Lance Falow of The Heathcote Group discusses the benefits of buying defaulted mortgages

They either refinance the mortgage in such a way that the debtors are able to make the payments or else they sell the property other investors for a profit. They can also choose to dispose off primary collateral through foreclosure actions.

Buying defaulted mortgages has long provided a great “backdoor” opportunity to acquiring properties at drastically reduced, wholesale prices.  This opportunity has been even further enhanced in today’s market because so many of the banks are accepting staggering discounts in order to get the defaulted mortgages off their books. There are two basic methods for cashing in on delinquent notes. An investor can either acquire the actual property through a short sale or can purchase the mortgage (not the property) from the lender.

Smart investors continue to prove that when it comes to troubled commercial real estate, it makes a lot of sense to buy defaulted mortgages from the bank, rather than wait for the bank holding the notes to foreclose. Once you own the nonperforming notes, then you become the lender, you're in the driver's seat, and you can foreclose and take over the property yourself - often on unbeatable terms.