buying and selling notes

26 Replies

@Thomas Manuel , welcome to the note world. The best advice I can give you is to do a very frank self-assessment of your strengths and weaknesses in note investing and then surround yourself with others that can fill in the blanks. I came to the game as an expert in lending and collections after spending 20 years in lending for some large institutions. I also had the contacts to buy notes. What I didn't have was capital. I ended up partnering with a guy that owned a National title company and who had the capital contacts. Our business then really took off and we now have a strong business in buying non-performing 1sts, working through the issues, and either selling the notes or REO for a profit. It took me a while to admit to myself that I didn't know everything and then I surrounded myself with really smart, connected people. Perhaps you might want to consider doing the same. Let me know if I can help you in any way. Good luck!

@doug smith thank you very much for your comments, to bad your not in the Dallas area. I have some Capitol and what I would like to do is find some nonperforming notes that I can acquire, and maybe get the owner To do a deed in lieu of foreclosure so that I could rehab the property and flip it. What do you think about that?

and maybe get the owner To do a deed in lieu of foreclosure so that I could rehab the property and flip it. What do you think about that?

When you buy notes, you are taking over the terms the notes are on. When the notes become non-performing, you most likely have to go through the foreclosure process to take control of the properties that involve filing for lis pendens, hiring attornies, going through the sheriff sale. The process is not as easy as a deed in lieu foreclosure unless the note contract has deed in lieu foreclosure in them.

So if your interest is on rehabbing and flipping, why not buy distressed properties directly.

Buying and selling notes is like buying and selling houses and anything else you buy and sell. Always think of the end buyer's preference before you spend money on getting the inventory. Do you have end buyers who are interested in buying notes from you? And do you know of their purchase criteria?


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@ joe gore I don't know anything about it when is it? @ esmirna Thank you I may be contacting you. @ Celine Thank you for your comments, I will definitely be taking all of that into consideration before I move forward with anything. Has anyone ever heard of Eddie speed and taken his course on note buying, If so what did you think of it and would you recommend it?

Thomas, some advice;

1. In no state can you sell REO for a profit, you have a lien interest not ownership, excess amounts received are due the owner/borrower, not the guy holding the note. If someone does that they are open to some hefty fines, just consider the risks. You're basically ripping off the equity held and due the borrower. Say I have a ten million dollar property and I borrow a half million and there is a default, do you think, or does it even sound reasonable that you will end up with that 9.5 million dollars? No! You'll be sued. You didn't buy the property, you took it as collateral for securing a debt obligation, you are entitled to the full amounts owing, nothing more. Look up "courts of equity".

2. A note may not have any agreement that circumvents state law, either in mortgage or trust states, you may not circumvent the foreclosure process with a requirement to give a deed in lieu of foreclosure. Also note that, any deed is effective when it is signed, not filed.

3. The best way to obtain a deed in lieu of foreclosure is to have a letter signed by the borrower offering the deed prior to making the deed. A deed required from a lender or note holder can be an issue and ineffective.

4. The problem about the note business is most dealing in notes are still learning and give poor advice. While there are some basic matters that are consistent nation wide, federally, state laws vary and someone who deals in one state may not be accurate in assessing issues in another state, so realize the sources of information. If you have the money to be in the note business you have the money to see an attorney who has expertise in finance and securities, not so much in RE. And I don't know all the state laws either, so get qualified advice. Penalties can be in financing matters can be huge, like two and a half times the amount owing plus the balance owing for some blunders.

5. You will also likely find that if you are not buying notes with your own money you will need a license, using other peoples money is brokering and flipping notes can be brokering. It is not easy to get into under today's restrictions, use to be a pretty open field but there are many fences and barriers to entry now. I don't know of any publication (guru book) that is current or comprehensive that can be relied upon. You can do a lot of reading about notes here on BP and get the ideas of the bsuienss. Good luck :)

Bill that does not sound right, the REO, the real property post a foreclosure auction that reverts back to the mortgagee for lack of bid or low bid can be sold for a profit but only after auction when it becomes REO for the mortgagee. There is no mandate for the property to revert, which means the property can sell at auction and the mortgagee is only entitled to the UPB, interest and advances and also includes redemption rights where available. Or, any event that takes prior to the foreclosure auction where the asset is still a whole loan and not real property for the mortgagee has an financial outcome limited by the aggregate sum of unpaid principal, interest accrual and advances..

