Real Estate Investor · Monmouth Junction, NJ · Member since 2011 · 6 posts · 1 vote
I came across following idea from internet about buying defaulted mortgage notes directly from banks. However, I need some more help. Please help. Thanks, Sam
Contact homeowner in pre-foreclosure. When you first approach the homeowners about helping them out of their property, you'll want to let them know that you aren't going to save their mortgage you're just trying to give them a clean escape from having that defaulted mortgage on their credit. After you've spoken with the homeowner and they've agreed to sell to you, have the homeowner under contract to sell their home to you. This is even though you are going to buy the note on their mortgage. You'll just have them sign the contract so they are locked in with you, and the homeowner doesn't turn around to try and sell the house to someone else while you are working with the bank. Once, you buy the note the contract becomes irrelevant.
Go into the bank and ask them if they would consider a Short Sale to you. Usually they'll say yes and begin to give you all kinds of information to turn in for final approval on a short sale. Then, you can come up with, 'Hey, wouldn't it just be easier if I bought the note from you?'
They'll usually jump on your suggestion because it is so much easier to sell the note than get the process of a short sale through their system.
By purchasing the note to the property you basically become the bank. You buy the right to collect the remaining amount left on the defaulted mortgage.
Once you have the mortgage note you have a few options to move forward. You as the mortgage note owner could continue on with the foreclosure, get a 'Deed in Lieu of Foreclosure' or modify the loan.
MY QUESTION:
1. WHAT SELL PRICE SHOULD BE INDICATED ON PURCHASE CONTRACT?
2. WHAT OTHER DOCUMENTS SHOULD I ASK THE HOMEOWNER TO SIGN?
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
13y
This is a viable idea and is no where close to new. That said, it has barriers to completion.
The first and foremost was mentioned. The recovery value of the asset. When asking to purchase a note with a discount, typically that discount is less than what the deed to the real property would sell for. Banks have cheap enough money and most have stabilized their reserves to be able to handle going to open market and getting a reasonable market offer.
So in this situation, where you have a relation with the borrower/home owner it is likely safe to assume if you get too greedy and ask for a heavy discount there will be no deal. Instead, if you you can "pay up" (pay more) for the asset because you have a predetermined disposition then you should pass that capacity to pay to the bank to get the deal done. There is an art to drawing out the right price and not giving away all your profit. Always keep in mind the alternative, the bank has no duty to sell for less than what the open market will bare for the asset. So as an example, if the hose sells for 90% of market value then it is doubtful you will get an added 20% on the table with your discount. Slim that margin up and make a solid offer to the bank and use volume not margin as your driver. Likely leads to more success.
The purchase and sale contract for purchasing a note and security instrument (mortgage/deed of trust) is not the same as real property. I have never heard of any NAR agreement for agents to be involved with notes, that is far from the truth. They do not understand the paperwork and many of them are even good at selling real estate. Most real estate brokers/agents involved with note sales are clueless and screw it up. Get a real estate attorney with some experience in the matter and have them use a PSA and back you up legally, perhaps even help with some due diligence. BTW, deal with banks directly ALL THE TIME.
The monster behind the curtain here is you sort of implied you made a deal with the borrower, which you then did not need to follow through with. If that is not what was meant, sorry for the misunderstanding. If that is what was meant, spend a couple minuets and think about putting some ethics into your work flow.
Upon the ownership of the note, you could offer DIL with no deficiency to the borrower to leave. All you would have to do is satisfy the note. Certainly a viable option. Additionally, as the note own you could approve a potential short sale on the table, whether yours or not. If the note is purchased properly, this can still be your gain.
Other documents for the borrower to sign? For what? You shouldn't be creating contracts supposing you are the mortgagee until you are the mortgagee. That could be dangerous, IMO. So, if you want to put the real property under contract subject to short sale approval, then I guess you can figure that paperwork out. The rest of the paperwork is with the bank or mortgagee and like I said, get an attorney who knows these transactions.
