Saw the same 2nd NPNs for sale 2 months ago - Curious why

11 Replies

Good Evening Everyone,


I have gotten really interested in the note space over the past couple of months. I was going through some of the notes for sale on a reputable site and realized that some of them were the same notes for sale as two months ago when I first looked at the website, which leads me to my question. 

They're all current on their senior mortgage, the FMV provided on the property is well above what the senior UPB is. Their provided credit scores (as of 9 months ago) are decent and there are no reported bankruptcy cases, but they are all located in Connecticut. My question is, why are these notes still listed for sale? From basic due diligence, unless I am missing something, they seem like these would be decent investments. Is there something with CT laws that is deterring people from purchasing these notes? I would imagine if they were a good deal they would have been soaked up; there has to be something I'm missing.

Thanks for giving this a read! Have a great night!

V/r

JT Holmes

It's hard to tell without knowing which website you're talking about, and there can be many reasons. 

- They could want too much for it. There's an expression in the note space that there are no bad notes, just bad prices.

- The collateral might not be complete.

- The seller may be unresponsive. (is it a company's website or an exchange like FCI?)

- Going back to them wanting too much for it, they may be using an AVM number that is way off and anyone doing basic due diligence knows it. (ie they claim the house is worth 200k and has equity, but it's obviously worth 150k and underwater)

- CT isn't in most people's top 5 for a few reasons. First you don't see that many notes from there as opposed to midwest and south east states, and second, north eastern states usually scare people because of taxes and liberal courts.

- They could have found a buyer and then he backed out, which happens.

You would have to be more detailed but these are a handful of basic reasons why some notes sit.

@Patrick Desjardins ,

Thanks for the reply! I've been using Dave Van Horn's PPR Note Co. (not sure if I'm allowed to suggest the website, but we'll see what happens). 

The notes have a suggested bid at around .50 cents on the dollar in regards to the UPB. Is this too much for a NPN?

Your points definitely make sense though. If you were to be interested in these notes, what would your next step be? Contact a real estate attorney in that area to see what you can do? See about having one of those companies that'll drive by the property to take pictures for you to see if the collateral seems decent?

I'm also curious what states are in your top 5 if you don't mind me asking? I would imagine it would be states that have low property taxes and a fast foreclosure process? 

Thanks for all of your help!

Have a great day.

V/r

JT Holmes

@Odie Ayaga Firstly, I apologize for the late reply. My work has been keeping me super busy lately. I guess the way I am looking at the situation (through my non experienced eyes) would be looking at that key word, “should be”. If someone were to default on their primary/second mortgages, I think it’s a safe bet to assume they would also stop paying the property tax. Which would result in, from my understanding, a senior lien to even the first mortgage. The buyer of that note could definitely pay the taxes on the property to keep it current to prevent that from happening. In that situation though, I would prefer a state with lower property taxes haha. That was just my viewpoint though, I could be totally wrong. Maybe @Dave Van Horn can shed some light for us? Have a great night. V/r JT

No problem I know how it can get! While yes it's true that you may end up having to pay the taxes while the borrower isn't, typically if you're chief exit strategy is reinstatement it's money you can recoup once the borrower is paying again. I could see it as more of a factor if you're purchasing vacant properties with an exit strategy of foreclosure. I've seen a lot of different filter factors in sourcing assets, but I don't think I can recall anyone stating property taxes as a major factor. 

By the way, by that I don't mean taxes that are already in place as a lien when purchasing. Those usually play a role in making offers on assets up front.

I sort of have it the other way. I have a list of states I look for. Everyone has different criteria, but typically I'm staying away from states requiring licensing, long foreclosure times or hefty foreclosure costs, problematic counties to work with (Cook County is notorious). You gotta be careful with the licensing as it's a changing environment all the time and there's not necessarily clarity in some instances what kind if any licenses are needed.

No problem! Right now I'm acting as the capital partner in a JV relationship but I get plenty of lists sent to me (can't speak to the quality of then as I haven't looked yet) so I have a number of routes to consider when I'm ready to buy.