I get asked quite a bit about Foreclosures in Humboldt. The perception is that these properties are available for a "song". The reality is this: they can be quite a mess! The former owners can be quite messy or destructive (wouldn't you be?)
At times you can walk into a foreclosure and wonder, "How can someone live like this?" A distressed sale or a foreclosure is when a savvy investor can make quite a bit of money.
There are a number of ways to profit on distressed properties, the first way is the short sale.
While not a foreclosure, the short sale is when a seller (with the lender's approval) sells a home for less than is owed on the property. Commonly the Lender will agree because the Foreclosure process can be very long and costly. The process of the short sale is hampered properties that have a second deed of trust on them. The entity that holds the second deed of trust is second in line to get paid, so because they will commonly be left holding the bag, they will not agree to a short sale, thus allowing the property to go to a Trustee's Sale.
The next way is the trustee's sale
The holder of the note in foreclosure will auction off the note to the highest bidder. At this point a second deed of trust holder has an option, let the second deed go unpaid or buyout the first deed. This is the reason that the second trust deed always has a higher interest rate, more risk = higher reward.
To cash in on the foreclosure at this point takes a ready source of cash because the holder of the first trust deed wants cash or cashier's check. These sales are noticed in the Legal Section of many Newspapers as is the total amount due.
If the sale nets less than the total amount due between the First Trust Deed and the Second Trust Deed, the first is paid off and the second is wiped out. Not all encumbrances are removed from the property, there may be a mechanic's lien or a tax lien that is still on the property. You can find out if such encumbrances exist at the county recorders office. You'll need the Assessor's Parcel Number (APN) and you can perform a search to see if the seller has more recorded encumbrances.
If you do purchase a foreclosure at this stage, one major concern could be whether it is occupied. The former owner or a tenant could be living in the home. In either case if you want them out, contact an eviction service. These people could potentially stay for a long time if you aren't proactive in removing them.
If you do purchase a foreclosure at a trustee's sale, BEWARE! Presumably, you won't have any inspections, so be aware that adverse conditions could possibly exist either with the structure or associated systems such as a septic tank or water supply.
The Last Way to buy a foreclosure is through a broker. If the trustee's sale doesn't net a buyer, it becomes bank-owned or real estate owned (REO). These foreclosure properties are then marketed through a Broker . It is not necessary to have the Bank's broker represent you in a transaction, you can use your own Realtor. The one thing to be mindful of is this: Inspections are shortened by the Bank, usually 5 days. The best bet is to arrange inspections prior to an accepted offer.
Another concern is this: the bank will not be willing to negotiate the price down, so be ready to walk away from the transaction if they don't negotiate a major issue that is uncovered during your inspections. These listings are usually priced below market competition. Why? The Banks are not in the business to own property, they lend money, so it is possible to buy a home below market value and at an outstanding deal!
If you have a question about foreclosures or how you can profit from them, feel free to call me at 707-616-3456 or email @ andy@azalearealty.com
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