The Skinny on Foreclosures in Pine Mountain Lake

Foreclosure Sign

Foreclosure Sign

Hoping to score a bargain on a foreclosed property?  There are good deals to be found, including foreclosures in Pine Mountain Lake area, but the process is not as easy as you might think, and there can be risks and obstructions, depending on which phase of foreclosure that you seek to buy in.  Think you’re ready to jump in?  Here’s what you need to know.

There are three different stages of foreclosure, each of which presents different opportunities and hurdles for buyers.  The first step is to figure out which one makes the most sense for you.

Pre-Foreclosure

A home goes into pre-foreclosure when a borrower has fallen behind on his payments, but the house has yet to be auctioned off.

Buyers can find pre-foreclosures by tracking the delinquency notices that lenders file with county courthouses when a borrower misses a payment.  The first notice filed is a “Notice of Default”, and if the buyer remains in default, a “Notice of Trustee’s Sale” is sub-sequentially filed.  In the case of Pine Mountain Lake and Groveland, these will be filed with Tuolumne County Recorder.

Armed with prospects, buyers can go scouting.  If they see homes they like, they should contact the owners to see if they want to sell.  But, cold calling and making low-ball offers on people’s homes can be difficult; some owners are emotional, even angry.  Many are trying to hold onto their houses and don’t appreciate what they consider scavengers sniffing around.  In Pine Mountain Lake, door-knocking solicitation is not allowed, so phone calls or mailings are your only options.

In almost all cases, the value of the home is lower then the debt owed (mortgage(s), taxes, and/or unpaid Homeowner Association Dues in the case of Pine Mountain Lake homeowners).  And to purchase properties in these situations, it is necessary to arrange a “Short Sale” in which the mortgager(s) must agree to accept a reduced pay-off amount.

Some homeowners are open to a short sale.  But, often, banks are reluctant to do such deals, since it requires them to take a loss.  It can take months and a lot of badgering before a deal goes through, and not every homeowner is up for that kind of hassle.

But as the housing market deteriorated, lenders began warming up to short sales.  It makes a lot more financial sense for them to liquidate early rather than go through the foreclosure process, which can be very costly.  Still, lenders will need evidence of the homeowner being in dire financial distress before they will consider a short sale.

For the buyer, offering on a “Short Sale” can be a very frustrating process.  You could wait anywhere from one to nine months for the sale to be approved by the lender.  In the mean time other buyers are still able to make offers on the property and bump your offer if they are willing to pay more and/or have better terms than you.  If you are fortunate enough to get your short sale offer approved (before getting bumped by another offer) oftentimes the lender will at the last moment insist that the buyer to pay for items that the seller was supposed to pay for in the purchase agreement.  While you can sometimes get a good deal on a short sale, there is a lot that can go wrong.

Although some good deals can be found in the Pre-foreclosure stage, it requires a great deal of work and patience.  You will need to do tons of research and cold calling, and the odds of finding a home that is acceptable to you with an agreeable owner and lender(s) are very low.

Trustees’ sales

In the next stage of foreclosure, homes in default are auctioned off in a “Trustee’s Sale”.  In the case of Pine Mountain Lake and Groveland homes, this occurs on the steps of the Tuolumne County Courthouse at 3:30 pm weekdays (when there are trustee’s sales scheduled).  Scheduled trustee’s sales are posted in the lobby of the Administration Office of Tuolumne County.

If you plan on bidding on a property at a Trustee’s sale, you will need to buy with CASH . You will not be able to buy these homes if you need a loan to purchase.

The minimum bid is reflective of the amount owed to the primary lender, and with recently declining values, this is usually higher than the value of the property.  In that situation, there is unlikely to be bids on the property and the lender takes back the property.  As of this writing, about 85% of the properties are being taken back by the lender.

Occasionally there are some bargains, but the process is a crap shoot.  Bidders can’t inspect the property, so there’s no telling how much work it needs. Information on outstatnding liens and unpaid taxes is unreliable, and there is always the risk that you will inherit unknown encumbrances with the property.  Any property taxes owed on the property must be paid off by the new owner.  If there is an IRS lien on the property, the IRS has a 120 day period from the date of sale in which they may take the property from the new buyer (if they reimburse what the buyer offered).  Although the IRS does not usually do this; it is real enough possibility that you will not want to (or be legally be able to) transfer, finance, or begin any significant work on the property.  If there are unpaid Homeowner Dues, some Homeowners Associations (including Pine Mountain Lake HOA) will insist that the new owner pay them.  It is questionable whether they have a legal right to do this, but you may be in for a hassle to resolve this issue.

There are numerous individuals who make a living buying and turning over these homes for a living.  They are pros at it and know all the tricks of the trade.  And if there is a home going to trustee’s sale that is actually a good deal, they will be there, and they will be your competition.  So, it is necessary to do quite a bit of homework on the homes and the process of buying them this way if you want to get involved.