Thomas, I am not correcting Bill, only trying to explain what he is saying in a different manner. Bill is pointing out what we see often where folks want to become involved in NPN's for a reason that seems to only be a small portion of a big picture with loans. For instance, similar to your plan. Purchase NPN's in order to obtain deeds to the real property to fix and flip. Can you purchase NPN's and eventually end up in possession of the deed to the real property? Yes. Does it happen all the time? No.

It is a reasonable point of interest for folks and it is more familiar than the spectrum of disposition and the responsibilities a mortgagee has in dealing with any default event. To open the picture up a little more just to make sure you understand the point. A loan that is current or merely delinquent can not be foreclosed upon. Buying a loan and having a borrower inquire about relief creates a situation where alternatives to foreclosure are likely mandated by state and some federal law. A mortgagee is forbidden from "Dual Tracking", which is pursuing a foreclosure action while dealing with a request for relief from a borrower.

The general idea is, just because you purchased a NPN does not mean you will cause a resolution where you become the deed owner of the property so you can actually fix the property and sell it. The notion of causing a DIL is not ill founded, you can get a mortgagee to give a Deed in Lieu of Foreclosure but in many cases do not underestimate how difficult that might be.

The more equity in the property the borrower has the less chance of a DIL being a successful option. A borrower with equity can cause the loan to be paid in full by selling the property, borrower refinance or a straightforward paid in full action from the borrower to the mortgagee with cash from somewhere.

In addition to that, a DIL may not be the ideal disposition of the real property due to additional liens or encumbrances on title like a second mortgage or mechanics liens, etc. If title is clouded, depending on how it is clouded a DIL might not be the best resolution for a mortgagee as they will then have to deal with the other liens on the property in order to sell the property.

None of this is meant as a deterrent to you but rather a suggestion to make sure you are not drawing conclusions to this asset class that may not be entirely correct. I have seen some other folks mention Eddy Speed in a positive light. I am not familiar with his program personally. I do know there seem to be lots of training classes taking place around the idea of investing in notes. Sometimes it seems like those students come back with a limited scope of knowledge. Perhaps because the seminars are purposely designed to only deal with a certain part of the asset class and are not comprehensive in nature. That could lead to some bad investment decisions if you do not properly round out your knowledge of the asset class as a whole.

To some regard, Celine's comment does have some merit. If you simply want to fix and flip properties, the sure fire way to do that is purchase real property that needs to be repaired. Purchasing a note for the same sole reason carries with it a chance you will not ever get a deed.

A couple other highlights which tend to be skipped over by folks include a note buyer is not allowed to have contact with a borrower prior to a sale. Nor should you want to have contact as you may be deemed with acting without a license since you have no interest in the mortgage. Additionally, real property value assessment is conducted from the outside of the asset only. This makes it hard to know exactly what types of repairs might be needed which will affect your purchase price offer.

In general, I have purchased a lot of NPN's. They can be good investments if you understand and manage the lack of liquidity aspect of NPN's. However as a point to folks making some bad investments, lots of large funds who chased NPN's in the 2008 to 2010 time frame went out of business or severely damaged their P&L being involved solely in NPN's. In regards to the idea that one might be able to purchase a NPN and then resell the same note, this does happen but the profit margin is quickly eliminated on assets where no significant value event takes place. Nothing really happened for a new buyer to price the asset for more than the Seller paid. In that same situations, the Seller may not recover what they advanced (if anything) during the term of their ownership.

What I think many folks get attracted to NPN's as an investment idea is they believe that NPN's will allow them to gain ownership of the real property for less than the market price of the real property. This is true but only on the surface. While the purchase price is a discount from the real property value, the discount is present to allow for advances to be made on the loan to protect mortgagee interest such as paying property taxes, property preservation, foreclosure legal fees and other similar fairly normal events in a NPN. When you start to add those all up, you will find the margins are pretty darn similar to real property.

Do not forget about the time that it takes to actually disposition the asset as well. Yes, you can get a DIL tomorrow. Or never. Foreclosure can be stalled by a bankruptcy for years or it can take place in the standard amount of time for the state and county. The point is, a 20% return in real property flipping can be understood by trying to move through the asset quickly. Plans with notes that require quickly disposition the property, which is usually what folks who include DIL's in their initial plan to NPN investing think, find the same 20% is there but the time is 2 or 3 times longer than real property. In a notes essence, it is real property plus. Since you can't do the real property stuff until after (and if) you get the property deed.

