Buying non-performing loans

4 Replies

@Josh Shapiro

Books have been written on this and don’t cover the topic completely. No one formula works because each situation is unique.

For example, the value will be determined by these variables, as well as numerous others : likelihood that note can be made re performing, amount of time in default, owner occupied or not, stage of foreclosure, foreclosure laws of the state property is located in, if the debtor has filed bankruptcy, financial condition of debtor, whether or not there are any guarantors, type of area the property is located in, equity in the property, balance of the note, interest rate of note, default rate of interest, communications with borrower, residential or commercial, if residential was the note in compliance with Dodd Frank, did it pre date Dodd Frank, or was it an exempt note, note documentation, chain of title, availability of original documents, robo signed or individual signed, title insurance.

Josh, what I usually do is work backward. I have a minimum return that I am looking for in any of my investments. So I plug the note details into my ROI calculator, and adjust the purchase price to find the price that will provide me with my minimum required return. That is the most I am willing to pay for the note. I usually bid a little lower than that in order to give me some negotiating room (and to possibly get an even better return).

One additional thing I do is ask the seller if they have pricing expectations. They won't always divulge that, but it's worth asking. If they tell me 65% of UPB, then I have a reference point to see if we're even in the same ballpark.