Suppose I believe that the house across the street (342 Maple Avenue, Podunk) is going to go into foreclosure in the next few weeks. I base this on my personal assessment of the owners and the fact that they have stopped commuting to work and have started to neglect basic upkeep of the home.
I would like to make an investment that I would expect to profit from if this turned out to be the case. I would expect that if my prediction turned out be be wrong, my investment would probably lose value.
I am NOT talking about how to make money flipping homes that have already gone to foreclosure. I am talking about speculating on the uncertainty of whether or not a particular homeowner is going to default and/or if the mortgage holder will foreclose. Can I short shares in someone else’s mortgage?
The usual way to profit in this situation is to buy the mortgage from the bank. Then you would be responsible for bringing the foreclosure action, but eventually you’d end up with a house.
Obviously, the bank must be willing to sell you the note, and you must be able to buy it for less than you believe you’ll be able to sell the house for. And you must include the litigation expense for doing the foreclosure.
Yeah, crack is illegal here. Also, whoever bought my house may not want to sell it back to me, or could make me pay through the nose after he found out how desperate I was to get this specific one back.
You can short anything. Just find a buyer. But remember that when it comes time to close your position (i.e. cover the short sale), how do you define how the price is determined? There’s only one seller: the person who bought from you in the first place. Just because you think the value has gone down by 40%, he may think the value has gone up by 40% and you have no choice but to pay his price.
We were shopping for houses for a while and we tended to look at forclosures.
We could always spot the house as soon as we turned on the street. It had an unkempt/junky yard and a more cars out front than any of the other houses.
Almost all of the forclosures we saw were not owned by families down on their luck (despite this being the typical media sad-story), they were rental houses with half a dozen low income people living in them (all of which owned separate cars).
So yea, if someone could easily make money by spotting future foreclosures, in some places it would be trivial to make a killing.
You can always go over there and make them an offer. If they’re going to get kicked out, they might as well take $1,000 or even $1 for it. This only works if you think the mortgage is worth it and the neighbor just can’t pay it, so if they’re strategically defaulting, you’ll lose money, too. On the other hand, if the remaining balance is worth it to you, go for it.
ETA: Of course, if you could get the bank to agree to a short sale, then you’re totally golden.
The ideal way only applies to your immediate neighbours. You wait until they are about to leave, then you pay them under the table to cancel the insurance and burn thieir house down. You then go to the bank and buy the vacant property, and have a double wide yard. Plus, the cost of landscaping and demolishing a partially burned shell…
