Finding Foreclosures

Foreclosures occur when payments aren't made on a loan that is secured by real estate, and the lender takes the security(real estate) because those payments have not been made. Understanding the process, and what steps you need to take at different parts of the process, is essential to successful investing in distressed property.

Property Values and Foreclosures

While it's certainly possible to find properties selling for 50% of their potential fixed-up value, most people will find it easier, and more efficient, to focus on properties selling in the 65% to 80% of value range. Some of the value seasoned investors seek when buying these homes can come from the normal terms of the loan, such as very old loans that have been paid upon for many years. Some can come from price appreciation in a "seller's market" where homes are appreciating rapidly in price. Some can come from the lender not wanting to deal with the property due to damage or necessary repairs, where the lender will accept less than they are owed on the property. So, how do you find these properties and what steps do you take? Let's start at the beginning.

The First Step

When payments aren't being made on a loan secured by real estate, lenders will often initiate default proceedings when the third payment is missed. The owner still has possession and the right to sell or refinance the real estate, these properties will usually be called a pre-foreclosure property by many investors. Since lenders cannot release information about their distressed loans due to privacy concerns, and homeowners often do not want to publicize their situation, you need an alternate way to find these properties, along with owner contact information. That source of information is your county recorder.

The County Recorder

Virtually all documents regarding real estate transactions are recorded and filed by the county recorder, and because they are public documents, you can access and search those documents. Most properties in default can be identified by the initial foreclosure document, which in most states, will either be a Notice of Default or a Lis Pendens. A Notice of Default, or NOD, is used in non-judicial states, while the Lis Pendens is used in judicial states. Because a judicial foreclosure is a court proceeding, you may have to search court records for the Lis Pendens instead of the recorder's office, local procedures vary throughout the US. Also keep in mind that all Lis Pendens are not loan defaults, Lis Pendens means there is a legal action pending, and many Lis Pendens will not be anything of interest to you.

In a simple world, you'd be able to find your target properties by asking your county recorder for a list of all the NOD's or Lis Pendens recorded that week, and they'd give you the list, with names, addresses and phone numbers along with other information you might want. It doesn't work that way. But, since many recorders have established searchable websites, you can do something similar. Use the online recorder's site to find properties by searching for those document types. That should get you a list of owner names and document numbers. If you can't view the actual documents online, you'll then have to physically go to the recorder's office with your list, search by owner name or document number, and look at the document (Notice of Default, or Lis Pendens) which will reference the original loan, the property address and the default amount.