Stop Foreclosure Answer

From 2000 to 2005 when the real estate market was booming there were a group of investors who were willing to invest their money in riskier real estate deals.  They would typically loan money on a shorter term basis to people who wanted to buy property and who could not get loans through regular lenders. 

Many of these were 100% loans on properties to be rehabbed.  The loans were typically for 6 months to a year.  The interest rate charged was between 1 and 2% a month.  The payments were interest only.  The objective of the person getting one of these loans to buy and rehab a property was to have the rehab work done as quickly as possible so that they could either sell the property or refinance into a regular mortgage.

Because of the higher interest rates, these were called Hard Money loans.  The investors who put up their money for these loans were a very special group of people.  They were willing to take on a lot of risk for a very high rate of return.

With the downturn of the housing market since 2007, the need for these Hard Money Loans has dried up.  The investors who specialized in them no longer can get the type of return on their money that they had been.  Some have now turned to investing in mortgages to help people avoid foreclosure.

They focus on loaning their money to people facing foreclosure who can’t get help any other way.  Frequently they will put up the money the person facing foreclosure needs to do a short refinance.  A short refinance is where the original lender agrees to take less money to pay off their mortgage than the person owes on it.

A Lender will accept less than the person owes for several reasons.  The primary one is that the value of the home has dropped and is now lower than the outstanding balance on the mortgage.  A second reason is that the person facing foreclosure will never be able to catch up on their payments.  If the lender does not accept the lower amount, foreclosure will occur.  The lender will have to sell the home.  They will get less for it than they would on a short refinance.

Hard Money Lenders sometimes are willing to offer the people facing foreclosure interest rates as low as 3 to 4% on these short refinances.  Typically they will sell these loans to regular lenders once the person facing foreclosure has shown that they are able to consistently make their new monthly payments on a regular basis.

Why would these investors accept a return of 3 to 4% when in the past they made 1 to 2% a month?  They are getting a greater return on their money than they would if they had invested it elsewhere.  Money invested in the stock market is not paying that much.  Money Market accounts and certificates of deposits are not.  Many mutual funds have continued to lose money.   So these investors are making more on their money than they would elsewhere.

If you are facing foreclosure and you have run out of options in how to save your home, you may want to check to see if you can get one of these investment groups to loan you the money for a short refinance.

Much Success,

Mark Elkins