subject to the same market cycles as other parts of the countries.
As prices rise here and decrease elsewhere we see workers make choices. The snow may be bad, but paying 80% of your income for rent or mortgage would not make any sense.
As incomes decrease (if you are lucky enough to have one) the property values will continue to decrease with them. Interest rates are already at historical lows. Until we start seeing improving employment figures and rising incomes, housing will continue to stay flat if not significant decrease further.
L, you’re living in fantasyland. What was once true in the past of So. California, isn’t going to be a reality in the future, regardless of the weather.
In addition, show me where property values in So. California keep going up. Inglewood? Hawthorne? South Los Angeles? Compton?
Do you think that property values are going to go up, when you start seeing graffiti on buildings, and increasing crime in your neighborhood? What do you think your neighborhood is going to be like 30 years from now? The same as it is today?
Gina, I think L’s post was created specifically to generate the response you gave or L was being sarcastic. But I am interested in part 2 of your response. With crime rates steadily dropping (and I believe at 1950’s rates now), why do you think crime will move from the higher crime areas to lower crime areas? I know plenty of areas that have remained “nice” for more than 30 years, why the pessism that this time will be different or that long term deterioration of neighborhoods is a given quality?
California is in the toilet. It will take more than just a few more tax dollars to fix the money pit.
We don’t yet have the 3 important factors balanced
Income, Lending and Price.
And our representatives no longer represent US.
Gina, I cam from those areas you are describing. I am only here because of my wife finishing up her PHD at UCI. We are sick and tired of living on campus, and are aggressively trying to purchase a home in Santa Ana, purely for the next two to three years and then keep it for a rental. I have checked the prices of houses in Inglewood vs Santa Ana, and guess what, Inglewood, Hawthorne, Compton, South LA, All have higher property sale price tags per sq ft of land than than OC’s ghetto, Santa Ana.
But get this, every offer I make is outbid by a cash paying investor. And at an average of 50-100K more than the asking price. Know I don’t know about you, but most of you people here seem to link either OC or $$$$ with intel. What do these cash investors know that I don’t?
Why is it that they are so willing to purchase these houses at such a higher price than what the bank initially asked for? Why is it that every house I am looking at in Santa Ana, the people veiwing these houses are either White or Asian? I don’t say that to be racial, but why?
The traditional stereotypes seem to be thrown out the window these days. Can it be true that SoCal land really does hold it’s value????
Personally, There are so many short sales on the market, it will only be a matter of time till they become REO and the choices of houses will become greater. I beleive the housing market will either stay where it is or drop slightly, but not much. However there is virtually no way that the “bubble” will ever inflate for another 3-5yrs. In my opinion, The only people looking to buy now, should be people like myself looking to get into a house for comfort and privacy versus throwing your money away at rent with no benefits.
But these investors, throwing cash around like there is no tomorrow, I have got to wonder…… What do they know that I do not???????????