License needed to buy NPNs?

Question

This is admittedly a newbie question. I understand how non-performing note investing works and the different exit strategies.

A few questions:

- Do you need a license to buy, rework and then either sell or hold these reperforming notes?

- Who are the key members of the team you need to make this happen and run smoothly?

- An attorney - is this one who is local to you or the jurisdiction the note is in?

-A servicer

- Someone to help with due diligence

Are you able to do all due diligence before making a bid or do you have an opportunity to do that afterwards? Most of the information I see in a tape is useful but doesn't give me everything I need to know.

Thanks!

Ken

Jay Raught · Answer

Account Closed I run all of this through an LLC and my SDIRA, these two do not intermingle on deals either.   We use an attorney who is licensed in many states,  a servicer, and due diligence involves us and people who are nearby the target in question.  Do as much of the diligence before you bid and have your offer accepted.  The only info I'd trust on the tape is the fact that it is an NPN and the UPB. The rest I would check, check and recheck, the BPO could be over inflated,  the property could be gone, the google picture could be 5 years old.  A good title company can be useful too.  I know this is not everything needed but I hope this helps. Let me know if I can answer anything else for you.

Bob Malecki · Answer

Hi Account Closed, some sellers of NPLs provide the soft collateral files for DD and expect a final offer to purchase. Others who just send the tape are looking for an indicative offer, and if acceptable, will then forward the collateral for review to finalize the offer after discovery of facts. Hope this helps.

As far as team members, we use a licensed servicer, have a few attorneys and our servicer can deploy legal services in the state the property is located.

Thorough due diligence is imperative when buying distressed debt, so get good at it or partner with someone who knows it inside/out.

Account Closed · Answer

@Travis Hughes That is one of the concerns I have before jumping in head first!

Tim S. · Answer

You do not need to have a licence to be a note investor.  Many note investors never contact the borrowers directly, you can use a servicer to do that for you.  Since there are a lot of regulations (Dodd-Frank) that apply, you need to be sure not to violate them.  The servicers are aware of all these rules, that's why it's best to let them handle it.

Travis Hughes · Answer

How about the licensing requirement?  It seems to me that in order to negotiate a workout / loan modification with a consumer, you would need NMLS license.  Most of the people talking about buying NPLs and structuring workouts seem to be doing it themselves, though.  Is that illegal, or or these people all presumably licensed, or is there something else I'm missing?

License needed to buy NPNs?

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