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Here's the deal: Last Thursday afternoon, while I was at a closing, my phone started blowing up with texts from investor clients asking about properties that were in trouble. It's Friday now, and I have about 47 things to do, but this topic keeps coming up so much that I thought I should just sit down and write it all down.
Right now, distressed properties are getting a lot of attention. Thank goodness it's not as bad as it was in 2008, but there is definitely more going on than there has been in years. You should know what you're getting into if you want to get into this market, whether you're an investor looking for your next flip or a first-time buyer hoping to get a good deal.
A distressed property is a home that is having trouble with money in some way. Usually, that means the owner couldn't make their mortgage payments, and now the property is either going to be foreclosed on, has already been foreclosed on, or the lender is trying to get rid of it as quickly as possible.
The numbers tell an interesting story. ATTOM Data Solutions (accessed October 2025) says that about 94,000 properties in the US filed for foreclosure in the first quarter of 2025. This means that about one out of every 1,515 homes is affected. By the second quarter of 2025, there were 100,687 total foreclosure filings, which is a 13% increase from the previous year (ATTOM, accessed October 2025).
Before you freak out and think we're going into another housing crisis, let me put this in context. According to research from PNC Bank (accessed October 2025), foreclosure and short sale activity made up almost 18% of all real estate transactions during the Great Recession. What about today? The National Association of REALTORS (as of October 2025) says that only 2% of all sales are distressed properties. The market is very different now than it was a few years ago, but there are definitely more chances now than there were then.
These properties are popular with real estate investors because you can often buy them for less than their market value. But, and this is a big but, they come with risks that can really hurt you if you're not careful. I've seen too many people get excited about a "deal" only to find out they've bought a money pit.
Let me explain the three groups you'll run into, since they all have their own problems and are handled in different ways.
When people don't pay their mortgage or property taxes on time, their homes go into foreclosure. The lender or loan servicer finally says, "That's enough," and takes back the property. According to ATTOM (accessed October 2025), there were 68,794 foreclosure starts in the first quarter of 2025, an increase of 14% from the previous quarter.
States are seeing very different patterns in this case. In Kansas, the number of foreclosure starts rose by 117% from one year to the next (ATTOM, accessed October 2025). Delaware went up by 58%. Oklahoma is up 45%. In the first quarter of 2017, Chicago had 3,789 foreclosure starts, New York had 3,566, and Houston had 3,046.
Where you live makes a big difference in how the foreclosure process works. NAR says that in some states, like California, judicial foreclosures can last for two to three years (accessed October 2025). In some states where foreclosures don't go through the courts, properties can move through the system in as little as 120 days.
Last year, one of my clients thought they could swoop in and buy a house that was about to be foreclosed on. They didn't think the bank would take as long as it did to finish everything. We are talking about waiting for 9 months. If you have other investment options on the table, that's a long time.
This is where things get interesting. If a home doesn't sell at a foreclosure auction, it becomes a REO property. The bank now owns the property, and all of a sudden, they're in the real estate business, which they don't want to be in.
In 2025, bank repossessions went up a lot. According to BiggerPockets' analysis of ATTOM data (accessed October 2025), lenders took back 4,077 REO properties across the country in August alone. This is a 41% increase from the same month last year. Texas had the most REOs, with 476, which is a huge 186% increase from the previous year. There were 151 REOs in North Carolina (up 113% from the previous year), 343 in California (up almost 50%), and 276 in Florida.
Banks really don't want to keep these properties. They are lenders, not property managers. They don't use the money from foreclosed homes for new loans, which is what they do for a living. If you know how to negotiate, that need to sell can help you.
When it comes to getting a loan, REO properties are often easier to get than auction properties. In most cases, you can use a regular mortgage instead of having to pay cash. What do you have to give up? You're still buying "as-is," and the bank's contracts are usually very strict, with terms that favor the lender a lot.
When a homeowner owes more on their mortgage than the home is worth right now, they are "underwater." They then convince the lender to accept less than the full mortgage payoff to avoid foreclosure.
According to PNC Bank (accessed October 2025), short sales make up about 5% of single-family home sales right now. This is a big drop from their peak during the housing crisis. But they can be hard. When you talk to the seller, you're really talking to the loss mitigation department of their bank. If there are more than one lien on the property, like a first mortgage and a home equity loan, both lenders need to agree to the deal.
Two years ago, I helped a buyer with a short sale that looked great on paper. The neighborhood was great, the price was right, and the seller was eager to sell. Then we found out there was a second mortgage, and the second lender wouldn't take the loss. The deal fell through after four months of work. You need to be ready for that kind of frustration.
