Buying banknotes is one option for investors who are seeking another money-making avenue in the real estate field. But how does note buying work and how does it serve as an alternative to a short sale?

Well, buying banknotes is quite different from a short sale as you won’t be buying the property per se; instead, you’re buying the defaulted mortgage note. So the lender essentially sells the debt to you, the investor.

Buying banknotes typically begins when the investor works with a homeowner who’s facing foreclosure. This gives the homeowner an alternative to foreclosure which doesn’t have such a detrimental impact on their credit rating. Once they agree to sell the home to the investor, the homeowner signs a contract.

Then, the investor will approach the bank and indicate that they wish to pursue a short sale on the property or buy the defaulted mortgage note. Often, the bank will opt for the latter due to the fact that it entails less paperwork and the lender recoups some of their losses immediately.

Once the investor has purchased the note on the property, he or she gets the right to collect the remaining amount due on the mortgage. In short, you assume the role of the bank. From this point, there are a number of options, including obtaining a deed in lieu of foreclosure, modifying the loan and assuming the role of the lender for the homeowners or you could move forward with the foreclosure, then sell the property once this is complete.

Getting started in this type of real estate investing can be rather challenging and that’s where you can benefit from working with a professional consultant like Kristine Zelazo, the Short Sale Gal! If you’re ready to get involved in real estate investing such as buying short sales or buying notes, contact Kristine Zelazo today by calling 800.664.0616, x802.

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