The real estate market is constantly changing, as buyers and sellers make decisions about what to do with their homes. But there's another element that's always in flux: the inventory itself. When a seller decides to put his or her home on the market, they could be motivated by anything from back taxes owed or divorce, to moving out of state. If you're looking for distressed properties, you'll need to know how to find them and what makes them so appealing—otherwise, it might be difficult to complete your next deal successfully!
Back taxes owed
A tax lien is a legal claim against real estate that arises when the owner of the property fails to pay their taxes. It gives the state or local government the right to take possession of that property until outstanding back taxes are paid. If you’re looking for distressed real estate sellers, then this is an area you need to investigate.
If you can find properties with delinquent taxes, then it could be a great opportunity to buy a home at below-market value and then fix it up to be sold at market value. There are many types of liens including: sales tax liens, income tax liens, personal property liens, federal tax liens, state tax liens, county or city general fund-land sales lien certificates issued by counties or cities as security interests in real property owned by individuals who purchased land within said jurisdiction but failed to pay off their debt after defaulting on payments (these are used primarily by banks).
If you're interested in buying properties that have been foreclosed on, you'll need to know how the process works. A foreclosure is a legal process in which the owner of property loses it because he or she failed to make payments on their mortgage for at least three months. In this situation, the lender (a bank or other financial institution) will take possession of the property and sell it at auction to recoup some of its losses from having given out loans that weren't paid back.
A pre-foreclosure is when the bank has given the homeowner notice that they are going to foreclose on their property. This means that you can buy a house in preforeclosure and have it paid off before it goes to market. It's often a good time to buy, because no one else knows about the property yet, so you're able to negotiate with the seller directly without competition from other buyers or brokers. The bank isn't interested in selling these properties at all; they just want them off their hands as soon as possible.
In order to find distressed real estate sellers, you need an effective lead generation strategy for finding people who are going through foreclosure or pre-foreclosure.
Negative equity is a common problem with distressed properties. If your home has negative equity, that means the mortgage on it is more than its current value. For example, if your house was worth $100K and you owed $110K in debt, then you would have negative equity of $10K.
Negative equity can happen for many reasons:
You bought at the peak of the market and are now stuck paying more than what others are willing to pay in today's market;
You refinanced into an adjustable-rate loan that went up while everyone else's went down;
Your house lost value because of a natural disaster like flooding or earthquake damage; or
You purchased a foreclosure property at auction and had no idea about the problems with this type of purchase until after closing on it (this happened often in 2008-2010).
These are some other ways that distressed sellers come to be.
A job loss, death in the family, health problem, or divorce can make it impossible for a family to keep up with mortgage payments.
A home equity loan was used for an emergency such as illness, car repairs, or other unexpected expenses. These loans typically have lower interest rates than traditional mortgages and require less money down. Once the emergency is over, homeowners prefer not to refinance because they'd lose their low rate until they paid off the loan balance in full. If they're unable to do so, they become distressed sellers.
An investor purchased a property intending on renting it out but then lost his tenant unexpectedly. This leaves him with a vacancy he cannot afford—and thus becomes a distressed seller who needs money fast!
Distressed sellers are not a new phenomenon, and are becoming increasingly common. If you have the right tools, you can find these properties and take advantage of their situation. The key is to know what signs indicate someone may be having financial problems and how to spot them.