Foreclosure and Bank protocol

[ed martin]

Here in California forclosures are done by a Trustee's sale. It typically takes a few months with no redemtion period for the borrower. This differs from a Mortgage forclosure in some states were there is a court action and the borrower can have a year to redeem his property.

Once the bank forcloses by Trustee's Sale, that's it- the bank owns it free and clear. Typically they assign the property to a select few Brokers who then post on the MLS. Most of these properties are priced well below market as the banks are anxious to clear them off the books. It's advisable not to go directly to these listing Brokers, because they will lead you by the nose and you will purchasing the property by their terms. I've had my share of some very hard nosed negotiations.

The trick is to win the initial bid. If it is a very desirable property you may well end up in a multiple bid scenario, with more than a few cash purchasers raising the price well above the bank's original asking price. One property in South Central, (huge lot, generous interior space) had 26 bidders! On behalf of my client we wanted to bid at their intial asking price, but the bank would not entertain any offers until the property was cleaned up, to address your original question. When we viewed the property it was completely trashed, I mean utterly trashed and had a very strong smell of feces or maybe a dead body, I'm not sure. It was one of those smells where you had to put something over your nose and the smell stayed with you for a while.

If you should win the the bidding, then you want to have a professional inspector thoroughly examine the property. Know exactly what you are getting into, the work, and the cost of the work (get a number of estimates from professional contractors) and write the addedum to adjust the final selling price to reflect the cost of the mandatory repairs. This does not mean elective cosmetic stuff. My experience has been that the banks will either credit you fully or at least meet you halfway for the repairs.

A few more things, Banks don't like to dicker or go back and forth, extreme low ball offers are more likely to end up in the trash and jepordize any future chance. For the bank it is all business, it's not emotional for them, they usually deal rationally although the process can be slow (heavy work load) but if they sense that they're dealing with someone unreasonalble, there will be no going foward.