By: Viraj Shah 

In July 2024, the Consumer Financial Protection Bureau (CFPB) proposed a new set of rules that would offer additional protections to American homeowners at risk of losing their properties to foreclosure. In essence, the rules call on mortgage servicing companies to increase the support extended to borrowers who request it even before they start falling behind on payments. The proposal was endorsed by Vice President Kamala Harris, who underscored the importance of helping Americans stay in their homes.

The current rate of foreclosures across the United States is substantially lower than what it was during the global financial crisis and the Great Recession of the late 2000s; nonetheless, the risk of falling into foreclosure is currently higher than it was during the COVID-19 pandemic because of the pesky consumer price inflation and inadequate wage growth. Thankfully, homeowners now have various options and alternatives to foreclosure, and one of the most viable is to get real estate investors involved.

All Properties and Mortgage Loans Are Investment Opportunities

There’s an expression in the real estate industry about all American homeowners being property investors whether they realize it or not. Homes are financial assets that can appreciate or depreciate in value along with broader market trends. Even if your home mortgage is upside-down, encumbered with liens, and at risk of foreclosure, there can still be value for active and strategic investors to explore.

Sometimes mortgages are investments in and of themselves, especially if they are conventional loans backed with Freddie Mac or Fannie Mae certificates. What this all means to homeowners facing foreclosure is that their properties and debts may be of interest to third-party investors who may see a potential to generate profits.

Short Sale Strategies

One of the most common financial strategies investors use to profit from foreclosures involves taking advantage of discounts. Mortgage servicing firms are often willing to mark down properties before they are added to their real estate-owned (REO) portfolios. The most dynamic investors sweeten the deal for you and the bank by paying for title services while also trying to put some money in your pocket. This is ideal if you don’t want to stay in the property; plus, the negative impact on your credit will be minimized.

If you are not ready to move out, the short sale process can be negotiated with different terms. A lease-back provision can be added to the short sale agreement, thus allowing you to remain in the property for a set period. You will become a tenant to the investor, who can either be a hands-on landlord or retain the services of a property management firm. Depending on how the lease-back is structured, you may be able to get a few rent-free months; otherwise, your new monthly rental payments will have to be negotiated.

Short sales are normally “cash for keys” transactions, but this is seldom the case with a lease-back deal. You might not be able to stay for as long as you want; however, some investors would like for you to stay in the property to prevent it from sitting vacant, which can attract vandalism or squatters.

Published by: Martin De Juan