OfflineTen Simple Steps to Buying Bank Notes
by Michael T. Morrongiello
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As the real estate market slow down continues, and with foreclosures on the rise in most of the country, lenders are finding themselves overwhelmed with many sub-performing and non-performing loans.
Many lenders are willing to consider a "short sale" where the lender will accept something far less than what is actually owed to them. However, actually owning the debt instrument itself (the promissory note) may be more useful for the savvy investor.
So, what are "sub-performing" and "non-performing" loans?
Sub-performing loans
Often called a "high maintenance" account--that is an account that requires a tremendous amount collection effort in order to reason, cajole, harangue, and beseech the tardy borrowers to make their payments month in and month out.
In some cases there may be rolling late payments, back payments already added to the outstanding principal, or an existing forbearance agreement between the lender and the borrowers to stave off a foreclosure.
Non-performing loans
These are accounts where attempts to collect have been unsuccessful and the account is simply not paying at all. It is in arrears with back payments and other expenses due.
Often, lenders in need of cash liquidity are willing to steeply discount the amount they will accept for the sale of their sub-performing or non-performing loan accounts (the promissory notes). These problematic accounts are a drain for the lender both monetarily and from a human resources standpoint.
For astute real estate investors, opportunities can be created by acquiring these secured loans, which can then be "scrubbed" up and become performing again or simply foreclose and repossess the collateral securing the loan. Lenders sell these notes to create liquidity and get these loans off their books.
Ten simple steps involved in buying bank notes
The mechanics surrounding the purchase of ANY real estate secured debt instrument (the note) are essentially the same whether you are purchasing from a private note holder or from a bank-type lender.
The Unity of Real Estate & "Paper" home study course contains the forms and useful documents you need. It also contains several pre-closing, closing, and post closing documentation checklists for handling such transactions.
Here are ten steps to follow:
Verify the outstanding balance due on the note and the actual repayment terms of the note. I cannot stress enough that you MUST review the actual documents that were executed!
Verify with the seller of the note (the Assignor) the interest paid through date (or last paid date)
Verify the next payment due date.
Ascertain that the mortgage (or trust deed) is an insurable FIRST lien position loan (assuming you are buying a 1st lien). This is where a review of the existing mortgagee/lenders title insurance policy comes into play. Such a loan title insurance policy was probably issued when the loan was originated.
You also want to establish the status of the property taxes, whether they are current or delinquent, and any impound escrow funds that might be held and be transferred to you for such payment as taxes and fire hazard insurance premiums.
Confirm the value of the collateral property that secures the note (that is today's fair market value). You can do your own evaluation, or have a BPO (broker price opinion) report done, or a formal drive-by, exterior only appraisal, etc.
Get the actual mortgage (or trust deed) security instrument assigned over to you or your entity. The assignment, once executed and recorded, will accomplish this and transfer all rights, title, and interest in the instrument to you; the assignee.
Have the original promissory note instrument endorsed over to your or your entity (making sure the assignment of the security instrument and endorsement of the note match one another). The endorsement can take place right on the actual original promissory note instrument or via a separate note allonge (an attached endorsement).
Have physical possession of the original promissory note instrument given to you. This is the negotiable instrument you are purchasing and whose rights you will be able to enforce for non-payment of the debt.
You may want to obtain an estoppel affidavit from the Assignor. They will affirm for you the actual balance and terms of the note and might be useful in a later dispute with the debtor.
Obtain notification letters to both the note payor and fire hazard insurance agent notifying them of the transfer of the note account. (These are often referred to as so called "goodbye," "welcome," and change of loss payee letters).
It would be wise to further consult with your own attorney to make sure that what you are purchasing is what you bargained for. Once you own the actual debt instrument (the note) there are a number of options available for you to pursue in an attempt to collect or get the note instrument performing. Some of these options will be covered in a future article.
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
Anita,
Thanks for taking the time to share this information with us. The more information we can gather on a subject the easier it is to make a deal. Thanks for sharing the 10 simple steps to buying a bank note. As other members move forward on buying notes, it would be great to hear their stories. Have a great day. Believe and Achieve!
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Joe Jurek CPA
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thank you for the great info. it seems like a good way to make some additional funds. thanks anitarny.
I came across this topic just before y'all went to the EDGE. It sent me all over the internet, and got my blood running. I captured ideas and took notes, bookmarked sites, etc. Looking forward to your take on it, and maybe what it looks like from a DG point of view.
Without a vision the people parish. Prov 29:18
I really like this idea when it was presented at the EDGE, and I just came back from a money management/investing seminar and I brought it up to my accountant. He said he just started working on them with another of his clients and they are making alot of money with them. So small world - we are going to start putting some together. We'll see how it pans out!
www.adeptpropertiesllc.com
my story:
http://www.deangraziosi.com/node/10404
Hey Laura - you never cease to surprise me. Keep us posted on this and let us know what you are working on.
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
Hey guys,
These are great posts about buying notes. I have been researching buying non-performing 2nd mortgages and am intrigued by the idea as Talmadge Bell presented it at the EDGE event. Here is my question though. Why will the "payee" of the note pay you when he has not been been paying previous to you stepping to hold the note.
I've re-watched Talmadge's presentation and I'm still not clear on this. I understand that since they are non-performing, you can get huge discounts, but I'm just not clear on why the "payee" all of a sudden will start paying on the note just because you call them and remind them to pay?