Lastly, the concept of ownership by the bank is a large misnomer. If the bank owns the loan, well...they own the loan. What is being confused in there is some of the lost note affirmative defenses that have come up in foreclosure suits along with a gross misunderstanding of the ramifications of the "Robo-Signing" of 2010. If the institution is a bank, like a small community bank, it is likely a portfolio loan and they own it and always have. If the loan is conventional, it is likely serviced by a mortgage servicer and you will have difficulty getting in contact with the actual investor who owns the loan. There is a chance that investor is a securitized trust which will put your chances closer to zero of getting something done. If I were you and knew something about this industry, I would go after the small community banks. Also, go back to my point of not being too greedy. Figure out a method and process to pay as much as you can while making a good profit for your efforts and risk. There you will find success.
Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
13y
There is an agreement between NAR and the banks that it needs to be processed through a real estate agent. If they would open it up to dealing directly with the bankers, the speed of the recovery would pick up steam very rapidly. I have already tried this route and it ran me into a dead end.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
Sam, Rob is right and Slim ain't coming back. Your local bank, if it's a loan that they actually own(0.0001%) they are not going sell one note to you. The guy on the internet has no clue/smoking crack/selling you something/all the above.
Dale, there is no "Agreement between the NAR and the banks". The banks know they get something resembling FMV if it's out on the entire, open market. They are trying to prevent investors/brother in laws from "stealing one".
Foreclosure Specialist · Miami Beach, FL · Member since 2012 · 131 posts · 123 votes
13y
During the short sale process, the buyer does not interact directly with the lender. Instead, the real estate agent will interact with the seller and the mortgage lender to try to close the deal. The process is still much the same as getting any other kind of financing on a regular home or foreclosure. Bank short sales follow the same kind of rules and process when it comes to getting financing.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
13y
This is a viable idea and is no where close to new. That said, it has barriers to completion.
The first and foremost was mentioned. The recovery value of the asset. When asking to purchase a note with a discount, typically that discount is less than what the deed to the real property would sell for. Banks have cheap enough money and most have stabilized their reserves to be able to handle going to open market and getting a reasonable market offer.
So in this situation, where you have a relation with the borrower/home owner it is likely safe to assume if you get too greedy and ask for a heavy discount there will be no deal. Instead, if you you can "pay up" (pay more) for the asset because you have a predetermined disposition then you should pass that capacity to pay to the bank to get the deal done. There is an art to drawing out the right price and not giving away all your profit. Always keep in mind the alternative, the bank has no duty to sell for less than what the open market will bare for the asset. So as an example, if the hose sells for 90% of market value then it is doubtful you will get an added 20% on the table with your discount. Slim that margin up and make a solid offer to the bank and use volume not margin as your driver. Likely leads to more success.
The purchase and sale contract for purchasing a note and security instrument (mortgage/deed of trust) is not the same as real property. I have never heard of any NAR agreement for agents to be involved with notes, that is far from the truth. They do not understand the paperwork and many of them are even good at selling real estate. Most real estate brokers/agents involved with note sales are clueless and screw it up. Get a real estate attorney with some experience in the matter and have them use a PSA and back you up legally, perhaps even help with some due diligence. BTW, deal with banks directly ALL THE TIME.
The monster behind the curtain here is you sort of implied you made a deal with the borrower, which you then did not need to follow through with. If that is not what was meant, sorry for the misunderstanding. If that is what was meant, spend a couple minuets and think about putting some ethics into your work flow.
Upon the ownership of the note, you could offer DIL with no deficiency to the borrower to leave. All you would have to do is satisfy the note. Certainly a viable option. Additionally, as the note own you could approve a potential short sale on the table, whether yours or not. If the note is purchased properly, this can still be your gain.
Other documents for the borrower to sign? For what? You shouldn't be creating contracts supposing you are the mortgagee until you are the mortgagee. That could be dangerous, IMO. So, if you want to put the real property under contract subject to short sale approval, then I guess you can figure that paperwork out. The rest of the paperwork is with the bank or mortgagee and like I said, get an attorney who knows these transactions.
Lastly, the concept of ownership by the bank is a large misnomer. If the bank owns the loan, well...they own the loan. What is being confused in there is some of the lost note affirmative defenses that have come up in foreclosure suits along with a gross misunderstanding of the ramifications of the "Robo-Signing" of 2010. If the institution is a bank, like a small community bank, it is likely a portfolio loan and they own it and always have. If the loan is conventional, it is likely serviced by a mortgage servicer and you will have difficulty getting in contact with the actual investor who owns the loan. There is a chance that investor is a securitized trust which will put your chances closer to zero of getting something done. If I were you and knew something about this industry, I would go after the small community banks. Also, go back to my point of not being too greedy. Figure out a method and process to pay as much as you can while making a good profit for your efforts and risk. There you will find success.
