Scenario

A $225,000 spec house with a $150,000 hard money loan is listed for sale on the MLS, but no offers are coming in. The loan is in arrears and foreclosure is looming.

Solution

Start by figuring out who the buyer would be for this house. In this case, a couple that owns a $150,000 house free and clear would love to trade up, however, they are fearful of having a house payment that they might not be able to make.

To do the deal, this couple traded $75,000 of their equity as a down payment on the $225,000 house. This qualified them for a $150,000 6% bank loan with a $900/month payment. The hard money lender then gave them a 1st deed of trust for $75,000 with a $1000/month payment to them for their remaining $75,000 of equity in the house.

Summary

The couple now has a new $225,000 house with a payment of $900/month. They are also receiving a payment of $1000/month from the hard money lender, so they are still living paymet free; albeit, in a much nicer house.

The hard money lender now has a rental $150,000 rental house that generates enough income to service the $1000 payment they are making to the couple. Obviously, this is much better than foreclosure would have been, plus, if they really need their cash, they have a 1st deed of trust for $75,000 secured by a $150,000 house that they could sell to raise the needed cash.