I am looking to expand on a business. I am interested in bailing out homeowners in foreclosure in my Long Island New York area, and arranging an agreement where I become the homeowner's new lien-holder, with more favorable terms. It would be beneficial for those who cannot refinance at the moment, but still offering me potential profit, such as having equity should the homeowner default. I wanted to know if this is legal, or if I had to become registered with the State Banking Department, etc. Before I ask my attorney, what are your thoughts?
The only way you could do that is to buy the mortgage at a discount, then modify. There are reg.s related to that portion, and buying specific notes is not that easy to accomplish.
Also, how do you figure you end up with the equity if the homeowner defaults?
I see some variation on this thinking on BP all the time, and I still don't understand it. For that matter, I hear people in other contexts say things like, "The banks want people to get behind on their mortgages, because then they get the house!"
Maybe state laws are different, or something, but what happens here is that when there is a foreclosure, there is an auction. And the proceeds are used to cover what is owed the bank, and if there is money left over, it goes to the homeowner.
I don't think the lien-holder just gets to decide to keep the property, ever. Someone please enlighten me if I am wrong.
I should add, I guess, that the banks end up with the house as an REO all the time. But the way that happens is they bid, at the auction, for the amount they are owed, so they get a second chance to recoup their losses. They don't just get to say, "Cool, we sold it for $50k more than we were owed. Bonus time!"
I don't know specifically about New York but many states have laws to protect homeowners from foreclosure rescue scams. Unfortunately these laws make just about impossible to legitimately help a homeowner. MD is one such state and other states have copied their laws.
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