There are two ways in which you are able to help an owner in default: (1) You can help salvage his credit score (2) You may be able to help him remain in his home.
Homeowners-in-default who are buried in their debt, will not only lose their home on the day of the foreclosure auction, they will ultimately ruin their credit score once their property is foreclosed on, potentially destroying their ability to ever obtain another mortgage for another home. That is, unless an investor steps in to help.
For example, Inny takes out an ad to various neighbors or places an ad in the paper stating something along the lines of ’Has the foreclosure crisis hit you?’ or ’Do you know anyone who needs to sell their distressed property?’ A couple of weeks later, Inny receive a phone call from Owen (the owner in default) saying that he is about to lose his home to the bank because he has been unable to pay his mortgage payments. Owen tells you the amount that is owed ($150,000) as well as the estimated market value of the property ($200,000). At this point in the conversation, Inny (the investor) questions Owen about his ability to get caught up with his payments before property is foreclosed on (which is the day of the foreclosure auction). Both you and the owner should have a common understanding of what the goal is: Does Owen want to keep possession of his property or does he just want to salvage his credit score? If Inny the investor decide that he will not be able to come up with the total sum of what is owed, this is where you can step in to help out a distressed owner.
Some investors specifically search for owners who are looking to find a way to keep possession of their homes. This may be a lucrative investment if there is a lot of equity in a property. Sometimes a family is really able to catch up on their loan payments, but just needs to buy some more time.
Suppose, for example, that the home is worth $500,000 and they owe $350,000. All the family needs is $5,000 in order to catch up with their payments. If you are able to come to the conclusion that all the family needs is to buy more time in order to save their homes (and you have enough money to lend); then it may be a win/win situation. You will be providing them with a second mortgage at a higher interest rate than the current mortgage. You can explain to the owner-in-default that you are entering into this agreement for the purpose of making a profit, but also show them that this may be the only opportunity for them to save their homes while salvaging their credit score. Also, let the owner know that he or she is able to refinance at better interest rates once they have put their financial situation back in order.