So you want to know more. What now? You have a few different ways to find these properties, and to be honest, some work better than others depending on the market you're in.
This is probably your best bet, especially if you're new to buying distressed properties. Look for an agent who knows a lot about short sales, foreclosures, and REOs. They'll be able to use the Multiple Listing Service (MLS), which lists a lot of bank-owned properties, and they often have connections with loss mitigation departments at different lenders.
I won't lie; it took me years to get to know people at the big banks and asset management firms. When you need to get a deal done quickly or when you need someone to call you back about an offer, those relationships are important.
A good agent will also help you figure out what the property is really like and point out any problems you might not have noticed. They can suggest inspectors who know what to look for in homes that need work, contractors who can give you accurate estimates for repairs, and lenders who only work with these kinds of purchases.
You can do the legwork yourself if you have the time and experience. First, figure out which neighborhoods you want to live in. Look for clear signs of trouble as you drive around: lawns that are too long, windows that are boarded up, piles of mail, and exteriors that haven't been taken care of.
Next, look at public records. You can find out who owns a property, what its tax status is, and if it is in foreclosure by using the online property search tools that most counties have. To start, try searching for "[your county] REO homes" or "[your county] foreclosure listings."
You can also look at:
The bad thing about doing it yourself is that you're up against investors who have been doing it for a long time and have systems in place. I've seen first-time buyers lose out on homes over and over again because they didn't act quickly enough or didn't make their offers the right way.
After a foreclosure, properties go to auctions first. People usually see ads for these in local newspapers and online. Depending on the type of auction, you can either go in person or online.
But you should know that auctions aren't for the weak. You usually buy without seeing the property, you need cash or a cashier's check right away, you take on all liens and title problems, and you can't inspect or negotiate. I don't think auctions are a good idea unless you know what you're doing and have money set aside for unexpected costs.
Can you get a loan for a distressed property? It depends; sometimes yes, but often no.
You almost always need all cash to buy a house at auction. Most states require payment within 24 to 48 hours of winning the bid, which doesn't leave enough time for mortgage approval. ATTOM (accessed October 2025) says that in the first quarter of 2025, bank repossessions were up 8% from the previous quarter. This means that more properties are going through the REO stage, where financing becomes possible.
If you want to get a traditional loan, REO properties are your best bet. Once the bank owns the property, they usually want to work with people who want to buy a mortgage. You might be able to use:
The appraisal is the problem. If the house is in really bad shape, it might not be worth enough to cover the loan amount. That's when you should look into renovation loans that take into account the value of the property after repairs, or you may need to bring more money to the table.
Financing is usually accepted for short sales, but the process takes a long time. The seller's lender needs to agree to both the sale price and the terms of your loan. If everything goes well, I've seen short sales take 6 to 8 months to close.
We help buyers with distressed properties all the time at AmeriSave. We can help you figure out which loan products might be best for you and get you pre-approved so you can move quickly when you find the right property. Because speed is important in this market.
Okay, let's be real for a second. Distressed properties can be great investments, but they can also be terrible if you don't know what you're getting into. Let me show you the main risks.
This is the most important thing. Most distressed properties are sold "as-is," which means that the seller (usually the bank) doesn't promise anything about the condition and won't fix anything before closing.
You can't always look over the property carefully before you buy it, especially at an auction. Even for REO properties that you can go inside, there is usually no history of repairs, disclosure documents, or information about problems that have happened in the past. Before the house was foreclosed on, that roof could have leaked for three years. The HVAC system could be about to break down. There could be problems with the foundation, the electricity, the plumbing, or anything else you can think of.
Last year, one of my investor clients bought a REO property. It looked good from the outside, and the inside seemed fine during the walkthrough. Three weeks after closing, they found out that they needed to replace the whole sewer line. $18,000. That kind of surprise can quickly turn a good deal into a bad one.
Always, always, always set aside money for repairs that come up out of the blue. You're going to find problems you didn't expect, even if you look closely. I always add 30–40% to my estimate of how much it will cost to fix something.
If you bid on properties at auction, there's no way to know for sure that you'll win. You could do all the research, get your money or financing in order, and show up ready to bid, only to have someone else come in and pay more.
This happened to one of my clients three times in a row. Very annoying. The competition can be tough, especially in hot markets or for homes that are in good shape.
I said this before, but it's worth saying again: buying a distressed property takes a lot longer than a normal transaction.
Buying a house the old-fashioned way? It will take 6 to 8 weeks from the offer to the closing. A property in trouble? In many cases, plan on six months to a year. It's especially hard to wait for the seller's bank to approve everything when you're short on time.
