Inquiry - input needed (discounted note)

[George P.]

Someone called off my letter that I sent 4 years ago.
Long story short, 3-4 yrs ago, three heirs inherited a house and later sold it to a son of the 3rd heir. First two heirs jointly financed 2/3 of the loan (one note), the 3rd "donated" her 1/3 of the equity to her son. The original plan was to wait a year and have a borrower re-fi with his mother (3rd heir) being a co-signer.
As it always happens, people change their minds. Now the 2 note holders are "tired" (I quote) and want out for 2/3 of the balance (44k).
Numbers:
- Appx balance 65k
- originally financed 68.6 @ 6% for 30 yrs, 27 years left
- FMV 75-85 (I am being very conservative), back when the house was sold the RE market was strong.
- PI Payment is $411, current.
- The property is within 45 minute drive from me.

Noteholder assures the borrower doesn't miss a payment, although his credit is bad (alas the owner financing). Prop taxes and insurance (TI) are paid by the borrower, not through the escrow. I checked the property taxes, they are current.

I have never investigated notes, so I am looking for suggestions in evaluating.
Thanks in advance for any input.

[Bill Gulley]

George,

First I would examiner the note for compliance and enforceability, properly executed and the deed of trust provisions and if it was properly perfected, filed for record. I'd take a close look at how they split the note if they did.

Check the collateral, condition and upkeep and value it.

I generally find issues with family notes as they are often not really done at arm's length.

About the only way out of a fully amortized not is to reduce the principal to entice the borrower to refi it (unless there is a default) and selling it will require a good discount in most cases. I'd be looking at about 24 to 30% yield, perhaps more, just to give you an idea.

I would require the seller to show banks statements showing past payments being deposited or drafted from an account, never take someone's word that it is a performing note.

Get credit on the borrower and see if they will ever be able to refi and see where he is at.

You might see how strong the seller is and their ability to repurchase the balance if anything goes wrong, selling with the agreement to repurchase will limit your risks, if they are capable of doing so, most times they can't but you could have recourse with them for any deficiency but not with the maker of the note.

You my ship it off to other buyers and get their bids, you would know what you might be able to do from there. You could buy it and then sell it, but unless you are a licensed broker you can't broker the note in this one transaction. Good luck