Purchasing Defaulted Notes
?
I am wondering when someone like myself purchases a default non performing note in 1st position. I am in the position now that if that paying party doesnt continue to make there payments .I can continue the foreclosure process and take the home back correct.
I was also wondering if the non performing note is purchase by someone they can also either sell that note or possibly create a new note after foreclosing or even sell the property at retail value and make there profit differance from the purchase of the note from the lender that you purchased at a discount .
Anyone with any feedback on this am I correct on these scenarios.
Regards,
Elite.
EP:
YEP!
and
YEP!
You should be aware that legally, any defenses the non-payor might have to the note are now YOUR problem if you knowingly buy a defaulted note.
As the law puts it , you're not a HDC* in that case and any/all defenses the note payor has against the original seller are now usable against you too.
So do you know why buyer isn't paying?
Does he have some legal defenses?
What are they?
Are you prepared to meet those defenses in court?
Have you asked the buyer/note payor to sign an estoppel letter so you know exactly what he's asserting as his reasons for non-performance?
Have you got an estoppel letter from seller to the effect that he knows of NO defenses to the note?
These are some of the reasons why NP notes aren't such a hot commodity on the market.
Personal anecdote: When I was a young lawyer & knew a LOT more than I do now (!) I became aware that one of my older partners had bought a note that wasn't being paid on time.
I asked him about it and why it wasn't and he told me he didn't know, didn't want to know, and as far as he knew, as per the note holder/seller, it WAS current.
Then he suggested I might want to go read the applicable HDC law in our state so I"d understand what was going on.
*holder in due course
John
Thanks for your response. I haven't purchase a non performing note before. I had a friend of mind whom has a friend that works in a lenders asset dept. They are looking to sell a few non performing notes. in 1st position. I was interested because I figured that I would be getting a note that is in default where as if I continue the foreclosure I can get the property.
I would think that might be more of a problem with a owner finance 1st position note. I didn't figure they would be major problems with a lenders 1st position defaulted note.
Would there be a problem with a lenders defaulted note or it makes no difference. I plan of course to ue my research on the property before I purchase anything.
What is your take on this matter. Do you believe there is no way of making a good profit out of non performing notes?
I thought of it just like buying a pre foreclosure property. Just that i am working with the actual paper .
Regards,
elite
You might be onto a very good thing here, as a def. note might surely be bought at a LOT less than unpaid balance, and of course, if payor really has NO good legal defenses, you'll probably get the property.
Just protect yourself with the estoppel docs mentioned so you encounter no surprises.
Is the RE in NY? Don't you have to do a court judgment type foreclosure in NY?
If so, just be prepared for the lengthy delay before getting full title to that RE!
Derrick, I still owe you a PM response on that deal and I'll do it latter today but I had to comment on theis subject because I felt that our friend from NY might get in trouble(?)
Good comments John. As far as I know, in CA, if you purchase or keep purchasing a defaulted notes just to foreclose on people (reed: strip 'm of the equity), you might be prosecuted criminaly... of course if they can prove the pathern but you wouldn't wait for that to happend, wouldn't you? .
If there isn't such bariers, we'll all go and buy aged 1sts ... needless to say, here in CA, I could put together $ millions with guaranteed return of 15% to investors so if anyone can confirm that this type of business is 100% legal in their state, let's do some buying!
omega1
John
Actually the notes are not in NY they are in SC and IN.. I will look into the estoppel letter and all .I don't think all the time you will need to foreclose on someone , but i also feel if you purchase a non performing note that would be your advantages .
Which is if the payor doesn't want to rectify his note by paying his or her backpayments you have no choice ,but to take them through foreclosure and get the property.
Elite
Thanks both JohnM and Omega1!
EliteProp. I believe I sent you an Estoppel letter earlier this year(2003) when you became interested in lending inside of Trusts....
I can send you the pkg again along with some updates to acquiring non-performing notes.
Your point answers JohnM's concerns K-REKTLY!
The goal is to NOT FORECLOSE but to PERFORM DUE-DILLIGENCE!!!
Whenever I am presented with the Opp to purchase a NP Note I consider:
The A$$ET
It's Location
The Borrower
and
The SPREAD "BUTTA"(or discount) for the potential return of my hard-earned CA$HOLA.
It's more of analyzing the total picture vs. looking at discounted note pick ups alone.
JOHN M shares the VERY PRUDENT VIEW and understandably so...
However Elite You are also very good at answering your own Q.s ---
That and your background with me is why I answered so succinctly.
Happy Investing!
Derrick
Derrick
Thank you for you input and yes I did purchase a few things from you earlier this year. If you can send me the estoppel letter again I would appreciate that very much .
Happy Investing and Happy Holidays to All
elite
http://www.thecreativeinvestor.com/modules.php?op=modload&name=Forum&file=faq#rules[ Edited by JohnLocke on Date 04/08/2004 ]
http://www.thecreativeinvestor.com/modules.php?op=modload&name=Forum&file=faq#rules[ Edited by JohnLocke on Date 04/08/2004 ]
THis sounds like a good subject for an article. I have been wondering some of the same things.
I understand that you might have to fight out foreclosure in court however; if you bought it at a steep enough discount it might be worth your while?
my 2 cents worth.......
down here in texas don't try and collect penalty and interests due to you as the note holder unless you want to be charged with usury and lose all your cash in the property,,,,,,,,before you buy the note DO your due diligence here in texas we are a trust state so you are buying the trust account it holds a venders lien against some form of property (hopefully its the house you have seen) do a pencil search on property.... have your attorney prepare reassignment papers file them in clerks office where property is Located list your attorney as substitute trustee send demand letter to current borrower asking for the past payments that are now due less additional penalties and interest .......my point here is try and reinstate this loan to a performing loan to maximize your return after 6 months of seasoning you should get a nice profit.........A little about me 1 buy none performing loans 1st and sec positions i can coach you a bit but you do need a Real Estate Lawyer on your team if you send me a P/m i'll even tell the max you should pay for it to be worth your time