Banks have their own rules and procedures for getting things done. Your offer may have to go through more than one department. The property might need to be appraised more than once. You might need to fix title problems. Things get lost. People take trips. Honestly, it's a nightmare.
You need to be patient and open-minded. Distressed properties are probably not the best choice if you need to move quickly or have a short deadline.
Sometimes there are title problems or liens that weren't properly handled when a property goes into foreclosure. It's possible that there is an old mechanic's lien from a contractor who never got paid. You might have a tax lien because you didn't pay your property taxes. There might still be a second mortgage on the property.
Before you close, you absolutely need to do a full title search. And even then, things can still go wrong. Three days before closing, we found out about a HOA lien that no one knew about. The buyer had to pay an extra $8,700 to clear it.
Always buy title insurance. It's not up to you on these deals; it's required. If you don't, you might end up with a property you can't sell legally later.
Why do people keep buying homes that are in trouble when there are so many risks? The math works perfectly when you do it right.
Real estate investors, especially those who have worked in construction or contracting, actively look for distressed properties because they can:
The most important things are knowing your market, getting accurate cost estimates, and buying at the right price. I've seen investors make a lot of money on properties that were in trouble. I've also seen people lose a lot of money because they didn't think about how much repairs would cost or how much the property would be worth after they fixed it up.
When it comes to distressed properties, not all markets are the same. The differences in geography are very big right now.
Florida is still the most active state for foreclosures. Realtor.com (accessed October 2025) says that Lakeland has the highest foreclosure rate in the country, with one filing for every 470 housing units. Cape Coral-Fort Myers and other Florida cities are also in the top five. The reasons are a perfect storm of rising insurance premiums (which are really out of control down there), rising HOA fees, falling buyer demand, and homeowners who are underwater losing equity.
According to several industry sources (accessed October 2025), Florida's housing inventory rose to 54.8% in 2024, and home prices fell by an average of 4.4%. The amount of time a home is on the market went up by 11 days from one year to the next. That gives investors chances, but it also means that the properties might take longer to sell or rent.
Columbia, South Carolina has the second-highest rate of foreclosures. Then there are the California cities of Bakersfield, Riverside, and Chico, which are all very busy. There is also a lot of distressed property in Chicago, Las Vegas, and Philadelphia.
On the other hand, states like Vermont and Montana have very few foreclosures. The differences are due to the state of the economy, the job market, and the housing market in each area.
If you want to invest in distressed properties, you need to know what's going on in your own market as well as national trends. What works in one area might not work in another. Forget what I just said. Let me explain what I mean in more detail.
Hold on, let me make that point clearer. When I say "what works," I mean both the kinds of properties that make sense and the ways to get them. Because of the insurance crisis that is causing people to lose their homes, you might be able to find great deals in Florida right now. In Montana, though, you hardly see any distressed inventory at all. The method needs to fit with what's going on in the market.
Let me show you what's going on right now. According to ATTOM (accessed October 2025), the number of properties that went into foreclosure in the first half of 2025 was 140,006. This is a 7% increase from the first half of 2024 and a 41% increase from the first half of 2020.
This rise is due to a number of things:
That being said, there is a very important buffer that keeps a crisis like 2008 from happening: homeowner equity. A lot of homeowners still have a lot of equity in their homes, which means they can sell or refinance before they have to go through foreclosure. Reports from the industry say that the national mortgage delinquency rate was 3.96% at the end of 2022, the lowest it had been in decades (accessed October 2025).
Okay, let's say you've made the decision to go after a distressed property. This is how the process really works:
Don't, I repeat, DO NOT start looking for distressed properties until you know exactly how much money you have and how you're going to pay for them. If you need a loan, get pre-approval. If you're paying in cash, make sure you have proof of funds ready to show.
Sellers and banks want to know that you are a serious buyer who can really close. If you are competing for something, being pre-approved or having cash on hand gives you a big edge.
You need:
Unless you have a lot of experience, don't try to do this by yourself. The mistakes could cost you tens of thousands of dollars.
Once you've found some possible properties, do some research. Get public records. Look into the tax situation. To get an idea of market values, look at recent sales in the area. Drive by the property a few times at different times of day. If you can, talk to your neighbors.
For REO properties, see if you can find out:
If you can, go inside the property to look around. Get a thorough inspector who will look at everything, including the roof, foundation, plumbing, electrical, HVAC, drainage, and any mold or pest problems that might come up.
Get written quotes from contractors for repairs that need to be made. Be honest and add everything up. Then add your buffer for surprises, which will happen.
