CASHING IN ON DELINQUENT MORTGAGES

By Donna J. Bauer, The NoteBuyer

Are you ready to cash in on one of the hottest real estate investments available today? For the past fifteen years I have been teaching investors how to put thousands of dollars in the their pocket by buying and selling discounted mortgages using NO CASH of their own.  For those investors who have their own cash, I’ve shown them how to safely earn absolutely outrageous returns on their cash by buying and holding discounted mortgages.  Since notes and mortgages are the very foundation of all leveraged real estate transactions, there has always been, and will always be, a great deal of profit to be made in discounted notes. However, today’s financial climate has created a niche that enables the astute investor to cash in on delinquent (“non-performing”) mortgages like never before.  Whether you want to remain a passive investor and invest in the mortgage, or whether you want to acquire the actual real estate, the potential profit in discounting delinquent mortgages is absolutely astounding.

Today’s market is flooded with delinquent paper, and banks are taking discounts on their mortgages like never before.  Investors are literally putting tens of thousands of dollars in their pocket on each deal. On the private side, the poor economy has produced a great number of defaulted seller-carrybacks and privately funded rehab loans as well.  Whether you are dealing with institutional lenders such as banks or mortgage companies or whether you are dealing with privately held notes and mortgages, it’s time for you to start cashing in on these golden opportunities.

Buying defaulted mortgages has long provided a great “backdoor” opportunity to acquiring properties at drastically reduced, wholesale prices.  This opportunity has been even further enhanced in today’s market because so many of the banks are accepting staggering discounts in order to get the defaulted mortgages off their books. Don’t be fooled – the banks have more than made up for the discounts simply by the volume of business that they handle.  The banks know that a certain percentage of the mortgages they fund will be written off; but this loss is greatly offset by the huge profits that the bank makes on the performing mortgages.  So their loss becomes your gain!

There are two basic methods for cashing in on delinquent notes. You can either acquire the actual property through a short sale or you can purchase the mortgage (not the property) from the lender.

With a short sale, you are purchasing the property from a homeowner that is about to face foreclosure; however, the crux of the negotiations take place with the bank that is holding the defaulted mortgage. In many cases the homeowner will actually owe the bank more than the house is even worth. Your goal is to negotiate with the bank and get the bank to accept a substantially lower payoff (i.e., a discount), which will then allow you to purchase the home from the homeowner at a price that is far less than the fair market value of the house.  This may seem difficult to do, but in reality, you will be a “knight in shining armor” to many homeowners and bank officers. You simply present the case to the bank that it is time for them to “cut their losses” and move on. When the bank sees that the property is over-financed and in a poor state of repair and that the borrower has no means of ever paying the loan off, and when they realize the additional costs of foreclosure and re-selling the property, the bank is usually quite happy to get rid of the white elephant.

Once you purchase the house, the choice is yours.  You can lease it to the previous homeowner, you can wholesale it for quick cash to another investor, you can keep it for a rental, or you can even move into it yourself!  Regardless of your game plan, what an easy way to buy properties at a fraction of their fair market value!

Oops!  No money of your own to buy the house?  No problem. Any number of investors will pay you thousands of dollars for finding and structuring a good deal. Simply strike your deal with the bank and the homeowner, assign your contract to the investor, and walk away from closing with thousands of dollars in your pocket.

The second method for cashing in on delinquent mortgages involves buying the actual mortgage, not the property, from the bank.  Once you own the mortgage, you have a number of options.  You can make thousands of dollars by restructuring the note on terms that are more palatable to the homeowner, thus allowing the homeowner to stay in the property. You can then sit back and collect the payments yourself, you can sell the restructured note to an investor, or you can even assist the homeowner to refinance with another institutional lender.

On the other hand, if you want the property, you can negotiate to obtain a deed in lieu of foreclosure from the homeowner, or you can foreclose on the mortgage yourself.  Either way, since you bought the mortgage at a significant discount, you ultimately wind up with a property that you have bought for far less than what you might have paid had you tried to buy the property directly from the homeowner.  (After all, the homeowner is not in a position to accept less than the amount that is owed on the mortgage – only the mortgage holder is in a position to negotiate!)

For example, if you purchase a mortgage with a balance owed of $100,000 for only $60,000, you have built in a $40,000 profit. If you negotiate a deed in lieu of foreclosure, you just purchased the property for $60,000! Even if you foreclose on the mortgage yourself, at the sheriff’s sale either someone will buy the property and you’ll receive the full $100,000 that is owed to you, or you’ll wind up buying the property for just $60,000 plus a few thousand dollars in foreclosure costs. What would you do with a $40,000 windfall?

Whether you are buying delinquent notes or performing notes, the beauty of buying discounted mortgages is that you build your profit in right up front.  You are buying the note at a wholesale price, knowing that you can turn around and sell either the note or the property for full retail value.  If you buy a $100,000 performing note for $60,000 and the property sells or the homeowner refinances the very next day, you’ve just made $40,000!

Many people mistakenly think that they need cash to buy discounted mortgages. Not so!  The fact is that buying discounted notes is a great way to get cash! As a mother of 4 (the typical soccer mom), I started out working part time off my dining room table, without a dime to my name. I made over $5,000 on my very first deal.   You see, when you are able to find and structure these deals, you’ll have investors lining up at your door to fund your transactions.  So if you are in need of some quick cash, simply wholesale your deal to another investor. In no time at all, you’ll have your own cash reserve built up and you’ll be buying the discounted mortgages to keep for yourself!

Day after day and deal after deal, at my title company, All-Ohio Title Agency, I watch as investors pocket $5,000 to $10,000 by wholesaling a deal to another investor.  I watch as investors acquire properties for 50 to 90% of the fair market value. Why continue to stomp the pavement looking for good deals when you have such great opportunity that is there just for the asking? Whether you are looking to make some quick cash, whether you want to acquire properties at wholesale prices or whether you are looking for a passive investment that safely earns tremendously high returns, discounted mortgages is the fastest, safest vehicle to get you where you want to go.