Biggest Misconceptions Uneducated Note Investors Have

[Don Konipol]

In my experience, here are the misconceptions uneducated and inexperienced note investors possess

1. Thinking the 1st lien note holder needs to pay off their 2nd lien note if the 1st lien forecloses

2. Thinking the foreclosure process is similar to repossessing a car and if a payment is missed they can “just take over” the property

3. Not understanding that through TROs, bankruptcy filing, and state foreclosure laws a defaulting borrower can tie up a property from 18 months - 4 years WITHOUT making a payment

4. Thinking that as note holder they “own” the property until the note is paid in full

5. Not knowing the difference between judicial and non judicial foreclosure

6. If holding a residential note not understanding Dodd Frank or compliance with the CFPB as per origination and ongoing 

7. Not having any idea as to the potential expense involved in foreclosing especially if the borrower file a bk

8. Believing that making a non performing note into a re performing note is easy

9. Believing that BPOs are all accurate at to market value

10. Not understanding the amount of damage to a property an occupant can cause when his interest is being foreclosed on. 

Let me know your thoughts and experiences with this,

[Chris Seveney]

Quote from @Don Konipol:

In my experience, here are the misconceptions uneducated and inexperienced note investors possess

1. Thinking the 1st lien note holder needs to pay off their 2nd lien note if the 1st lien forecloses

2. Thinking the foreclosure process is similar to repossessing a car and if a payment is missed they can “just take over” the property

3. Not understanding that through TROs, bankruptcy filing, and state foreclosure laws a defaulting borrower can tie up a property from 18 months - 4 years WITHOUT making a payment

4. Thinking that as note holder they “own” the property until the note is paid in full

5. Not knowing the difference between judicial and non judicial foreclosure

6. If holding a residential note not understanding Dodd Frank or compliance with the CFPB as per origination and ongoing 

7. Not having any idea as to the potential expense involved in foreclosing especially if the borrower file a bk

8. Believing that making a non performing note into a re performing note is easy

9. Believing that BPOs are all accurate at to market value

10. Not understanding the amount of damage to a property an occupant can cause when his interest is being foreclosed on. 

Let me know your thoughts and experiences with this,

 I can add to this:

1. Investors think that just by originating a loan and a borrower giving $5,000 down, they will always make payments.

2. That ROI is how to calculate how you make money in notes and do not understand the value of the note decreases with every payment so ROI is probably the worst metric.

3. That a CFD is the best thing to use in any state, and you can just evict people.

4. That by having someone sign a deed in lieu upfront will give them the home

5. That if the property is worth $500k, and they are owed $100k, that if it sells at auction for $500k they get all the money

6. See #5 and think that someone who has $400k in equity will let it go to auction.

7. Brokering notes is like being a real estate wholesaler. There are not that many note buyers and they all know each other, just because you overpaid for a guru marketing course on notes, does not make you a broker or note investor, and stick out like a sore thumb.

8. That the servicer manages the loan for you.

9. That you do not need a servicer.

10. That just because you originate one note, even though certain Dodd Frank rules do not apply, consumer protection laws still do. 

11. You can get a bank to give a loan on one residential non performing loan.

I will stop there.