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 go down to the county recorder’s office where they record default. Scores of these notices of default are recorded daily in each county. These default properties are found starting on page 3 or 4 of your report and will make up the bulk of your lists.

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 Trustee’s Sale (foreclosure auction). The owner now has a minimum of 21 final days to sell the property before the property goes to auction.

These Trustee’s Sales are always found in the front pages of your daily reports. 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 Trustee’s Sales (foreclosure auction) will take place. In almost every case the owner then loses everything!! It is always in the owner’s interest to sell the property to you for whatever price you have to offer before the auction if he is unable to reinstate the loans.

At the Trustee’s Sales, up to 20% of these auctions have no outside bidders show up to bid. If that happens, the beneficiary (lender) becomes the owner. This is an excellent time to approach the beneficiary with an offer. Act immediately to approach that lender before he turns the property over to an agent for resale to avoid real estate sales commissions.

As you can now see, our daily report can be used by you to buy these foreclosures at all three stages. You can buy before the auction from the owner during his default up until the very auction date. You can purchase at the auction itself. And you can buy after the auctions from the beneficiaries who are getting these Repo’s back on a daily basis.

When your daily lists arrive, and you go out to view some of the properties, you will soon discover that some properties have "for sale" signs and others do not. We are now estimating that at least one or two out of every ten properties that are currently on the market for sale are in this three month default period. But, 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 out during these three months before the actual auction sale date. 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 his 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. Often the default section of your list is most valuable a month or two after its arrival as time runs out for the seller.

When buying from the owner during his default, the most 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, many people choose to refinance a new loan to replace that existing loan to get today’s low interest rate.

If after the three month default period, the owner has not sold or reinstated, then the beneficiary (lender) proceeds to the final stage by now scheduling trustee’s sale (auction). The property will then reappear in the front section of the list as a trustee’s sale property. But again, the desperate owner can still sell the property up until the sale date that is shown.

The main advantage of buying at a trustee’s sale (foreclosure auction) is that the moment a property reaches the actual sale date, all trust deeds (loans) junior to the foreclosing loan, below the loan with the asterisk ( * ) on our report, are wiped off the property. This can create instant equity. The winning bidder at this auction will pay off the loan with the asterisk with his/her winning bid amount and will then take title subject to (take over payments on) all trust deeds above the asterisk ( * ) if there is any.

The approximate bid figure is only the current balance of the foreclosing loan (loan with the asterisk). This figure includes the loan principal itself plus back payments, penalties and foreclosure costs.
At the Trustee’s Sales, all bids are in the form of cash or cashier’s check. You are only paying off the loan with the asterisk. You then take over payments on any loans above the asterisk if any. Again, all loans below the asterisk are wiped off the property.

Lenders are now getting these properties back regularly. It is very expensive for the lenders to be stuck with these properties! The whole key to buying at this stage is to act quickly by approaching the beneficiary (lender), the same day of the sale, before he turns the property over to a real estate agent for resale. Quick action at this point can save you tens of thousands of dollars. Simply call the trustee an hour after the posted sale time to determine the sale results. If the trustee confirms that the property did revert back to the beneficiary then call that lender immediately and express your desire to present an offer. Stress to this lender that with your offer they will incur no commission costs, no clean up and repair costs (if you choose to take the property "as is"), and no holding costs. These costs to the lender would be enormous in the event that they chose to list the property with a broker and many months elapse during the clean up, the marketing, and the escrow period.

The only way to buy R.E.O.’S is to contact that beneficiary the same day of the Trustee’s Sale and present your written offer immediately!

When a property has a lot of equity, the general rule is to approach the owner, during default (stage 1), with an offer. It is in his interest to accept an offer of a few thousand dollars to get out before losing everything at the foreclosure sale.

When a property has little or no equity, simply step back, be patient and wait for the trustee’s sale. The trustee’s sale will wipe off all junior liens, creating equity. Ten to 20% of the time no outside bidder will show, and the property will revert to the foreclosing beneficiary. Now is the perfect time to low ball the lender with an offer substantially below the minimum bid at the trustee’s sale before he incurs any costs, such as commissions, clean up, repairs and holding costs.

There are three key elements to buying cheap real estate. First you must know which properties are in trouble and know exactly at what stage of the foreclosure process the property is in. Second, it is critical to know how much time the owner has left. Third, you should always know all the trust deeds (loans) that are against the property so that you can establish the lowest possible price to offer. These three elements are researched as completely as possible on every property giving you the most important information that any buyer can have.

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