Tricks to Avoid Foreclosures on Private Mortgages in Your IRA

Thanks to today’s tough requirements, borrowers are often unable to qualify for loans from traditional lending institutions to purchase homes. Borrowers often find a more lenient avenue to acquire funds through privately owned mortgages. This article explains how to avoid foreclosures on private mortgages.

What is a privately owned mortgage?

Private mortgages are transactions involving a lender that is not a bank or mortgage company. The advantage a private lender gains is the opportunity to accrue income through interest rates and other terms of the loans they extend. The borrower is able to acquire funds fairly quickly—creating a potential win-win situation for all involved.Man holding a phone while sitting behind a laptop at his desk.

Examples of a private lender could be someone you know (a friend or family member), or an investor (or group of investors) who has enough capital to extend funds for their own investment purposes. Self-directed IRAs can also participate in private lending, earning tax-sheltered income for retirement.

How to avoid foreclosures on a private mortgages

Private mortgages may present a steady source of income, but there is always the risk of the borrower defaulting on the loan. Learning how to avoid foreclosures—as well as what to do when the borrower is showing signs of default—is critical to the success of any investor in this realm.

The following are a few tips to help avoid foreclosures on privately owned mortgage investments:

Before extending the loan

Perform due diligence. It is imperative to fully vet the borrower. Background checks, credit checks and references from previous landlords, if any, is a must.

Consult with professionals. An attorney can help you ensure loan documents and mortgage agreements are ironclad, which is a plus if the borrower begins falling behind on payments.

After the loan is in place

If the borrower begins having trouble paying the loan, one of the most proactive steps you can take is to begin discussions of a loan modification. Depending on their financial situation and how willing they are to try to make things work, this may be helpful to all involved.

Agree on options for a modification. This can include the lender moving the accrued interest to the back end of the mortgage, lowering the loan payments to a more manageable amount for the borrower, or agreeing on additional collateral to back the loan.

There are many other moves individuals and investors can make to circumvent the pain and aggravation of foreclosure. Arming yourself with as much knowledge as possible before embarking on lending transactions can help you achieve the success you desire.

Watch our archived webinar on how to avoid foreclosures

For more details about avoiding foreclosures, watch this archived webinar on the topic, featuring guest speaker Tony Woodward of Woodward Law Group in Tampa, Florida. Woodward is an expert in this area, having practiced creditor’s rights for 26 years. He has also held these assets in his portfolio for years.

If you have questions about this article or want to learn more about investing with a self-directed IRA, please contact us.

About Scott Maurer

Scott Maurer, Vice President of Sales for Advanta IRA, is a recognized expert in the field of self-directed IRAs. With a law degree from the University of Florida and as a designated Certified IRA Services Professional (CISP), Scott’s keen understanding of rules and regulations fuels his passion to educate others on the power of investing in alternative assets using self-directed IRAs. Scott is a frequent guest on retirement and investing webinars and podcasts, and he has shown thousands of individuals how to achieve financial freedom by teaching them how to use their retirement funds to invest in private placements, real estate, private lending, and more. Throughout his two decades in the industry, he has watched numerous unique investments unfold, giving him great perspective of what is possible when people take control of their retirement funds and investing decisions.