As you are aware, foreclosure auctions take places in the Court House steps of your County Headquarters. The main difference between REOs and Foreclosure Auctions are:
1) Ownership: REO properties are owned by the bank with clear chain of title. After the purchase of an REO, the new owners will be able to obtain Title insurance. Chain of title might be so easy to establish if you attempt to purchase the property at auction. Depending on which lien holder is foreclosing on the property and which liens were recorded 1st, you might be facing challenges in getting clear title to the property. So, if you plan to purchase at foreclosure auction, you need to have a crack Title and Escrow teams to help you with research.
2) Possession: In case of an auction, unless the property has been abandoned the new owner is responsible for foreclosure and eventual eviction. And if the home owners have file bankruptcy, you can not take possession till the bankruptcy is discharged. You can offer them Cash For Keys like the banks do on REOs. Also, California has enacted very tough tenant laws that in case a home is rented with a lease contract, the tenants have the right to remain in the property till the end of the lease.
2) Cash Only: You can obtain a loan to purchase a San Jose REO from the bank, but all the foreclosure auctions have to be paid in Cash or Cashier’s check within few days of acceptance of your winning bid. Most investors pay on the spot with Cashier’s checks anyway.
3) High Risk: You only risk with San Jose REO purchase is the uncertainty about the condition of the property. But with the Foreclosure Auctions, you have no certainty when you will be able to take possession of the property after winning it at the auction, specially if you have to foreclose on the previous owner.
4) Middle Men: In case of a San Jose REO, the buyers are dealing with a listing agent who is working with the Asset Management company retained by the lender. The selling bank will take a certain discount off the Fair Market Value of the REO based on how long it’s been on the market. In case of Foreclosure Auction, the banks will retain an auction company to work the list of the assets they plan to sell at the court house steps for cash. The auctions starting price is typically the Published Bid which in most cases the sum of existing liens.
5) No Escrow: In the case of foreclosure auction purchases, there is no escrow. Once you are receive title to the property as a winning bid, you are supposed to record it yourself and then take possession. In contrast, the REO sales are part of an escrow where at the close of escrow and recording the possession can take place.
In short, the high risks associated with the foreclosure auction purchases imply high rewards. But the main challenge with the foreclosure auctions is that you never know till the day of the auction if that specific property will make it to the auction or it will be cancelled, postponed or withdrawn. So, auctions require a lot of work and patient cash money to be able to chase good deals.
Contact Us if you are in the market for a San Jose REO or San Jose foreclosure auctions.