How to Buy Distressed Mortgages
- 1). Scan local newspapers, real estate publications and online loan trading websites for lenders (such as DebtX or LoanMarket) selling distressed mortgages. Expect to pay less for the loan than its paper value. The loan will be priced commensurate to the belief of the seller that it may enter default. Lenders often hold auctions with low starting bids for distressed mortgage notes both online and locally.
- 2). Prepare to manage your distressed mortgage. This is the most challenging aspect of the business of trading in distressed loans. Prepare to work out a refinancing or loan modification deal with the borrower in order to recoup your investment. When purchasing a distressed mortgage loan, you will receive only minimal information about the borrower.
- 3). Learn about the federal Make Home Affordable program. If the principal of the mortgage is worth less than $729,750 and the homeowner pays more than 31 percent of his income in taxes, mortgage payments and homeowner association dues every month, you may be eligible for government subsidies in return for modifying the loan.
- 4). Contract with a licensed and bonded debt collection firm or enter collection proceedings on your own if the borrower has sufficient funds to make payments but refuses to do so. You may be entitled to sue for collection, garnish wages or seize funds from the borrower's bank account. Contact a debt collections lawyer if you think suing for collection may be an effective means of getting your distressed mortgage to perform.
- 5). Be prepared to enter foreclosure proceedings if the distressed mortgage fails to perform. In most cases, it will be best to short-sale the home at auction after foreclosure, sell it online or sell it to a real estate broker.
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