From my owner experience, I have purchased and managed lots of NPN's and I can honestly tell you I never, ever set out to "fix and flip" from a rehaber's perspective the real property if it came into our possession. 95% of the time, I did the least amount of repairs possible in order to sell the house. The other 5%, I did absolutely nothing but discount the sale price in the open market. I always use to say, I am not HGTV (I still say that actually). The margins are tight to begin with. You can understand this same idea by looking around at the small inventory of real property suitable for investors to fix and flip. Much of the pricing in the marketplace requires an end user to enter the property. An investor can find the loan assets that will carry enough of a discount that may allow for a larger rehab event which can translate into better margins, but those tend to come with a bit more issues in title or borrower and disposition in general.

As suggested browse some topics on the asset class and get some education on the matter. If that is through a guru try and make sure you get the part of the picture that is not being sold in the seminar or book. There is money to be made investing in whole loans just make sure you are prudent and become knowledge as you don't know what you don't know yet.

Dion, once a lender (note holder) always a lender (note holder). Flower it up any way we want to, a lender who receives any type of collateral after any attempt to sell for amounts due never has the bundle of rights of ownership of the borrower/owner as those rights were never granted, only a security interest was granted. The only way a lender can change those pants is taking a deed in lieu of foreclosure or taking the deed granting all ownership rights as full payment for the obligation outstanding. Then and only then does that lender wear the shoes as an owner.

Your first paragraph above, not sure I followed what you said about mandates, but there are certainly mandates, under the UCC and state laws. Again, research courts of equity. Maybe one of our attorneys will chime in on the matter.

Dion has a good post, had to take a break while reading it all, (LOL) but he made some good points about notes generally.

Bottom line, buying notes as a means to acquire and keep or profit from any collateral is not a good idea, it's a guru scheme and can get you in hot water.

A lender has the right to make repairs and an obligation to safeguard the collateral to protect their interest, they don't have any right to build a new addition to attempt to increase any profit. This matter came up in an examination I did where a commercial property was involved and a potential buyer wanted things done prior to buying it. In the end, no, as the lender has the rights to seek deficiency amounts and had accepted the collateral as granted, the lender did not have the entire bundle of rights to make improvements as an owner might.

(Along these lines, consider a car taken as collateral which is latter repossessed and the lender sees a better deal on another vehicle. They can't trade that car in, pay any difference and then sell the newly acquired vehicle to profit or even to apply to the underlying debt. You may not manipulate collateral taken and conduct other business with it).

I have also purchased property instead of taking it, buy it, pay off the note, a few bucks like cash for keys will be a much better strategy. You then own it. A borrower may not be really happy but they aren't as ticked if I had foreclosed. I did this last year actually on a second.

Another caution here, speaking of just buyer notes, as Dion like to mention "class" there is a difference between loans funded with cash and obligations as paying equities and purchasing equity notes can complicate the flavor as part may become viewed as a cash obligation to a point (when purchased at a discount) and the equity amounts of the unpaid balance. Realize too that an equity obligation from an installment contract terminates the contract which can cause other headaches.

Let me wind all my comments up by saying notes can be a very complicated business, most note brokers or investors won't bump into everything that can, would or will happen, some investors can be in notes for 20 years and never have all the issues arise or even some. It depends on what kind of notes you work with, how many deals are done, the state and political nature of the area you are in, local custom and understandings, agreements of the transactions as well as the legal trends of the day. I can tell you no two mortgage situations will be the same, never, each are different at some point. While we have basic homogeneous classifications you need to know more than the basics if you are going to manage a portfolio long term. Perhaps I should use small icons as used in some owners beware, it's best not to do this; caution, this can cause damage; danger, this can send you to jail or cause a total loss...... :)

@Bill, Trying to understand, enter this area.

I'm in Fl if it matters, and as you probably know-judicial foreclosures, on mortgages. Also, the assumption of all acquired NPN's being severely under water.

If I buy a NPN, then foreclose sending it to the foreclosure auction sale, and I then am the "high bidder" at that auction (ignoring any liens that stay with subject property) do I not have the same complete and total ownership as a third party bidder, to dispose of and rehab as I see fit, just the same as if I received a DIL?

Also, if I'm buying NPN's I'm probably buying the note at say 60-65% of BPO, which is probably less than 30-40% of UPB.

Example: FMV 100k UPB 200k Purchase at 65k

In this example, I will have a judgment for around 200, which would be my maximum I could collect, so cashing out for more than I'm into it for is not an issue (unless of course the world temporarily tilted on it's axis, and the property sells for 220k). I understand this is over simplistic, but I'm grasping with the idea of not having full ownership/disposal rights if I as the mortgagee am the high bidder at auction.

