Portrait of a pre-foreclosure peacemaker

anely Sandoval’s calling to be a pre-foreclosure peacemaker started when she was in high school. “My mom and stepdad went into pre-foreclosure,” said Sandoval, a real estate agent and investor who specializes in working in low-income, often Latino neighborhoods in Southern California. “I knew things were going down, but I didn’t know how bad it was until people started knocking on our door.”

Now Sandoval, who was featured earlier this year in a Wall Street Journal article, is the one knocking on the doors of homeowners facing foreclosure or other distressed circumstances. She wants to offer those homeowners the resources and care that her mom and stepdad didn’t experience.

“I hope and pray if it ever happened to me that someone like me would knock on my door,” she said, explaining the face-to-face contact she gets through door-knocking is key to working with many distressed homeowners.  “There is nothing like that face to face. Me telling them I’m so sorry that this happened to you, but it doesn’t have to be the end of your life.”

Sandoval said her approach is one that is difficult for banks and mortgage servicers to replicate, not only because of the face-to-face experience she offers but also because of the inherent – and often misguided– distrust that many distressed homeowners have for financial institutions.

“You don’t understand the Latino community and the fear,” she said, noting that most of the distressed homeowners she works with are Latino. “They think they’re going to be deported. They think they’re going to lose their kids. They are thinking things that aren’t real.

“A lot them, at least the communities I’m going out into, they aren’t fully educated on their rights, on the whole process, on what’s really available to them,” Sandoval continued. “They just don’t really understand the letters that are coming in the mail. There is a lot of fear.”

Although completed foreclosure auctions have plateaued in 2024 at less than half of pre-pandemic levels, the number of delinquent mortgages is close to pre-pandemic levels, according to an Auction.com analysis of public record data from ATTOM Data Solutions and survey data from the Mortgage Bankers Association (MBA).

The MBA data show about 2.2 million delinquent mortgages as of the end of the second quarter of 2024, just slightly below the 2.3 million in the first quarter of 2020. But only about 17,000 delinquent loans completed the foreclosure process in the second quarter of 2024, almost one-third of the nearly 45,000 that completed the foreclosure process in Q1 2020.

So, while more financially distressed homeowners are avoiding foreclosure, there are still nearly as many distressed homeowners faced with the difficult decisions that come with delinquency.

Good karma

Sandoval’s first priority is to keep distressed homeowners in their homes if at all possible. Often, the best available option for staying in the home is through a loan modification or some other type of repayment plan with the bank. Most of the homeowners don’t qualify for refinancing.

“I would say about one-third of the homeowners we work with actually get to stay,” she said. “The rest are saving their equity with us by either selling to us or allowing us to list.”

Although there’s not an immediate financial payoff for Sandoval in the situations where she helps a homeowner stay in the home, she believes working in the best interest of the homeowners will benefit her in the long run.

“I believe in karma a lot. The more good you put out, the more good comes back to you. If you help someone save your home, you become an angel to them,” she said, recalling the story of one Glendora, California, homeowner she helped obtain a loan modification several years ago. That homeowner over the years has referred 10 refinancing opportunities to Sandoval.

Helping the homeowner file for bankruptcy is another tool in the pre-foreclosure peacemaker’s tool kit, but Sandoval uses that tool with caution.

“I don’t do those very often because that is a band aid on a bleeding wound,” she said, noting that Chapter 13 is the type of bankruptcy typically used to stop the foreclosure process – at least temporarily. “The people will be back to where they started. I really don’t recommend that.”

An Auction.com analysis of bankruptcy data from the American Bankruptcy Institute shows a steadily rising level of Chapter 13 filings, which reached a new post-pandemic high in June 2024. Through June, average weekly Chapter 13 filings had increased on a year-over-year basis for 33 consecutive months.

Sharks circling

When no other options offer a path to keeping the home long-term, selling the home – rather than losing it to foreclosure – could be the best option for the distressed homeowner. But getting to that decision can sometimes require a tough conversation with the homeowner.

“Maybe it’s time to have that come-to-Jesus talk,” said Sandoval, referencing a recent situation she encountered with a homeowner who filed for bankruptcy even though it was clear that would not be a long-term solution. “I keep in contact with him because I know for a fact he will fall out. “

Even when a distressed homeowner decides that selling is the best option, they still face the challenges of limited time, sometimes-poor property condition, and predatory pre-foreclosure players, according to Sandoval.

“The sharks are circling now,” she said, referring to the predatory pre-foreclosure players who may try to buy at a lowball price or offer the homeowner a too-good-to-be true solution that leaves them worse off. “As you get closer to that (foreclosure) sale date, your options are limited … If you’re going to call me three days prior to sale date, your options are going to be very limited.”

