How to Buy Foreclosures Notes

How to Buy Foreclosures Notes

There are a lot of opportunities to make money from distressed properties, including buying mortgage notes on homes facing foreclosure. A carefully planned, step-by-step strategy for buying mortgage notes, as described here, can lead to financial success.

Buying Mortgage Notes in Pre-Foreclosure

The first step is to find properties in the early stages of foreclosure ("pre-foreclosure"). They are in the public record and easier to find than ever before through Internet searches of specialized databases, such as It's important to find a property in a neighborhood you are familiar with and that you can inspect yourself, if necessary.

Next, approach the mortgage holder. Ideally, this will be a bank with an office you can visit, but it's also possible the mortgage holder will be in another part of the country, in which case you'll have to conduct business over the phone, with final documents exchanged by registered U.S. mail. Identify the person who is authorized to negotiate a sale of the mortgage note. This may take some digging, but most mortgage-note holders will consider your offer if you are serious. "If the bank knows how to do a note sale on a defaulted mortgage, then they'll usually jump on your suggestion because it is so much easier to sell the note than get the process of a short sale through their system," says Judson Voss of

Make an offer on the mortgage note that reflects a significant but not ridiculous discount compared to the outstanding mortgage. For instance, if $100,000 is owed on the note, offer $60,000. Your numbers will vary—how much you offer will depend on how much you believe the house can command on the market, so being knowledgeable about the local real-estate conditions is important. Make sure you have ready capital, or access to it as a borrower, or the mortgage holder won't take you seriously.

If the mortgage holder agrees to sell you the note, you become the mortgage holder and have the right to evict the property owner who is behind on his or her payments. However, it can be a complicated process. It's generally easier to ask the property owner for a deed in lieu of foreclosure, which extinguishes the mortgage and transfers the property to you without as much damage to the owner's credit standing.

Once that occurs you are the owner of the property, clear of any liens. You can rent it or sell it for more than you paid, though that depends on local market conditions. Buying mortgage notes can be quicker and easier than buying properties directly, but great care must be taken every step of the way.


  • Buying and selling real estate takes time and attention to detail. If in doubt, consult with a real-estate attorney or other real-estate professional. Don't invest more than you can afford to lose in real estate, as values at times decrease.