BiggerPockets

Hi, I have mentioned this in several forums. I advocate this rather than doing a short sale as the lender can simply take less on the sale of the note. Before you buy the note, you'll need to get with the borrower and have them give you permission to speak to the bank and request that the note be sold to you. The title work and lender's coverage goes with the note. No real estate closing, just an assignment filing. Before you buy the note, make your deal with the borrower, then buy it. To profit on the sale you'll need to be creative in your deal with the seller. You also avoid any seasoning. If you have any questions you can contact me! Bill

Hi Sam, this is usually in a pre-foreclosure situation. By pre-foreclosure I'm talking about under performing notes, slow pays as they are called. The borrower is having difficulty, but they may not be in a situation where the lender is about to lower the hammer, but it could be, even after filing the les pendis for foreclosure. There is alot of collection activity on these slow pay loans. They are time and labor intensive for the lender, a real pain in the tail. The loan officer, instead of spending his time dealing with excuses would like to see that borrower go someplace else and be a problem elsewhere. Knowing these loan officers or bankers is a great benefit. Since the loan has not been called due (yet) the loan officer, in the course of conversation they may talk to the borrower about thier options saying; you can get a second job, you can sell the house or maybe you can refinance. The loan officer then might say something like, I know of an investor who works with people in your situation, I'm not saying he can help you, but you could give him a call and see what he could do for you! Now the borrower calls me. I see what the problem is and what kind of deal can be made, if any. I can do many things, but let's say the owner and I reach an agreement, but the loan must be brought current or under my control. I get an agreement signed with the owner as to what our deal is and get an authroization for the bank to talk to me about the loan. Without the authorization, the bank can not say anything to me, it's an active loan. Further, the bank CAN NOT SELL that loan to me without borrower CONSENT! So, I also have a letter signed by the borrower requesting that the loan be sold to me. (Now if the loan were in default and a notice to the borrower had been sent out as required by law, maybe thirty days prior saying that they wer going to dispose of the obligation, say by auction or under a public sale, then perhaps consent would not be required, if the bank itself goes into receivership of FDIC, the government has the right to sell off any and all assets of the bank to the public as it sees fit) But, in these cases, a bank that sells a note without consent would be open to liability. Now, with the letter in hand I then see what I can buy the note for. The bank can sell the loan for less than the par value or the outstanding balance, if they do such discount would be a profit to me. After I have the note, I can modify the loan or do anything as the holder of the note and if it is in defaut, I can take it to foreclosure as well. The owner may give me a quit claim deed as a deed-in-lieu-of-foreclosure. If so, I have now acquired the property for the value I purchased the discounted note for. Since I had to do all that work and modify the note and it allows for costs of collection, any fees I charge for acquiring the note may be added to the note amount. If I do work on the property or what ever I work out with the owner, I could also charge amounts for that work and advance costs to the owner by making a new loan or adding to the existing loan with a modification of the note and deed of trust. Now, when the property is sold, by the borrower for example, title is transferred as customary with my loan being paid off. There is no seasoning requirement here. Let's say I take the property with the Deed in lieu, while I own the property, with lenders seeing this as a forgiveness of debt will not require any seasoning to a new buyer. Seasoning requirements don't apply to note holders taking title to the property.
Purchasing a note is not a real estate transaction, there is no HUD-1. Notes are acquired by assignment and endorsement to the new holder and the assignment is filed for record. Lender's title coverage on the note goes with the note as well. Also, if the lender has made demand to payoff the note, such request to sell the note is a means to do so and the lender really has no choice, but they could require the full amounts outstanding be paid as if it were a sale of the property. It's alot easier than doing a short sale and you can provide the same justification to the bank in a note purchase that you would in a short sale if such efforts justify getting a better deal on the note. While I have not used transactional funding for this type of transaction, I don't know if such funds would be provided by those lenders, but they could be used. You'll need certified funds for the note purchase and since all you need to do is bascially show up with certified funds and no closing agent is involved, the bank could care less what your source of funds is, so they may not even ask for proof of funds, but they could, just to see if they were wasting thier time with you. It's easier than a real estate purchase! Hope you can use this, if you have any questions, just drop me a line. Bill

In order to attempt this, you had better know exactly what you are doing, and what questions to ask, and what to look out for.

