Driving through Compton, Calif., past rows of modest one-story houses, Sandoval consulted a list of 38 addresses where owners had missed mortgage payments and were at risk of losing their homes. At each stop, she hoped to make a pitch: Don’t let this ruin your life. Let me buy the house instead.
“There’s always a way out,” she tells people. “It may not be the way you want, but there is a way out.”
The entire U.S. housing market has been transformed by the 40%-plus rise in home prices since the onset of Covid. Many who own their homes have built up lots of equity, even if they struggle to pay the monthly mortgage or their place is in bad condition. House flippers are figuring out how to make that math work in their favor—snapping up and reselling houses for big bucks while potentially letting the seller walk away with some extra cash.
Consider a hypothetical house, bought for $250,000 a few years ago with a $200,000 mortgage. In a typical situation, that buyer would put down $50,000 to start. Then if the home’s market value rises to $350,000, he could clear enough in a sale to retire the mortgage and have money left over. The prospect of that cash might be enough for the owner to at least entertain an offer from an investor who comes knocking.
Sandoval, 37 years old, got her start in the 2008-09 financial crisis. She was in her early 20s, and instead of going to college, she bought and sold houses. Unlike today, home prices were plunging and foreclosures were rampant.
These days, Sandoval deals mostly with sellers who aren’t in terrible financial shape. But she expects that over the next few years, she will be buying from borrowers who are in so-called pre-foreclosure—where they are far behind on the mortgage but the lender hasn’t yet seized the house.
Economic data suggest that consumers are withstanding high rates and inflation. The number of foreclosures each year is far below where it was in the financial crisis.
But there are reasons for caution. Lenders are filing more so-called foreclosure starts—like notices of default—than they were a year or two ago. More people are taking early withdrawals from their 401(k)s to avoid losing their homes.
“Right now everything looks sunshine and rainbows and beautiful,” Sandoval said. “You’ll remember me next year.”
Auction.com, an online marketplace for distressed properties, estimates that between 2021 and 2023, some 654,000 U.S. homeowners were far behind on their mortgage when their house got sold. More than half sold when they were in pre-foreclosure. Those borrowers often sold to individual investors—for less than their home’s market value.
Like any market with scant oversight, stories abound of desperate homeowners getting taken advantage of. People badger homeowners, or lowball them, or pressure them to sign away their rights.
Legal aid lawyers say many complaints are about people known as wholesalers, who seek out properties on behalf of other investors. Some state and local governments have cracked down on them.
Selling directly to an investor means the owner could miss out on another buyer who might have paid more. And with rents so high, even a borrower who gets a big chunk of cash could end up worse in the long run, since anywhere they move will likely be expensive.
“Someone who is not listing their home for sale in a transparent marketplace and is putting their head in the sand, they may not know all of their options to sell the property,” said Daren Blomquist, vice president of market economics at Auction.com. “They become a sort of captive audience for that investor who happens to get a hold of them.”
Sandoval said that if she meets an owner who wants to try to keep their home, she will advise them on how to ask their lender to change the terms of their monthly payment, or how to come up with a payment plan by filing for chapter 13 bankruptcy. If the owner wants to list the property, Sandoval might do that too—she is also a real-estate agent at Century 21.
But it’s hardly a charity project. Sandoval said she made about $255,000 from her investment projects last year, plus roughly $280,000 more as a traditional real-estate agent. She also made rental income. Her husband, Diego Sandoval, is a mortgage broker.
“If I’m running around and doing flips, it’s got to be worth it because it’s taking time away from my kids,” she said.
Making the math work
Sandoval grew up around real estate. Her father is an investor who taught her to do fix-and-flips—“the uglier the better,” she said.
Her mother and stepfather almost lost their home in 2009 when his auto-parts business shut down. Sandoval tells this story when trying to get homeowners to warm to her.
Her phone is constantly ringing. There are buyers and sellers to manage. There are the people renovating her homes and managing her rentals. There is her title company rep, who feeds her information on homes as she knocks on doors.
“I am at 120 miles per hour every day,” she said.
Sandoval used to use her own cash to buy houses. Now, she relies on private loans and partners who put up money. She will typically pay between $425,000 and $650,000 for each home, whether the seller is in distress or just looking for a convenient outcome.
Last year, Sandoval bought a Los Angeles house from Scott Draper, a lawyer, for about $480,000. The house had been occupied by a family member and had fallen into disrepair. A rat infestation had become so bad that Draper was advised not to linger inside.
He didn’t want to sell it in the open market because of its poor condition, and he wanted to get rid of it quickly. Sandoval offered him a higher price than any other investor. She put in about $90,000 of renovations, including a new foundation and new windows. Then she sold it for $775,000.
Pounding the pavement
When a bank serves a notice of default to a homeowner, it starts the clock on a foreclosure. The lender might set a date to take the home and sell it. But it can take months or years for a foreclosure to go through.
That opens a window for Sandoval. She finds homeowners through searchable databases designed for real-estate investors. The databases pull in default notices, which are public record.
She spends about two days a week knocking on doors. Most people don’t answer. So instead she leaves envelopes, each with a flier inside that reads, “DON’T LET THE BANK TAKE YOUR HOME! STOP FORECLOSURE!” in English and Spanish. At the bottom is her picture, plus her contact information.
One time, a woman told her she must have the wrong address. As Sandoval walked back to her car, the woman’s husband ran after her and asked for her card. He apparently hadn’t told his wife about the missed payments.
Sandoval’s investments are generally in low- or moderate-income areas across the Los Angeles region. Sometimes the sellers have an agent or lawyer, sometimes they don’t.
Sandoval recently turned her attention to Compton. Incomes there are lower than the national average and poverty is higher, according to census data. One day in late January, she made the 14-mile drive there from her office in Pico Rivera with two colleagues.
The first address was in a low-rise apartment complex. Sandoval rang the doorbell. Someone inside turned the TV down, but no one answered. Sandoval left an envelope.
At another house, envelopes were already stuck in the door. “We’re not the first ones,” Sandoval said.
The day was winding down when Sandoval approached a house with cracked windows. Someone came to the sidewalk, displeased to be getting another visitor who was interested in the house. She said she was the owner’s daughter, and that they weren’t going to give up. “Like Jesus, I’m hanging on,” she added.
She and Sandoval talked later on the phone. Sandoval thought the situation was too complicated and decided against trying to buy. She estimates that for every 100 doors she knocks on, she ends up working with about 10 homeowners.