Some people spend a great deal of time seeking out properties that are in the foreclosure process. These are known as pre-foreclosure properties. The first source of information in seeking out these properties is to review local papers that publish notices of default or notices of sale. There are other services for a fee and pre-foreclosure data services which research the public records for properties for which a notice of default or a notice of sale have been recorded. Direct contact with the delinquent borrower may provide an opportunity to present an offer to purchase the property at a distressed price below market rates. If the borrower is not able to cure the delinquency during the 3 months subsequent to the initial recording of the notice of default, they may be willing to discuss a sale of the property in order to at least salvage some of the equity that they have in the property. Keep in mind the fact that most of these properties have a large amount of deferred maintenance issues since the borrower has probably not had the resources to properly maintain the home. California, however, has laws protecting property owners during the foreclosure process which prevents someone from taking unfair advantage of a homeowner with a property in foreclosure, as can be seen from this excerpt from California Civil Code 1695.13, .14, and .8 taken from http://caselaw.lp.findlaw.com/cacodes/civ/1695-1695.17.html :
"1695.13. It is unlawful for any person to initiate, enter into, negotiate, or consummate any transaction involving residential real property in foreclosure, as defined in Section 1695.1, if such person, by the terms of such transaction, takes unconscionable advantage of the property owner in foreclosure.
1695.14. (a) In any transaction involving residential real property in foreclosure, as defined in Section 1695.1, which is in violation of Section 1695.13 is voidable and the transaction may be rescinded by the property owner within two years of the date of the recordation of the conveyance of the residential real property in foreclosure. (b) Such rescission shall be effected by giving written notice as provided in Section 1691 to the equity purchaser and his successor in interest..."
"1695.8. Any equity purchaser who violates any subdivision of Section 1695.6 or who engages in any practice which would operate as a fraud or deceit upon an equity seller shall, upon conviction, be punished by a fine of not more than twenty-five thousand dollars ($25,000), by imprisonment in the county jail for not more than one year, or in the state prison, or by both that fine and imprisonment for each violation."
The key in the above, is what it means to "take unconscionable advantage" of a homeowner in the foreclosure process. This does not mean that a top price needs to be paid, but it does mean that a significantly below market price, when taking all issues affecting value (such as location, interior lay-out, square footage, age of the home, condition of the home, views, etc.), negotiated with a homeowner in the foreclosure process, may expose the new buyer to not only rescission of the sale for a two year period following the sale, but also to possible criminal prosecution.
The most important piece of information when investing in foreclosed property is to know the property's market value, taking into consideration its current physical condition. It is usually a good practice to engage the services of a real estate broker when negotiating on a property in foreclosure. They can prepare a comparative market analysis (CMA) on the property, which takes into account both previous sales of comparable properties as well as other comparable properties currently listed as available for sale, and can provide support to the buyer that the price paid was a reasonable one, from both the buyers and sellers stand point.
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