Posted by Michael Morrongiello on March 03, 2001 at 15:57:45:
There is nothing conceptually wrong with doing exactly what you stated. You make a small loan to the property owner who is in default on their 1st lien and then hope for the best. If they pay you, you get a return on your funds. If they don’t pay you, then you now must “feed” the 1st while you foreclose on your 2nd.
Issues to consider:
Can you readily lend to homeowners in you state without being licensed? (some states require you to have mortgage brokers, mortgage lenders, or realtors licenses, etc. in order to make loans on an ongoing basis to the public)
What if the debtor files for bankrupcty? This will be an delaying tactic that many debtors will use especially if a lot of equity in their property is at stake. Sure it can be dealt with, but its awfully annoying and typically will require you to have seperate counsel experienced in bankrupcty court matters represent you.
Making small 2nd lien loans is what I call a “back door” approach to trying to own a property. Another technique to consider is to assist the defaulted seller to SELL their property FAST by showing them how to market it with owner financing. You then make a “fee” on the sale of their owner financed note that will generate the cash needed to pay off their existing loans and put some $$ in their pocket, to lessen the pain of having to move on with their lives.
To your success,