Flipping mortgage is about flipping the mortgage paper. Some investors just
buy the mortgage notes and then sell them at higher price level and let the
buyer (other investors) continue the deal on foreclosure deal. The advantage of
doing that is you are buying mortgage note at a discount rate and use the real
estate rule of buy low sell high.
Let 's get an example of how it exactly works. A Bank ABC lends a
borrower $200,000 to buy a house. When the transaction close and borrower move
in for a few years , the balance due on that mortgage reduced to $190,000. For
some unpredictable reason, like losing the job or a medical problem, the
borrower stops paying on the loan. After repeated calls and letters the bankers
realize that they are not going to get their money from the borrower. They also
realize the foreclosing on a piece of property is a time-consuming and costly
business. The job can also be emotionally challenging. Imagine foreclosing on
someone who has lost job or has a medical problem and can no longer pay the
bills. Different institutions have different reasons and different times to sell
the paper. It's their best interest to sell the mortgage to a third party, get
their money out of the deal, and move on. To attract buyers, the bank offers a
discount on the current owner's mortgage. The discount is the the highest figure
the lending institution can negotiate and the lowest amount the third party is
willing to pay for the paper.
The third party can then sell and flip the note for a quick profit or
carry the judgment through foreclosure and become a property owner. Either way
he or she makes money on the deal. Like above example, if you acquire the
$200,000 note for a discounted fee of $160,000, that's like buying a dollar for
eighty cents. And in buying paper you are buying a lot of dollars. The key is to
make sure you can take financial advantage of the discount. Your $40,000 profit
could easily be eaten up by legal fees and other obligations, such as the
borrower declaring bankruptcy. make sure you understand all the cost involves
before flipping the mortgage or paper.
To make the deal of buying and selling or flipping mortgage, you first need
to find a lender that wants to avoid going through the lengthy and time
consuming process of foreclosing on a piece of property. If the bank or other
company has already received a judgment of foreclosure (meaning that, legally,
the foreclosure can take place), you are way ahead. That piece of paper is a
decree from a court that one person owes a debt to another, stating the amount
of indebtedness. If the lender has not obtained a judgment before you buy the
mortgage, understand that before you or anyone else can proceed with the
foreclosure, you must go before a judge. As with all legal proceedings, getting
a judgment is a crapshoot. There are too many factors involved to guess the
outcome in advance. That is why it is always best to have the judgment of
foreclosure in hand before you buy the mortgage, or to sell the mortgage before
one becomes necessary.
