There are two ways to buy a foreclosed home in California: bid at a public trustee auction, or wait for the property to fail at auction and buy it from the bank as a Real Estate Owned (REO) listing. Nearly all California foreclosures run through a non-judicial process, meaning the sale happens outside of court. The auction path is cash-only and offers no inspection, but it can produce genuine discounts. The REO path looks and feels like a normal home sale, with financing, inspections, and escrow. One rule reshapes both paths as of January 1, 2025: a trustee cannot accept any opening auction bid below 67% of the property’s fair market value.1California Legislative Information. California Code, Civil Code – CIV 2924f
Auction vs. REO: Which Path Fits You
The trustee sale is where the deepest discounts live, and also where the deepest risks live. You bid in cash. You cannot inspect the interior. You get no disclosures, no contingencies, and no way to back out. The REO route trades price for predictability. Once a property fails to attract a qualifying bid, the lender takes it back and lists it on the MLS through an REO agent. You can walk the property, order a title report through escrow, and use a mortgage. The bank will almost always require an “as-is” addendum and won’t credit repairs, but you can inspect and walk if you don’t like what you find.
Choose auction if you have cash on hand, can absorb surprise repairs, and are comfortable with title uncertainty for months after the sale. Choose REO if you need financing, want to see the inside of the house, or are buying a primary residence.
Research Before the Auction
Auction buyers are flying partially blind, and that is where most of the risk lives. Interior inspections aren’t available. There’s no seller disclosure packet. Whatever condition the house is in becomes yours the moment the hammer falls, so budget 10% to 20% of the purchase price for surprises: deferred maintenance, mold, tenant damage, stripped copper or appliances, or unpermitted work.
What you can do is drive by the property, look at the exterior and neighborhood, check whether it appears occupied, pull permit history, and pull comparable sales so you know what the property is actually worth.
The critical research happens at the county recorder’s office. A title search shows the liens attached to the property. The trustee sale wipes out liens junior to the foreclosing deed of trust, but anything senior survives and follows the property to you. Missing a $40,000 second mortgage or a tax assessment during your search can turn a bargain into a loss.
Federal tax liens deserve their own line of research. If the IRS recorded a Notice of Federal Tax Lien more than 30 days before the sale, that lien survives unless the trustee gave the IRS written notice at least 25 days before the auction.2Office of the Law Revision Counsel. 26 U.S. Code 7425 – Discharge of Liens Confirm the trustee handled that notice correctly. An undischarged federal tax lien means the IRS can still come after the property after you’ve paid for it.3Internal Revenue Service. Judicial/Non-Judicial Foreclosures
How to Pay: Cash Only, With Some Nuance
Trustee sales in California are cash-only. Personal checks are not accepted, and you cannot finance an auction purchase. Trustees typically accept cashier’s checks drawn on a state or national bank, checks from a federal or state savings institution or credit union, and cash equivalents specified in the Notice of Sale.
Bring multiple cashier’s checks in smaller denominations. That way you can hand over an amount close to your winning bid without overpaying by thousands and waiting for a refund. Trustees can also require prospective bidders to show proof of funds before the sale begins, and they can hold the amounts to be bid as a precondition to recognizing bids.
The foreclosing lender bids differently. They use a “credit bid,” meaning they don’t put up cash. They can credit-bid up to the full amount of the outstanding debt, fees, and costs, but they’re not required to. Lenders often open below the debt to preserve a potential deficiency claim. Knowing the opening bid tells you whether real third-party competition is likely, so call the trustee’s office in the days before the sale to confirm the opening bid and that the auction is still scheduled. Sales get postponed or canceled constantly.
The 67% Minimum Bid Rule
Since January 1, 2025, California law bars a trustee from accepting any bid at the initial foreclosure sale that falls below 67% of the property’s fair market value.1California Legislative Information. California Code, Civil Code – CIV 2924f The change came from Assembly Bill 2424 and it directly affects how much cash you need to bring.
If no bidder meets that 67% threshold at the first auction, the sale must be postponed by at least seven days. At the rescheduled sale, no minimum bid applies. Deeply discounted purchases are still possible on the California market, but only at that second sale. If your strategy depends on below-market pricing, you’ll need to track postponements and plan to be at the rescheduled auction rather than the original one.
Auction Day
Auctions take place on business days between 9:00 a.m. and 5:00 p.m., usually at a designated location near the county courthouse. The auctioneer reads the property information, announces the opening bid, and takes calls from the floor. Each bid is a binding legal commitment. When the auctioneer accepts the highest bid, the sale is final. There is no cooling-off period and no rescission right. If you discover a problem with the property after the hammer falls, that is your problem.
The winning bidder hands over payment on the spot. If your cashier’s checks total more than your bid, the trustee refunds the difference, though the refund can take several business days. You’ll get a receipt while the formal Trustee’s Deed Upon Sale is prepared. Stay until the auctioneer signs the memorandum of sale. That receipt is your only proof of ownership until the deed is recorded.
