Facing Foreclosure?…….Beware Offers of ‘Easy’ Fix
In the world of real estate investment, there are a number of ways to find great deals on properties. Some of these techniques are perfectly acceptable, reasonable approaches to purchasing real estate. Others, however, take advantage already financially-distressed homeowners by offering so-called solutions which can be misleading.
Homeowners who find themselves in financial difficulty, several months behind on their mortgage payments, are then notified by their lender they are facing foreclosure proceedings. Self-proclaimed “Foreclosure Rescue Consultants” (ie. a real estate investor) will scour local courthouse records and contact the property owners offering a solution.
The “consultant’s” solution: The investor will offer to pay all of the homeowner’s past due mortgage payments and take over the regular monthly payments. In exchange, the homeowner will sign the deed of their property over to the investor.
At this point, the homeowner, thinking that he/she has found a way out of their financial crisis, has now got two more critical problems.
One, the homeowner has a mortgage on a property he/she no longer owns. With no guarantee that the investor will make timely payments, the homeowner further risks his/her credit rating. Two, if the investor evicts the homeowner from the property, they will still carry the debt from their mortgage with them, making chances of getting another mortgage down the road difficult, if not impossible.
In some cases, the “consultant” agrees upfront to refinance the mortgage into one of his/her own, which mitigates part of the homeowner’s exposure but, it generally means the investor has only refinanced the balance on the homeowner’s mortgage and taken over any equity in the property.
More legitimate investors will either pay the homeowner some of his/her equity in return for vacating the property or will agree to give the homeowner a timeframe in which to clear up their debt/credit issues and buy the property back from the investor. Even in the best of circumstances, however, the investor usually ends up owning the property for a purchase price far below market value and then re-sells it at a tidy profit. The original homeowner may or may not have saved their credit or benefited from any equity they had in the property at the time the foreclosure was initiated.
At this time, Maryland’s Gov. Robert L. Ehrlich has signed legislation which will protect homeowners in his state from being easy prey for these foreclosure opportunists. The ground-breaking legislation resulted from a large volume of complaints from distressed homeowners, particularly those in the Baltimore and Eastern shore areas.
The reality is that this type “investment” scenario is becoming widespread across the country, especially in areas where property values are escalating at a rapid rate. Homeowners who are experiencing the high-stress of financial worries are usually too emotional to objectively assess a seeminly easy solution when presented by a savvy investor. My advice to anyone in this situation is to review any offers of “foreclosure rescue” with a legal and/or financial advisor to ensure that the deal doesn’t take them “from the frying pan into the fire.”