First Real "Solo" Note Opportunity

3 Replies

I am looking for some advice on a note purchase for a 12 unit multi-family commercial loan. 

I purchased a few properties from a banker and recently she called and asked if I had any experience in note buying?  I explained that I negotiated the purchase of a note once but didn't have too much experience. 

That being said I wanted to know if anyone could offer some direction other than the basic, buy low, negotiate a deed in lieu or foreclose and roll the dice at the Sheriff's Sale. Then value add and sell high. 

Or am I over-complicating the opportunity? 

Any assistance would be greatly appreciated. 

Hi Jon

Note buying is a due diligence business. You need to be 100% certain of the facts when you buy. The exit is a while away so you need to make sure you buy it right.

I suggest you ask her:

1. Is the note performing (if not, how long has it been delinquent). You want to understand the payment history. If it stopped paying, does she know why? Does the current owner want to keep the property or whats the backstory?

2. Are taxes current, if not, what is the arrearage

3. What type of loan is it (fixed, floating etc)

4. Does the note have an "assignment of rents" clause. Can you collect the rents directly from the tenants.

5. What loss mitigation effort has the bank made? Have they tried to "fix" the issue, modify the loan etc.  Why are they selling? If they just don't want the hassle then it could be an opportunity. If they have put a lot of effort into fixing the issue then maybe its less attractive. Ask for a copy of the collection notes from the servicer - -they will give you great insight.

6. Has Foreclosure action started

7. What is the latest BPO (and when was it conducted). Do you see value at that price? If yes, then it will be better value when you apply a discount to the UPB.

8. What price to they want for the note

9. Is the bank marketing the note to other buyers (you can spend some money on DD only to find that it sells to someone else - so be prepared to handle that)

.....the more I think of it, the most questions are dependent on the answers to the other questions!

See how you get on with this first list and then decide if you want to proceed

good luck with it

Paul

Hey Paul, it was a pleasure speaking with you today.  Thank you for contacting me and reaching out to discuss the note.

I asked the bank to pull a new title search just to make sure that they haven't gotten a 2nd lien recently.

And, yes there is an assignment of rents that has been filed but the banker explained that she is not certain whether or not it is being enforced.

Taxes are owed from 2012 through the current tax period totaling $25,031.62

Note purchase price is 100-120.

Outstanding Loan amount - As of Aug 6th 2015 137,935.198 plus accrued but unpaid interest at the non-default rate of 10,212.43; late fees of 759.52 and other bank fees of 2,494.66 totaling 151,404.81. Interest at the default rate of interest from maturity date, late fees, attorney fees and other costs will be assessed and continue to accrue until paid in full.

I am headed to the property this evening to see what I can find out.

Best Regards,

JK

Assuming the FMV of the property will support the deal, I would give it some consideration at $100K, but not at $120K. Good luck.

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