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Thread: buying distressed mortgages?

  1. #1
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    Default buying distressed mortgages?

    I just read where an offshoot of OWS is buying people's debt and forgiving it.

    They buy $200 of debt for $10

    I would like to do something similar, but i would only forgive 2/3 of it. A great deal for the debtor, a profit for me and i can grow the program

    Beats buying life settlements and waiting for death of some schmuck

    Question is, how/where do i buy these? Anyone know?

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    Banned Melonie's Avatar
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    Default Re: buying distressed mortgages?

    It's only profitable if the $200 worth of bad debt can be bought for $10 but ~$40 worth of debt payment can actually be recovered from the deadbeat debtor ... since you're going to face at least $20 worth of time / legal fees to get a new judgement against the deadbeat debtor, file the paperwork etc. leaving you with a $10 profit. And of course, if we do go off the fiscal cliff, the deadbeat debtor that actually pays you $30 is NOT going to be very happy when the IRS attempts to tax the $160 worth of 'forgiven' debt as additional taxable income, based on the mandatory paperwork that YOU'LL have to file with YOUR debt collection company's name on it.

    Or stated in a different way, accepting your deal will subject the deadbeat debtor to something in the ballpark of $40 worth of additional income taxes on top of the $40 payment made to your debt collection company. So in effect the deadbeat debtor faces a choice ( after January 1st, assuming the 'forgiven' debt tax exemption is not renewed ) of not accepting your offer - spending no extra money - and dealing with a [email protected]!tty credit rating, OR accepting your offer - paying you 20 cents on the dollar - plus paying the IRS 20 cents on the dollar - and dealing with a [email protected]!tty credit rating, OR accepting your offer - paying you 20 cents on the dollar - stiffing the IRS - and dealing with IRS problems on top of a [email protected]!tty credit rating.

    Obviously if the deadbeat debtor stiffs you altogether, you're out the $10 debt repurchase cost plus the $20 in 'paperwork' costs. This 'loss' will wipe out the profit from three other successful debt purchase deals. Or put another way, if three out of four deadbeat debtors actually accepts your deal and pays you $40 per $200 of original debt, you won't make any money but you won't lose any money either.

    I wouldn't touch this sort of deal with someone else's 10 foot pole !
    Last edited by Melonie; 12-13-2012 at 02:44 PM.

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    Default Re: buying distressed mortgages?

    The
    Agreed, to the extent that the debtor discount would need to be adjusted based on costs. However, if the debtor fails in their end of the deal, i get the house.


    Yes, foreclosure costs will turn my $10,000 on a $200,000 note asking for 75k to be paid into a 50k investment and sellthe house for 90, but still i get a good return...certainly better than the market...and maybe i help someone

    I already invest in tough case real estate....so crappy houses are nothing new

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    Default Re: buying distressed mortgages?

    However, if the debtor fails in their end of the deal, i get the house.
    ... maybe the case ... if the deadbeat debtor doesn't decide to fight you in court over proof of actual ownership ( i.e. robosigned documents ) during foreclosure proceedings, if the FEDS don't tangle you up for years in some gov't subsidized distressed mortgage re-fi program, etc.

    This is too risky for me, but hey if you're confident about this ... I wish you luck. After all, 'no guts no glory' !!!

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    Default Re: buying distressed mortgages?

    True, there is that risk, which is why i would need substantial control over researching each deal too...maybe even talking to the debtor.

    Yes. Very risky. It's only doable with funds i am ready to lose, i agree. Thanks

    Just cant find the dealers in such securities who allow the level of research without being a qualified investment firm.

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    Default Re: buying distressed mortgages?

    Quote Originally Posted by Melonie View Post
    ... maybe the case ... if the deadbeat debtor doesn't decide to fight you in court over proof of actual ownership ( i.e. robosigned documents ) during foreclosure proceedings, if the FEDS don't tangle you up for years in some gov't subsidized distressed mortgage re-fi program, etc.

    This is too risky for me, but hey if you're confident about this ... I wish you luck. After all, 'no guts no glory' !!!
    From what I have seen locally, the quality of title on foreclosed properties is very sketchy. Some of the problems have lead our title insurance companies to start declining to write owners policies on some foreclosed properties. Between robo-signing, poor legal work by the banks' lawyers and very poor banking by the bankers involved, I'd be very skeptical of land titles in foreclosure. One reason my business was so attractive is I got a Trustee's Deed from the bankruptcy court for the real estate I was keeping. That washed away all the liens and various mistakes made over many years.

    Be careful out there!
    Z

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