How to find what the seller owes

Question

How do I find out what a person owes on their mortgage before it gets sold at foreclosure auction?

Sean OToole · Answer

@Matthew Thorp - With the exception of the loan in foreclosure (where actual balance is either posted in the notice, or doesn't matter because the purchase will satisfy it), the only solid answer is to get current statements from the borrower. The reason is that actual balances are not public records data, so your only other alternatives to getting it from the owner are to call their lender and pretend to be them (illegal), or get access to their credit report (likely illegal too unless you get borrowers permission and at that point you might as well just ask for their statements).

With that out of the way, the question then becomes how can you best guess at their balance. To do that start with a title search and try to determine which loans are open and outstanding. Then look at the age of those loans, and any hints as to how they've been repaid (foreclosure notices for example). From there you can use an amortization calculation and estimate current balance assuming they actually made those payments and that if they did not the lender actually filed a foreclosure notice with clues as to the amount unpaid. Companies like ours and Listsource build computer models to estimate current loan balances and equity across large number of properties. It's super useful for searching for properties that might have equity, but shouldn't be relied on when making a purchase.

If you goal is to buy 2nds at trustee or sheriff sales you either need to find a good way to talk to borrowers into giving you their balance, get their balance illegally, or play the odds and know you are taking a risk the balance is much higher then your estimate (lender could have made advances, etc).

Hope that helps.

Sean OToole · Answer

@Anna Toi-GB if they refinance then the prior loan is paid off and we can then use the amount of the new loan, including the cash out. Bottom line, the models can easily account for that. An example of something that the models can’t account for is someone paying down the principal balance of their existing loan.

Bob Okenwa · Answer

Listsource allows you to locate homeowners based on the amount of equity in their homes.

Anna Toi-GB · Answer

But then by guessing balance based on their first mortgage available publicly,  you won't know if the owner refinance, take the money out, and increase the remaining balance.

Sean OToole · Answer

Thanks @Ron S.

The differences between the computer model and doing it yourself are interesting imho.

Computer models are great because they can do millions of properties very quickly. Thus perfect for building lists as you couldn't manually do that yourself. Computer models also benefit from lots of tuning, machine learning, and if the company is good some really expert tweaks to take into account things newer folks would miss.

Doing it manually is great because a person can sometimes easily see something that the computer model misses, and can take into account other things - conversations with owners, etc - that the computer model simply can't.

Generally I find the computer models do better on cookie cutter deals, and people do better on unusual deals. This is true of not just loan balance models, but also valuation models (like Zillow's Zestimates) - both of which impact equity models btw.

Bottom line - my suggestions is 1) use computer models to search lots of properties, 2)  before spending time on a deal check by doing your own estimate and 3) before doing the deal verify by getting actual balances (if possible).

Ron S. · Answer

Excellent post and spot on. What a lot of potential purchasers of these lists fail to recognize is that the list seller is doing exactly what you describe that someone should do on their own....guestimating based on assumptions to come up with a ballpark figure of what the balance might be. Great post.

Matthew Thorp · Answer

i was looking for something that i didnt have to pay

How to find what the seller owes

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