Flipping Mortgage

From Buyincomeproperties.com

Flipping
Flipping Mortgage
By
Sep 14, 2005, 17:52

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.