One of the prime sources for finding a house to flip is bankruptcy records. Houses sold in bankruptcy auctions rarely fetch their fair market value and, therefore, are good investments for reselling. Another associated source of houses for flipping is an estate sale. In those cases, the heirs to an estate might not be able to manage the cost of maintaining a deceased relative's home, or they might just want to get as much for the property as quickly as possible.
In both these cases, the houses purchased have real potential for providing profit to the house flipper. This is especially true if the house flipper is interested in renovating the house before reselling it. Often houses that drop through to foreclosure auctions are ones where the previous owner was unable or unwilling to spend much to maintain the value of the property.
People who market and sell packaged house flipping systems often refer to "motivated sellers," or people who have to sell their house or lose it to foreclosure. These "get rich quick" schemes often also teach the aspiring house flipper to haunt the county courthouse digging through the public record of foreclosure sales to find properties.
These are cases where the house flipping system can resemble a pyramid scheme. If too many graduates of the program all hunt through the same auction records, it will be impossible to find properties that are sufficiently undervalued for them to realize a profit. Another negative aspect of this practice that gives house flipping a bad reputation is that it seems to appeal to someone's greed in taking advantage of another's misfortune.
Perhaps because of this, many so-called "birddogs" in the house flipping business do not wait for the house to reach the foreclosure auction stage. Public records list the name and address of the person whose house is in foreclosure and the “birddog” uses that information to contact them. They seek out the homeowner soon after the house has been listed in foreclosure and try to work out a deal, beforehand.
If the birddog does not want to buy the house personally, another way for them to make money is by receiving a fee for referring the homeowner to a person who has the resources to clear up the mortgage arrears. This avoids the foreclosure proceeding and any fees attached with it. The person who buys the house can flip it or rent it back to the homeowner, either way realizing a profit on the investment.