Does anyone know how to get in touch with Talmadge, I'd really like to email him the same message.
Thanks to everyone for these great forum posts!
Steve
www.NoDramaRealEstate.com
Real Estate (Single Family and Multi-unit)
Areas: Fort Lauderdale, Florida
Wish everyone success.
As I recall in the edge, before you buy the note you go to "payee" and ask them why they aren't paying. You try and figure out a way to get them to pay by forgiving some debt or talking about foreclosure etc. THEN once you've established that they'll pay, you buy the note. If someone else heard different please feel free to correct me.
Cathy
Cathy B
Follow my progress at:
http://www.deangraziosi.com/real-estate-forums/investing-journals/44397/...
Hey Cathy,
I rewatched Talmadge's EDGE presentation and you're right, I guess the goal is to determine the probability of them paying in order to determine if you should buy the note. It would be interesting to know the general ratio of how many notes Talmadge actually purchases out of the ones he finds. e.g. buys 1 out of every 3 he finds, etc.
Thanks again to all for the great posts,
Steve
Real Estate (Single Family and Multi-unit)
Areas: Fort Lauderdale, Florida
Wish everyone success.
Great information. I'd love to ba able to come to your meetings but live too far (Ventura County). Thanks for taking the time to share this info.
Thanks anita for the great post it was very informative
I am still very intrigued by this avenue of investing. My accountant has not come through with any leads, and I have been struggling to locate who to contact about find them. Has anyone else had any luck actually contacting someone who sells them? Is there a special department in banks for this? Any tips are welcome, thanks!
www.adeptpropertiesllc.com
my story:
http://www.deangraziosi.com/node/10404
I saw on another post somewhere on here that there are websites that have notes listed for sale. Maybe someone can find that post and then relist the website on this on for the rest of us. I will be looking for it again as well. Keep up the great work all!!!!
Brian
I've found some info on buying notes online but thought I'd pick up a "Dummies-like" book at Barnes and Noble and there wasn't one book on note buying. Interesting... I was surprised.
The big picture concept of note investing is really interesting. I'm looking forward to doing a small second mortgage note to get my feet wet to see what it's all about.
Anyone seen the site at silverleafseminar.com ?
Thanks,
Steve
Real Estate (Single Family and Multi-unit)
Areas: Fort Lauderdale, Florida
Wish everyone success.
Hey guys,
Realize the link above is wrong... so just google silver leaf seminars
Sorry about that
-Steve
Real Estate (Single Family and Multi-unit)
Areas: Fort Lauderdale, Florida
Wish everyone success.
posting a blind ad in the papers and online that says
WE BUY NOTES
NON-PERMING OR PERFORMING
(888) 555-1212
this works well in building both a buer and sellers database. stop woring so hard - let the come to you
Anita
******************************************
TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
TO:
"Finding the Notes I am still very intrigued by this avenue of investing. My accountant has not come through with any leads, and I have been struggling to locate who to contact about find them. Has anyone else had any luck actually contacting someone who sells them? Is there a special department in banks for this? Any tips are welcome, thanks!"
All you have to do is find your County Courthouse in the internet to see if they have a website and therefore accesible to anyone. Just make sure that they do have information available if not just take a ride to the County Courthouse and look for public information, they usually have it outside at the entrance and either start writing or just bring the sheet home with you.
Brian
i know it been two years but here is some info i found about this buying or selling notes.
Here are some post I have found on this website about buying or selling notes
Posted by nstreet
I have attached a list of note buyers. Keep in mind that this list is a little old and because of the market you may find some of the information old.
Company Contact Phone Fax
SES Ricki 914 592 1027 914 592 1326
-They buy most anything. No interst only notes without excellent credit
Interbay Jim Hollar 800 565 8350 817 481 9969
-They buy all
Freedom Financial Chris 509 777 2274 Same
-They buy all
Bayview Keith 305 341 3640 305 854 2031
-Commercial
Chaminade Gordon 830 665 3200 830 665 3224
-Commercial
Evergreen Sharon 360 336 1525 360 336 1526
-Sfr, Imp, Land, Real MH, comm., -LTV 75 %, Pays title, Credit not an issue
Western and mountain
Amer. Equities Bridget 800 889 6789 360 695 9048
-Buys all
Reliant Dave 800 483 3544 713 331 2943
-Commercial and Land
Posted by nstreet –
Here is a great link for information about notes if you would like. This site should be free:
http://www.noteworthyusa.com/
There is actually a lot into buying and selling notes because I got into this before I got into real estate investing. I bought a course off of an infomercial that was advertised on tv some time ago. I did lots of research into finding sellers of their note and such and was told how it works and the like. One place to look for them is an investor that does owner financing, a normal house seller that does owner financing when they sold their property. To find out who actually holds the notes is all public records, just look online for your local district clerk or whoever records the property deeds in the area you looking to buy in. There the whole note information is listed right down to how much the property was sold for, who is the note holder, monthly payment and the like. Hope this helps. Oh yes I still do have some buyer out of the ny and nj area as well still looking to buy discounted notes to that are again real estate investors too.
Shawn
If anyone is still interested in buying notes I have them available. All are performing.
~Tasha~
What can you accomplish in this lifetime by taking action?
sundreerealtyinvestments.com
looking to see what kind of notes you might have. I might interested in buying one