Non Performing Loans - Simple Case Study

[Chris Seveney]

We are seeing more and more people looking to get into note investing. The easiest way to explain it for many is we are similar to home flippers - with the difference being in lieu of fixing up a property that is in distress and selling it, you do this with the borrower. Here is a simple case study of a recent loan:

Amount Needed to bring loan current: $18,560

Loan Payoff at Purchase: $77,426

Acquisition Price: $41,500

Property Value: $400,000

We acquired this loan in April 2023 as part of a pool of 16 other loans. The borrower was 11 months behind on payments and between the payments and legal needed $18,560 to bring the loan current.  

We started legal after acquiring the loan and got a foreclosure sale set for October 2023. 

Once the borrower realized we were serious and the foreclosure date was set, the borrower reached out in September with a Financial Hardship Application.

We analyzed the financials and offered a trial payment plan along with a loan modification upon completion of that payment plan. 

As part of the trial payment plan the borrower was able to put down $3,000 towards arrearages and agreed to an increased monthly payments.

Borrower has made 6 months of consistent payments and we modified the loan to have the past due rolled into the unpaid principal balance. We have received $15k to date and have the loan under agreement to sell to another investor as a reperforming loan.

This is BEST case situation but it is not uncommon if you do it right.