Expanding Your Mortgage Notes Business With Defaulted Loans

Working With Distressed Homeowners And The Bank

As a note buyer or broker, you should always be in the look-out for ways to expand your business or portfolio. Purchasing mortgage notes is great but there are many different ways to profit in the mortgage industry, you just need to think outside the box. With the amount of homes going into foreclosure as a result of the current economy, the local bank could be a valuable asset if one were to apply a little critical thinking. Your competition may or may not be already capitalizing on this untapped market.

Houses in pre-foreclosure are ripe for the picking if you know how to go grasps this low hanging fruit. However, this approach does take a bit of specialization on your part in the fact you must approach the homeowner that is default and the bank holding the mortgage. It can be difficult to locate a homeowner who already is facing one of the worst episodes they can possibly face - the loss of their home. But, you as a potential buyer have a solution that can help remove some of the stigma of foreclosure. Avoidance of foreclosure for the homeowner and assisting them in ever having to deal with a foreclosure on their credit report.

It should be noted that the window of opportunity is time sensitive for pre-foreclosure mortgage note buying. The time between default and foreclosure is short so working fast is important. Since the nature of the issue is fragile, it is best to first try to contact the homeowner by mail. If contact is not forthcoming, then a phone call or direct approach may be necessary however, it is best to attempt contacting the homeowner through mail first.

Once you have contacted the homeowner it is important to get them to agree you are buying the house from them while you negotiate with the bank holding the mortgage. You don’t want the homeowner selling the house to someone else while you are in bank negotiations.

After an agreement has been reached between you and the homeowner, you should then approach the bank. First and foremost the bank does not want o foreclose on the homeowner and take a loss on the mortgage note. However, at this point they really do not have a choice but to foreclose on the property owner and put the house on the auction block where they will surely take a substantial loss.

Drop by the bank or make an appointment to see the loan officer and make it very clear what you are offering. The proper term within the industry is a short sell. Simply put, you are making an offer on the mortgage to buy it from the bank at a reduced price. In many cases they will be more then willing to accept your offer. However, we want to add investment to our portfolio and add cash flow notes to our monthly income streams.

At this stage, you make an offer to effectively become the bank and offer to buy the note itself from the bank at a reduced price. Everybody is a winner! You and the bank because you have added another valuable asset to your property or as a broker, you have negotiated a deal to offer your list of investors. The homeowner can win as well. Although they will lose their home, they can avoid the stigma of foreclosure with a Deed in Lieu of Foreclosure which we will discuss in another article here on the Cash Flow Notes Blog.