What does 1st Lien Really Mean when Foreclosure is Looming?

[Dalia D.]

Hi. Quite new to performing partial note acquisitions. Evaluated 4 offers, I've decided to focus on WA State to make it easier on my passive investments - I just have to know local laws.... What is foreclosure process on partial assignment of a Deed of Trust? Thank you so much.

[Don Konipol]

@Dalia D.

The usual way that established investors handle partials when they purchase a partial is that the note is assigned by the seller of the partial to the buyer, with a provision in the assignment or in a separate agreement stating that when all the payments are received the note will be assigned back to the seller.

In actuality in this relationship it is the seller of the partial whose more at risk than the buyer, since in a foreclosure the partial buyer only needs to get his investment out, while the seller is at the back end, with no or little control. The seller may need to pay off the buyer to gain control of the situation. Anyone who buys partial payments as a “stream of income” without a security interest assigned to him is probably an inexperienced and uneducated note buyer. Education is always a lot cheaper up front, much more expensive after a major mistake is made.

What new investors need to realize is that buying real estate notes, investment property, etc is not like buying a personal residence, or investing in an index stock fund, where the process has been streamlined and the buyers and sellers interest protected by third parties. Once you enter the investment arena, especially those investments that either don’t fall under SEC regulations, or qualify for an exemption from SEC registration, you are entering an arena where many “sharks” swim, and are eager to part you and your money.