How to Buy Foreclosed Homes in Los Angeles (2023 Guide)

California has an average home value of $765,495 — more than double the U.S. national average. And this market shows no signs of slowing down — prices have appreciated by 7.1% over the past year.

Los Angeles in particular is quite expensive. But you might be able to score a deal by buying foreclosed homes in Los Angeles. According to recent data, California initiated more foreclosures (2,594) than any state in the U.S.

However, the Los Angeles foreclosure market can be notoriously difficult to navigate — especially on your own. Whether you’re an ambitious investor buying in cash or a young family looking for a starter home, your best chance of getting a
bargain is to connect with a local real estate agent who has experience with foreclosures.

Agents that focus on foreclosures know exactly where to look for good deals — and they may even have ties with local lenders. If you need help finding an agent that focuses on foreclosures, Clever Real Estate is an agent-matching service that can
connect you with the top foreclosure experts in your area — no strings attached.

Finding foreclosures is hard enough — let us help simplify the agent-finding process. Get free local agent matches now!

What is a foreclosed home?

When a homeowner falls behind on their mortgage payments or doesn’t pay taxes, the lender or government can seize the home — a process called foreclosure.

Once the lender or government has taken possession of their home, the next step is to sell it. You can buy these foreclosed properties at auction or, if the property doesn’t sell at auction, directly from the bank in a real-estate-owned (REO) sale.

How to buy foreclosures in Los Angeles

1. Get preapproved for financing

The first step in buying a foreclosed home is to get preapproved for a mortgage.

After reviewing your finances and deciding you qualify, the bank will issue a preapproval letter. This letter tells sellers that you’re serious about buying.

If you’re curious how much you can get preapproved for, our friends at Rocket Mortgage can send you an estimate right away. Answer a few simple questions to see what you can afford!

Most lenders won’t give you a mortgage if the foreclosure you’re targeting isn’t in livable condition. However, if it can pass an inspection, you might be able to take advantage of low-interest, low down payment loans from the USDA, VA,
and FHA.

If your lender won’t extend you a mortgage for a Los Angeles foreclosure that’s been deemed non-livable, you could try for a 203(k) FHA loan. This mortgage finances both the purchase price of the property plus up to $35,000 of repairs.

2. Hire a top Los Angeles realtor with foreclosure expertise

Every Los Angeles foreclosure is unique. A realtor who specializes in dealing with foreclosures can help you navigate competing claims, clouded titles, and iffy as-is properties. They may even have inside information about foreclosures that haven’t hit the open market yet, giving you a head start on your perfect foreclosure.

Most importantly, a good agent can tell you what to expect from your buying process. Many foreclosure purchases can drag on because of issues with the bank or tangled ownership. This can be anxiety-inducing for a first-time foreclosure buyer, but an agent
will be able to tell you if what’s happening is unusual or if it’s par for the course.

Need help finding a Los Angeles agent with foreclosure expertise? Clever is here to help. We have a large network of agents that work for brokerages like Century 21, Keller Williams, and more. They offer the expertise you need to beat the competition
and come out ahead with your offers.

Get in touch to learn more and find your perfect foreclosure agent today.

3. Find foreclosed homes in Los Angeles

Foreclosed homes can be difficult to track down. We highly recommend starting your search with a tool that does the searching for you, like Foreclosure.com.Simply search by state and county to see a list of foreclosed homes near you.

California law requires all foreclosure auctions to be advertised to the public for at least three weeks prior to the auction. Typically, this requirement is fulfilled by posting in the courthouse and in local newspaper classifieds.

You can view foreclosure sales from all California newspapers on capublicnotice.com.

National directories for foreclosure auctions to keep in mind include:

  • Auction.com
  • Bankforeclosuressale.com
  • U.S. Department of Housing and Urban Development (HUD)
  • Fannie Mae’s HomePath
  • Department of the Treasury

Foreclosure auctions require the winning bidder to pay for the home, in full, when the auction is done (or soon after). Most bidders at foreclosure auctions are investors, so if you’re looking for a bargain home to live in, an auction may not be
your best bet.

