Fast Financing: Winning at California Foreclosure Auctions with Hard Money
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April 19, 2024

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Foreclosure auctions present exciting opportunities for real estate investors looking to buy low and sell high.

But the properties at these types of auctions require fast financing that isn’t easy to come by with traditional sources like banks.

Instead, investors require the speed and flexibility of hard money loans and hard money lenders, like Marquee Funding Group, can secure and close the loan within 2-4 weeks.

Let’s dig into the foreclosure process and how hard money can help investors achieve their real estate goals.

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How does the foreclosure process work?

The foreclosure process begins when a homeowner stops making their monthly mortgage payments.

The steps involved in the foreclosure process include:

  • Notice of default: Lender issues a notice of default once the borrower stops making their payments
  • Legal proceedings: Foreclosure process either proceeds through the court system or outside of it, depending on state and local laws
  • Foreclosure auction: If the borrower fails to repay the debt, the property is scheduled for auction
  • Sale and eviction: The highest bidder becomes the new owner of the property, and if it doesn’t sell, the lender will take possession of the property

The purpose of foreclosure is for the lender to get the money they are owed. 

How California investors can benefit from foreclosed properties

For real estate investors, foreclosure auctions bring both opportunities and challenges.

Foreclosure opportunities for investors

  • Can snag a great deal on a property that is sold below its true value
  • Potential for a significant return on investment—”buy low, sell high”
  • Can hold onto the property after renovation for long-term rental income
  • Diversify your portfolio with a different type of property
  • Earn instant equity if you purchase at well below market value

Foreclosure challenges for investors

  • Auctions can be highly competitive, which may drive up price
  • May have to pay in cash or provide a significant upfront amount
  • Properties sold “as-is,” which could lead to significant and costly repairs
  • Property may have unresolved legal issues that become your responsibility
  • Due diligence may be difficult to complete in time for the sale

Unless you have the cash on hand to purchase a property outright at auction, it’s nearly impossible to leverage a traditional loan in time to secure the sale.

Fortunately, hard money lenders fill the gap left behind by traditional institutions in order to get you access to capital more quickly to secure either a new foreclosure purchase or save the home from sale.

What are hard money loans?

Hard money loans are usually secured by the property you want to purchase, rather than your financial history.

They are funded by private lenders who understand the opportunities and challenges involved in real estate investment projects—because they are investors themselves.

Hard money loan characteristics include:

  • Short-term nature
  • Asset-based lending
  • Funding in days or weeks
  • Flexible terms

Hard money is the perfect match for real estate investments that require quick action and are based on the property’s potential for income vs. the borrower’s financial history.

Using hard money loans in California foreclosure auctions

To overcome the potential risks and challenges of foreclosure properties, investors must have a plan in place.

Let’s take a look at strategies you can use to navigate the auction process with a hard money lending partner.

Pre-auction

Your pre-auction preparation involves conducting due diligence on the property you want to purchase, including:

  • Investigating the property’s location, condition, and legal status
  • Understanding the overall market conditions and comparable home values in the area
  • Estimating the property’s after-repair value (ARV)
  • Outlining your renovation plan and exit strategy
  • Finding a reliable, reputable, trustworthy hard money lender and applying for a loan

Auction

On auction day, you can confidently make a bid with your hard money lending partnership in mind.

Tips for auction day:

  • Come prepared with proof of funds from your lender
  • Determine a bid that takes all costs and potential profits into consideration
  • Stick to your maximum budget

Post-auction

Depending on your investment goals, you can then begin your renovations and either flip the property or hold onto it for long-term rental income.

Advantages of hard money loans for foreclosure auctions

Private lenders specialize in unique or complex loan scenarios such as foreclosure properties.

The benefits of using a hard money loan for a foreclosure auction include:

  • Rapid approvals that are based on the collateral rather than the borrower’s finances
  • Fast access to funds once approved
  • Flexible loan terms that are tailored to the needs of your project
  • Ability to finance properties that are in poor condition or need significant repairs

Hard money lenders are more focused on the potential of the property rather than its current state.

Traditional lenders have strict borrower requirements and can take several weeks or months to approve a loan—if they can approve it at all.

If you can prove to a private lender that you have conducted your due diligence and present a thorough project plan and exit strategy, they are likely to approve your deal.

Foreclosure property considerations for real estate investors

Foreclosure rules

Foreclosure auction rules may vary depending on the location.

Some auctions may require you to pay in full immediately after the auction, or some may require a deposit.

You also may not have enough time to conduct proper due diligence on a foreclosure property before auction, including a thorough inspection.

This consideration can contribute to an overall higher risk for your project.

Each investor must carefully weigh the risks and rewards of their investments.

California’s Right of Redemption

California offers the chance for foreclosed-upon homeowners to buy back their home, even if it’s gone to auction. This is called the Right of Redemption.

Furthermore, as an investor, you may have to contend with Eligible Bidders due to Senate Bill 1079, which aims to prioritize bidders who intend to live in the homes as their primary residence and various housing initiative organizations. 

It’s always best to consult a legal professional experienced in real estate before proceeding with a foreclosed property sale. 

The hard money lender’s role

Work closely with an experienced hard money lender who understands how to navigate the complexities of foreclosure auctions.

These nuances can determine how the hard money loan process works and when and how you receive your funds for the property.

Not all hard money lenders are the same. You must choose a partner who has funded these types of deals before and can offer support and guidance throughout the process.

Marquee Funding Group is your hard money lending partner

With foreclosure auctions in particular, the relationship between lender and investor is essential for the overall success of the deal.

These types of deals require consistent, open communication and transparency throughout the process.

Hard money lending isn’t just another transaction—it’s a real relationship that can last for a lifetime of lucrative investment deals.

Marquee Funding Group is your hard money lending partner, funding deals that others simply will not or cannot do.If you’re ready to purchase your next investment property, submit your loan scenario with Marquee Funding Group.

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