NPN: Contact the homeowner before or after buying the note?

Question

Hi all, let's say you find a bank willing to sell to an individual investor and review their spreadsheet for potential deals. I'm a little uncertain of the timing on when to contact the homeowner to see what options are possible for fixing their situation and exiting at a nice return. Ideally I can contact them before buying their mortgage. "Hi, my name is Gary with XYZ LLC and I might be taking over your home loan. Do you have a moment to talk about that? {Then ask a few questions to figure out a good option for them}

Or do investors normally have to buy the note first before being legally allowed to contact the home owner?

If the later, seems like it makes notes much more of a gamble, since you don't really know what exit options are on or off the table.

Or do investors normally have to buy the note first before being legally allowed to contact the home owner?

If the later, seems like it makes notes much more of a gamble, since you don't really know what exit options are on or off the table.

Chris Seveney · Answer

@Gary Dezoysa

NEVER EVER EVER contact a borrower on a loan you don’t own

If you are buying a loan you most likely signed a nda that explicitly states you cannot share the info with anyone

Bob E. · Answer

@Gary Dezoysa Everyone is correct on not contacting the borrower but there are actions you CAN do.

Order a title report so you understand if there are any other liens on the property and their position. If there are a tone of other liens with high dollar amounts that may make it harder for the borrower to do a work out. Order a BPO, a local realtor will go out to the house and take pictures and tell you what they think it is worth. The outside of the house often reflects the inside. The agent can also give you an idea if the house is occupied or not. Vacant houses deteriorate much faster and if the neighborhood is higher crime you may find the furnace and water heater missing.

Call the agent that did the BPO and ask them about the property, the neighborhood etc. Look up local rents on Rentometer.com or some other site, this will give you an idea if it would potentially work out as a rental.

Check neighborhood crime rates- the BPO agent can give you an idea but I also check the crime map on Trulia.

Check if taxes are paid.

I always start with the assumption that I will be foreclosing and want to make sure I am profitable from that perspective either wholesaling it as is, flipping it, or renting it.

Andy Mirza · Answer

I completely agree that you should never contact the borrower of a loan that you do not own. I know that you have good intentions but what if you mess things up with the borrower? You've just caused an unnecessary problem for the seller of that loan. I would be extremely pissed off if a buyer mucked things up with my borrower and didn't end up buying my loan.

@Chad U., I disagree with you on never contacting the borrower. It's supposed to be the servicers job but I've found that they are terrible at doing anything except being the messenger.

The first time we contacted one of our borrowers, it was after seeing servicing comments go nowhere over the course of a month when a borrower was clearly trying to work something out. We called the borrower directly, who picked up right away, and hammered out a Deed in Lieu deal within a couple of days.

Chad U. · Answer

Not only should you not contact a borrower before you own the note, you should in general never contact a borrower. That is what a mortgage servicer is for.

Chad U. · Answer

Yes you can usually do a much better job of working out an arrangement with a borrower directly than relying on the servicer. However most newer investors are not aware of FDCPA and CFPB regulations, which dictate what can and can't be said to a borrower. And if the loan is in a state where a servicing licence is required, and you don't have one, could end up in hot water if the borrower files a complaint with either of the the above and/or the attorney general. That's why I always tell people to be wary of contacting a borrower directly.

Don Konipol · Answer

@Gary Dezoysa

Realistically you won’t have to worry about contacting the borrower because the chances of finding a￼￼bank willing to engage with a potential note buyer where they can’t verify his track record is almost nil.

Scott Matthew C. · Answer

Hi @Gary Dezoysa, I agree not to contact the homeowner. Leave that to professionals such as service providers. Your service provider will help facilitate communication with the homeowner. I would advise bringing on a real estate attorney to draft the new terms and conditions once there is an agreement. I would recommend getting on a mentor and compensating them for helping you through this process if you have never purchased a note. Especially an NPN or 2nd. Best of luck!

Gary Dezoysa · Answer

Thanks Chris. I guess it is a bit of a dice roll to see exactly what you're getting then.

NPN: Contact the homeowner before or after buying the note?

NPN: Contact the homeowner before or after buying the note?

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