On several occasions I have written about how some of my clients have amassed a tidy retirement fund by moving into rental properties they owned, living there at least 2 years to establish those homes as their own personal residences, and then selling them and keeping $250,000 of their profit for a single person or $500,000 for a married couple, tax free, as long as they living in the home at least 2 of the 5 years immediately preceding the sale. I have clients who have done this as many as 4 times, thus accumulating $2 million, tax free, towards their retirement.

A recent sales contract provided for the buyer's deposit check to be deposited to the escrow holder's account within 3 days of ratifying the contract. The third day after ratification happened to be on a Monday. By Thursday that week I still did not have a receipt from the title company handling the escrow for the deposit, so I phoned to ask them to send one for my file. Much to my surprise, they did not have the deposit. I called the buyer's agent to find out what was going on and she said the buyer decided to use a different account ,so she had returned the original deposit check to the buyer and she would get the replacement in "by the end of the week." My response: Not good enough.

When a client hands their agent a deposit check, they are entrusting the agent to handle it appropriately. They are "trust funds."  There are very strict rules about handling trust funds and there is absolutely no excuse for not knowing this, because every agent in California is required to complete a refresher course on "Trust Fund Handling" every 4 years. Failure to handle trust funds correctly is one of the leading reasons for agents to lose their license. Just because the buyer wanted to replace the check with a different one does not suspend the contractual obligation to get the deposit check (either the original check or a substitute check) into escrow within the time frame specified in the contract. This agent was completely unaware of her responsibilities or the seriousness of the matter.

In this case the agent listened to what I was saying and hand delivered the check to the escrow holder by late Thursday afternoon. No harm done in this case, but there could have been serious issues if the buyer had decided to back out of the contract, for example. With no deposit, how would the seller be able to claim damages? This is the stuff that lawsuits are made of, and everybody knows how quickly almost any little thing in California can escalate into a lawsuit. For heaven's sake agents, remember that this is not a parlor game we are playing. Our responsibilites as agents are serious and the potential consequences for negligence of this sort can be enormous.

Real estate can be a tricky business. Recently I listed a home that was part of a probate. The administrator lived on the east coast and we decided to collect all offers by a certain time on a certain date. The plan was that I would email all of the offers to my client. She would review them overnight and we would convene via conference call Thurs. morning to decide how to respond to the offers. I made this all clear to everybody who expressed an interest in the property.

One of the first transactions I undertook after I obtained my real estate license in the early 1980’s was a delayed tax-deferred 1031 (Starker) exchange. When I asked my broker for guidance, he advised me “not to get involved” and to stick to simple transactions. But I love a challenge, so I consulted with a reputable attorney and a reputable CPA and together we completed the transaction.

As a certified relocation specialist, much of my business comes from buyers who are relocating to the Bay Area from other parts of California or other states. One of the serious issues we always face is "sticker shock." This isn't an easy place to move to. What will buy a mansion in many parts of the country will buy you a 1 bedroom condo in a poor location, at best. So why, all of a sudden, do all of my relocation buyers think they can buy a foreclosure, dirt cheap, when they move here? I blame newspaper hype. It may be true in other areas, but it sure isn't true here. Here are the hard facts.

It is true that the number of foreclosures has doubled in Santa Clara County in the past 12 months. In July 2007, 525 homes had a notice of default filed against them. This is a 113% increase from one year ago, when there were only 246. However, according to the US Census Bureau, there were 605,000 housing units in the county in 2006. So, fewer than 01% of all the homes in the county have had notices of default filed. Relatively speaking, this is a very small number, and it is possible but improbable that your dream home is one of them.

And consider this. Only 139 homes actually reached the foreclosure sale stage in July (again, a huge increase from a year ago, but still, relatively, a very small number.) That is because many homeowners who are facing foreclosure manage to refinance or sell their homes in time to avoid the sale. Or they renegotiate their loan with the bank, knowing the bank really, truly, does not want the house, they just want the money!!

If you do decide to buy a foreclosure, it is best to try to contact the owner prior to the actual foreclosure sale. But don't think you are alone. There are literally thousands of people out there all trying to do the same thing. So, do not expect the poor, stressed out homeowners to welcome you with open arms. They are probably being harassed to death by people trying to help them out of their dilemma.

If, on the other hand, you buy at a foreclosure sale, you will be buying the property "as is", most of the time without even an inspection to verify the condition (usually the owners are still in the home and how cooperative do you think they will be??). You will also need to have a cashier's check for the entire purchase price, and you should be aware that there could be other liens and judgments against the property in addition to the loan that is behind the foreclosure. You need to do your research!!

If, as often happens, the foreclosure sale takes place and nobody buys the house, then the bank owns it, and they will try to get full market value for the property. This makes good business sense. Years ago they would be happy to just sell the property for enough to recoup their losses plus expenses, but there is money to be made in real estate and many banks have realized that. So, normally they will list the repossessed house on the MLS for full market value.

And let's talk about price anyways. While it is true that there are always a few poor souls who have paid down their mortgage but lose their homes because of illness or a death in the family or some other catastrophe, the current foreclosures are more likely to be because the owner purchased the property with an artificially reduced interest rate and 100% financing. When their rate bumped up they could not afford the new payment, nor could they afford to refinance (at the current, less favorable rates. Because appreciation has slowed considerably, the owner owes almost as much as the house is worth, so that is exactly what the bank will try to get, plus, of course, expenses. There is no deal here.

And one more word of advice... If you are buying the property as an investment, do not expect any real estate agent or attorney to assist you. That is because they would be breaking the law if they did so. One of the many requirements for representing a buyer under these circumstances is the need to provide a bond, with the catch 22 is that the bond simply is not available in California. So, you will be completely on your own.

I am not saying it is impossible to purchase a foreclosure property at below market rate, even in the bay area, but I am saying that it is a ton of work and the odds are very much against against you on many fronts. Most real estate professionals, myself included, would rather spend our time finding you a good home in a good location, one that suits your needs and your budget, instead of trying to find a needle in a haystack. Foreclosures, bah! Humbug!!