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Distressed Property

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Definition:

A distressed property is a property that is in poor financial or physical condition. A property that is undergoing foreclosure is a common example of a distressed property.

Financial distress on income producing properties is caused when expenses exceed income. There are a number of reasons why this may occur. Some examples include a significant drop in income or a rise in mortgage rates, property taxes, insurance, utility bills, maintenance, or a need for large scale capital improvements.

Financial distress on residential properties occurs because the homeowner is unable to afford the cost of owning the home. Reasons for this include the loss of a job, a reduction in income, a divorce, medical bills, or the increase in mortgage related expenses.

Physically distressed properties can suffer from a myriad of problems ranging from a dilapidated foundation to severely outdated floor plans, and everything in between. Additional examples include leaky plumbing, outdated electric, deteriorated flooring and outdated materials.

Examples:

Sarah lost her job. She could no longer afford her monthly mortgage payments. The property became distressed and the bank began foreclosure proceedings.

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