If you are purchasing the note, then you are also purchasing the right to have to foreclose in order to recieve the money that is owed to you. The foreclosure process is difficult against those who do not have any money to pay the loan as they often claim bankruptcy and shield the house from foreclosure. Therefore you may be paying the bank to own nothing!!!!!!!!!!!

This is an area, that can be profitable for those who know what to watch out for, but is not an area to get into because of any program (guru or not).

Of course this was put out to remind people of the downfalls that must be looked into before going down this road. Purchasing a note does not equal purchasing a property to sell a buyer. It only gives you the right to foreclose if not paid what is due.

Have you looked into other methods of foreclosure purchases as well. The same warnings must also be included, but have you looked into tax sales? They often have the same types of risk, but with lower purchase prices when followed through all the way to property deeds.

I have a few questions for those that are relating info about buying the note:

1) How much do you usually pay for the note?
2) How often do you have to take that same property into foreclosure yourself?
3) How long does this process take?
4) Can you go to ANY Lender and do this?

Thanks for answering these question!

I think the main issue in getting started in this method is establishing contacts with those actually hold the note and getting someone who knows what it is you are trying to do.
Due diligence issues are a no-brainer though misunderstood. I like the idea of pitching a friendly foreclosure as it would be necessary when junior liens are present and you need the procedure to clean up the title. If you pitch it that way a homeowner might understand that it is necessary because they have no way to take care of the other encumbrances.
I think there would be a market for a course as I see a void of info on this method. Donna Bauer's course teaches to get to the right bank personnel by pitching a SS then try switching to buying the note. I think there is an inherent flaw with this method as the pricing structure would be different. You would seemingly shoot yourself in the foot by pitching a SS.

Sorry Bill, I meant to thank you for all of your info but I just realized I put Sam's name in place of yours.

Thanks Again!

Hi, well, seriously, I'd be more inclined to putting it all out there for everyone except for the fact that all internet sites takes license to anything you put out. If I used school (ARI) materails for a blog, that would be a big Oooops! I understand why those rights need to be in place and I do not object to it at all, it's not my site. The reason I was asking is because it really is alot of work and while some of this issue is prepared, there is much more to finish. As to cost, if you'll check my profile I think it points out the purpose of ARI being a benefit for investors. I don't need this as a profit making venture, it's not about the money. I think Rich pointed it out very well about the costs of his book, I'm sure he isn't doing it for the money. Hopefully an ebook would be pretty cheap, I don't know, but maybe less than $15.00, it's hardly worth charging for since I'm sure what ever system is used to collect payments will want a slice and the chain probably goes on. I can't do tech stuff, I can certainly write, but like Rich, I'm not an e-publisher.
Maybe the best way is just to put this ahead of the class so to speak under ARI. I'd rather see people be in a structured educational environment that could take them somewhere than to get a "program" that only addresses a segment of a better, well rounded real estate education. Sorry to get off on that, put the door was opened there Jaws! Thanks for that. I will start doing some blogs that can outline some of these issues, if people want more info, they can contact me. Just need to find out how to do that, LOL! How's that sound? Thanks for the feed back, I'd really like to hear what you think! Thanks, Bill

Thanks everyone for your thoughts, I hoping to get the horse hitched up to go on this as well as other issues, like seller financing and dealing with private money investors.....everyone remembers that I'm sure, LOL. I'm not familiar with the radio show, I'd like to know more about that. I'll check with others too. Thanks, any suggestions at all, including someone with teck knowledge that can pull something off would be appreciated, just need to see what people want to charge and for what I guess. Thanks again, Bill