Biggest Misconceptions Uneducated Note Investors Have

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Ned CareyPro Member

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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

@Don Konipol

Wow some of the first list is pretty basic, to not understand.

Sadly a lot of people enter various real estate investing fields without a clue of the risks.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

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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.

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

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.

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Don KonipolBusiness Member

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Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

Here’s my Favorite

That Don Konipol, @Chris Seveney, and @Jay Hinrichs don’t know what they’re talking about but the paid actor with no experience hired as the front man guru by the real estate “education” marketer operating out of Las Vegas charging $40,000 for the “platinum” level mentorship is providing not only correct information but all the education anyone needs to successfully quit their job and earn financial freedom by brokering mortgage notes.

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Don Konipol:

Here’s my Favorite

That Don Konipol, @Chris Seveney, and @Jay Hinrichs don’t know what they’re talking about but the paid actor with no experience hired as the front man guru by the real estate “education” marketer operating out of Las Vegas charging $40,000 for the “platinum” level mentorship is providing not only correct information but all the education anyone needs to successfully quit their job and earn financial freedom by brokering mortgage notes.

This popped up on my feed and it reminded me of a conversation I recently was reading about two people arguing back and forth online about a topic that neither is very educated in.
It was a bit like watching two people argue about whether a hammer or a screwdriver is the “better” tool.

The truth is neither is right or wrong. The problem is they haven’t first identified whether they’re working on a nail or a screw.
I thought it was comical as they lacked the experience to understand the context and they were both just swinging blindly back and forth arguing they were both right.

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Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

@Don Konipol @Chris Seveney @Jay Hinrichs sadly no one who needs to learn this will read it, because it won't help them "get rich in 30 days. "

4 Reply

Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

@Don Konipol

I don’t - I just use ChatGPT to tell me how to manage my defaulted loans and buy notes

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Wesley I.

Investor · San Diego, CA · Member since 2019 · 286 posts · 135 votes

“We’ll just foreclose and take over the property.”

Hah! Took two freaking years to serve every heir.

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Don KonipolBusiness Member

OP

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

Quote from @Wesley I.:

“We’ll just foreclose and take over the property.”

Hah! Took two freaking years to serve every heir.

Reality is a LOT different than what the “gurus” teach.

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V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

This why I said--it may have the highest yield but it's one of the hardest investments. Maybe those two are correlated.

I've done some private money lending , but buying other's notes or something or pursuing this venture is rough. It's far more complicated. It's not for the faint of heart, or an easy cup of tea to drink.

I don't think as just a single investor it's something I can do at my own, at scale. It's far, far too complicated. All those points you make are what most think just on the outside. Once they dive into it, they realize the difficulties. It's probably why no one has created a fly by night note fund in the past 6-10 months to get capital and get some yield for investors. It's not an overnight process.

Wagner Soares

Member since 2019 · 4 posts · 0 votes

I am going to accept my newbie status and ask a silly question. What is a TRO?

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Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

@Wagner Soares

Temporary restraining order

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Adam SchneiderPro Member

Lender · Raleigh, NC · Member since 2012 · 957 posts · 639 votes

Great post! Most people in REI are familiar with how their own state works (on paper) but not how other states work (starting with Judicial vs. Non-Judicial). North Carolina, as an example, is Non-Judicial--but has the fun quirk of ten day upset bid periods during foreclosure. So, the foreclosure can go on (theoretically) indefinitely if the bid keeps being upset.

Don McAlpine

Member since 2023 · 51 posts · 48 votes