How I bought a foreclosed house

I filed a complaint with the Department of Real Estate and am awaiting a hearing.

If you believe you have encountered an illegal practice by a real estate broker, you can check the complaint procedure on the department's website at www.dre.ca.gov.

It won't act as a court, so it can't award you damages, but it can discipline the broker or agent.

Strike two

The next house we bid on wasn't a foreclosure but would certainly count as a distressed property. It was an absolutely gorgeous Pasadena Craftsman house purchased by a group of investors in 2007. They restored it with great attention to period details, using restored light fixtures that matched its 1908 origins, for instance. My agent and I guessed they had spent at least $100,000 on remodeling.

The house was on the market for several months at about 40% above what the investors had paid. But in the midst of the housing crash, there were no buyers.

After several price cuts, the sellers threw in the towel and listed the house for about 7% above what they had paid. They would be taking a sizable loss owing to the transaction fees and remodeling expenses.

Again, we offered full price, figuring the house would easily sell for that amount.

Unfortunately, we were right. We were told that another, all-cash offer beat ours. It came from an English couple who were buying vacation houses near their favorite horse tracks, and this was to be their Santa Anita getaway.

Score!

Just a couple of days later, in my routine check of listing websites, I saw a house that fit our size, price and location needs perfectly. I had not noticed it on foreclosure websites, but property records showed it had sold in the summer for about 60% of what places in the neighborhood had been going for.

This house was an example of a new phase in the real estate cycle: A vulture investor had snatched it (I believe at a courthouse auction), did some modest remodeling and had it on the market within three months. The asking price was a little more than 20% over what the investor had paid.

Doing the basic math in my head, I figured that after transaction and remodeling costs, the seller was seeking only a very small profit. The seller had to move quickly in the rapidly sinking real estate market or the margin would be eaten up by mortgage payments.