discounte note question. please help!

what liabilities does the title holder have in ref. to a property which is upside down, and a fellow investor buys the note for a discount? will the title holder be sued like in a foreclosure? will they recieve a possible 1099 like a shortsale??? based on the fact that the home owner is willing to stay in the property and rent it out until she can qualify for the home again and the investor agrees with the plan? i hope i can get some feedback from this. thanks to all.

Your questions are not revealing enough to know what is truly going on, but I can give you some ideas.

Regarding liability to owner with negative equity, unless the home is foreclosed, there is no liability. If, however, the home is foreclosed, the bank/lender/investor who foreclosed would typically perfect a deficit judgment against (former) owner. The former owner would then have a judgment on their credit in addition to a foreclosure, but the judgment would be treated as phantom income, which the former owner would be taxed as if they earned that money in the year of the foreclosure.

From the investor’s perspective who buys the mortgage at a discount, the investor does so to gain a high yield on investment or if the property is in jeopardy of foreclosure, the investor can buy the loan at a deeper discount with the anticipation of a foreclosure, which essentially means the investor purchased the home at that deeper discount with the requirement of waiting through a formalized foreclosure before investor takes possession.

Lastly, it is not a recommended strategy to allow a defaulted party/owner stay in a property they lost to an investor, rent it until they qualify again, then buy back. There are law cases that prove this to be a poor decision and the courts have ruled against the investors when investors do this on a larger scale.

I believe it is good to buy notes at discounts, even if the property is in default, but all the times I’ve done so, I will not rent or resell to former owner…I would only sell to a new party.

Hope this helps.