Friend behind in mortgage payments...I want to help...

[Ollisha Jones]

im new in the real estate investment world and been in classes to learn investment strategies...in saying that I ran across a situation with a friend who is currently backed up in mortgage payments (about 4200 ) ... i want to help ..my question is....could I do a wrap around mortgage to help them ...and would I be able to structure a strategy to help them and make money in return without ruining our friendship? ? I need a win-win solution? ? Any help would be great....Thanks in advance

[Dion DePaoli]

IMO, this is not an ideal situation to get involved if the capital being provided can only bring the borrower current. Any lien you secure against the Subject Property will be in junior position. Through the post it is not clear if there is only one lien or two, putting you a third position. Additionally, $4,200 in arrears seems to point to the bigger problem, the borrower can't afford to make the payments. So, helping bring the borrower current does help the borrower cure the on-going issue of inability to pay. Any payment due back to you for the money you contribute to help will be at least $1.00 more than the amount they already have not been able to pay.

The next issue is whether the subject property is already suffering from negative equity. If it is, then you really would be unsecured with your capital. Also, it is not clear just how far in arrears your friend might be which then would also point to how far along any foreclosure process might also be.

I would also point out that in most cases no matter what, you will put negative pressure on your friendship. In the event of a future hardship, while you still have some interest in the Subject Property, you may be the first person the borrower turns to for relief. Again, stemming from what seems to be an inability to afford the housing payment, it will be easier for the borrower to reach you and put pressure on you than it will be to put any pressure on an institutional mortgagee to allow deferred payments or something similar.

Lastly, in terms of the bigger concepts to address, with being what seems to be likely pretty far behind on payments, there may back taxes due, which will also affect your security and/or no homeowner's insurance, which adds more demands on an already tapped out borrower and also could affect your repayment.

In my opinion, being pretty new to REI, I would suggest you avoid this situation. You can still help your friend but I would not monetize that help. Give them some moral support and make sure they reach out to the Mortgage Servicer asking about relief, perhaps they can make arrangements to forebear some payments or even qualify for a modification. Many times borrowers get behind and then avoid addressing the issue by contact their servicer, which is their only hope of working anything out. Being involved as a supporting role will also give you some experience with how these types of situations play out for the borrower and can give you insight to opitions on other oppurtunities in the future.