Two weeks ago I wrote an article about Foreclosed Homes in Oregon, but I left out some very important opportunities for the enterprising investor that were beyond the scope of a single article. How many of you are interested in finding a way to make a good deal even better? If so, we can talk some more about home foreclosure. Here’s the opportunity: basically none of the parties involved actually want a foreclosure to go through. The homeowner doesn’t want to lose their home, the bank doesn’t want to lose its mortgage, and the sheriff doesn’t want to create hardship for the homeowner. For a prepared investor, that’s a very good thing, because it means that every party has something precious that you can help protect. Resolving an issue that is causing someone stress or suffering is the largest motivator for most people. All we have to do is find a way to make a bad situation not as bad, and propose with credibility to the relevant players and they will be well motivated to help us get it done.
One easy thing that can sometimes be done is to purchase the home “subject to” the existing mortgage. What does that mean? It means the investor could buy the homeowner’s home and just assume the mortgage and pay the bank themselves. Why is that idea such a win-win? Let’s start with what it does for the homeowner As you can probably imagine, homeowners in foreclosure are usually having some financial problems. Selling their home subject-to helps them in a few ways:
Do you think maybe the bank would be happy to receive their payments again? Wells Fargo, Bank of America, and these other giant banks don’t care about foreclosing homes, they care about making money. If
the loan is cured and they start getting their payments again they’ll likely be happy. Even if they do call the loan due, you as an investor who is well prepared and solvent would have no problem refinancing with a hard money loan.
Finally what does a subject-to purchase do for the investor? Homeowner mortgages are usually much better than what investors can easily get on their own, especially in short time frames; they’re lower interest, can be higher LTV, and are almost always longer term. Assuming the existing mortgage is still worth having, the investor will likely “cure” it, meaning pay the arrears, and start making the monthly payments on behalf of the former owner.
The last time we did one of these deals, the homeowners thanked me several times during the signing for taking what was to them a mountain of debt away and giving them the time they needed to find a new place to live, and we still got a great price on a good house! So if you’re getting into foreclosed homes, take the time to learn about the situation and negotiate with people, it’s likely that you can make someone’s day and be paid well for it at the same time.
Have you ever paid someone else’s debt, or had someone else pay yours? Tell us what happened and how you got to a solution in the comments below!