Purchasing foreclosures, only a game for the rich?

[Wes Peters]

So, the title really says it all. Am i wasting my time looking at foreclosure properties? I get that some properties can sell for much less, but just for the sake of this discussion,  I'm referring to foreclosures that are 100k+. I was driving around a neighborhood yesterday that i have been keeping my eye on, and finally i stumbled across a house that was in the process of being foreclosed on.  The average home price in the neighborhood is around 120k. I got all excited and contacted a Foreclosure attorney only to find out that payment must be made in full within 24 hours. 

So as someone who does not have access to 100k+, do i have options here? Perhaps I'm in the wrong circle of friends , but i do not know anyone who has access to that kind of money and would be able to purchase a house outright.  I work two jobs and make 60k a year and even if i made 100k a year its still hard to believe i could save up 100k + in cash. The only suggestion i have heard is using a hard money lender and since i was hoping to live in the property for a while, i was assuming that that type of higher interest loan would not make sense.  Is it possible to use a hard money lender to get the property initially and then somehow transfer to a more long term sustainable loan?  Or should i just forget about foreclosures all together and go find a property that will allow regular financing?

[Brian Burke]

@Wes Peters, buying at foreclosure auctions isn't necessarily for the rich, but it's definitely for the professionals.  It's laden with risks as many other posts have pointed out, and the casual buyer can be wiped out by a simple mistake where the professional can more likely absorb the hit.

In the 20+ years I've been attending foreclosure auctions I can count on my fingers and toes the number of times I've seen a property sell to a buyer intending to occupy.  Folks that have $100K (or here in CA maybe $500K or more) in cash to spend on a house don't want to buy a house sight-unseen (at least on the inside), take on title risk, endure endless sale postponements and cancellations, take on an unknown amount of repairs, deal with foreclosed-out occupants, etc and do all of that just to find out, once inside, that they don't like the floor plan or that the neighbor's dog barks endlessly at night (remember, there are no transfer disclosures in foreclosure auctions!).  The 20% discount isn't worth the trouble.  They have the money so they buy properties the conventional way.

It's true that you can buy at auctions with a funding partner.  I've bought hundreds of millions of dollars of real estate with funding partners.  But every transaction had a business plan, whether that was to buy, fix up and resell or buy and rent out and hold for future resale.  Buying with a funding partner for a personal residence is most likely a non-starter. There's no business plan, no exit strategy.  The only way I've seen this work is for family members to help out with some cash to get you into a house.  And those family members probably don't want to take on auction risks.

@Jay Hinrichs, auction.com started holding trustee's sales in CA a few years ago.  Worst thing to ever happen to this business.  They use their star power, as you said, to attract all sorts of folks that know nothing about the risks and they attempt to sanitize the business by making it appear to be an auction suitable for the uninformed.  To make matters worse, they cram all of their sales into one day instead of what everybody else does which is to spread them out all throughout the week.  This means that you have to do tons of prep work for an 80 house auction in one day instead of 8 houses per day for two weeks which makes the workload difficult to manage.  And worse yet, they post fake opening bids on houses they know are going to postpone and fake low opening bids on houses they are going to auction just to stir up attendance.  Then, once everyone is there, they postpone most of them and then jack up the opening bids on the ones they are selling.  It's really frustrating and makes the whole thing a total waste of time for the pros.

@Diane G., you can't trust the auction's website where it says "owner occupied".  They have no way of knowing who is in the house.  It could be the owner, in which case they can be served a 3-day notice to quit after the sale deed is recorded and can be evicted through the courts/sheriff if they don't abide by the 3-day notice.  But it could also be a tenant, and if it is, they are protected by the Protecting Tenants in Foreclosure Act which specifies that they must be served with a 90-day notice to quit, and if they have a lease for a fixed term, the lease has to be honored.  In other words if they have 6 months left on a one-year lease you can't serve them notice for 6 months.  I don't buy at auction in San Francisco so for properties located there I'd get some legal advice on how the just cause eviction ordinance effects evictions post-foreclosure.