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How To Handle A Distressed Property


A distress property is a property that is on the brink of getting foreclosed or the lender of the same is trying to sell it. A property becomes distressed when the owner falls behind in the payment of mortgage or property taxes. If taxes have been left unpaid, then an agency of the government may own the property. If the lender of the property fails to sell the same, the lender becomes the owner. Then the property becomes Real-Estate Owned (REO) Property. Some lenders try to sell REO properties on their own while some take the help of real estate agents. 

Types Of Distressed Properties

Distressed properties are almost owned by banks and investors seek such property so they can sell them at a profit. There are three types of distress properties. They are: 

  • Foreclosure: These are the most common types of distressed properties. As it suggests, the owner has failed to make the mortgage payments and the lender has filed a notice against the owner. Some buy preforeclosure properties. A property is called preforeclosure when the rent for the property has not been paid in 90 days. When the property gets fully foreclosed, they are bought at public auctions. 
  • Real Estate Owned (REO) Property: These properties are owned by real estate or the bank. The lenders are usually the sellers of the same. In such cases, the home has been foreclosed and could not find sellers at auctions. Therefore, the lender is making up for some of their losses. 
  • Short Sales: Short sales involve not taking the property back just yet. On the opposite, they have struck a deal with the owner of the property to sell it at a price less than its original price. In situations like these, the property is on its way to getting foreclosed but the short sale will help you avoid destroying your credit. So, despite the property being a distressed one, it will not be the cause of stress, hopefully. 

How Does A Distressed Property Work?

The sale of a distressed property can work when it is on the point of being owned by the bank or if the current owner is not being unable to make their monthly mortgage payments. In such situations, the property is sold at a significantly lower price for the purpose of closing down the earnings from the investments. Distressed properties are purchased for the following reasons:

  • The buyer expects that the property has the potential of reaping profits. There is also not a lot of competition as you would expect trying to buy in a standard market. So the main driving force behind acquiring distressed properties is the hope of making profits.
  • The buyer can sell the property at an increased price for the purpose of making profits.

The sale of a distressed property can also take place in situations when the investors short-sell the property at the lowest price that the investors are willing to move forward with. The investors in this way, protect the value of investment from coming down to zero. 

How To Find Distressed Properties?

There are a lot of investment opportunities in distressed properties. Many investors lack the skills required for finding distressed properties let alone investing in the same. Here are some ways to find them:

  • Search For Neglected Properties: Neglect is something that can be both subtle as well as in-your-face. On the outside, a property can be in pristine condition but the interiors may tell a different story. You can see paint that has faded or notices galore in the walls and gates of the property. Neglect can also be in the form of unattended grass on the lawn, dysfunctional lights on the property, and more. In all probability, the owner may have given up taking care of their property. In this case, you can swoop down and begin talks of buying the property and eventually selling it.
  • Tax Records: If the owner has failed to make their monthly mortgage payments, these records are made public and can indicate that the owner of the property has fallen on hard times. This is another situation that a seller can use to their advantage as delinquent mortgage payments are a goldmine to real estate agents. It is one of the textbook signs of a distressed property and the seller wants to have dibs on the same before it catches the attention of other real estate agents. Local courthouses will have records of delinquent mortgage payments. 
  • Probate Opportunities: You can take the help of probate courts for getting hold of distressed properties. Lawyers involved in probate sales can aid you in acquiring such properties if they possess expertise in the same.


 A distress property is a lucrative opportunity for real estate agents to make some profits. More often than not, the owner of the property has stopped making the mortgage payments usually because of incapability and thus it inevitably goes into the hand of the bank or real estate.

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