California Homeowners Can Avoid Stratic Default

Thousands of California homeowners are finding themselves in what seems like a hopeless situation. They are having to face the reality that the home they are living in is no longer worth the massive amount they still owe. For many, their dream house has become the biggest nightmare in their financial lives. This crisis has reached epidemic levels in California where way more than half of the jumbo mortgages are upside down.

So who do sophisticated homeowners turn to when they find themselves in this type of situation? Many are seeking the advice of attorneys, financial planners, or internet based companies that can guide the homeowner through a strategic default. What is a strategic default? It simply means to miss payments on purpose on the debt when the homeowner is perfectly able to make the payments. Some attorneys and internet sites promise to guide the homeowner through the process and soften the blow that the foreclosure is certain to inflict on their credit.

For some, the strategic default may be the best option they have. But the strategic default should never be the first option explored for any homeowner. You may be thinking that a loan modification would be the first place to start, but there exists one option that when successful trumps any other option. It's rather simple..... Find someone to purchase the mortgage from the lender at a discount. Then if bought cheap enough the homeowner can simply refinance and buy the new lender out.

So let's discuss why a lender would sell a perfectly performing note in the first place. To discuss this issue, we need to define a term that may be new to you. The term is technical default. Have you ever heard of a technical knock out? A TKO is a boxing term. A TKO occurs when a boxer is knocked down 3 times in one round. When a TKO occurs the fight is over and the boxer losses. But he wasn't really knocked out was he?

In a similar way, a technical default is when a homeowner is in default but is still current on his payments. This homeowner may have perfect credit and have never even been late on his payments. Still when the lender looks at their books, they can see that he owes $850,000 but the latest estimates show the home is only worth $600,000 when compared to others that have sold recently in the same area. Trust me, lenders know when their homeowners are in trouble. It's their job to make sure the collateral is there to back the loan.

This has become such a problem that FICO, the Fair Isaac Credit Organization has developed a product to help mortgage companies determine which of their homeowners are the most likely to walk away from their mortgage and their homes. Some lenders are proactively calling these homeowners to offer solutions and try to head off the problem before it get's out of hand. You see these upside down mortgages, especially jumbo mortgages are the new sub prime. A new wave of foreclosures is on the horizon and most of these homeowners have the income to stay but they will not keep throwing thousands of dollars into an upside down loan each month.

So lets talk more about this note purchase idea. If a 3rd party investor with cash called your lender and offered 70% of current value, do you think they would consider it? You better believe it! Some will and some won't but you would never know until you tried. These investors are starting to flood into the market and you will see more and more people talking about this solution. Here are a few things to be aware of before entering into this kind of transaction.

• Don't pay money for attorney fees or retainers until you are told your loan will be purchased.
• If someone cannot easily explain the process and answer all of your questions you need to keep looking.

• If they rush you into a decision without giving you time to consider the option just move on.

There are hundreds of "students" out there trying to use this technique. Be careful as many of them have no control over the process and are at the whim of others who may have never completed such a transaction.

In closing, the note purchase strategy is an awesome opportunity for any upside down homeowner. Just do your homework and you can easily find a reliable investor with experience to guide you through the process.