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,

[Jay Hinrichs]

Well Don for my 40,000 post I thought I would engage in one of your threads. AS your one of the most respected voices on BP when it comes to this arena at least IMHO. 

U hit all the high points..

I always kind of chuckle when I hear folks say well we will just take it back like this is some simple task.. Especially those pitching Sub 2 Training right now.

I don't think investors understand that in many foreclosure situations they are going to lose interest for sure and principal ( very common). the thought that 20 or 25% equity is enough coverage to alleviate a loss does not play out very often in a foreclosure situation.

Or the idea that lenders want to foreclose because they are going to make all this equity or money nothing can be further from the truth.  Of course those situations can arise but its not common, and no lender wants to foreclose at least any lender with any experience.

Also the idea that the average investor can just jump right into NPN. This is a LOT of work and a specialty niche that has to be done in volume in my mind.

Bottom line buying notes is complicated and a lot of work to be successful.. Originating new loans is somewhat easier however same concepts apply..  Mortgage as opposed to Deed of Trust. Areas and ability to liquidate if you do get an asset back. And of course vetting your borrowers. Then of course license compliance if needed.. I have seen big companies have no clue that they need MLO and NMLS to originate in certain states.