There are three distinct types of "foreclosures" in San Diego when it comes to buying foreclosures and it's critical to understand the difference to have the most success in finding the right home for you. The three different types of San Diego foreclosures can be basically broken down into three groups; "pre-foreclosure", "at foreclosure", and "after foreclsoure" homes. A good deal on a San Diego foreclosure can be found through any of the foreclosure types, just with different financing options, risks, and disclosures provided. The difference in the types of San Diego foreclosures has to do with what financing terms are available, whether or not the property be inspected prior to purchasing it, and what disclosures and warranties are available or provided. Homes that are in the "pre-foreclosure" process are the first type of "foreclosure home". They are homes that are still owned by the owner-borrower but are in default. These are homeowners have been issued a Notice of Default by their lender and are at the beginning stages of the foreclosure process. The vast majority of these situations are due to non payment of a mortgage payment for the past 60-90 days. "Pre-foreclosures" can be bought through the homeowner who is still the rightful owner via a short sale that requires negotiating with the homeowner and their lender. "Short sales" are when a homeowner's lender(s) agree to take less than the amount owed to them to release the home as collateral. This creates a short or less than full payoff to the lender, or a "short sale". The vast majority of short sales are listed on the San Diego MLS but finding homes that already have a lender approval for the short sale can be more difficult. This type of San Diego foreclosure home is the least attractive because the short sale process can take 3-9 months and have complicating factors that ruin the sale altogether, often months after you've waited for "lender approval(s)". However, occasionally the right deal can be found with a "pre-foreclosure", or short sale home because of the "distressed" situation the home is in. In short, the homeowner is typically not getting any sale proceeds and therefore usually doesn't care what the price is as long as the lender(s)sign off on it. Additionally, because the market has dropped and home prices are still in a settling phase, lenders often have a hard time knowing what a home is worth, especially when a sale process takes many months. Short sales can typically be fully inspected, fully financed (sometimes even through the existing lender). They will typically sell at or near the market value and have inspections, disclosures, and warranties similar to a regular resale home. Once the foreclosure process has run it's course you have the next type of San Diego foreclosure, the "at foreclosure" group of homes. These homes went into default and were unable to resolve the foreclosure through a short sale or other foreclosure aversion process. These are the homes that actually get auctioned off to cash buyers via "trustee's sale" auctions on the county court house steps. A percentage of these San Diego foreclosure homes are sold at prices that are up to 25% below their actual market value but they come with many risks and limitations. These homes come with no warranties, often can't be inspected, and must be purchased with all cash (or cashier checks). Additionally any occupants of the property and any liens on the property not cleared by the occurrence of the trustee sale are the new buyers responsibility, as is the unknown condition of the property. These San Diego foreclosures can be by far the best deals, but are better suited for investors with a all cash, real estate experience, and lots of risk tolerance. The last group of San Diego foreclosures are the "after foreclosure" homes. These are all the homes that go into default, don't get resolved through a short sale or other foreclosure avoidance process, end up at the trustee's sale auction, don't get bought at the trustee sale auction and then become lender owned homes, more commonly referred to as "REO's". Once a home becomes and REO it is essentially done with the foreclosure process and the property is now a lender owned property. Lender owned foreclosures, or REO's are fully financeable, available for inspections. They however don't come with full warranties or disclosures, but are typically sold for 5-10% less than market value due to their "as-is" and limited disclosure sale terms. In summary, the "pre-foreclosure", or "Short Sale" group of foreclosure homes offer the greatest with regards to inspections, disclosures, and warranties, but typically are priced at the homes market value and can have serious time delays. They however do often allow most financing types. The "at foreclosure", or "Trustee Sale" group of foreclosure homes offer the greatest value, but don't come with any warranties, inspections, or disclosures, and must be purchased with all cash, and carry the greatest risk and potential rewards. The "after foreclosure", or "REO" group of foreclosures offers the middle ground, providing inspections, some warranties and disclosures, and are typically priced a below market value. They also allow most financing types. Most of the San Diego homes that have or will be foreclosed on will end up as Lender owned REO's and be sold through real estate brokers on the San Diego MLS. It is important to note that although most San Diego foreclosures can be grouped into 1 of the 3 groups or types discussed above, there are a myriad of differences each home purchase within each group could have, it's important in today's market to have an experienced professional assisting you when buying any San Diego foreclosure home.
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