Nonsense? Could be. Although buying property or even mortgages with bonds is not unheard of, I could never figure out why anyone would WANT to do it. One guru suggests that if you find a house worth 100k, and for sale at 100k, that you could buy bonds worth 100k at maturity that you buy now for something less, and use them to buy the house. Why a seller would agree to this is beyond me. If they wanted to have bonds worth 100k in 10 years, they could take the 100k CASH from the sale and buy them for the same price you could, and pocket the difference.
I suppose it’s POSSIBLE that if a mortgage co thinks that a mortgage is about to go south, that an investor “could” buy it with a blue chip (Microsoft?) bond worth the payoff amount in a few months. Even at that, it still sounds kind of screwy.
Anyway, why would this person want to be forced to sell in 3 to 6 months and give away 15% of FMV. If they want to sell in that time frame, then just do it, and pay the mortgage at that time, instead of owing the money to this “bond” company.
Also, your title says “Bond Company saves Foreclosure” but the first line of your post says “a company can pay off a mortgage that is current”. If they are current, I just don’t see why they would want to screw around with this if they want to sell in 6 months.
Very strange info- Bond Company saves Foreclosure? - Posted by Investor-Rama
Posted by Investor-Rama on July 11, 2003 at 21:45:57:
I got a call from a person today asking for my help as an investor.
They claim that a company can pay off a mortgage that is current by issuing a bill of agreement or somthing? I didnt get the full scoop on what the person meant, but it boiled down to the mortgage company accepting this “bond” as an asset, which wiped out the liability of the mortgage.
Does this sound like pure nonsense to anyone? If there is anyone with experience with this, please inform me of what the hell this person is talking about.
The catch is that the “bond” company gets 15% of market value when the house is sold 3-6 months down the road…this seller was emphatic about the fact if you use this company, that the house is free and clear of all mortgages with this bond on their books.
First of all, it sounds like a gimmick to me. Maybe I’m not getting something here but I don’t see the point of doing this.
Having said that, it sounds quite possible to me. A mortgage is security for a loan after all. Lenders can take many things as security. A lein on a house, a car, furniture etc.
In this case they would be substituting one form of collateral for another.
If you have $100,000 worth of bonds in your safety deposit box no doubt the bank would sooner have them for collateral than your $100,000 house. Reason, they are more liquid and easier to turn into cash.
So if some company, that the bank trusts and knows to be solvent, were to take the responsibility to pay off your loan if you didn’t, I’m sure the bank would take the mortgage off your house.
Now what guarantee does the bond company have that you will pay off? Do they now put a mortgage on your house? Or do you give them the deed? Or what?
And what good would it do you to shift the obligation from the bank to the bond company?