How Note Buyers Can Help Struggling Homeowners
“I’m from the federal government and I’m here to help.” Scary words for many, but there is a little-known program that has helped almost a quarter-million struggling homeowners stay in their homes.
The Hardest Hit Fund was established in 2010 to provide $7.6 billion in targeted aid to 18 states and the District of Columbia. These unlucky 19 were hardest hit by the collapse of the housing bubble and the ensuing Great Recession.
Each state (and D.C.) created its own program to administer the funds, which were targeted to help their residents avoid foreclosure, stabilize neighborhoods and eliminate blight.
So how is this related to the note business? Well, these distressed homeowners have been skipping payments for in some cases years and have a huge debt to repay with interest. The fund will pay off all the arrearages (up to a maximum of $30K) and in some states it can pay for as many as 12 future payments. The money is paid directly to the bank, the lender, or in our case, the note holder.
The delinquent promissory notes that were signed to buy the houses are now called non-performing notes (NPNs). Since they’re currently not producing a reliable income stream, they are sold at a deep discount to their face value.
If you can buy an NPN in one of the Hardest Hit Fund states, there’s a chance the borrower could qualify for these funds. If they do, it’s a big win for them to get that huge financial burden off their backs. And of course it’s a win for us to finally receive free money from the Feds.
The problem is getting the borrower to even apply for the grant (if they’ll return your calls). You’d think that anyone would be willing to fill out a few pages in order to get relief from thousands of dollars in debt, but you’d be wrong. And then, not all applications are accepted, so there are no guarantees even if they do apply.
In spite of that, I target Hardest Hit Fund states when looking for NPNs in the off chance I can give someone a boost and get paid for it besides.
Even if we can’t use the Hardest Hit Fund, we can still help the homeowner in at least two ways. First of all, we can just forgive all the debt they accumulated from the original note. That will help them sleep at night again and it wasn’t our money to begin with. Then we can write up a new note that they can actually pay on a monthly basis. That way they get to stay in their home, and we’ve just created a cash flow for ourselves. Once they’ve made twelve payments we can easily sell it as a performing note if that’s our model.
Even performing note investors may need this information one day. People are still getting laid off or sick or divorced, so there’s always a chance a note that’s been providing regular payments could become non-performing in a hurry.