Providence, RI · Member since 2012 · 3 posts · 0 votes
13y
To: Dion DePaoli
Can you tell me how I find those real estate attorneys with some experience in assisting an investor in purchasing bank notes? Unfortunately, researching websites doesn't give me clear, straightforward answers that, yes, they have expertise in this particular real estate strategy.
I'm specifically looking for attorneys in RI, MA and FL.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
13y
Annette Sannuti, there is a good point here. Attorneys are not negotiators, they are attorneys. All a real estate attorney is going to do is review the purchase and sale contract and protect your interests. I am not sure there is an easy way to identify attorneys who have experience with note transactions without simply asking them. There are likely attorney's who solicit this as a function of their business but that doesn't make them any better or worse than what you could do to strike a deal on your own. Same sort of concept with making an offer on real property, do you have your attorney make the offer? (typically not). Finding a competent attorney to work with is a matter of interviewing several and picking one.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Has anyone ever caught a fish and dropped it on the bank? It starts slapping and bouncing around wildly and more often than not, gets further away from the water as it probably thinks its being successful in getting away, have you seen that before?
Sam, your assumptions and tactics are off base. A purchase agreement is a waste of time and energy and complicates the issue for Harry Homeowner.
This is not a beginner strategy as there are federal laws concerning approaching debtors who have been given a notice of foreclosure. The trustee, borrower or bank can ensure you get your hand slapped hard for approaching the circumstance as a work-out or foreclosure fix it guy without a license or being an attorney.
Let's say that we can approach the owner and be in compliance, which you can.
You will not purchase a note as an individual investor from a bank that has started foreclosure by making an offer like that.
You get a request from the borrower for the bank to sell the note in lieu of payoff as demanded. If you catch these at the pre-foreclosure stage as slow pays or initially in default all the better as the bank has less in collection expense.
You can still work out a discount but even buying at the payoff it can be profitable depending on the property value.
You can practically force a lender to sell as it can fully indemnify them as a full payoff as demanded, continuing with a foreclosure becomes a rather vengeful act by the bank to punish a borrower, they don't want to go there.
You can provide a loan modification approved by the bank to be accomplished immediately upon the purchase of the note, this, along with the waiver and request for the sale by the borrower takes the bank's liability away selling a note to a non-banking/mortgage broker type buyer. Banks do not sell notes to just anyone off the street.
When you acquire the note, you are now a lender with a collateral interest, as Dion mentioned, get a deed in lieu of foreclosure, you could give cash for the keys.
Over the years I've done this many times before the words "short sale" were ever adopted in real estate terminology. Mixing the two is like mixing oil and water. You could go either route but don't mix the two in concept as one is a mule and the other is a horse.
And, the requirement that properties be listed for sale by a bank is a bank regulatory issue having nothing to do with the NAR, it ensures that the property is held for sale in a public market at its assumed fair market value.
Investor · Pace, FL · Member since 2011 · 2 posts · 0 votes
13y
Hi Bill,
"You can provide a loan modification approved by the bank to be accomplished immediately upon the purchase of the note, this, along with the waiver and request for the sale by the borrower takes the bank's liability away selling a note to a non-banking/mortgage broker type buyer. Banks do not sell notes to just anyone off the street."
Can you explain this section in more detail? How does it look to the bank that the note purchaser is not an individual? What is the waiver you mention?
Thanks for your insight!
Derek
Vineland, NJ · Member since 2013 · 8 posts · 1 vote
13y
I have a question, what if you know someone who is willing to allow the bank to sell you that note but are willing to buy the note back from you for more money, can something like this be done? Another words it should be a short sale but being you can not buy your own home through one but are willing to pay more and have available financing.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y
Marie Johnson Is the someone you're discussing the homeowner of the property the note is on? If so they don't have a say in the bank selling to you so it doesn't really matter.