Post-foreclosure

In most trustee’s sales, the amount owed on the property (and subsequent minimum bid required) is higher than the property’s value.  So, nobody bids on the property, the lender takes back the house, and the property goes on the market as what’s called an REO (real estate owned) property.  These are typically marketed like ordinary home sales, by listing the property with a real estate broker.

As lenders have been forced to take back more properties, they have become more aggressive in pricing them.  As of this writing foreclosures in Pine Mountain Lake and Groveland are typically priced 10-15% below market value.

How aggressively you can negotiate depends on several factors; here are some of the most important ones:

1) The lender who owns the property:  Some lenders are relatively stiff on their price and others are more willing to negotiate.  Factors in lender motivation are numerous, but their financial stability and the amount of REOs in their present inventory are likely the most influential.  “Fannie Mae” holds the most foreclosures and I have noticed the following trend with their management of REOs.  They are typically pretty stiff on their pricing and usually will not accept an offer that is more than 5% lower than their asking price (although there are exceptions).  However, they usually reduce the price about once a month, and when they do get an offer they don’t usually factor in the fact that they just reduced the price.  So this is a prime time to make your offer, and when I have a client who is interested in an REO that has been on the market a while, I look at the history of the listing to see if there is a pattern (time-wise) for price reductions.  I also inquire with the list agent to see if a price reduction is anticipated; and if they have been recently asked by a lender to make a new “broker price opinion”.  If they have, a reduction is in the works.  Of course, a buyer could loose a property to another buyer while waiting for a price reduction.  But sometimes the wait pays off with a great deal.

2) Buyer financing: Lenders (who own the REOs) are aware of the importance of a buyer’s qualifications to obtain financing.  Financing is getting much tighter, and they know it; it is their business.  So, if you are a buyer with 5% down, they may not even consider a full price offer from you.  In general, the higher your downpayment, the better the deal that you will be able to get.  It also helps if you are preapproved for a loan and able to close quickly, especially if you do not have a sizable down payment (20%+).  Cash is king; and to the lenders who own REOs it mean no worries about the buyer’s financing and a quick close of escrow. So, cash buyers are able to negotiate the most aggressively and usually get the best deals.

3) Terms: In most case, the lenders expect you to buy the property “as-is”.  You will still have the right to all inspections that you want, and the right to cancel the contract and get your deposit back.  Lenders who own REOs will usually treat offers more favorably if they are not loaded with repair requests; it is a red flag that you are a buyer who is more likely to back out when work is found.  Since the lender is likely to counteroffer repair requests anyways, you are better off to go in with a clean contract, factoring expected repairs into your offer price.

As a broker who has been tailing property, pest, roof, septic, fireplace/stove, and other inspectors for over 25 years, I can usually point out any significant work that will be needed on a property before you write the offer, but some clients will have a licensed inspector(s) and/or a friend/family member who is in construction take a look at a home before presenting an offer.  A full set of inspections will cost $700-1100, and any knowledge that you have before getting into contract and incurring these costs is useful.  You can factor expected repairs into your offering price and have ammunition to justify your offer to the lender who owns the property.  Their knowing that you are already aware of repair work needed, and still proceeding with an “as-is” offer, is a reassurance to them that you are a solid buyer.

4) History of the listing: Some REOs in Pine Mountain Lake have been on the market for several months with few or no offers.  Others have had numerous offers without coming to terms with a buyer.  Some have had offers close to their asking price, and some have only been “low-balled”.  How aggressively you can negotiate is highly dependent upon knowledge of such history, which as a broker I am good at obtaining, whether it be directly through the list agent, or by word of mouth through my local network of agents.

One big advantage of buying in the post foreclosure stage is that the process is so clean; the title is clear and the property is delivered vacant.  No need to worry about liens, back taxes, or Pine Mountain Lake Association Homeowner dues owed on the property; the lender will need to pay everything off in order to close the sale.  The only exception to this is Water/Sewer bills.  It is our local water/sewer utility company’s policy that the new owner inherits any outstanding bills, and after researching this I found that they can actually get away with it in California.  So, as buyer’s agent, I make sure that the seller or seller’s agent pays off any outstanding bill before allowing escrow to close.

If you would like to view details and photos of Pine Mountain Lake / Groveland REOs currently on the market, they can be found by clicking on the following links:  Pine Mountain Lake Foreclosures and Groveland Foreclosures.  You can save these searches and sign up to be automatically updated as new foreclosures come on the market.

If you have further questions about this article, or if you are interested in looking at foreclosures in Pine Mountain Lake or Groveland please email me at tomknoth@yahoo.com or call me at (209) 962-5838.

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