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California Foreclosure Basics (Part 2) Stage 1 Buying before the Auction during default period

Buying Before the Auction…During default

The first thing to do is find out what properties are in default. County Records Research has been providing investors with this information for over 40 years and has been processing foreclosures for over 30...making it a unique source and a great company to partner with to acquire this information.

Begin your searches by identifying areas and property types you are interested in. There's an old saying...plan your work and work your plan. Decide what you are interested in and then structure your searches accordingly. If you are looking for Single Family residences in a certain City or Zip Code, enter in those characteristics in your search and then save them, name them and activate email updates. That way you will receive email notifications when properties get posted that match your criteria.

If you are not an active realtor, you will want to get help from Realtors in the area you are interested in. You can always drive the area and look for an agent that has properties up for sale, or call an office in the area you are interested in and find an agent who will help you with valuations and perhaps submit your offers to the people in foreclosure. In return you can arrange a mutually beneficial agreement to where you give them the listings if you are going to sell or lease (depending on your long term plan) or any other agreement between you. There are a lot of talented Realtors who do not have current business but they are capable and knowledgeable and can be a huge asset.

After you start narrowing down the properties you are interested in and go out to view them you will soon discover that some properties have "for sale" signs and others do not. While some of these properties will be listed for sale, for obvious reasons the sellers would rarely volunteer this information to you as a buyer. You are at a tremendous bargaining advantage knowing the enormous pressure that the seller is under to sell during these months before the actual auction sale date. In fact, once the Notice of Trustee Sale (NTS) is recorded motivation goes up exponentially as the NTS is physically posted on the property and published 3 times 7 days apart in an adjudicated newspaper.

Some buyers prefer to make offers on the properties that are not on the market for sale so that the seller does not have to pay any commissions to real estate agents, which will allow the seller to accept a lower offer. Even if there is a listing agreement on the property (and you are not a licensed agent) always approach the seller directly. Only call the agent if the seller directs you to their agent. Even then, you are at a great bargaining advantage knowing that foreclosure is pending and time is running out. Every day that elapses puts you as the buyer in a better position.

When buying from the owner during his/her default a common arrangement is when the buyer simply takes over payments by taking title subject to existing loans (as opposed to assuming the loans) by reinstating the back payments that have been missed. Don't worry about handling the transaction yourself. After making an agreement with the owner, simply go to any escrow company to open an escrow and an escrow officer will process the paperwork. After ownership has transferred to you as the buyer you can continue to keep the open loans current or if the Lender exercises the “Due on Sale” clause you will need to refinance the loan. Keep in mind that the “due on sale” clause is a right but not an obligation on the part of the lender. Lender’s just want the loan to be paid on time.

If after the three-month default period the owner has not sold or reinstated, the beneficiary (lender) then proceeds to the final stage by filing the NTS and scheduling the trustee's sale (auction). But again, the owner can still sell the property up until the sale date that is shown.

California Foreclosure Basics Part 1


Foreclosure procedure in California is an extremely logical and basically simple process. Once it is understood, it can be a highly profitable venture for you. Even properties that appear to be over encumbered with debt can become tremendous opportunities. The following explanation is not intended to be a review of the technicalities of foreclosure but rather a broad overview of the process.
The process begins after several months of non-payment by the property owner. At some point the lenders (Beneficiary) get tired of waiting for their money and say, "enough, no more," and they prepare a Notice of Default and have it recorded at the County Recorders office where the property is located. Scores of these notices of default are recorded daily in each county.

Once this default has finally been filed after several months of delinquency, the property owner has a three-month default period to either reinstate the loans or sell the property. They must take action. Many owners choose to sell during these three months. For most, it is their only option. After three months of default has elapsed without any action by the owner, the beneficiary (lender) now schedules the property for Trustees Sale (foreclosure auction). The owner now has a minimum of 21 final days to sell the property before the property goes to auction.

It is critical to understand that these owners are in total control of the property up until the very sale (auction) date that is shown. Many great deals have been made with these motivated owners during these final desperate days. If the owner does not sell or reinstate by the sale date, then Trustees Sale (foreclosure auction) will take place. In almost every case the owner then loses everything!! It is always in the owners interest to sell the property to you for whatever price you have to offer before the auction if s/he is unable to reinstate the loans.

Tips on how to buy a property at Trustee sale prices but with 40+ days to get your $ together and make sure you're getting the right property

Changes at the Trustee sale: SB 1079 has opened the door for owner occupant buyers.

2 ways to buy: at the Trustee sale or 45 days after the sale has taken place:

At the Trustee Sale:
There is currently a big advantage to being a bidder at the Trustee sales if you’re looking for a 1-4 Unit home to occupy. As a refresher, prior to passage of SB 1079 when a property was sold at Trustee sale the highest bidder at the auction was the new owner of the property (subject of course to any senior liens recorded before the foreclosing loan). They would receive a “Trustees Deed Upon Sale” from the Trustee handling the sale and if recorded within 15 days of the sale it would be deemed perfected as of 8 am on the day of the sale. That was true whether an investor bought the property or it was purchased by an owner occupant buyer.

Now, since passage of SB 1079 if you buy the property at the Trustee sale as an “Owner Occupant” the sale is final. If an investor buys at the sale, they have to wait 15 days to see if an “Intent to bid” letter is sent by an “Eligible Bidder”, and if one is submitted they then have to wait an additional 30 days to see if any other “Eligible Bidders” come in with funds to outbid the original purchaser or other “Eligible Bidders” (except for an eligible tenant buyer, who only has to match the initial bid). So, given these new ground rules it’s the Owner Occupant buyer who is in the most favorable position.

After the Trustee Sale:
You could also place an “intent to bid” on other properties sold at auction. You can run a report looking for 1-4 Unit properties sold at sale, and then contact the Trustee to see if the bid is final (purchased by an owner occupant) or if they are accepting notices of intent to bid from other “Eligible Bidders”. The notice of intent to bid is non-binding so there’s no commitment there, and you’d have the chance to check out the property in detail before submitting your actual bid to the Trustee. The “Eligible Bidder” who submits the highest bid for the property will be the new owner.

In both types of purchases you will need a cashier’s check for the full amount of your purchase price. There will be no inspection of the interior of the property, and you’ll have to do your due diligence to check for any senior liens against the property. But in return you’ll be getting a great deal on a home that otherwise might not be available to you on the market.

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