Note clarification..

7 Replies

Hi everyone.. I'm a newbie, still getting my footing in RE. I am interested in purchasing performing and non performing notes.

example: on 1st position Lein

Priced at 15,000.00

original balance of 30,800.00

Principle of 28,299.00

Estimated value of 65,000.00

Payment amount 432.00

Note rate of 12.70%

Here is my question. If I pay the full price of $15,000.00 the property is free and clear, I am free to attempt to Reestablished the note, foreclose, sale (if there are no tenants residing on the property)? 

Will I be required to pay the remaining amount of the note? 

Could I do "keys for cash" ?

Thanks for your wisdom!! 

The property is not free & clear.  You are buying the mortgage, the instrument which is a lien on the property.  A lien means the property is not free & clear.  

The note is not un-established, therefore not needing to be 'reestablished'.  The note is not being paid on.  You likely mean "reinstated", which is bring a loan account out of default.  

Judging by the small reduction in principal, I would venture to say there is not much hope for reinstating the borrower.  That said, further details could prove that theory wrong but I doubt it.  

Could you do "Cash for Keys"?  Yes.  IF you can make contact with the borrower and IF you can get the borrower to sign the deed to you.  No small task in some cases. 

It has the looks of a private loan gone wrong.  There could be additional risks and issues not portrayed completely in your post.  

Is it a first position?

is it private like Dion stated?

If not its sub prime.. Low value properties and notes like these trade at pretty low bid prices. I am not he expert on these as Dion is.. but I would say your probably want to get a lot more information before you pull the trigger .

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Oops I see its first position.

then I think you need to see if its owner occ or not as well... Given all the new rules

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

@Jay Hinrichs  ,

The balance is too low for an institutional sub prime loan. The rate is a tad too high. The amortization, which looks like it is off a bit is also too short. If the data presented is accurate this is a private loan not institutional. It has usury issues above 10% and an amortization issue not resolving properly to zero. Perhaps a 10 year term with I/O would speak to resolve the amortization issue, didn't run the math.

WOW! thanks tons of great information!  This was just an example I found while searching for Performing notes.  Like I said i' still in the R&D stages of RE.. but this was very insightful.

Thanks everyone!!

Originally posted by @Cathrine Mcnair :

Hi everyone.. I'm a newbie, still getting my footing in RE. I am interested in purchasing performing and non performing notes.

example: on 1st position Lein

Priced at 15,000.00

original balance of 30,800.00

Principle of 28,299.00

Estimated value of 65,000.00

Payment amount 432.00

Note rate of 12.70%

Here is my question. If I pay the full price of $15,000.00 the property is free and clear, I am free to attempt to Reestablished the note, foreclose, sale (if there are no tenants residing on the property)? 

Will I be required to pay the remaining amount of the note? 

Could I do "keys for cash" ?

Thanks for your wisdom!! 

Is the note performing, payments being made?

In a first position you don't pay other liens, generally, but you need a title search so ensure "super liens" tax, child support and court orders don't cloud title. As Dion mentioned, it's not free and clear.

Asking if you can reinstate the loan indicates it's non-performing or in default.

Who is selling this, a private note holder or a note broker type? Doesn't look like a bank note to me, so, was this note made from a sale by an owner, seller financing or was it a cash loan, such as a purchase money note?

Can you locate the borrower?

When was this note made and did/does the borrower occupy the property?

50% of the unpaid balance can be had with performing firsts, if this is non-performing it's not as attractive but without details I can't say avoid it either.

Reinstating a mortgage comes under the same rules as making a new loan, that is what you would be doing, you're extending credit and that may require a mortgage originator/attorney.

I've never really given cash for keys as landlords do since it's in the borrowers best interest, first to sell and pay me off or refi it if they can, if those options are out, then it's granting a quit claim to avoid foreclosure then to foreclosure, I have assisted in a sale allowing the borrower to walk with money or facilitated sales simply to avoid foreclosure for a warrant deed. Going through foreclosure and taking collateral doesn't mean you can move in or rent the place, you're obligated to sell it and you're entitled to what is owed, any overage can still be owed to the borrower. It can be different if the amount funding the loan was equity from a seller financed deal.

More information is really needed to pass judgment. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

I agree with @Dion DePaoli  that this seems like the note is not seasoned enough; probably part of the reason it is being offered at roughly 50% of UPB. Payment history being so short, the borrower could get in trouble, fall behind, and await a foreclosure or walk away.