Buying a South Coast Foreclosure

Because of the rash of media stories regarding the rampant number of foreclosures across the country, I am often approached by prospective buyers interested in purchasing bank owned properties along the South Coast.  The first thing that I tell everyone is that there are not many foreclosed properties in our area.  So far this year, through June 17th, there have only been 46 properties taken back by lenders from Carpinteria through Goleta.  This is in sharp contrast to North County where there have been 465 foreclosures during the same time period.

The majority of these foreclosed properties along the South Coast are “entry-level” houses and condos in the lower price ranges.  Often times, the owners of these properties unsuccessfully tried to sell them. Therefore many of the properties have condition or location issues that make them less desirable.  With a very limited supply, it is very difficult for a prospective buyer to find a dream home that also happens to be bank owned.  If you are interested in finding a good deal on a distressed property here are some options to consider:

Trustee’s Sale:
Prior to a property being taken back by a lender, the property is literally auctioned off at the County Courthouse steps.  A minimum bid is published (generally what is owed to the lender that is foreclosing) and a prospective buyer can purchase the property before the lender takes the property back.  This is probably the best opportunity to get a real deal; however, there is substantial risk because you are often purchasing the property with no interior inspection and subject to other potential liens. Additionally, a buyer needs to have a cashier’s check for the entire purchase price at the time of the auction.  In other words, you must be an all cash buyer who does not need to obtain financing.

Short Sale:
Many property owners are successfully avoiding foreclosure by selling their property, even when there is no equity.  Typically, these properties are listed by Realtors in the Multiple Listing Service with a disclaimer that it is a “short sale” because the owners owe more against the property than it is worth.  Most lenders are willing to negotiate a short sale because they would rather not take the property back.  This often requires a great deal of patience on the part of the buyer because it may take months for the lender to approve the short sale.  I just recently sold a property in Goleta through a short sale for $750,000 where the seller had paid $950,000 in 2005.  In this instance it took three months of the lender to approve the sale.

REO Sales:
REO stands for “Real Estate Owned” and is the acronym used to describe properties that have been taken back by lenders through foreclosure.  Once a property is owned by a lender, the lender wants to dispose of the property in a timely manner.  Like short sales, the majority of REO properties are listed with Realtors in the Multiple Listing Service.  In general, these properties are very reasonably priced and multiple offers at over asking price are common.

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