When folks find out that I buy houses from distressed
homeowners during the preforeclosure stage, they always ask
the same question: “How do you find them?”
My simplest answer is: “At the courthouse.”
Distressed properties are always easiest to find when a
mortgage lender begins the foreclosure process. (The process
is triggered when the borrower fails to make a mortgage
payment.) Technically speaking this is the “preforeclosure”
stage. The borrower/homeowner has missed one or more
payments, the sheriff’s sale or public auction is looming on
the horizon, and the homeowner realizes he may soon lose his
Depending on which state you live in, the lender either
records a Notice of Default (NOD) or files a judicial
foreclosure lawsuit against the borrower. As soon as the
foreclosure is public information, it’s relatively easy to
So, depending on which property I’m interested in, I either
do a search at the county courthouse or I get the
information from a legal newspaper that has done the
searching for me.
The hardest part is finding a property that has any equity
in it. What I’m looking for is a Loan To Value (LTV) of 80%
or less. For example, if a property has a market value of
$100,000, the homeowner can’t owe more than $75,000 -$80,000
on the property.
Why? Because I can’t spend more than $75,000 – $80,000 for
the property and still make a decent profit.
That includes what I pay for the property
(principle, interest, taxes, and insurance), my repair
costs, and my holding costs. I have been known to pass on a
great deal, simply because it was November and I wasn’t
convinced that the property would sell before summer.
I always factor in having to pay the holding costs
on a property for at least six months while I remodel or
market the house. If the numbers don’t work, I walk away.
Sometimes it takes quite a bit of research to find a
property that I can make a profit on, but the rewards are
Now, before you call me a mercenary just because I look for
distressed properties to profit on, let me say this:
Somebody profits from every foreclosure – and it might as
well be you or me.
Some people think it is unethical to benefit from another
person’s misfortune of losing their home or investment
property by buying it from them in the preforeclosure
stage. But I disagree. I look at buying preforeclosures as
opportunities to help the distressed owners save their
credit. When I buy their property, their debt is paid off
and they are free to move on with their lives.
Foreclosures and other property distress are caused by
divorce, unemployment, death, medical emergency, economic
downturn, and any number of personal problems.
Recently, many homeowners bought expensive homes or
refinanced to take equity out of their homes when the
interest rates dropped. Those that later lost their jobs or
had a medical emergency suddenly lost their ability to make
mortgage payments. Many of those houses are now coming on
the market as foreclosures because their owners haven’t been
able to sell them.They think of me as their guardian angel
when I am able to buy their property prior to the sheriff’s
sale, save their credit, and pay off their debt.
For the most part, homeowners understand I need to make a
profit to stay in business. If they are “upside down” in
their house (meaning, they owe more than the property is
worth), and there is no equity in the property, then it is
very unlikely that they will be able to sell quickly — to
me or anyone else — and get out from under their debt.