Notes always been a money maker and always will be. Anyone can buy notes at a deep discount today and less than 30 days re-sell the notes and make a profit. New comers to the note buying business should only take advice from a real note buyer who will take time to explain step by step not all the hype you get from the Internet or someone thinking inside the box.

Joe Gore


If you buy a note which, as you know, is at least eight months plus of non-payment, you can start the foreclosure process and after the foreclosure you can do whatever you want with the property.

Joe Gore

Joe is right, you can do whatever you like and then get burned.

Joe, if that's what you do then you are messing over the owners and if they catch on, you may get nailed.

You need to see if your state is under title theory or lien theory, most everywhere will be lien theory. If you don't know the differences, you have homework. :)

Reminds me of an insurance agent here, had a great agency, got involved in financing business deals, I told him what he was doing was illegal, he was a nice and religious guy and just couldn't believe I was right, actually, he didn't want to know. He was in his mid 60s then, he screwed up, got caught as investors complained, had a string of charges from postal fraud (as he used the mail), SEC violations, investment fraud, licensing issues, along with other stuff they stuck him with, he got 20+ years! He lost his house, his family, lost the insurance business, family was broke and that was about 15 years ago, he is still in prison. Not sure he's alive at all now. Another expert in prison.

He'd make cocky comments, deny anything was wrong, insist he was all above board, doing things right and just went on in the half dozen conversations we'd have......he was in my office building.

Gotta be able to know everything inside the box before you can get out of it......I see some things here as folks think they are out of the box thinkers and they don't realize that the strategy may be at the bottom of the box, in other words, old strategy but new to them.

When the class advances to out of the box techniques I can take you there and beyond, so far, we're having a hard time getting past the basics. You need to understand where the traps are out there before you can gather the fur, you can step in your own trap.

Go to the thread "20 things only BP users will understand" or similar, look up #13, which is my response to most talking about notes, then #14 as to those who would like to disagree with me. (LOL!)

Wayne, once a lender, always a lender. Have the borrower give you a deed, payoff the first, then do what you like. :)

Okay @Bill Gulley

assuming you as a lender have an "unjust enrichment" type issue, after you receive title at the foreclosure auction...even if you initially bought the note for 60k, "bought it back" at the auction for 60k, then sold the real estate for 100k, you'd still have no unjust enrichment issues since the debt you were foreclosing on is 200k (you got a judgment for 200k in the foreclosure)?


Show everyone the penal code of what you are saying is the truth. When you foreclosure on a home where the home owner has not paid in over a year, you owe the home owner nothing at all. Bill you talk about the insurance agent can you provide a link where we can verify or is this Internet talk.

Joe Gore

@Bill Gulley

I too am not following you because it seems to some degree you just repeated what was already said but differently and it is not clear and is confusing readers.

A full bundle of rights is granted to the Mortgagee if the Mortgagee is the recipient of a Certificate of Title, Sheriff's Deed or similar instrument and post any redemption period, if not already passed. Those rights are full in equity and law.

A Mortgagee, while a Mortgagee and not a Deed Owner, in other words prior to a DIL or Certificate of Title, Sheriff's Deed or similar does not have full equitable and legal rights in the real property. The Mortgagee has been granted a legal interest in the property. A Mortgage can take action on the real property which includes accessing and amending the real property only for the sole purpose of maintaining the security of the Mortgagee's interest. There is no equitable right for the Mortgagee to improve the property as the law states the Mortgagee is entitled to security as it was granted at the time of the instrument. So, "No", as Mortgagee you can't go in and build a deck or do home repairs but you can fix a hole in the roof to prevent damage or mow the lawn to prevent a lien.

I explained my use of the word mandate in the same sentence. Simply stated, there is no automatic revert of real property to the Mortgagee. The property can be sold at auction or redeemed. In those situations, the Mortgagee is never issued the full title bundle of rights to the property as those rights went to the auction bidder or redeemer.

So, @Wayne Brooks , if bought the mortgage and note for $65k and you sent the minimal bid to auction at the $200k (judgement) and nobody purchased the property at auction. You will get a Certificate of Title (Florida) which grants you legal and equitable rights to the property. The borrower's bundle of rights are set to expire at the end of the redemption period so they loose their equity of redemption, which terminates right before foreclosure auction in Florida or state specific elsewhere. You can do whatever you want to the property at that point, it is yours.

