California Foreclosure Auctions: A Good Place To Buy Homes?

Man holding image of a home in the palm of his hand

California foreclosure auctions aren’t the gold mines they once were. So what has changed for this source of discounted real estate? Where should Californians be looking for the best property deals now?

Real estate fraud cases have recently highlighted the issues at foreclosure auctions. Fortunately, there are other options for finding property deals. That is, of course, if home buyers and real estate investors know where to look. So what’s the problem? Where are the solutions?

Foreclosure Auction Rigging Scandal

The Mercury News  recently covered Bay Area foreclosure auction rigging indictments. 52 individuals have pleaded guilty to bid rigging at real estate auctions in San Mateo, San Francisco, Contra Costa, and Alameda County, California. Another 20 real estate ‘professionals’ are awaiting trial.

These real estate fraud cases all center around bid rigging. Attendees are accused of paying off other bidders in order to secure deeper discounts. In other cases, they are accused of holding second, private auctions.

Aside from sabotaging the legal system, the concern is the damage done to homeowners and lending institutions. Homeowners should receive any additional proceeds from equity if the property sales for more than the loan balance. Nothing was being left for these distressed homeowners in these cases. Banks aren’t happy about receiving less than they could either.

Of course, this isn’t the first round of these types of real estate fraud cases. In recent years, banks have been accused of engaging in similar practices. And they have shelled out billions in settlements to avoid being prosecuted for mortgage fraud on a massive scale.

Big Competition & Big Sentences

Competition at foreclosure auctions has been fierce for years. This, in itself, has vaporized much of the discounts they used to offer. This isn’t just a California issue either. It’s nationwide. However, those that sold their principles for short term ‘gains’ are now looking at some big prison sentences. Each conviction of bid rigging carries up to a 19 year prison sentence. Mail fraud charges can carry a 30 year sentence. This is in addition to fines. Fines range from double the amount gained, or $1 million. In the end, those convicted will lose far more than they thought they gained.

So with the fraud, competition, cash restrictions, and over-pricing issues at some real estate auctions today; where can buyers turn for deals?

10 Alternatives for Finding Real Estate Deals:

  1. Find less busy auctions, and other types of real estate auctions
  2. Explore HUD home auctions
  3. REOs direct from banks
  4. Pre-foreclosures and short sales
  5. Direct mail to motivated sellers
  6. Real estate wholesalers
  7. Acquiring non-performing mortgage loan notes
  8. Creating referral networks
  9. Inbound online real estate marketing
  10. Driving neighborhoods to identify potential acquisitions

Real Estate Fraud

There are other types of real estate fraud to be on the look out for. It isn’t only limited to foreclosure auctions. Some of these other types of property and mortgage fraud include:

  • Title fraud
  • Bank wire fraud
  • Insurance fraud
  • Fabricated mortgage loan applications
  • Over-inflated appraisals
  • Craigslist rental scams
  • Faulty construction

Tips To Stay Safe From Real Estate & Mortgage Fraud

Avoiding real estate fraud isn’t just about watching out for dud properties. It’s more than being wary of overpaying for a California investment home. Simply getting caught up in some of these types of fraud by accident can lead to extremely lengthy prison sentences. The repercussions can run for generations. So how can it be avoided?

1. Watch Who You Do Business With

Stay away from those engaged in fraudulent activities. Eventually they’ll become targets of federal investigations, and worse. Those committed to doing things the right way will be in business longer, and they’ll remain valuable partners for the long term.

2. Due Diligence

The importance of due diligence can’t be underestimated. Conduct thorough due diligence. Don’t let fear paralyze you. Perform title searches, independent valuations, and always read the fine print before you make your next move.