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foreclosed_home_signDespite the recovering economy, home foreclosures have not abated—in fact, they surged in January.

“There’s a lot of distressed debt still being held by the big banks because they can’t just dump it back into the market all at once; they have to slowly release it,” explains Dean Anastos, founder of Apollo Financial Group.

“That means we’re going to continue to see new foreclosure filings, families getting locked out of their homes, and ‘zombie’ foreclosures.”

In January, 21 percent of all U.S. homes were in the foreclosure process, adds Ricky Brava, senior partner at Apollo, citing a recent RealtyTrac report.

“Of those, 152,000 were ‘zombie’ foreclosures—homes that were already vacant, resulting in declining, unmaintained eyesores,” Brava says. “That creates serious problems for neighboring home values.”

As for the families facing the loss of their homes, Anastos is especially sympathetic.

“I lost a property to foreclosure during the real estate crash,” he says. “That’s when I realized how much power the mortgage note holder has. If the banks don’t want to negotiate, you’re out of luck.”

Anastos went to work learning the mortgage side of the real estate business and now specializes in helping families hold onto the American Dream while averting more “zombie” foreclosures.

“Basically, we buy distressed debt bank portfolios that aren’t generating cash for the bank and work with the families in the homes to refinance at affordable rates,” Brava says. “Because we buy the bank note for much less than its original value, we can provide the homeowner with reasonable loan terms in line with the true value of the home.”

Anastos and Brava share these tips:

• Purchase non-performing first and second lien bank notes: Non-performing bank notes are bank-originated loans that are no longer performing according to the terms they were written—they’re not generating income. Look for promissory notes with an underlying mortgage or deed of trust that secures the loan by a collateralized property.

Second lien mortgage notes are riskier than first liens so they’re sold for much less, however, buyers must make sure their investment is covered by the property’s equity in case they need to resort to a short sale or foreclosure.

• Do your due diligence! Before purchasing the note, conduct a thorough title search of the property to reveal any liens. Check with the county to ascertain what, if any, outstanding property taxes are due. Contact a local real estate agent to get an estimation of the property’s as-is resale value. If you don’t pay for a full Broker’s Price Opinion, do arrange for photos of the property to be shot from the street.

• Help the homeowner save his or her home. Most homeowners have some equity in their home and an emotional attachment to it. The shady dealings that created the housing bubble have made them unwitting victims who now cannot afford mortgages worth twice as much as their home. But because you purchased the lien at a discount, you can work out a loan modification that allows them to preserve their equity and remain in their home. When this happens, you’ve made a profitable investment that preserves the American Dream for one more family.