Help us buy a foreclosure!

October 25, 2007 10:43 PM

How can I buy a decent foreclosure in Silicon Valley?

My fiance and I have determined that we cannot afford a decent home in Silicon Valley (just like everyone else). By decent I mean at least 2 baths, 3 bedrooms, seismically reinforced, and in a safe neighborhood with good schools in Sunnyvale or Mountain View. We are now exploring desperate measures. The recent spike in foreclosures gives us a modicum of hope. Here are the questions we have:

1. How to find listings of homes in foreclosure. Googling turns up only spam.

2. Can you have the house inspected if you are buying a foreclosure?

3. I am an attorney, so I have better than average knowledge of liens, title searches etc. However, I'm still concerned about buying a house with that has tax or other liens that I might not know about. Other than the average title search is there any other method of discovering liens?

4. How much cash is needed up front? We have adequate money for a down payment, but are there other costs associated with a foreclosure that must be paid in cash?

5. Any other special problems we should be aware of?

posted by bananafish to home & garden (8 comments total)

The idea that the average person can get a good deal in a hot market on a foreclosure is pretty much a fallacy (why wouldn't everyone else do this too?). There just aren't that many foreclosures available in the Bay Area - the market hasn't really been affected the way it has elsewhere. Why foreclose when home prices are up and most people (unless they really overpaid in the last year) could sell for a profit? Banks really would rather do just about anything other than foreclose on a loan.
Foreclosure sales usually require all cash. You can refinance the house later - but you must have some serious liquidity to close the deal. There is usually no inspection - houses are sold as is. Foreclosure auctions are attended by people who attend these auctions professionally. They are real estate developers and investors and a bunch of suckers who attended get rich quick seminars.
Let's say you manage to be the high bidder on your mythical 3 bedroom property in a good school district (that on the open market would sell in less than 14 days for over asking) - the place is going to be a dump - and maybe a dump with people still living in it - who are now your responsibility.
Property Shark has a free membership and some foreclosure information. Here is the Chron data on foreclosures in Santa Clara county - doesn't look like there are a lot of bargains...
I'd recommend going to the courthouse steps to see how this works - and then decide if it's still something you think the two of you are up for. I know after investigating this avenue when faced with the same frustration in San Francisco - we realized this wasn't any more viable.
posted by Wolfie at 11:36 PM on October 25, 2007

Since you say "we are now exploring desperate measures," would one of these include waiting for a few years to see if your local market enters a precipitous decline?

There are many negatives on the horizon in the real estate market, as you know. It's possible that Silicon Valley might be swept into these negatives. Steep price drops of 20% or more might even come about in a few years' time. A 30% drop, though highly irregular, is not out of the realm of the possible.

If it's possible, be patient. Wait for prices to drop, then drop more, then drop even more. Then bottom out. At this point, start looking (now armed with cash that you've saved and knowledge that you've accrued).

You might find bargains that don't fit the classical foreclosure mold, such as homes with motivated sellers, or even a few overlooked gems in a weakened market.

This is a risky strategy, because prices could start going up again. But many factors point to the end, for a while, of the bull market in real estate.
posted by Gordion Knott at 4:03 AM on October 26, 2007

In addition to no inspection, no pictures (other than of the outside), many people don't treat the house perfectly just before the forclosure. And then there's the possibility of leins on the house.

Plus, considering the way most loans were in the bay area, the first lender likely was owed 80% of the home value, which means that the forclosure starts at 80% of market price. Considering how the market behaved from 1999 to peak, there's likely 30% *more* to fall in the bay area. The term is "catching a falling knife."

You'll be more likely to remember the data if you research it, but in the last housing slump, number of sales bottomed in 1990-1991 - find out when prices bottomed, and when they recovered from peak.

After a forclosure if no one catches the knife, the house goes into the bank's collection of property (REO). Right now in cali, most of these houses are just being held. Eventually (a year or two) the banks are going to have to start selling them. However, some banks are asshats; they still won't allow inspections, or charge to dewinterize and then rewinterize after the showing. But as banks become desperate they might cave to market demands. At the very least, REO property won't have any leins against it.

But at this point, you'd be buying a house that hasn't been lived in (well, hopefully squaters or various criminals haven't been taking time in it) for 1-2 years. That's not a good state.

Buying forclosed/REO houses is a gamble; I'd really suggest waiting some time (if you do the homework I assigned you'll know that 5 *years* is not out of the question). And even then, unless you're an amazing handyman who's looking for some practice I wouldn't advise going for forclosure/REO's.
posted by nobeagle at 6:40 AM on October 26, 2007

My wife and I are in Austin, and we got a foreclosure house a couple of years ago.

1. If you search using a listing site (like http://www.mlslistings.com), they probably won't actually list a foreclosure as a "forclosure," maybe because it would scare off potential buyers. Some signs that a property is a foreclosure is that the home will be listed as a "bargain" and touting its low price. Also, there probably won't be any pictures of the interior (because it's likely a dump).

2. Of course you can have the house inspected...it'd be foolish to buy any house without an inspection.
posted by puritycontrol at 6:45 AM on October 26, 2007

4,800 subprime Bay Area loans at risk of foreclosure by 2008
Billions in housing wealth at risk as foreclosures soar
posted by kirkaracha at 8:28 AM on October 26, 2007

There are a lot of different ways to get a foreclosure property, each with their own set of rules. Start by going down to your bookstore or library and reading up, for instance, on REOs vs. courthouse auctions. Major differences.

You can also go through an auction house. Hudson and Marshall's buyers' FAQ and buyers' information address some of your questions.

There are lots of REOs and short sales listed in MLS. Any real estate agent can give you info about them, and usually those are available for view. There are also agents who specialize in such properties, so pay attention to who the listings agent is on the distressed properties you do find.

Right now the deals are in new homes, though. Banks have been slow to move the resales to market, and are still trying to hold out for the full balance of the loan. Whereas builders are much more willing to offer deep incentives to just get their inventory off the books before the carrying costs take them down. And of course you have to factor in the cost of assuming risk of liens/damage vs clean title and a warranty.

The Housing Bubble is a good site for monitoring the state of the housing market. Holding out for a year or two is a good option to consider. No one, not even the perpetually optimistic National Assoc of Realtors, is claiming anymore that it's going to bottom out sooner than a year from now.

Have you checked eligibility for Santa Clara County homebuyer's assistance?

If you were willing to accept a serious commute as your "desperate measure", look at Manteca and Stockton. Prices there are nearing meltdown, with a LOT of inventory (foreclosure, resales, and new alike) available.
posted by nakedcodemonkey at 11:17 AM on October 26, 2007 [1 favorite]

Re bank holdouts on resales:

‘A lot of the time, the [REO] houses are bid on successfully but don’t sell because the bank doesn’t approve the price.’”

Earlier this month, the Sacramento Business Journal reported that Irwin Union Bank of Columbus refused to transfer title on 20 homes to the winning bidders at a private auction because the bids were an average of $88,000 less than their reserve price, about $275,000 to $355,000 for the initially listed $409,000 to $465,000 homes.

Contra Costa Times
posted by nakedcodemonkey at 11:33 AM on October 26, 2007

Search Yahoo Foreclosures
posted by nakedcodemonkey at 11:39 AM on October 26, 2007