How Do Foreclosures Work? Purchasing a Costa Mesa Foreclosure

How Do Foreclosures Work? Purchasing a Costa Mesa Foreclosure


If you’re considering purchasing a bank owned foreclosure in Costa Mesa or elsewhere in Orange County, it’s important to understand how these differ from a traditional, equity sale.

A bank owned foreclosure, also known as an REO is a result of the bank/lender taking a property back from a borrower who stopped making payments on a mortgage.

In California, most foreclosures are done by non-judicial foreclosure, meaning that a lawsuit is not filed.  Instead, the house is put up for auction.  If nobody meets the minimum bid, the bank takes the property back and it becomes Real Estate Owned (REO).

Eventually, the bank puts the house back out on the market as an REO.

Typically, REOs are well priced to sell quickly.  As a result of this and also of the perception that foreclosures are a great deal, there is usually a lot of competition for these homes.

When buying a foreclosure in Costa Mesa, or elsewhere, in Orange County, you can expect to have a lot of competition from other people wanting to purchase the same home.

If you are fortunate, you may be offered a counter offer along with several other potential buyers.  Often, you will be asked to make your highest and best offer.  The bank will then make a decision and choose a buyer.

This decision may be based on several different factors including: the amount of the offer, down payment, and other terms in the purchase offer such as the number of days before contingencies to purchase the home are removed.

To make your offer competitive and give it the best chance of being accepted, consider putting down a larger amount for your earnest money deposit and offering to remove contingencies in just a few days.

Once the buyer is chosen for the foreclosure, the buyer will need to sign several addendums, which are favorable to the bank.  Typically, they offer the bank the opportunity to back out of the purchase at any time until closing for whatever reason.

Additionally, banks do not typically make repairs on the property.  It is very important that you take the opportunity to do inspections on a foreclosure prior to the removal of contingencies.  This is especially important as the bank does not have the same obligation, nor knowledge, to give full disclosures on the conditon of the property as a typical seller would.

Another issue to consider when deciding whether or not to purchase a foreclosure is that many of them may be in disrepair.  Sometimes, the previous owner may have removed fixtures such as lights, appliances and toilets.  They may not have done maintenance as they moved towards foreclosure.  The property may have been abandoned.  All of this can lead to a state of disrepair.  Although not all foreclosures are in this type of condition, a good percentage are.

If you are fortunate enough to have your offer accepted on a foreclosure, you may get a great deal, but in determining if it is, consider the amount needed for repairs and make sure competition hasn’t caused you to over bid the price.

If you would like to discuss if buying a foreclosure is the best option for you, please contact me at 714.319.9751 for a free consultation.

Leave a Reply

Your email address will not be published. Required fields are marked *