Buying Deliquent Notes
So does anybody here routinely buy "Bad" paper at a discount? I've done a couple of these deals and would like to do a lot more. I'm looking for a method of getting access to lenders who have such loans. So far all I'm coming up with is direct mail to loss mit officers. Any other ideas?
Can you either discuss here or start another message that covers what your experience has been so far. I am interested (as others would be I think) in things to watch out for when buying 'bad' paper.
John
[addsig]
Well John, I did well enough to want to do it again. Unfortunately in the deal where we did the best my partner stiffed me for my portion of the deal and I ended up settling for a pittance. But he made a million bucks on a $500,000 investment in three or four years.
There are difficulties. You have to get a bank willing to discount. You have to be able to cash them out or make other arrangements. You have to be able to underwrite the current conditions so that you can evaluate how much discount you have to have. You have to deal with the foreclosure. You have to be willing to be the 'bad guy". You cannot always tell whether the note is going to actually end up being foreclosed so you have to be prepared for the borrower to re-instate and stay current and now your in-and-out foreclosure deal is a long term hold cash flow deal.
In addition you'd like to be able to be creative enough to re-negotiate terms, etc. to try to get the borrower out of his mess without the pain of foreclosure if possible.
I'm sure I'll have better stories after I've done a few more of these. So far the couple of deals I've done have gone pretty smoothly which means I haven't learned very much yet.
I do know there is a website "bid for assets" that routinely offers bad or non performing paper for sale. Sometimes in the past it seemed that it was at .30 on the dollar and I am sure that a person could make some money on it.
I had a college loan that was delinquent from 10 years earlier (I had no knowledge of it and thought it was satisfied) a guy calls up and tells me that he is holding the note etc. We settle for 50% and I know he made $$ on the deal.
[addsig]
Just posted this to another topic, may apply here as well.
Look for other liens
check out the property as best you can
Are you prepare to carry the note, if the owners do come current.
Are you prepare to chase them thrui backruptcy court
At least in CA, you must still conduct a trustee sale if you hold the note. You're the "bank"
I've been looking into this a bit. You can get some outragious deals, if you have the cash to buy and carry the note. The problem is, I don't have that much w/o leverage.
How I have found them is thru the default notices. I'm current trying to put a deal together w/ an investor for a 3.2M note, that is now 4.1M, earning 12% and due in 11/04. The land is worth 6M easily.
There is like 200K in back taxes, and the clerk laughed that I should just wait and buy it a tax sale.
There are commercial services that will send you a pdf on a weekly basis of all the defaults in a particular county.
I have been put on the mailing list of several private motgage bankers and HM lender to be notified of defaults or note sales.
What I try to do is scan the default on a daily basis to find properties that have a good chance of sell the note.
If it's BofA, I typically pass. however if it's little old lady , and little old man that made the loan, they might just want out.
The big down side is the seller coming current and you're stuck w/ a ton of cash tied up in a note.
You also have to be concerned that the note was legal and not a usurious note (illegal interest rate)
Actually Mark, I was replying to Ron Starrs comment. I am however learning about nonperforming paper from a very experienced person in my area. He has banks call him whenever they have something they want to unload, Bob :-D
I have the cash to buy the defaulted paper but have not even considered this route up until now.
From what I am hearing the focus is on the notice of defaults and other means to find lenders.
I would prefer to deal with lenders who will have multiple notes rather then try to find the little old lady with one note.
Any suggestions for the best way to find contacts with the lenders?
I do not have a problem with holding the note if it is brought current by the borrower.
John
[addsig]
In my experience big lender (banks) will not even talk to use on selling residential notes.
They will some times on commercial.
Seem to be easier to put together a deal on commercial property as well.
Private lenders (commercial & people via IRA, etc.) and hard money lenders will listen to your pitch all the time.
The source is from the NOD as well.
Perhaps the scales of this are different in CA, but an individual investor might have a 250K peice of a 500K property.
perhaps saying private individual lender is a better description than before.
Mark,
My recent experience is the same as cj's. It is hard to get institutional lenders to talk about discounting residential notes. I suspect there is a liability fear somewhere.
A friend who used to teach a paper course would run ads "We buy BAD paper" with some success. This was a time when seller carry-backs were more common than they are now but it may be worth a try. I would think that an individual who is not getting paid might be easier to negotiate with than a bank.
-Ed
There are commercial services that will send you a pdf on a weekly basis of all the defaults in a particular county.
I have been put on the mailing list of several private motgage bankers and HM lender to be notified of defaults or note sales.
Where do you find these pdfs? How did you get on the mailing lists?