How to Find Distressed Properties for Free

When I started my real estate journey, I was completely bootstrapped. I didn't have any money to spend on a foreclosure list and I was solely relying on my credit cards to make my first real estate investment happen. After reading the popular BiggerPockets' book on creative investment strategies and Wendy Patton's book on "Subject To" deals, I knew that if there was a will, there was a way. What I lacked in resources, I would make up in ingenuity and sweat equity. And so, I ventured off into trying to build my own foreclosure list by hand.

Your county will make a foreclosure listings available to the public for free! The upcoming foreclosures will most likely be posted at the County Clerk's office or at the County Recorder's office. For counties that may not have sophisticated web services, you may have to look for physical posting locations or in the local newspapers. The companies that are trying to sell you foreclosure lists might be better at showing up in Google search results, but the information is available for free for those willing to look for it.

You can do a quick Google search to find out where your specific county is posting their notices. However, if Google is unable to help you out, a local realtor who is certified as a Foreclosure Resource or a local real estate attorney will be able to point you in the right direction.

Now that you know where to find the foreclosure list, read on to learn why you should care to build your own foreclosure list, how to build your foreclosure list, and what are the important bits that you may need later on.

Why Build Your Own Foreclosure List?

Foreclosure lists are incredibly popular amongst real estate investors as they indicate opportunities with high likelihoods of distress and urgency. These homeowners may be looking for a savior and desperately needing one now.

I want to clarify a couple of points here that when I say "foreclosure list", I actually mean a "preforeclosure list". These are properties that have not gone to an auction sale yet and are still owned by the original homeowner. Some foreclosure lists are actually bank real estate owned (REO) properties that have already been through an auction sale. Though REOs may exhibit signs of distress, the banking institutions that own them don't need a local investor's assistance. With that in mind, the only opportunities we'll be looking at in this article are with individual homeowners.

There are many different types of auction sales, but for the sake of simplicity, I will be primarily referring to nonjudicial foreclosure sales in this article. You can click here to learn more about judicial and nonjudicial foreclosure sales.

Pros

  • Unlimited leads! Issues will inevitably arrive in a percentage of the general population. This could be due to a job loss, divorce, death in the family, etc. Some of these issues will ultimately manifest themselves as a foreclosure as the owners run out of time to make up their mortgage payments. For a large population like in Harris County, there can be hundreds of foreclosure notices every month.
  • Most investors are not willing to do this! Once your average investor acquires a few deals, they will focus more of their energy on rehabbing the properties, or maintaining their investment portfolios. These are capital and time intensive activities so they may not have the capacity to take on more projects or the time to sift through the new foreclosure notices.
  • You get the early scoop! Foreclosure listing services will only provide you with properties that are going to sell within the next 30-60 days. However, when you build your list by hand, you can find foreclosure listings 90-120 days in the future.
  • Better deals! These factors combined means you have a large dataset, with less competition and the opportunity to make better deals by building your own foreclosure list.

Cons

  • Time consuming! It might take you 2-3 minutes to extract the pertinent data from a notice of sale. Though this may not seem like a lot of time, when you are trying to build a list of 100+ properties, it could take you between 3-5 hours! Which leads me to my next point...
  • Monotonous work! Once you get the hang of this, it can be a mind numbing task. Of course, this can be easily delegated to someone else later on - but at first, you have to master this task yourself.
  • The list is time sensitive! If you take too long to build this list, you don't leave yourself enough time to market to the homeowners, craft a solution, complete your due diligence, and close on the deal.
  • Competition is on your tail! The longer you take, the paid listing services will catch up to you and once their subscribers receive the updated lists, you won't be the only one trying to reach out to the owners. Emotions might get involved and you might end up in a bidding war where you offer much more than you intended to.

Alright, are you convinced that building your own foreclosure list is for you? Read on to go deep on how to do this step by step!

Building Your List: Step By Step

In this section, I'll go over step by step how to build your own preforeclosure list from Harris County Clerk's Office. Though the exact details may differ from County to County, the underlying mechanisms of the foreclosure process and the important data points to collect should be similar.