When it comes to REO properties, banks usually set prices at or close to market value. But they want to sell, so you can usually negotiate, especially if you can show them specific repairs that need to be made or market comps that show a lower price is fair.
Think about giving:
Your offer for a short sale goes to the homeowner first, and then to their bank for approval. Be calm. This process takes a long time.
Closing on a distressed property can be hard. Make sure your lawyer looks over all the papers carefully. Check to make sure the title is clear. Make sure that any liens or back taxes are paid off at closing.
Get ready for delays. When problems come up, it's not unusual for distressed property closings to be pushed back several times.
Before you close, make sure you know what you're going to do with the property. If you're going to flip it, make sure your contractor is ready to start right away. If you're renting it out, you should know about the rental market in your area and have a plan for finding tenants. If you live in it, make a list of the repairs that need to be done first and plan your budget accordingly.
And here's where things get interesting for you if you're thinking about buying: AmeriSave helps people get loans for these kinds of properties all the time. We know the process inside and out, and we've made systems just for dealing with the problems that come up when buying distressed properties.
We have a number of loan options that are good for these kinds of situations:
Conventional loans for REO properties that are in good shape and worth what they say they are. These have rates that are competitive and can close fairly quickly once the property and title are ready.
FHA 203(k) renovation loans that let you buy a home and pay for the repairs all with one mortgage. This is great if you're buying a property that needs a lot of work and is in bad shape because you won't have to pay for repairs separately.
Portfolio loans are for special situations that don't fit into regular loan boxes. These give us the freedom to look at deals in new ways and maybe even find solutions when traditional financing doesn't work.
Experience is the main thing we bring to the table. Our loan officers know how to handle troubled property deals, what paperwork banks need, how to deal with appraisal problems, and how to keep deals moving forward when problems come up. We've done thousands of these loans, and that experience is important when you're trying to work out a complicated deal with short deadlines.
To be honest, this isn't an easy road. Just thinking about all the deals I've seen over the years makes me tired. Some of them went off without a hitch, while others turned into complete nightmares for buyers who weren't ready.
Not everyone can handle distressed properties. If you're buying your first home and need to move in right away, you might be better off going with a traditional purchase. It can be hard to deal with the uncertainty and repairs that need to be made on distressed properties.
But if you're an experienced investor, have a lot of cash on hand, are willing to take risks, or are willing to put in the time to learn and build the right team, distressed properties can be real ways to make money in real estate.
The market in 2025 has more choices than we've had in a long time. There are more foreclosures than usual, but they are still low compared to the past. There are more bank-owned properties, which means more REO chances. People who qualify can get financing. And in a lot of markets, you can still add value by making smart purchases and renovations.
Just promise me that you'll be aware of what's going on. Know the risks, do your homework, get thorough inspections, plan for the unexpected, and hire experienced professionals to help you through the process.
If you're ready to look into ways to finance the purchase of a distressed property, get in touch with AmeriSave. We can help you figure out what's possible for your situation and whether this is a good idea for your financial goals.
A foreclosure is the legal way for a lender to take back a property when the borrower doesn't pay. First, the property is sold at auction. Real estate owned by the bank (REO) is what it becomes if no one buys it at auction. So, REO properties are homes that were foreclosed on but didn't sell at auction. The lender now owns them. The main difference for buyers is that REO properties are usually easier to get a loan for and you have more time to look at them than auction purchases, which usually need all cash and close very quickly. When you buy a REO, you're dealing with a bank that wants to sell, so the process is more predictable, even though it still takes longer than a regular purchase.
It all depends on the property and the situation. Yes, conventional mortgages are usually available for REO properties that are in good shape and can pass appraisal. You almost never need cash to buy a property at auction. If a property is in really bad shape, you might need a renovation loan like an FHA 203k that covers the cost of repairs. The most important thing is whether the property can be appraised for enough to cover the loan and meet the minimum standards for property condition. At AmeriSave, we can look at your situation and help you figure out which loan products might be best for the property you're thinking about. We deal with these kinds of things every day, and we can usually find a way to move forward.
Unfortunately, it takes a lot longer than buying a normal home. Most of the time, a traditional home sale closes in six to eight weeks. It can take three months to more than a year to sell a distressed property. REO properties usually go faster because you're dealing directly with the bank as the seller. But even those can take three to six months. Short sales are the worst because you have to wait for the seller's lender to approve everything, which can take six to twelve months. Technically, auction purchases can close faster, but you need the money right away. Last year, one of my clients had to wait eleven months to close on a short sale. The delays are caused by problems with the title, getting approval from more than one lender, the condition of the property, and just regular red tape. When you're trying to buy these properties, you need a lot of patience and can't have a set deadline.
