Buying Pre-Foreclosures and Renting the Home Back to the Owner

Buying pre-foreclosures and leaving the occupant in the house as a tenant is a real strategy, not a feel-good story. Bob Kokott, a Milwaukee-area investor with 52 years of landlording behind him, owns about a dozen homes he acquired at or before the sheriff’s sale and then leased back to the people who had been foreclosed on — some of them still paying rent 25 years later.

The mechanics matter more than the sentiment. You have to reach the homeowner at the point they will actually act, understand how much time you really have after the auction, know whether the file is equitable or upside down, and buy at a discount deep enough to survive the occasional eviction.

What follows is the timing, the negotiation sequence with the lender, the lease terms Kokott actually uses, the eviction and cash-for-keys math behind it, and why he says flatly this should not be anyone’s first deal.

From the Real Estate Pros Show

This article draws on an interview with Bob Kokott on the Real Estate Pros Show, hosted by Dylan Silver.

When in the Foreclosure Timeline to Approach a Homeowner

Reach out early, but expect the deal to happen late. Lenders typically send a notice after roughly three months of missed payments, giving the borrower a 20- or 40-day window to respond. That notice is your signal to start marketing — it is almost never when the homeowner signs.

Kokott’s observation after 25 years working foreclosures: people take action one to two weeks before the sheriff’s auction. Until that point the dominant mindset is denial. It’s not going to happen to me. Once an auction date feels real, the same homeowner who ignored four letters will call you.

That gap between when you can make contact and when they’ll act is the whole operational problem. You are building a pipeline of people who are not ready yet, and you need to still be in front of them when they become ready.

His marketing mix is built for exactly that:

• Direct mail to homeowners in the public foreclosure filings
• Door knocking — showing up and asking if they’d like to talk about their house
• Holiday cards, including Christmas and Halloween, with his contact information on them
• Lender referrals — banks that don’t want the asset back call him and ask him to investigate whether a deal can be worked out

The Halloween card sounds like a gimmick. It isn’t. In a market where other investors are mailing the same list and bidding at the same sheriff’s auctions, the point is to be the name they remember in week one of a two-week panic. Kokott also leads with education: when a distressed owner calls, he walks them through every option for saving the home first, and only presents his offer once those are exhausted.

Why the Deadline Isn’t the Deadline: Post-Sale Windows and Extensions

The sheriff’s sale is not the moment the house is gone. In Wisconsin, after the auction a judge has to review the paperwork and confirm the sale, and that takes another three to four weeks. The practical effect for an investor is substantial: a homeowner who contacts you two weeks before the auction still gives you roughly six weeks of runway to get to closing.

That changes how you triage leads. A seller who looks impossible on the calendar — auction in nine days, title not pulled, no payoff figure — is frequently workable once you add the confirmation period. Six weeks is enough to order title, get a payoff, negotiate with the lender, and fund.

Judges also sometimes grant homeowners additional time to sell or to get their finances current, which extends the window further. Kokott treats that as a bonus rather than a plan.

Two cautions before you build a business on this. First, confirmation periods, redemption rights, and post-sale procedures are set state by state, and Wisconsin’s six-week cushion is not a national rule. Some states give you essentially nothing after the gavel falls; others give the borrower a long statutory redemption period that cuts the other direction. Pull your own state’s statute and talk to a local foreclosure attorney before you quote a timeline to a seller.

Second, the extra weeks are time to close, not time to start. The deal still has to be underwritten, the occupant conversation still has to happen, and your lender still has to perform. Treat the confirmation period as the margin that saves deals, not as the schedule.

I own about a dozen homes that were foreclosed on that I bought either at a sheriff’s auction or before a sheriff’s auction, and I rented it back to them. We have homes that we foreclosed on 25 years ago. They’re still a tenant of mine. They pay every month. They don’t want to lose their home.

— Bob Kokott, Milwaukee-area real estate investor

Equity vs. Upside Down: Working the Deal With the Lender

Equitable files are easier. If the homeowner has real equity, you are negotiating with a person, not a loss mitigation department — the payoff is the payoff, and the deal comes down to what the seller nets and whether they stay.