Harris County Clerk's Office Homepage
  • Under the Property Records Menu, click on Foreclosures.
  • Select the Sale Date that is the furthest into the future and click Search. Begin building your list from the furthest date possible.
Foreclosure Notices 90+ Days in Advance
  • Click on the Doc ID to read each Foreclosure Notice. Though the document can look intimidating at first, I've noted the important items to look for and why you will need them later on during the acquisition process. Don't get too emotionally attached at this step as you are simply trying to build a list of potential properties in order to reach the homeowner.
  • Create a Google Sheet to capture the data with the following column headers:
  • Doc ID: Copy the ID and the link to the Notice of Sale so you can reference it again in the future. For example this link takes you directly to the above screenshot.
  • Grantor(s): The Grantors are the homeowners who received a loan from the bank to purchase the property. I recommend separating their names into four columns: Grantor One First Name, Grantor One Last Name, Grantor Two First Name, and Grantor Two Last Name. These are the names of the parties you will need at the closing table if you are able to make a deal. Also, by splitting up their names, it will allow you the flexibility to easily skip trace your list later on to find the owner's phone numbers and email addresses.
  • Property Address: I recommend separating their address by: Address, City, State, and Zip Code. This will also give you the flexibility to easily send direct marketing to the properties, to skip trace, and to deliver ads to custom audiences on Facebook/IG.
  • Legal Description: Though some properties may have the same address, a Legal Description is unique. You will need this information to fill out your Purchase and Sales contract. Also, if your notice does not include the Property Address, the Legal Description will help you verify the correct property address. You will have to go to the County's Appraisal District Website to search for the Owner's Name and match the Legal Description from the Appraisal District with the Notice of Sale. This is a bit inconvenient, especially when the Owner has a very common name such as John Smith.
  • Date of Sale: This is the deadline on when the bank will be taking the property to sale. Ideally, you will be able to make a deal about one week before this date to allow your Title Company to prepare closing documents and to order a Payoff Letter (how much and the exact details on where to send the money to).
  • Mortgage Servicer: This is the current mortgage servicer. The servicer is most likely different than the original Mortgagee as banks tend to buy and sell mortgage loans behind the scenes. The current servicer is who you will need to put on your Third Party Loan authorization form to allow the Title Company to request the previously mentioned Payoff Letter.
Important Items for Foreclosure List.

The Extra Mile

How do you know if the Owner still lives there or if it is occupied by tenants? If you want to go the extra mile, you can get some additional insight by verifying if the Owner's Mailing Address is the same as the Property Address on the County's Appraisal District Website. If the addresses are different, their Mailing Address may give you more accurate skip tracing information when attempting to contact the Owner.

Confirm the Legal Description, Property Address, and Mailing Address

From the Appraisal District website, you can also take note of the Tax Value of the property and how it relates to Zillow's Estimate. Depending on your investment strategy, you may only want to invest in properties that are less than $150,000 or only properties above $350,000. This step will allow you to quickly filter properties out by property value.

Another data point you may want to include is the Law Firm conducting the sale of the property. If you are able to make a deal before the sale date, you will want to confirm with the attorney's office that the property has been pulled off the auction list.

However, if you are interested in bidding on the property at the auction sale, you may want to know where to find them! At the Harris County Auction, there can be 20+ sales happening at the same time so you need to know where to find the right person conducting the right sale at the right time. If you don't want to save this information, you can always refer back to the right Notice with the Doc ID and link from earlier.

Once you're all done, you may have a list that looks a little something list this:

sample preforeclosure list
Sample Preforeclosure List. Click to Enlarge.

What's next?

Now that you have a list you have painstakingly put together by hand, the next step is to reach out to the Owner's and try to understand their situation and to see if there is an opportunity to create a win-win situation for both parties!

It will be up to you on how you want to approach your marketing. Maybe you want to visit each property in person, maybe you're more comfortable on the phone, maybe you just want to send them a letter. All of these methods work, however, finding a channel that is aligned with your brand and that allows you to be consistent with your outreach is more important than any "hack" gurus may try to sell you on.

Well, what else is holding you back from making your next real estate deal? Let me know in the comments below or send me a message on any of my social channels. :)

Jimmy Le

Jimmy Le

I guess I'm the owner!