The most common mistake I see is not taking repair costs into account. People get excited about how cheap the house is and don't plan for the cost of renovations. They think it will cost $30,000 to fix up, but it ends up costing them $60,000. Then they run out of money in the middle of the project. The second biggest mistake is not doing enough research on the title and then being surprised by liens or title problems after closing. Third, they are giving up the inspection contingency to make their offer more competitive. Don't do this unless you are paying all cash and are ready for anything. Fourth, you don't have enough cash saved up for the problems that will definitely come up. And the fifth mistake is buying in the wrong market or paying too much compared to what the house will be worth after repairs. Even if everything else goes perfectly, you will lose money if the math doesn't work. You need to stick to your conservative numbers.
To be honest? Yes, if you know what you're doing. There are a lot more foreclosures happening now than there were a few years ago. In 2025, bank repossessions went up by 41% from the year before, which meant more REO inventory. But we're not in a crisis yet; distressed sales are still only two percent of the total market, down from eighteen percent during the Great Recession. There are more chances now than there have been in the past few years, but not so many that prices are going down. Interest rates have come down from their highs, which makes it easier to get loans. Most homeowners still have a lot of equity in their homes, which keeps a lot of foreclosures from happening. This is probably the best time for investors with cash or good financing and rehab experience since the early 2010s. Don't expect deals like they were in 2008, though, because the market is very different now.
Yes, technically, but I wouldn't suggest it unless you really have to. Most distressed properties need a lot of work, and living in a construction zone is awful. There is dust everywhere, contractors coming and going, no kitchen for weeks, maybe not enough bathrooms, and noise all the time. Also, it takes a lot longer to finish renovations when you live there because you can't do some kinds of work when people are in the space. And getting a loan is harder because lenders are less likely to approve loans for homes that don't meet basic habitability standards. If you really have to do it, make a very detailed plan for which repairs will happen in what order, make sure the property is at least safe to live in, and get ready for months of chaos. But if you can afford to live somewhere else while the work is being done, do that instead. Your mind will thank you.
You basically deal with them. That's the hard truth about buying properties as-is. The seller, usually a bank for REO properties, didn't promise anything about the condition, and you agreed to that when you signed the purchase agreement. This is why it's so important to inspect before closing, even though you can't find everything. If there was fraud or intentional hiding of a known defect, your only real option after closing would be to go to court. However, this is very hard to prove and costs a lot of money. That's also why I always tell buyers to set aside an extra 30 to 40 percent of what they think the repairs will cost. I promise you that those surprises are coming. Last year, I saw an investor find out that the whole electrical system needed to be replaced after they had already closed. They didn't plan for it, but they added $22,000 to their budget. It hurt their profit margin on the flip, but they had enough money saved up to deal with it. If they hadn't, they would have been in big trouble.
That's a great question, and the answer is all in the numbers. You need to figure out your highest acceptable offer based on a number of things. What will the property be worth after you fix it up? This is the first step. Get information on sales of similar homes in the area that have been fixed up. Then, take away all of your costs, such as the purchase price, repair costs (be conservative), closing costs, financing costs, holding costs like property taxes, insurance, and utilities while you own it, and the profit margin you want. Investors usually want a return of at least 20% to 25% on their flips. When renting, you need to figure out if the rent will cover your monthly expenses and bring in more money than it costs. If the numbers don't add up at the asking price, walk away or make a lower offer. People have convinced themselves that a property is a good deal even when the numbers don't add up. They love the possibilities and don't pay attention to the numbers. Don't be that person. Be honest and cold when you run the numbers, and leave some room for surprises. Only buy if you can still make money in that worst-case scenario.
That's hard. Sometimes, short sales can get you a better deal because the seller is more motivated than a bank. And you might find homes that are in better shape because the owner still lives there and takes care of it to some extent. But the schedule is just awful. Two years ago, I worked on a short sale that took nine months from the offer to the closing. That was actually pretty quick. The problem is that you're not only talking to the seller; you're also talking to their bank's loss mitigation department, which isn't in a hurry to approve anything. If you have a second mortgage, both lenders have to agree, which is even worse. In the meantime, you're stuck and can't buy anything else or make any other plans. Transactions involving REO properties are usually cleaner. Yes, the bank's contracts are very strict and work in their favor. Yes, the properties are often in worse shape. But at least you're working with one person who really wants to sell, and the timeline is easier to figure out. I'd say that most buyers, especially those who are new to buying distressed properties, should focus on REOs over short sales unless they have a lot of patience and a really good reason to go after the short sale property in question.
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