Many of the distressed properties Sandoval encounters are not in good enough condition to qualify for traditional financing. That means the buyer will need to pay in cash or use non-traditional financing such as a hard money loan. Helping the seller understand the true market value of the home given the condition can also be a challenge.

“These scenarios are not like vanilla deals,” Sandoval said. “They are the most jigsaw-puzzle-coming-to-life kind of deals.”

Equity stripping

An analysis of more than 10,000 properties that have sold on the retail market so far in 2024 after previously being scheduled for foreclosure auction on Auction.com shows that pre-foreclosure buyers are purchasing at an average discount of 14% below estimated after-repair market value. After-repair value is the estimated market value of a property in fully repaired condition.

But some segments of pre-foreclosure buyers are purchasing at much bigger discounts. Those purchasing with cash — more than 40% of the 10,000 pre-foreclosure sales analyzed — bought at an average discount of 25%. Those classified as institutional buyers in the public record data — representing 35% of the 10,000 pre-foreclosure sales analyzed — bought at an average discount of 31%.

Because many pre-foreclosure properties have deferred maintenance and are not in fully repaired condition, it is not surprising to see these properties selling below after-repair value. But the magnitude of the discount for some buyer segments, coupled with an analysis of subsequent resales (flips), points to possible equity stripping in some cases. Equity stripping is when the buyer purchases at a lowball price that is below the highest and best offer the homeowner could get in a transparent and competitive marketplace. 

The most powerful evidence of equity stripping shows up in subsequent resales (flips) of pre-foreclosure purchases that occur within 30 days of the original pre-foreclosure sale — indicating the pre-foreclosure buyer would have little time to add value to the property through renovation. 

More than 7% of the pre-foreclosure purchases analyzed in 2024 were subsequently resold (flipped) within 30 days, and those subsequent sales prices were $21,000 higher — or 8% higher — on average than the pre-foreclosure sale purchase price.

More than half (51%) of the under-30-day flips were in low-income or minority neighborhoods, as defined by data from the Federal Housing Finance Agency (FHFA). The average flipped price in these underserved neighborhoods was nearly $25,000 higher — or 11% higher — on average than the pre-foreclosure sale purchase price.

Move-in ready

This data also indicates that, unlike Sandoval, many pre-foreclosure players are not thinking about the best interests of the distressed homeowners. Sandoval often encounters such players. She recalled one homeowner she recently reached out to who had taken out a private-money loan with a 24% interest rate.

“I’m sure that private money lender kicked back something. So many people are out there taking advantage of people,” she said. “Some of those properties could have gone retail. I don’t think that’s fair.”

When a property is in good enough condition to list on the retail market, the homeowner can often walk away with a sizeable amount of equity, according to Sandoval.

“We just did one in Escondido,” she said. “It was a reverse mortgage and unfortunately we couldn’t keep her in the home, but we did list it and help her get her equity, which was over $210,000.”

When a property is not in good enough condition to list on the retail market for buyers using traditional financing, Sandoval or another investor in her network may buy it with cash or non-traditional financing. When this happens, Sandoval works with the owner to provide a graceful exit.

“Sometimes the seller wants one month rent back. I’m flexible with that because I’m not occupying the home,” she said. “I give them everything. Here are your options. You tell me what you want to do.”

Fostering homeownership

Sandoval and her investor partners typically perform heavy renovation on the distressed properties they purchase before reselling them back into the retail market, mostly to owner-occupant buyers.

 “Most of our buyers are first-time homebuyers,” she said. “A lot of first-time buyers don’t want to buy a project. They want to buy something that’s move-in ready.”

There were more than 104,000 pre-foreclosure sales in 2023, according to an Auction.com analysis of public record data from ATTOM Data Solutions. More than 67,000 (64%) of those sold to owner-occupant buyers, most likely on the retail market via the multiple listing service (MLS). Among a subset of more than 41,000 pre-foreclosure sales to cash buyers in 2023, less than half (48%) sold to owner-occupant buyers—although some of those may have subsequently resold to owner-occupant buyers after renovation by local investors like Sandoval.

For Sandoval, helping distressed homeowners in underserved communities ties into her personal story of building generational wealth as the child of two immigrant parents. Her mother immigrated from Cuba, and her father immigrated from Mexico. He passed down his passion for real estate investing to Sandoval, and he is now giving back by helping to construct a medical building in Mexico.

“For me it’s about generational wealth. I want my kids and grandkids to continue this,” she said. “My kids get to live a great life, but we get to give back as well.”