Bill, the commercial loan example about repairs didn't make much sense. If I have a mortgage on my property and I want to sell said property and a buyer wants me to make X repairs prior to sale, I am the title owner and can make repairs as I wish. The Mortgagee can not stop me from doing so. If you meant the Mortgagee was trying to sell the note and the Buyer of the note wanted the property to be improved, then I agree, the Mortgagee does not carry that right to cause those repairs.

The whole car title thing was also confusing. If you take back the collateral to any obligation, properly, then you become the titled owner of that property, whether real or personal. So if I take back a car, I own the car. If I see another car I like, I can certainly sell the car I own because I own it and buy the other car. If that is not what you meant, then you hopefully see how the passage is confusing.

I understand the point related to mortgages in equity, but I don't think some of the readers will. I also believe that is unique to a Seller financed mortgage held in equity. A buyer of that instrument would deliver a cash value as consideration and the mortgage equity would be a true mortgage for that Mortgagee.

Again, some of this is a bit too high level for some of the readers who are still trying to get an understanding of when they do and don't get title from a simplistic standpoint.


Bill throws things out there to muddy the water on notes with no link or government document to back it up. Bill please forgive me for being stupid, but you are in Missouri, which means Show Me State so please show me.

Joe Gore

Dion said, an owner conveys a quote:

I understand the point related to mortgages in equity, but I don't think some of the readers will. I also believe that is unique to a Seller financed mortgage held in equity. A buyer of that instrument would deliver a cash value as consideration and the mortgage equity would be a true mortgage for that Mortgagee.

Again, some of this is a bit too high level for some of the readers who are still trying to get an understanding of when they do and don't get title from a simplistic standpoint."

Okay, we have been through all this before, twice before I think.

I believe where our difference are can be cleared up by a state or jurisdiction being under or guided by lien theory or title theory. We are under a lien theory that where an owner grants a lien interest, they do not convey title which is re-conveyed back to the owner upon full payment of the loan.

A sheriff's deed doesn't grant warranty as the chain of rights and title conveyed were broken. Why? If all rights were conveyed by the owner to the lender, then why aren't all of those rights conveyed again? Because they weren't.

Last time we went through this I did some google searching on the matter, I believe the best explanation was in connection with lender's rights in foreclosure and courts of equity.

It's my bad as they kids say that I can't direct you to answers for several reasons.

1. I'm on this little donkey gong Samsung notebook (as my lap top blew up last Friday and I've not been out for repairs yet or shopping) but this thing has no buttons at the bottom I'm use to to copy and paste a link.

2. I'd have to find the description again of "courts of equity" in foreclosure, I mentioned that earlier;

3. The underlying argument in court cases was that the borrower did not grant full title, they granted a security interest only which is then the only rights a lender has in title, to regain the money and payoff the lien.

Now, we have individuals you are in the note business, they may not be under the same or even similar requirements that an institutional lender may be under. They, like Joe I suppose, guessing, that they may do anything they like, however just because they aren't under some ruling or regulation to take certain steps, they can certainly be sued in court for taking a windfall for more than they were owed, plus costs.

As I said, banks will attempt to skin some borrowers, but they usually get caught, they are obligated to pass excess equities to a borrower, as; A. They are opening an issue to be sued and lose and expose the bank's assets......usually not a big deal as many banks are in court somewhere every day. B. They, a lender, chartered as a lender or registered as a lender, fixing and flipping is not a lending activity and that is not in the scope of any lender's activity. C. It certainly lends to predatory lending issues attempting to profit from equity owned by a borrower.

The UCC begins the basis of lending and security issues, rights of recovery and equity. In the absence of state law you may bump into these issues or they may still apply.

Part of my point was the trend of foreclosure actions today and the actions being taken against lenders in foreclosure actions, such being a much more popular course of action than ten or twenty years ago. Attorneys are more aware that profits from foreclosure beyond indemnification by taking excess equities held by a borrower. They are pointing to "equity" of the transaction which is what I have meant here, what is equitable and what is predatory. Seems predator lenders are getting a well earned reputation more today than in the past.

And yes, I agree, this is getting too deep for BP.

Let's agree to say that 1. Buying notes is not a good way to attempt to acquire properties (I'm sure we have predatory types who would disagree, but there are easier ways). 2. Lets agree that if you are going to foreclosure that you discuss the matter with an attorney who does foreclosures and three, when speaking to that attorney get their opinion as to the equities that may be remaining and ask them what recourse a borrower may have and mentioning "courts of equity" as a theory in law, not a redemption right per se.

I'm not an attorney, we don't have one in the discussion, just passing on what I have seen happen and what I'm aware of as well as my opinions as to equitable dealings. :)