As more stories come out every day about the sinking housing market and rising interest rates, the amount of homeowners who have missed more than one mortgage payment is increasing by large numbers. It is in an environment such as this that both homeowners and investors can pool their resources to accomplish two things that debt financing never will: save homes from foreclosure by putting the homeowner in a better position, and make an investment in the community that is not relied upon by debt.

Many homeowners will try to refinance their homes when they begin missing payments, in the mistaken belief that they can find a 'magical' new loan program that allows for missed payments, low credit scores, and very little income. Unfortunately, it is doubtful these types of programs exist for any homeowner who has failed to pay their mortgage. Even the most generous hard money or conventional loans will have high interest rates (11-20%), high origination fees (5-7%), and require low loan-to-value (LTV) ratios to exist (50-65%). All of these factors will stack up against the homeowner, who is constantly told by mortgage brokers that they will keep working on looking for programs that are simply not available.

And even if the foreclosure victim does manage to obtain a conventional mortgage, how long can he expect to pay the loan before missing another payment? The high monthly payments on the new loan will prevent the homeowner from being able to establish any kind of emergency fund to begin saving in the event of another hardship. Although possible, it is unlikely that anyone, let alone a former victim of foreclosure, will be able to establish the means to last 2-3 years without needing to fix a leaky roof, have a car repaired, or fight off a medical condition. Addressing any of these situations will be nearly impossible if the situation is compounded by a high mortgage payment and no emergency fund.

Homeowners who have plenty of equity and are able to qualify for new debt in the form of a mortgage are also more susceptible to mortgage servicing fraud, a topic too broad to cover here. However, high equity, high payments, and low credit scores are all contributing factors to this type of fraud, and homeowners should be very careful to watch out for signs of it.

Most of these problems can be lessened or eliminated with the use of equity investing, as opposed to using debt to obtain a mortgage loan. Equity investing requires a private investor, usually located in the same geographic region as the property, using his own cash or means of getting cash to invest in the house. Many private investors, even within a few years of beginning a serious plan of real estate investing, can self-finance homes out of foreclosure.

Using equity investing to help a homeowner stop foreclosure has a number of benefits over a homeowner obtaining more debt.

First of all, the investment by the private lender will keep money in the community. A self-financed investor can purchase the home out of foreclosure and do with it what he will. This can include allowing the original homeowners to live in the property and purchase it back from the investor over time. This creates a mini-economy in the community and decreases the homeowner's and investor's reliance on debt financing. The investor will reap a benefit from the monthly income from the property, and the homeowner will be able to stay in the home.

Another benefit is that homeowners may have more freedom after using equity financing than using debt financing. If a sudden hardship occurs, and the homeowner can not afford the house, the responsibility of paying hundreds of thousands of dollars is not present because there is no loan. Many homeowners are now finding themselves trapped in their homes, unable to stop foreclosure due to little equity, unable to afford the current payment due to the hardship, and unable to sell due to falling home values. Conceivably, no homeowner wants to be trapped in a house due to a debt that is almost impossible to pay off.

One final benefit of equity financing over debt financing is the obvious personal relationship that is achieved between the previous foreclosure victim and the investor. Problems with payments may no longer be met with spending twenty minutes on hold with a mortgage company or mortgage servicing company, only to reach an interchangeable human being, different from the last time the homeowner called, and who will not be the same one to "help" the client the next time they call. Swift foreclosure and aggressive collections tactics may be lessened, as well. And, in general, having a human face on a housing payment responsibility, rather than the mechanical facelessness of a corporation can help all parties involved come to a mutual understanding in the event a pressing circumstance arises, such as a hardship that will result in a missed payment.

In conclusion, the homeowner in foreclosure who wants to save the home and is presented with two options. In the first, by using debt financing to obtain a new loan, the mortgage obligation is left with a faceless company with no interest in the benefit of the community and which has a prime opportunity to prey upon the recent hardship situation of the borrower via mortgage servicing fraud and other sinister, cunning tactics. In the second, by using equity investing from a local private lender, a benefit is felt among the community, as people work together to keep money in the local economy and achieve a mutually beneficial situation, where mortgage obligations and property ownership responsibilities are shared by all parties, rather than lain at the feet of a trapped borrower who has no way either to escape the trap or even to cause it to loosen its tightening grip around his neck.

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