It’s easy to start feeling bad when you work with a homeowner in foreclosure.  Many think foreclosure deals just take advantage of the homeowner, but you can help the homeowner about to go into bankruptcy get some of their equity back.
When you work with a homeowner in foreclosure it’s common to feel a need to help the homeowner out of their tough situation.  You may even feel a little as if you are taking advantage of the homeowner by profiting off of this foreclosure deal, but you are helping the homeowner.  By stopping the foreclosure you can keep the homeowner from having to file a bankruptcy.  Many of these homeowners have spoken with lawyers who are telling them that the only way out of a foreclosure is to file for bankruptcy.  No one wants a bankruptcy on their records for 7 years. 

Giving the Homeowner a Little of their Equity Back
You can also give the homeowners a little bit of cash in closing the deal.  Many times the homeowners you end up working with are not at high points in their lives.  You can usually work a short sale or some other type of property purchase in a way that allows you to give the homeowners some of their equity back. 

Buying Something for Cash
You can even help the homeowners with a deposit or some other fees if they need it to get into an apartment.  You may be able to purchase the appliances in the house from the homeowner and give them enough cash for the security deposit on an apartment.  Buy the appliances or some furniture in the household and write up a ‘bill of sale’.  This then qualifies as a purchase of personal property.  Actually do the purchase and keep the furniture or appliances, don’t let the homeowners walk away with it!  Then you can make this a business deduction on your taxes. 

Giving them a Side Contract
Another way to help the homeowners is through setting up a small side contract to clean the house before they leave.  Just set up a contract allowing that if they clean the windows, scrub the carpets, remove all trash, etc. before they leave you’ll give them an agreed upon amount of cash, say $2,000.  It doesn’t sound like much, but in the worst of circumstances when the homeowner has absolutely no equity to take from the mortgage it is at least enough for them to put down the security deposit on an apartment. 

Small Problems with the Banks
More and more these days, banks are requiring the foreclosure investors to sign an affidavit saying they have not done any deals of this type with the homeowner.  Basically the bank just wants to make sure the homeowner isn’t profiting from the default of their mortgage. 

You may not want to bother with setting up side deals and contracts in order to get the homeowner a little starting over cash.  If this is so, just buy the mortgage through a note purchase.  Then you’ll become the bank and you can give the homeowner as much cash back as you want.

You’ll also be helping the bank by letting them get this default property off of their books and freeing up the cash reserves that the banks are required by law to keep on hand to cover foreclosed mortgages.  You’ll be making money for yourself and your investors will be making money.  Foreclosure investing is a win-win situation all the way around the table.

There is more than one way to invest in the real estate market.  Now you can tap into a little known section of the industry using short sales to purchase properties with little or no equity and still make a profit!

You know that it’s possible to buy a house that has little or no equity in it for less than is owed on the mortgage!  Yes, it’s possible.  Let’s say that you, as a property investor come across this homeowner who is behind in their mortgage with the bank.  On the current real estate market the defaulted property is worth $100,000, but the homeowner is actually in debt for $115,000.  It is possible for you to get that homeowner’s house for just $70,000.

This seems impossible, but a little known practice called, “Short Sales” in defaulted note buying allows you to purchase property that is over financed and has little or no equity in it!   This is basically when you work with the bank to renegotiate the selling price of the house and the bank writes off the remainder of the mortgage. 

Getting Started with the Short Sale
When you work with this homeowner, you will become the homeowner’s advocate or intermediary with the bank.  So the first thing you’ll need to do is get an “Authorization to Release Information”, and fax it to the bank so that you can negotiate with the bank.  This basically means that the homeowner is giving the bank permission to speak with you concerning their mortgage.

When you contact the bank you’ll want to explain to the bank the reasons why they should be willing to let go of the house for less than it is valued and for less than is owed on the mortgage.  This involves putting together a little package with information that the bank may request from you and extra information that you include on the condition of the house.

For example; the house may need a new roof.  There could be all kinds of deferred maintenance and it needs all kinds of repairs.  You could even point out that the housing market is declining in the area or point out that there are loads of other houses on the same street that haven’t sold.  Basically, you present your case to the bank explaining the reasons that they should let the property go cheap.  Be sure to include digital photos of the damage to the property or the decline.

Using the Short Sales technique it is possible for you to work with the bank to reduce the selling price of that defaulted property.  You are able to purchase it from the homeowner for a reduced price and the homeowner can get out from under this mortgage without it being on their credit. 

All you need to do is approach the banks professionally, put together a good case for reducing the price (such as needed repairs to the property) and for good measure include some digital photos of damage or neglect on and around the property.