Note purchase question-help

[Joel Owens]

Okay here is the deal.Seller wants cancellation of debt if he goes along with a commercial short sale.Bank says he is a personal guarantor on the loan but they won't forgive the remaining debt.

Banks says we could also just purchase the note from the bank at a discount. Note owed is say 400,000 and bank would accept 100,000.Seller does not want to own the property and just wants out of it.

Couldn't we purchase the note for 100k and then have the seller quit claim over title??Then we forgive the other 300k owed with a 1099??

Haven't completed many note sales.Just seeing what would happen with the remaining debt for the seller.

[Bill Gulley]

Joel, you said "we" purchase, who is "we"?

Is this an SBA loan? That will change things.

If the bank is suggesting the borrower purchase the note, you're likely getting a con job. Banks are tricky. While it sounds like you could do what you suggest, the payment or purchase by the borrower can still be considered a settlement for the debt and the personal guarantee can still apply to what the deficiency might be. It really depends on how the note sale is structured and what the purchase agreement might say.

If you have a third party buy the note (even using borrower's money) it will be a clean transaction. Then that note holder can forgive the note and accept the deed.

If the borrower wants out, why don't you buy the note, sell the property and allow the note to be assumed and then if there is an amount that isto be forgiven,you could do so. This could reduce the amount of the forgiveness of debt.
Don't forget too, that the note can be modified before it is assumed.

If the bank is really willing to take 100K, they could also take a deed-in-lieu and immediately sell the property to a pre-arranged buyer, or do a short sale with the forgivness of debt. Remember too, if the lender accepts a deed-in-lieu, they are barred from seeking a judgment.