Understanding Distressed Property

distressed house cash buyers

What is a distressed property?

Distressed properties are classified into two major ways. The first type is a financially distressed property. Financially distressed properties are when the owner cannot make payments (Notice of Default) and the property is in pre-foreclosure, foreclosure, being repossessed or trying a short sale. A financially distressed property could also have a tax lien or judgement lien on the property. It could also be in probate.

The second type of distressed home is physical distress. The house could just have been neglected for a long time creating a significant deferred maintenance. The property could have damage from fire, flood, mold or other ways. Money pit project houses are when the owner runs out of money part way through a rehab or remolding project.

6 ways a property can become distressed

distressed house sold for cash

1. One way a property becomes distressed is when the owner is unable to keep up with mortgage payments, and is at risk of losing his/her property through pre-foreclosure, foreclosure or repossession. This is called a financially distressed property.

2. The ordinary way a property becomes distressed is when the house falls into disrepair or is damaged. This is called a physically distressed property.

3. An absentee owner can produce a distressed property because of situational issues.

4. Some distressed properties are because of title problems. No clear ownership or a responsible party for the property creates a distressed property.

5. When property owners are in distress, not from the property, they can elect to liquidate the property to solve their problem. This event establishes the fifth way a property is distressed.

6. When a hoarding situation reaches a level that impacts the property and/or the ability to sell, the hoarder house becomes a distressed property. When inheriting a hoarder house it is clear this is a distressed property.


How to solve a distressed home in Sacramento?

Finding the correct buyer at the right time is the amazing solution. The ready, willing and able buyer that understands and willing to find value in the distressed property is by far the best way to solve a distressed Sacramento home. Targeting the right buyer is the solution.

Fixing a distressed property

Fixing a distressed property refers to the process of renovating, repairing, and upgrading a property that is in poor condition or in need of significant maintenance. This can include repairs to the structure, appliances, and systems of the property, as well as cosmetic upgrades such as painting, landscaping, and flooring. The goal of fixing a distressed property is to improve its condition and increase its value, so that it can be sold or rented at a higher price. The cost of fixing a distressed property will depend on the extent of the repairs needed, as well as the materials and labor costs involved. Read more in Tips for selling a fixer upper house.


In this case study we will see how this worked out to our property owner’s benefit.

buy for cash out of date house

I was introduced to Mary (not real name) at a very difficult point in her life. One major problem she had was her house was severely damaged and left abandoned by other family members. She was unable to pay the mortgage for many months and the lender started foreclosure proceedings.

I took the listing on the project property to optimistically do a short sale before it was sold at foreclosure. When I inspected the house and saw the disrepair, broken and damaged condition of the property I knew she did not have the funds to make it show ready. Therefore, the standard move in ready home buyer was not going to buy this house.

After doing market research of real estate values and monthly rents in the area, I thought I could sell the house to an investor. A fix and flip buyer would not want the house because the after repair value, or ARV was not high enough for this house to make a profit. The best buyer would be a real estate investor who takes the long view and would restore and rent it.

not salable home - cash offer

Finding that investor buyer would mean we could sell the property above the note value and not as a short sale. The sale would be at a price high enough to cover the debt and give Mary much needed money.

A quick note when a property is short sold, technically, the home owner should not receive any cash out of the transaction. The bank or lender feels that if they have to take a loss on the loan then the borrower should not benefit from the sale. So a short sale on this property would hurt Mary’s credit and not give her much needed funds to deal with the other issues in her life at that time.

“Targeting the right buyer is the solution”

absentee owner house

Another quick note, sometimes there are ways to get the home owner cash from the deal. But that would be on a case by case situation. If someone you know is possibly going to short sale their home, let me see if there is any cash in the deal for them.

Now back to Mary’s story. I was able to find a one-of-a-kind investor that was able to see the long term value of the property. They bought the house at a price that the lender was paid in full. This will help Mary’s credit long term. No short sale or foreclosure on her credit history. And, Mary was able to get a check upon closing the deal on the property.

Not every one that is given a notice of default (NOD) or a foreclosure notice will have this happy ending. But when a creative realtor focuses on what is best for the client, things like this can happen. I see many real estate agents going the easy short sale way and selling to a flipper they know. The lender and home owner lose, but the flipper and agent win.

I believe in hard work to find the best way to benefit my client. There are creative ways to find money for property owners who are in distress.

If you or someone you know is behind on their mortgage, has received a Notice of Default (NOD) or is in foreclosure, contact me to see if I can find money in the deal for you. It is a free consult. No cost to you at all.

Cash home buyers for top dollar

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