When you work with a homeowner in foreclosure it’s common to feel a need to help the homeowner out of their tough situation. You may even feel a little as if you are taking advantage of the homeowner by profiting off of this foreclosure deal, but you are helping the homeowner. By stopping the foreclosure you can keep the homeowner from having to file a bankruptcy. Many of these homeowners have spoken with lawyers who are telling them that the only way out of a foreclosure is to file for bankruptcy. No one wants a bankruptcy on their records for 7 years.

Giving the Homeowner a Little of their Equity Back

You can also give the homeowners a little bit of cash in closing the deal. Many times the homeowners you end up working with are not at high points in their lives. You can usually work a short sale or some other type of property purchase in a way that allows you to give the homeowners some of their equity back.

Buying Something for Cash

You can even help the homeowners with a deposit or some other fees if they need it to get into an apartment. You may be able to purchase the appliances in the house from the homeowner and give them enough cash for the security deposit on an apartment. Buy the appliances or some furniture in the household and write up a ‘bill of sale’. This then qualifies as a purchase of personal property. Actually do the purchase and keep the furniture or appliances, don’t let the homeowners walk away with it! Then you can make this a business deduction on your taxes.

Giving them a Side Contract

Another way to help the homeowners is through setting up a small side contract to clean the house before they leave. Just set up a contract allowing that if they clean the windows, scrub the carpets, remove all trash, etc. before they leave you’ll give them an agreed upon amount of cash, say $2,000. It doesn’t sound like much, but in the worst of circumstances when the homeowner has absolutely no equity to take from the mortgage it is at least enough for them to put down the security deposit on an apartment.

Small Problems with the Banks

More and more these days, banks are requiring the foreclosure investors to sign an affidavit saying they have not done any deals of this type with the homeowner. Basically the bank just wants to make sure the homeowner isn’t profiting from the default of their mortgage.

You may not want to bother with setting up side deals and contracts in order to get the homeowner a little starting over cash. If this is so, just buy the mortgage through a note purchase. Then you’ll become the bank and you can give the homeowner as much cash back as you want.

You’ll also be helping the bank by letting them get this default property off of their books and freeing up the cash reserves that the banks are required by law to keep on hand to cover foreclosed mortgages. You’ll be making money for yourself and your investors will be making money. Foreclosure investing is a win-win situation all the way around the table.