When you buy your home the idea of going into default probably doesn’t even come across your mind. Sadly this can happen no matter what type of planning you prepare before you move into your home.
If you have a sudden job loss, or some kind of large expense, it can make paying your mortgage next to impossible. When you first buy a foreclosure seems impossible but it can quickly turn into reality for some homeowners.
Luckily there are a couple of different ways that a real estate investor can help you avoid foreclosure. Here are a few of the things that you can do to stop foreclosure.
When time is of the essence, real estate investors are by far the fastest way to sell your home. Although you can sell your home at market value using a real estate agent or going through the process yourself doing the sale for sale by owner, the average time a house sits on the market is 3 months.
Investors can inspect your home, provide a plan, and close the house within a matter of weeks, even days. Since for many seasoned investors, this is their profession, they have all their finances in order and know the home sale process very well.
This is different than catering to more traditional buyers who may only go through the home sale transaction several times in their lives and sometimes weeks are tied up as they are securing a mortgage of their own.
If you are going through the foreclosure process one of the things that an investor will be willing to do is buy your home at a discount. Homes in foreclosure are usually going to be below market value so it will typically be a financial acquisition that is profitable for them but sometimes when you add up the cost of closing it does not work out that way.
The good thing about this is that the investor will typically take care of all of the cost of selling a house which means that you don’t have to. For a homeowner in a tough spot, this can mean you walk away from the house without owning a large debt.
In the real estate business, taking over the loan and making up the back payments is called purchasing a home “subject to.” This means that the investor pays off the missed payments to bring the loan current and then starts paying the loan himself.
However, the loan is still listed and signed under the homeowner’s name, so the homeowner is still held responsible if the loan starts to fall behind again. The benefit to the homeowner is that foreclosure is avoided and the loan becomes current. The benefit to the investor is that the home can be acquired without many of the costs of a standard sale such as the loan and appraisal fees.
However, most lending firms create contracts in which “subject to” cannot be done since the full amount of the loan is due when title of the home is transferred upon sale. In practice, however, lending institutions would much rather have the loan become current and it matters little as to who the authority is so long as the payments are timely.
This strategy can be a very important tool, but as you can see, it is not without its risks. All parties must have full understanding of the documents and how they are prepared.
When selling your home, this is more commonly referred to as a short sale. The investor negotiates with the lending institution to strike a deal in which the lender will transfer the property at a discount.
Why would the lender do that? For one, financial institutions are in the business of making a profit through loans, not in selling homes. Second, it is much better for the bank to receive less cash now, than waiting for more cash later during which the bank must own and maintain the home and try to sell it at market price.