Will investors in California have more opportunities in 2008

Changes may be coming for investors looking to purchase a property currently involved in a foreclosure.  California law has strict regulations in place to protect a home owner once the foreclosure process (typically when the notice of default is filed) has started.  This procedure is called the Home Equity Sales Contract Act and applies when all four of these conditions are met:

1. Residential property (1-4 units)
2. Owner occupies one unit
3. Notice of default recorded
3. Buyer does not intent to occupy the property

When all four of the above conditions are in place, the buyer must use a special purchase contract, typically the "Notice of Default Purchase Agreement" that allows the seller a five day right to rescind the contract.  The law also restricts the ability of a buyer to use of an agent  to be bonded, however no insurance company is currently issuing this type of bond and has not issued this for at least ten years.  The net effect of this part of the legislation is that investors who want to purchase investment properties must deal directly with the seller without the benefit of working with a buyers agent or even a seller's agent (who in most cases also has to step away once an investor becomes involved) or move onto other types of properties such as motivated sellers (not involved in foreclosure) or bank owned properties.

The current system discourages investors from making offers on homes that are in the foreclosure process and therefore decreases the chances that even if offered for an attractive price that the home will sell prior to the bank completing the foreclosure process.  With the increasing number of homes currently for sale that have a foreclosure action started, this continues to potentially increase the number of homes that will ultimately be returned to the bank.

Earlier this month, a California appellate court decided that the bond requirement is unconstitutionally vague and unenforceable.  The decision still can be appealed but if it ends up standing then the bond requirement will either need to be changed or modified.  

Keep an eye open in 2008 to see if agents will be able to represent investors in properties currently in foreclosure.

Visit my site for more information on preparing for a successful short sale in Yolo County.

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