Upside-down files are slower but not closed. Kokott made a large share of his purchases through short sales, and his read on lender behavior is blunt: the banks didn’t want the houses, and they were glad to clear the loan off their books. Two asks are worth making on every upside-down file:

• A short payoff — the lender accepts less than the balance to avoid taking the asset back
• An extension of the foreclosure date — frequently granted simply because you asked, which buys time to work the file

The tactical detail most investors get wrong is who makes the call. Kokott found lenders responded better to a licensed professional than to him. So when a realtor was involved, he negotiated through the agent and educated them on the short sale process rather than fighting for direct contact.

The lender thought, oh, it’s a realtor, it’s a professional. I don’t want to just deal with Bob. I’d rather deal with the realtor. So I learned to use that.

Most agents have never closed a short sale and are intimidated by them. That is your job to solve, not a reason to cut them out.

The same logic extends to the homeowner. On one purchase, the owner in foreclosure called his own lender and negotiated a better payoff than Kokott expected to get himself. Kokott paid him for it. The borrower of record sometimes has standing and sympathy you simply do not have.

The Rent-Back Model: Keeping the Former Owner as Tenant

The strategy is straightforward: buy the house at or before the sheriff’s sale, wipe the occupant’s housing debt to zero, and sign them to a lease. They stop owing a mortgage, arrears, and legal fees. They now owe rent. Kokott owns about a dozen homes operating this way, with some families in place 25 years after the original foreclosure.

He adds an optional exit for the occupant, particularly where there’s equity. They can buy the home back from him, or list it on the open market, with Kokott keeping a share of the profit. Some take it. Others have told him plainly they just want to rent for as long as he’ll let them.

The long-term economics favor the investor, and he’s open about it. If the family stays 25 years and then moves out, they’ve paid down the loan and the accrued equity is his — on top of the depreciation and cash flow along the way.

The operating terms are deliberately hands-off:

• Tenants handle all lawn care and snow removal
• Pets are allowed, no argument
• Major systems are his — if a furnace fails he pays for it, then charges the tenant 18% interest until it’s repaid
• He doesn’t keep a key to the house (he keeps a crowbar)

The not-keeping-a-key detail captures the whole philosophy: these occupants behave like owners because they recently were. Kokott notes some of them drive the rent to his house to make sure it arrives. His bank asked how he keeps these people performing. His answer was leverage of a different kind — if they stop paying, he can evict in weeks, while the bank would have faced a nine-month to one-year foreclosure.

The Numbers That Make Rent-Back Survivable

The strategy works because of the buy price, not the lease. Kokott targets roughly 30% below market. That spread is what lets him absorb a bad outcome without the deal breaking.

Two things fall out of that discount. First, a lost month or two to an eviction is annoying rather than fatal — the equity cushion covers it, the same way it does on his conventional rentals. Second, it changes his financing. At 30% below market, his banks will lend 100% of the purchase or allow cross-collateralization against other properties. He came up on a no-money-down model and still operates that way by choice: saving 20% down for every deal is how investors run out of capital.

When an occupant does fail, he knows the clock. In Wisconsin:

• Five-day notice to pay or vacate
• Roughly three weeks to get a court date
• Worst case, sheriff removal
• Total: anywhere from five days to about two months

Those windows are Wisconsin’s. Check yours before you underwrite to them.

Often the faster path is to pay. Kokott offers $2,000 to $3,000 in cash to move out and take everything, and it works more often than not. His reasoning is practical: the reason they aren’t paying is that they have no money, which also means they can’t afford to move. Handing them moving money removes the actual obstacle.

Compare the two paths honestly. Two months of lost rent plus court costs plus a trashed house frequently exceeds $3,000. Cash for keys is not generosity; it’s the cheaper option with a shorter, more predictable timeline.

