Buying a Note from a Loan Servicer

2 Replies

Hi. I'm unfamiliar with this territory so apologies if my terminology is off. I am the second lienholder on a property that's been in default for 10 years. The loan's been sold and is being serviced by a company in California. Does that mean they own the note now? I'd be interested in buying out the first note, at a discount, given it's not yet been foreclosed on in 10 years or so, and I want to take control of the situation. Is it worthwhile to even entertain this? Original balance on the loan was 1.3M in 2009. Now with fees payoff is probably 2M+. Property probably worth 2.3M. My second lien is 400K. Would they entertain an offer from a second lienholder to buy the note? Or what about an external investor without a lien? Do they care who's buying it? 

@Dimple Khurana

you can try to buy it but they may not take a discount on it because they have equity

If I were you I would foreclose in it ASAP from the 2nd position as everyday you wait your losing $ since the property does not have equity on your note

Every year you wait the 1st has a higher payoff which reduces what you get if the house is not appreciating

Originally posted by @Dimple Khurana :

Hi. I'm unfamiliar with this territory so apologies if my terminology is off. I am the second lienholder on a property that's been in default for 10 years. The loan's been sold and is being serviced by a company in California. Does that mean they own the note now? I'd be interested in buying out the first note, at a discount, given it's not yet been foreclosed on in 10 years or so, and I want to take control of the situation. Is it worthwhile to even entertain this? Original balance on the loan was 1.3M in 2009. Now with fees payoff is probably 2M+. Property probably worth 2.3M. My second lien is 400K. Would they entertain an offer from a second lienholder to buy the note? Or what about an external investor without a lien? Do they care who's buying it? 

 Not a realistic chance of them discounting it to you. What's their motivation? What is your objective? What control of what situation do you hope to obtain? Buying the note (That they more than likely will not sell to you) only puts you into the position of 1st lienholder. You still don't have any control. If you move into first lien position, you lose your $400K when and if you foreclose and you have to pay $2MM to get there in the first place. Foreclosing in 2nd position gets you control of the property that you wouldn't have moving into first position (until you foreclose) but then you are subject to the 1st still and will ultimately have to pay them off in full.

My two cents of opinion would be to foreclose in 2nd, kick the guy out and sell it before the 1st forecloses and try to recover some of your hard earned money. NO WAY would I put $2MM for the hope of recovering your original $400M.

I get your concern that equity is being stripped by accrued interest and fees on the 1st but you can only stop the bleeding by foreclosing and trying to sell. No way, based on what you wrote, IMHO you are going to recover all your money but you could recover some.

Trying to get a discounted note sale is not realistic in my experience.