The 15-Day Post-Auction Bidding Window
Your winning bid isn’t really final. Under California Civil Code Section 2924m, certain eligible bidders have 15 days after the trustee sale to submit a notice of intent to purchase the property at the same price you paid.4California Legislative Information. California Civil Code 2924m
Eligible bidders include tenants who occupied the property at the time of the sale, provided they commit to living there for at least a year. The statute specifically excludes the former owner, their spouse, children, or parents, anyone with an ownership interest in the borrowing entity, and anyone acting as an agent for another person or entity.4California Legislative Information. California Civil Code 2924m
If an eligible bidder matches your price within 15 days, the property goes to them. If multiple eligible bidders come forward, the window can extend to 45 days after the sale while competing claims get sorted out. Your ownership is not finalized until the period closes without a successful challenge.
Recording the Deed and What It Costs
After the post-auction window expires, the trustee records the Trustee’s Deed Upon Sale with the county recorder. California charges a documentary transfer tax of $1.10 per $1,000 of the transfer price, calculated as $0.55 for each $500 or fraction thereof.5California Legislative Information. California Revenue and Taxation Code 11911 On a $500,000 purchase that comes to $550. Some cities layer their own transfer taxes on top of the county rate, and the recorder charges filing fees, typically $50 to $150 depending on document length.
Title Insurance and the IRS Redemption Window
Title insurance is where auction buyers hit a wall. Most title companies won’t issue a standard owner’s policy right after a trustee sale. Even where no federal tax liens appear, insurers commonly impose a 120-day waiting period tied to the IRS redemption window. Some require a full year of “seasoning” before they’ll insure. You may own the property for months without the title protection a conventional buyer takes for granted, which complicates any quick resale or refinance.
The reason for the wait: if a federal tax lien existed against the former owner at the time of the sale, the IRS has 120 days from the sale date (or the period allowed under California law, whichever is longer) to redeem the property. Redemption means the IRS pays you your bid amount plus interest and takes the property.2Office of the Law Revision Counsel. 26 U.S. Code 7425 – Discharge of Liens You get your money back but lose the deal. The IRS uses this right infrequently, but the possibility is what drives the title insurance delay.6eCFR. 26 CFR 400.5-1 – Redemption by United States If the federal tax lien was filed fewer than 31 days before the sale, no IRS notice was required, and the redemption analysis shifts.3Internal Revenue Service. Judicial/Non-Judicial Foreclosures
Buying REO Properties
When no third-party bidder hits the opening price at auction, the property reverts to the lender as an REO asset. Banks hire specialized REO agents to list these homes on the MLS, and the transaction looks much more like a normal sale.
You submit an offer with proof of funds or a mortgage pre-approval. The bank’s asset management team reviews it, often through an internal committee, so response times run longer than a private sale. In exchange you get things auction buyers don’t: a home inspection, a title report through escrow, and the option to finance the purchase. Expect an “as-is” addendum that waives repair credits and seller warranties. You can inspect and walk away if what you find is unacceptable, but don’t expect the bank to make repairs. REO contracts often carry strict closing deadlines with penalties for delays, so line up financing before you make the offer.
Getting Occupants Out After You Buy
The property may still be occupied when you take title. Who is inside determines how you remove them, and getting this wrong is expensive.
Former Owners and Unauthorized Occupants
If the previous owner or someone with no lease is still there, you must serve a three-day written notice to quit, then file an unlawful detainer action in court. You cannot change the locks, shut off utilities, or physically remove anyone yourself. Unlawful detainer is an expedited proceeding, but from notice to sheriff lockout the timeline typically runs three to six weeks. Budget for filing fees, process server costs, and possibly attorney’s fees if the occupant contests.
Bona Fide Tenants
Tenants who signed a lease before the foreclosure filing have far stronger protections. The federal Protecting Tenants at Foreclosure Act requires any new owner after a foreclosure to give bona fide tenants at least 90 days’ written notice before eviction.7Office of the Law Revision Counsel. 12 USC 5220 – Assistance to Homeowners A tenant whose lease runs beyond 90 days has the right to stay until the lease ends, unless you plan to occupy the property as your primary residence, in which case the 90-day notice still applies.
To qualify as “bona fide” under PTFA, the lease must have been arms-length, the tenant cannot be the former owner or a close family member, and the rent must be at or near fair market rate unless the unit receives a housing subsidy.7Office of the Law Revision Counsel. 12 USC 5220 – Assistance to Homeowners Tenants with Section 8 Housing Choice Vouchers get additional protection: the new owner must assume the existing housing assistance payment contract, and foreclosure itself is not good cause for termination.8Office of the Comptroller of the Currency. Protecting Tenants at Foreclosure Act
The 90-day clock starts when the tenant actually receives the notice, not when you send it. If you’re buying a tenanted property as an investment, plan on honoring the lease or waiting at least three months for possession.
Property Tax Reassessment
A foreclosure purchase triggers a full reassessment under Proposition 13. The county assessor revalues the property at its current fair market value as of the date possession transfers to you.9California State Board of Equalization. Change in Ownership – Real Property Acquired at Non-Judicial Foreclosure If the previous owner bought the home 20 years ago, their assessed value under Prop 13 may have been a fraction of current market value, with correspondingly low property taxes. Your new assessed value is based on your purchase price or the property’s current market value, and your bill jumps accordingly. On a $600,000 purchase in a county with a 1.1% effective tax rate, expect roughly $6,600 per year regardless of what the former owner was paying. Build that into your numbers before you bid.