Buy note from lender and sell it back to the owner? Can this be done?

Question

:D I got an e-mail response from an older BP posting of mine. They are looking for a commercial property locator. They need distressed property owners that have non cash flowing and upside down properties. They will buy their note from their lender and sell it back to them at 50-65% of current income appraised value. My question: Is this a feasable strategy? I think i have heard of this before but am not too familiar with it? Why would an owner let their note go and then buy it back? If BP members could elaborate on this? Thanks, Dan

Eric M. · Answer

Theoretically feasible.  Practically very difficult.  
First problem, finding lenders who will sell you 1 specific note.
Second problem, how will this distressed owner afford to buy the note from you?  He is distressed.

Kevin Yeats · Answer

My connections offer loan modification on underwater but cash-flowing commercial properties.

They will renegotiate the terms of the loan with the current lender(s).   In some cases they will purchase the note from the lender and then offer more favorable payments.

Dan, why would the current owner not just renegotiate (refinance) with the current lender?

Account Closed · Answer

Sniff, sniff... I am smelling something a little off, here.

Be careful. If it is some sort of scam, you don't want to get involved

Larry Wilkes · Answer

It is possible Dan...The lender has the option of letting his commercial asset (Note) go to an investor on a DPO (Discount Purchase offer) Possibly purchase at 40-50% present market value,  then in turn the Investor sales to the borrower at 60-70%. Remember the owner is not making any payments probably because he is upside down on his note, however  that does not mean he is not making any income off of the property. 
So he owes the lender  $2.5M, but market value on his property is $2.7M.   I structure a buyout with his lenders for  that commercial asset (Note) at $1.25M (50% discount from lender) Offer the owner to purchase (refi with bridge or hard money) his note for $1.62( 60% market value) . He gets new terms and starts making payments again.  We are doing such deals with Commercial Assets (Notes).

Bill Gulley · Answer

Dan, the "holder" is the "lender" I don't think you mean they "flip" to themselves.
Let's use, lender, borrower, broker, note buyer, servicing agent, sell and assign. The lender who is the holder and sells the note for XX% of its par value or payoff to a note buyer, who then does what with it?.

Dan Krause · Answer

The buyer is telling me it is commercial loan modification  wher the original lender sells short and  then flip it back to the original holder at 50-65% of the new current income appraised value. He is telling me there is no negotiation needed on my part-just supply him with leads. Dan

Bill Gulley · Answer

P NW has a good point here, don't advance a dime!

Now, I have done this many times, but I have to buy the note for less than what I can get from the borrower....dah!

The borrower does not "buy the note" they can't buy thier own obligation...it's a payoff. The borrower is the obligor under the security agreement and they can't release thier own obligation....(LOL, how many people would walk into the Recorder's Office saying they were there to release the lien they made???LOL)

If you buy the note and make a new note you have paid off the original by doing so. Otherwise you modify the existing note with new terms....you can even modify the principal amount, charging an amount to do so or foregive part of the debt created.

The way this is described (incorrectly) cause red flags for me too! Lots of "note brokers" out there don't have a clue as to what they are doing....be careful.

Eric M. · Answer

Right, your original post said non cash flowing and underwater.
No refi's happening there.  Probably no loan mods either.

Dan Krause · Answer

:D Kevin: Thats what i was wondering. And its something i'll have to find out-why doesn't the owner take out an equity mortgage against his own property?

Buy note from lender and sell it back to the owner? Can this be done?

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