How do I buy non performing notes

11 Replies

Originally posted by Joe Gore:
Ali,


To buy direct from the banks you need to buy at least 300 notes at a time, and you will not be able to pick and choose.

Joe Gore

@Joe Gore , that is simply not true.

Most banks, especially small community banks and credit unions would not even have a pool of 300 loans to sell, that would be upward of $54 Million in balance depending on geography. The commercial banks are certainly a different story however even their pools are certainly put together with less than 300 loans. There is also no blanket rule on cherry picking, again more common in smaller tier banks and less common in larger commercial banks.

I've been hearing that most banks big or small simply won't talk small investors; that they almost exclusively sell their notes to hedge funds. Also, that in order to even get the hedge funds to talk to you, if you can find the one's that have notes, you must be able to "talk the lingo" or they won't speak to you either. Has this been anyone's experience. How does one starting of, simply get started. Any information will help. Thanks

@Ali Langston I preach starting with a self-assessment of what you are great at and were you are deficient. What do you bring to the table (experience, contacts, money, etc). Once you can realistically do that, then surround yourself with really smart people who are experts in areas that you are deficient in. That's how I did it with my company. I had the contacts within the banks and hedge funds from spending 20 years in banking as an executive and I'm an expert in lending and loan collection, but I had little money to fund the operation and I didn't have investor contacts. I was stubborn and tried to do it all on my own. One of my old banking clients owns a National title company that does a huge about of closings in the investor world and he has tons of contacts. Once I joined forces with smart people with different skill sets, my business took off. many banks and hedge funds will sell one off to you if you know who to talk to and how to talk to them.

I was fortunate to have that banking background where my phone would ring several times per day with real estate investors asking me to buy my REO. If bankers only got one call per month, they might take the time to chat with them, but I used to get 5 or more per day. People also used to call the wrong people. They would call a branch manager. Although nice people, bank managers usually do not understand lending very well and don't have the authority to sell a note.

Here's another thing to thing about: Bank Asset Managers are given a portfolio of a finite amount of deals to work. The bank wants them to solve the problems and work through the portfolio to get them off the books by collecting them or selling them for an amount the bank would deem appropriate. Banks, however, are notorious for laying off good bankers once they no longer need them. Bank Asset Managers usually know this fact well, so you have to ask yourself "what is their incentive for solving the problems with the portfolio?" Why would they want to sell you their loans, whittle down their portfolio, and then be out of a job. It makes no sense, I know, but is the way banks work. The way to get into banks is to know someone, pure and simple.

Ali, I hope that helps a bit. I would find smart people to help you rather than trying to do it all yourself. Good luck, my friend!

A seller of a note will always have their own intentions, reasons and justification for dealing with whom they deal with. Like anything with RE investing, you have to find a ready willing and able seller. That seller could be private, institutional, big or small. The only way to know is to ask. There is some merit to knowing the "lingo" which is really code for understanding the asset class. The same can be said in dealing with an uneducated real property buyer. The uneducated party creates more work since they don't know what they don't know.

The inexperienced party can be a liability for the selling institution which is one of the more concerning barriers for large institutions. If you buy a note from one of the big banks and do something wrong with collections or treatment of the borrower, etc the borrower and their attorneys will want to go after the institutions behind you, that was your seller, since in most cases they have bigger pockets than you. Essentially who could a borrower get more from you or Citi Bank?

All that said, it is good to get yourself familiar with the asset class, which will teach you the "lingo". In terms of finding a ready willing and able seller, the worst thing you will hear when you make your inquiries is simply a "No".

In addition, like with anything, if you can add value you will catch the ear of folks. Perhaps that is being able to work in an area of town that others shy away from or dealing with certain defects when it comes to loans that the Seller doesn't want to deal with, etc.

There a many threads here on BP dealing with topics around notes. Explore those and ask some questions as they come up.

Dion,

I agree, and that is the reason major banks will not sell notes to a new comer. When we buy notes, we do two things we sell to investors or we foreclosure we don't try to collect from the borrower.


Joe Gore

Originally posted by @Doug Smith :

@Ali Langston I preach starting with a self-assessment of what you are great at and were you are deficient. What do you bring to the table (experience, contacts, money, etc). Once you can realistically do that, then surround yourself with really smart people who are experts in areas that you are deficient in. That's how I did it with my company. I had the contacts within the banks and hedge funds from spending 20 years in banking as an executive and I'm an expert in lending and loan collection, but I had little money to fund the operation and I didn't have investor contacts. I was stubborn and tried to do it all on my own. One of my old banking clients owns a National title company that does a huge about of closings in the investor world and he has tons of contacts. Once I joined forces with smart people with different skill sets, my business took off. many banks and hedge funds will sell one off to you if you know who to talk to and how to talk to them.

I was fortunate to have that banking background where my phone would ring several times per day with real estate investors asking me to buy my REO. If bankers only got one call per month, they might take the time to chat with them, but I used to get 5 or more per day. People also used to call the wrong people. They would call a branch manager. Although nice people, bank managers usually do not understand lending very well and don't have the authority to sell a note.

Here's another thing to thing about: Bank Asset Managers are given a portfolio of a finite amount of deals to work. The bank wants them to solve the problems and work through the portfolio to get them off the books by collecting them or selling them for an amount the bank would deem appropriate. Banks, however, are notorious for laying off good bankers once they no longer need them. Bank Asset Managers usually know this fact well, so you have to ask yourself "what is their incentive for solving the problems with the portfolio?" Why would they want to sell you their loans, whittle down their portfolio, and then be out of a job. It makes no sense, I know, but is the way banks work. The way to get into banks is to know someone, pure and simple.

Ali, I hope that helps a bit. I would find smart people to help you rather than trying to do it all yourself. Good luck, my friend!

 This is extremely insightful. Thank you!

Originally posted by @Doug Smith :

@Ali Langston I preach starting with a self-assessment of what you are great at and were you are deficient. What do you bring to the table (experience, contacts, money, etc). Once you can realistically do that, then surround yourself with really smart people who are experts in areas that you are deficient in. That's how I did it with my company. I had the contacts within the banks and hedge funds from spending 20 years in banking as an executive and I'm an expert in lending and loan collection, but I had little money to fund the operation and I didn't have investor contacts. I was stubborn and tried to do it all on my own. One of my old banking clients owns a National title company that does a huge about of closings in the investor world and he has tons of contacts. Once I joined forces with smart people with different skill sets, my business took off. many banks and hedge funds will sell one off to you if you know who to talk to and how to talk to them.

I was fortunate to have that banking background where my phone would ring several times per day with real estate investors asking me to buy my REO. If bankers only got one call per month, they might take the time to chat with them, but I used to get 5 or more per day. People also used to call the wrong people. They would call a branch manager. Although nice people, bank managers usually do not understand lending very well and don't have the authority to sell a note.

Here's another thing to thing about: Bank Asset Managers are given a portfolio of a finite amount of deals to work. The bank wants them to solve the problems and work through the portfolio to get them off the books by collecting them or selling them for an amount the bank would deem appropriate. Banks, however, are notorious for laying off good bankers once they no longer need them. Bank Asset Managers usually know this fact well, so you have to ask yourself "what is their incentive for solving the problems with the portfolio?" Why would they want to sell you their loans, whittle down their portfolio, and then be out of a job. It makes no sense, I know, but is the way banks work. The way to get into banks is to know someone, pure and simple.

Ali, I hope that helps a bit. I would find smart people to help you rather than trying to do it all yourself. Good luck, my friend!

I saw this topic pop up in my feed and realized your answer was from 7 years ago.  "Funny" it is still just as accurate today!