When Sean O'Toole decided to make his fortune in foreclosures, he figured he would have five "partners": death, disease, divorce, drugs and denial.
The "five Ds of foreclosure," as O'Toole calls them, refers to the life crises that had typically triggered the lender's repossession of a home.
If a household's main breadwinner dies, for example, the surviving spouse may not be able to keep up the mortgage payments and thus may be forced to give up the house.
O'Toole capitalized on the five Ds in 2002, when the real estate market was taking off and foreclosures were few and far between. Rather than compete with thousands of speculators flipping new homes, he scoured property records to find distressed houses. Over the next few years he bought and sold 152 such properties.
Now, as foreclosures multiply across California and bargain-hunting investors are starting to snap them up, O'Toole has stopped trading foreclosed houses and is instead selling a sixth D: data.
O'Toole, 40, founded the website ForeclosureRadar.com last year. The site, he said, lists every default, auction and foreclosure in California. Such information is crucial to investors seeking properties to buy, and before Internet listing services such as ForeclosureRadar.com emerged in recent years, the information often required a personal visit to county records offices.
Rather than join the rush of those mining for gold in distressed real estate, O'Toole has set himself up as Levi Strauss once did. Instead of selling jeans to prospectors, though, he is selling foreclosure data to would-be buyers.
ForeclosureRadar.com has about 1,000 clients who pay $50 a month for access to the database, O'Toole said. Along with investors, subscribers include real estate brokers and local government officials who use foreclosed-home data for such tasks as locating stagnant swimming pools for mosquito abatement, he said.
The site, which O'Toole started with his own money, is on track to be profitable by 2009, he said.
A former Silicon Valley entrepreneur, O'Toole got the idea for the site when the volume of foreclosures grew so large that he couldn't quickly track them by going to county offices or hiring others to pull records. He figured investors and real estate brokers would be eager for online records covering all counties in California. The site allows users to search foreclosures by cities, ZIP Codes and street names.
He's stopped buying foreclosed houses because his time and money are tied up in the website, O'Toole said. But he also said he "doesn't want to catch a falling knife" as house prices plummet.
Although the foreclosure explosion is fueling his business, foreclosure sales have turned into a speculator's market, O'Toole said.
"I'm an investor, not a speculator," he emphasized.
The difference, he said, is that he bought foreclosures that were distressed by one of the five Ds and therefore undervalued. He then repaired the houses and their titles, adding value to resell the houses at a profit.
Such a strategy, O'Toole said, works if a market is up or down. A speculator, in his view, is someone who buys a property gambling that its value will rise with the overall market. He so abhors speculation, O'Toole said, that he does not invest in stocks either.
O'Toole's first foreclosure purchase was very nearly his last, he said. The owner and occupant of that Stockton house was a widow who lived with her 30-year-old developmentally disabled son, who required her full-time care. She had been so shaken by her husband's recent death that she was not paying her mortgage or any other bills, O'Toole said.
"The only possible way for me to get my money back was to evict her. It was a real moral dilemma for me," he said.
O'Toole went ahead with the eviction, but said he helped the woman recover $60,000 in excess proceeds from the foreclosure that she had failed to collect, he said. He said he also helped her secure Social Security benefits she had neglected to apply for, and found her a good deal on a mobile home.
"It was probably better I bought her house rather than somebody else," O'Toole said.
Another time, he said, he had to evict a family on Christmas Eve, which happened to be the legal deadline for the eviction. "He deserved it," O'Toole said of the father who ignored previous eviction notices and offers of help, "but his children did not."
He grew up in San Luis Obispo. His father, Fred O'Toole, was a Cal Poly philosophy professor who also built spec houses during summer breaks, giving his son early knowledge of real estate investing.
O'Toole majored in computer science at Cal Poly, but was appalled when his professor told him to stick to mainframes and not bother with personal computers. He left school in his first year to start a software company, which became the first of several start-ups in which he was a principal. His last venture was a workforce automation software firm that was sold in 2000.