Have a Note buying question

6 Replies

Hello, I recently spoke with an investor/seller, who has a 4 plex in the Petersburg area.

He offered $1500 for the note to take over and I would secure the Deed of Trust. 

The property is still in the owner name. He advised can possibly foreclose on the home or get the remainder of the balance due which is $3K.

Any suggestions or advise on securing the deed under my name.

Anyone experience in this type of transaction.

Please send me a message with further details

Thank You,

Clinton

I am NOT experienced in the FL market.

That said, I know that foreclosure in FL can take many months and will cost more than the $1500 margin between your purchase price of the note and the $3000 face of the note.  Even if there are significant fees and back payments owed, I doubt there is enough meat in this deal to profit.

The low amount outstanding makes me think this may be a second position note.  If so, you have to be certain that the first is performing.  If not, and the first forecloses, you can lose your entire investment.

It is nice to make your first deal with a smaller investment, but it sounds like you are very new to investing in notes. If that is true, I'd strongly suggest that you find someone near you that invests in notes and offer to help them with their business. You will learn from the inside how things are done. A local REI club is a great way to meet people who are already experienced with notes.

I hope this is helpful.

Bill

805‑300‑6918

If we understand the events:

1.  We believe Investor holds a note secured by a mortgage on the subject property.
2.  Owner who is also the borrower, still has possession of the real property and is in title.
3.  The remaining balance of the loan is $3,000.  
4.  Clinton purchased the loan for $1,500

There are no Deeds of Trust in Florida.  Only mortgages.  A Mortgagee (the lender) is ONLY entitled to the amounts due under the note.  A Mortgagee is not entitled to the real property itself.  

It is not clear from the post if there are any other liens as Bill warns.  It is not clear if the subject lien is correctly made and recorded.  OP did you check title in any fashion and if so what did it reveal?

It is not clear if the Seller of the lien and the OP have executed assignments of the mortgage and and endorsement of the note.  OP how did the lien get passed from the previous owner to you - did any paperwork get filled out and filed?

It is not clear what the value of the real property is today.  

A foreclosure in Florida can take many months.  It will cost you around $2k not including any required advances to protect your lien.  Advances made by a Mortgagee can be recovered from the borrower or the property.  Provided the security instrument that was used is properly structured.

Lastly, when was the last payment made by the Borrower and I suppose while we are there, who is servicing the loan right now?

Clinton if you can help fill some of those gaps of missing information we can give you some more direction. 

Hello Dion & Bill,

I just wanted to advise that the property is located in Petersburg Virginia, and not in Florida. 

In Virginia you can foreclose on the home when it becomes defaulted and there is no waiting period for the homeowner to try and pay the delinquent note back.

When can you obtain the title for the property? Should i contact a title company and request that from them?

Please advise.

Thank You,

Clinton

Originally posted by @Clinton Smith :

Hello Dion & Bill,

I just wanted to advise that the property is located in Petersburg Virginia, and not in Florida. 

In Virginia you can foreclose on the home when it becomes defaulted and there is no waiting period for the homeowner to try and pay the delinquent note back.

When can you obtain the title for the property? Should i contact a title company and request that from them?

Please advise.

Thank You,

Clinton

 So, provided the security instrument is a Deed of Trust in Virginia with an appropriate Power of Sale clause you are looking at several months still.  A Mortgagee can not act on a default until the account is at least 120 days past due.  Then you have specific notice of sale requirements and service which must take place.  

In addition, as I thought I stated - A Mortgagee is NOT entitled to the deed of the real property.  They are entitled only to the repayment of the debt.  So to be crystal clear - you do not just "get the deed".  

A public sale will take place where the Mortgagee can advise a reserve bid.  If any bidder at sale meets or exceeds the reserve, they will become the new owner of the property and the Mortgagee will simply get paid.  Title to property post auction is either issued by the Sheriff or the Clerk - depends on the county.  

A Title Company has nothing to do with it.  

In addition, for clarity, the homeowner does indeed have a right of redemption it is just prior to sale.  So the Borrower can redeem the property by paying the debt in full prior to the auction.  There is no post sale remedy.  

The concerns here still exist.  It's not clear if you got a good deal or if you got hosed.  Much of it has to do with pursuing this deal for the wrong reason.  

Hi @Dion DePaoli

Not trying to highjack the thread, but I want to be certain I understand.  While it is clear that the Mortgagee is not entitled to the deed and only to repayment of the loan, doesn't the Mortgagee have the ability (assuming all required prior steps/actions established by Virginia law are fulfilled) to initiate foreclosure? 

Thanks!

Bill

805‑300‑6918

Originally posted by @Bill B. :

Hi @Dion DePaoli

Not trying to highjack the thread, but I want to be certain I understand.  While it is clear that the Mortgagee is not entitled to the deed and only to repayment of the loan, doesn't the Mortgagee have the ability (assuming all required prior steps/actions established by Virginia law are fulfilled) to initiate foreclosure? 

Thanks!

Bill

 Yes Bill.

A consumer loan requires 120 days past due prior to initiating any Notice of Default suggesting a remedy of foreclosure.  Most states will require 20 to 30 days allowable response time.  So the soonest a foreclosure could be initiated is 150 days past due.

The point I was driving at for the OP is that the imputed timetable of this asset is likely an underestimate of time - which speaks something to the value as well.