Traditional buyers might be better off looking for real-estate-owned properties. Check the following resources to find REO homes:

  • Wells Fargo
  • Bank of America
  • Bankownedproperties.org

4. Tour foreclosures in person

If you’re interested in a foreclosed home in Los Angeles, always try to tour it in person before submitting an offer.

You’ll likely be able to tour an REO property and even have it inspected before putting in a bid. However, if you’re buying in pre-foreclosure or in a foreclosure auction, you may not be able to tour it beforehand. Many foreclosures are still occupied by owner-borrowers who, understandably, may not want to cooperate in the sale process.

At the very least, try to do an exterior examination of any foreclosure you’re interested in. You can also ask the neighbors about potential vandalism or trespassers.

5. Submit offers

Once you’ve decided on a Los Angeles foreclosure, submit a strong offer. Don’t assume the bank will accept a lowball offer just to get the property off its books.

Include your mortgage pre-approval letter with your offer, as well as any relevant price research you’ve done on comparables. A large down payment upfront will also signal seriousness.

Just keep in mind that it may take a while to get a response. If you’re making an offer on a bank-owned property, for example, the bank may need to run the offer by the loan’s actual owners and wait for their approval.

6. Conduct due diligence on the property

Once your offer has been accepted, you’re now in your due diligence period.

The first step is to have a title company or real estate attorney perform a title review. This review identifies anyone who may have a claim to the property. If the title is found to be free of any liens or claims, it’s designated as a “clean
title.” Just to be safe, you should opt for title insurance, which protects you against any future claims.

In a conventional sale, this is when you’d receive disclosures from the seller — but in a foreclosure, the owner has not occupied the property, and so it can’t provide the standard disclosures. This is another risky aspect of buying
a foreclosure.

7. Get the home appraised if you’re financing it

Your lender will order a home appraisal to determine if your home is actually worth the amount of the loan. If it’s appraised at less than the loan, your financing may fall through.

There’s an increased risk of this happening with Los Angeles foreclosures because banks will often hire third-party agents to sell their foreclosed properties. These agents may not specialize in the markets where these foreclosures are located,
and their list prices could be far off the actual value of the home.

If your foreclosure is appraised below the sale price, don’t despair — you still have a few options:

  • Ask the seller to reduce the price
  • Pay the difference out of pocket
  • Dispute the value with a second appraisal
  • Walk away from the sale (though you risk losing your deposit if you don’t have an appraisal contingency)

8. Close on the purchase

How do foreclosures work at closing? If you’re paying cash for your Los Angeles foreclosure, and the purchase agreement doesn’t have any contingencies to worry about, closing will be painless and fast.

Closing on a foreclosure with financing can take a little longer. Lenders usually won’t send a representative to attend the closing in person. Instead, the closing paperwork is mailed to the bank and mailed back once it’s complete. This can
add days or weeks to the process.

Another difference from a traditional closing is that the seller — in this case, the bank — probably won’t cover any of the closing costs. While a savvy agent might be able to negotiate a deal for the bank to cover part of the closing
costs, don’t rely on it.

Since closing on a Los Angeles foreclosure can be complicated, you’ll want to have an experienced agen to walk you through the protracted and sometimes confusing process.

When you use Clever to find an agent, not only will you get a highly experienced professional, but you could also qualify for cash back. Eligible buyers can receive up to 0.5% of their home’s purchase price back after closing. This free money could
be a great way to get started on renovating your foreclosure purchase.

See if you qualify for 0.5% cash back now!

Pros and cons of buying a Los Angeles foreclosure

Pros

✅ A great price

Buying a foreclosure in Los Angeles can sometimes enable you to buy a top-dollar California home for significantly less than market value.

✅ A clear title

A bank-owned property will likely come with a clear title, as the bank has already solved any liens and claims. You won’t have to worry about claimants coming out of the woodwork months or years later.

Cons

🚫 You’ll have a lot of competition

The truth about buying a foreclosed home is that many other buyers and investors will be vying for the same bargains you’re looking at. And if those other buyers make a better offer than yours — perhaps even an all-cash offer — you’ll
probably lose out on that deal of your dreams.