Why This Isn’t a First Deal — and What to Learn First

Asked whether acquiring occupied foreclosures is a good first strategy, Kokott’s answer was one word: no. He compares it to going to medical school. You are combining distressed acquisition, lender negotiation, a compressed closing timeline, and a tenant relationship with someone who just lost their house — four skills, none of them beginner-level.

His sequence for getting there:

1. Define your why. He keeps photos of his wife, kids, and grandkids on the desk for exactly this reason. There are days the work isn’t enjoyable.
2. Learn landlording. Own rentals. Handle a nonpaying tenant. Find out whether you actually like it before you build a model that depends on it.
3. Assess your financing. Know what your banks will do at various discounts and whether cross-collateralization is available to you.
4. Then find a bargain. Below market value, inspected by you personally.

On that walkthrough: you don’t need to be a licensed inspector. You can tell whether the roof is old, whether the basement walls are cracked, whether the carpet needs cleaning or replacing.

Underwrite every house three ways — rent it, flip it, or keep it. Having three exits means the market can move against one of them without killing the deal. Some houses don’t belong in a rental portfolio at all; nice woodwork and finished detail he’d rather sell than rent.

Stay close. He was taught to buy within an hour of home and still believes in it, because distance costs you control.

For contractors: ask at Ace Hardware, Home Depot, and Sherwin-Williams who the pros use. Once you’ve got a trade you trust, ask them for the electrician and the furnace guy. Get three bids — roofing quotes swing from $10,000 to $20,000. And budget by the rule: twice the cost you expect, three times the time.

Frequently asked questions

How long after the sheriff’s sale do you still have to close a pre-foreclosure deal?

In Wisconsin, a judge must review the paperwork and confirm the sheriff’s sale, which takes another three to four weeks. Bob Kokott uses that window routinely — a homeowner who reaches him two weeks before the auction still leaves him roughly six weeks of total runway to close.

This is state-specific. Confirmation periods, statutory redemption rights, and post-sale procedure vary significantly, and some states give a buyer essentially no post-auction window. Confirm your own state’s process with a local foreclosure attorney before relying on it.

Why would a homeowner who stopped paying their mortgage reliably pay rent?

Because the debt is gone. The acquisition resets the occupant’s position to zero — no arrears, no legal fees, no accelerated balance. All they owe going forward is rent, which is a number they can usually carry even when the old mortgage plus back payments was impossible.

Kokott reports that over roughly 35 years this has rarely been a problem, with some tenants driving rent to his house to make sure it arrives. A small percentage genuinely cannot afford the home at any price, and those are the files where cash for keys applies.

What discount do you need on a foreclosure to get 100% bank financing?

Kokott’s banks will lend 100% of the purchase or allow cross-collateralization when he buys at roughly 30% below market value. The discount itself is the collateral — the lender’s protection is the equity that exists on day one.

That is his banking relationship in Wisconsin after 52 years in business, not a universal underwriting standard. The transferable lesson is that your buy price determines your financing options, so negotiate the discount before you go looking for terms.

Is buying occupied foreclosures a good strategy for a first-time investor?

No. Kokott was direct about it, comparing the skill set to medical school. You’re stacking distressed acquisition, lender negotiation, a compressed closing window, and property management of a recently foreclosed occupant.

His suggested order is to clarify your motivation, learn landlording with conventional rentals first, understand what your financing options actually are, and only then go hunting for bargains in the foreclosure pipeline.

What does cash for keys typically cost when the occupant won’t leave?

Kokott offers $2,000 to $3,000 cash to move out and take everything with them. It doesn’t work every time, but it works often enough that he reaches for it before filing.

The logic is that the occupant isn’t paying because they have no money, which means they also can’t afford to move. Covering that cost removes the real obstacle, and it usually beats the alternative — a five-day notice, about three weeks to a court date, and potentially sheriff removal, with lost rent and possible damage on top.

The bottom line

Before you mail a single foreclosure list, pull your state’s post-sale confirmation and redemption rules and write down exactly how many days you have after the gavel falls — that number dictates which leads are workable, how fast you have to move, and whether the rent-back model is even viable where you operate.