I have learned a lot from this forum and think I am finally close to ready to buy my first note, but have some remaining concerns to address. Thanks for providing a great resource, hope you guys don't mind a few questions.

On FCI Exchange I've seen a number of notes that are very low %UPB, like 10% or 5% or sometimes even less.

Now %UPB doesn't matter that much, it's the difference between the cost of the note and the value of the underlying security that matters. But even with some of these, I'm seeing deals that almost seem too good to be true. For example, a 1st on a $40k property selling for $5k.

What's happening here? I can think of these reasons, are there any more I should watch out for?

The borrower has filed for BK

My estimate of the property value is inaccurate, a proper BPO or appraisal would value the property far less

Unpaid property taxes/HOA fees

Borrower is very difficult to work with

Property located in state with very lender-unfriendly foreclosure laws

Potential enforceability issues with the note

Defective assignments

Documents lack required formalities like signatures of all borrowers; notarization

Terms that constitute predatory lending? (not sure how much this matters)

The note is in 2nd position and would be wiped out by the 1st at auction. Can't count on auction proceeds as an exit option for these.

Exit costs are too high

Cost to hire an attorney or trustee to foreclose

Costs to hire an attorney to draft a loan mod agreement, satisfaction of mortgage, etc.

I'm also hoping you guys could provide some insight on the seller's motivation.

Why would somebody choose to sell a note on FCI? I can understand why banks want to sell notes. I'm not at the level where I can buy direct from the bank; I have to go to brokers, hedge funds, people on FCI. But why would the middleman willingly leave money on the table by selling a profitable NPN?

I assume they keep the best ones for themselves, but just because they're selling the note doesn't mean it's not profitable at their asking price. They understand that a smart buyer will do their best not to overpay and will be looking at the same factors to put a price on the note. In other words, unless they're hoping to sell to an unsophisticated buyer (possible), the seller has no choice but to leave some money on the table. Does it mostly come down to the fact that the rate of return over time that they'd get from working the note is lower than the return they would get by putting that money into buying another big pool?

Also, is it reasonable to assume that notes on FCI will have been "worked" to some degree, and that exiting through the borrower is less likely? I assume that if the note is selling for $5k, then that means the borrower can't or isn't willing to hand the seller $6k to satisfy the note?

Thanks for any insight you guys can provide.

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