🚫 Many foreclosures are distressed or come in as-is condition

If you’re buying a foreclosure, the seller isn’t going to patch a leaky roof or replace broken appliances before the sale. You’re buying the property as-is, which means you’ll probably have to put in a lot of work once you get
in the property.

Stages of a foreclosure in Los Angeles

As a general rule, a foreclosure in Los Angeles takes 200 days minimum, but most take longer. California has one of the longest foreclosure timelines in the U.S.

Pre-foreclosure

The pre-foreclosure period begins after the first missed payment. If the owner-borrower falls 90 days behind on their mortgage, their loan enters default. Federal law dictates that the lender must wait 120 days before serving notice of default.

Once the owner-borrower receives the notice of default, they have 90 days to get current on their mortgage. If they fail to do that, the bank can schedule their home for auction.

Buying a home in pre-foreclosure can yield a great deal, since the seller may want to sell the home as fast as possible so they won’t have a foreclosure on their record.

Foreclosure auction

The foreclosure auction can take place 20 days after the notice of trustee sale was delivered to the owner-borrower. However, a judge or trustee can delay the auction for up to a year, and in California, they often do.

Once the property makes it to auction, it’s sold to the highest bidder. Qualifying to bid involves making a sizable deposit, and the winning bidder has to pay in cash at the close of the auction.

Another important note: if the auction was a non-judicial sale, meaning it wasn’t the result of a lawsuit, the sale is final and irrevocable. However, if it did go through the courts — known as a judicial foreclosure — the former owner
has up to a year to reclaim the property by paying off their debts, plus sale costs. For this reason, many investors steer clear of judicial foreclosures.

Bank-owned or real estate owned (REO)

If no bid exceeds the opening bid, the property doesn’t sell and becomes a real estate-owned (REO) property. Now, you’ll have to buy it directly from the bank.

Buying a Los Angeles foreclosure directly from a bank requires dealing with a slow-moving bureaucracy. Sometimes, banks just want to get REO properties off their books, no matter the price, and sometimes they’ll insist on near-market value.

A good real estate agent who specializes in foreclosures can help you figure out how to handle your REO purchase!

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Los Angeles foreclosure laws for buyers

California Civil Code Section 2924 is the section of California state law that lays out how to buy a foreclosed home in California, including the timelines, requirements, paperwork, and other specifics. If you’re looking for information on foreclosure-prevention measures, you’ll want to refer to the California Homeowner’s Bill of Rights.

SB 1079, The Homes for Homeowners, Not Corporations Act

This law took effect in 2021 and makes it easier for people to buy foreclosed properties — even if an investor has already won it at auction. Under this law, anyone who wants to actually occupy a property can submit a competing offer for up to 45 days after an investor won it at auction. If their offer beats the investor’s winning bid, the occupant gets the property.

The Servicemembers Civil Relief Act (SCRA)

This federal law extends foreclosure protections to military servicemembers who were on active duty at the time their property was foreclosed. Military personnel who quality can challenge or reverse their foreclosure for 90 days after they leave active duty, which could complicate some foreclosure purchases.

FAQs about buying a foreclosed house in Los Angeles

Sites like foreclosure.com and auction.com will provide a list of foreclosure auctions. For bank-owned properties, visit the REO directories at the banks’ own websites. And for pre-foreclosures, you can check popular websites like Zillow. Check out our list of the best foreclosure websites to find more resources.

The state of California has one of the longest foreclosure processes in the U.S. with a minimum of 200 days — but it is usually longer. However, how fast your purchase goes depends on how you’re paying, what conditions and contingencies you insist on, and at what stage of foreclosure you’re buying. See more about how long it might take you to close on your home.

Why trust us?

Clever Real Estate has spent hundreds of hours researching foreclosure law and interviewing licensed agents with experience buying foreclosures to create this guide. We utilized authoritative sources including the California Civil Code and the Judicial Council of California.

The author, Lindsay Stefan, has over eight years of experience writing, editing, and copywriting for various websites, publications, and advertisements.

Learn more about Clever.

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