Also I'm pretty sure what you have described is illegal in that were you able to do it you defrauded the lender in order to allow the homeowner to purchase the note.
Vineland, NJ · Member since 2013 · 8 posts · 1 vote
13y
Matt. With all do respect, I think you are miss understanding what I was saying. The bank is willing to sell the note to the owner of the house for a cash deal not through financing cause that would be illegal.
I understand that part.
Thank you for your input
I am new at all of this and do not know much about it.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Marie Johnson if you have a potential deal and you're looking for a buyer, you'll need to post in the Marketplace forum.
Financing the purchase of a note is not illegal. I can see where the bank may be unwilling to make a loan to this particular borrower, or that this borrower may be unable to find anyone to finance them, but financing the purchase of a note is possible.
The borrower has no ability to allow or disallow the sale of the note that's backed with their loan. Banks buy and sell those all the time.
I think you're saying you have a borrower who has negotiated with the bank to purchase their note from the bank. Sounds like this is at a discount. But they're looking for someone else to actually buy the note from the bank. Then sell it to them at a slightly higher price? Why? If they have the ability to purchase the note, why can't they just buy it directly from the bank? If the bank is imposing some limitation on the buyer (e.g., it cannot be the borrower), then what you're trying to do may be to circumvent some limitation. That's where there could be something illegal, as Matt Devincenzo alludes to. If not actually illegal, the a violation of the terms of sale of the note that could result in a lawsuit by the bank.
You'll get better advice if you can be more explicit about what's going on and what you're trying to do than if you're vague. Don't make us guess about what's going on.
Vineland, NJ · Member since 2013 · 8 posts · 1 vote
13y
Jon Holdman@Jon Holdman, I am not trying to be vague, like I said I do not know much about this other then the note is underwater and that is why the bank won't finance the loan. They are offering it to the home owners for the discount amount if they were to pay cash. But since they do not have that much cash they are seeking a short term loan just for someone to purchase the note so they can buy it back for more money. The home is worth a lot more then the note is selling for. As far as the bank goes they do not care what happens after the note is bought. Correct me if I am wrong but I do not see no wrong doing in that. Thanks for your input also. Like I said I can use all the advice I can get. @Steve Babiak thanks for the kink.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Originally posted by Derek Nienaber:
Hi Bill,
"You can provide a loan modification approved by the bank to be accomplished immediately upon the purchase of the note, this, along with the waiver and request for the sale by the borrower takes the bank's liability away selling a note to a non-banking/mortgage broker type buyer. Banks do not sell notes to just anyone off the street."
Can you explain this section in more detail? How does it look to the bank that the note purchaser is not an individual? What is the waiver you mention?
Thanks for your insight!
Derek
This is an oldie! Not well explained I see. You can provide a loan modification between you and the borrower that the bank may approve of and it would be made, executed, immediately at the time the note was purchased.
The bank will want something as a release of liability in selling the note to an individual or non-banking/mortgage company. The borrower makes the request that the loan be sold. This is only if the bank agrees to sell for less than the amount owing. If you are paying what is owed, you don't go through this, it's a new loan and a payoff.
Why? Okay, let's say Joe hates Bob, Joe knows Bob has mortgage problems. Joe goes to the bank and the bank agrees to sell the note to Joe. Then Joe sends a letter to Bob and says I bought your mortgage make payments to me. Bob sends the payment. Joe throws it in the trash. Bob doesn't realize his payment didn't clear until he gets his statement, he is in default, Joe calls the note due just to get at Bob and knowing Bob can't pay it off. Bob gets an attorney, sues the bank. Since Joe is not a registered lender, Joe is not held to the same standards as a lender and the sale could be a wreckless and poor activity by the bank putting Bob in that situation. To the greedy ones, don't get any ideas, just an example that a bank still has a duty to customers not to put them in a situation of having to deal with an untrustworthy party. The bank will sell notes to other banks, mortgage companies, dealers and those who hold the proper license in a mortgage industry activity, just not to Joe. Now, if the loan is non-performing and has not been paid and there is no longer such a relationship with that customer, there could be sales to anyone willing to buy them, such as an auction, but the borrower is made aware of this as well, if notice can be given.
I'm also speaking of a bank loan, not a secondary market loan that was sold and securitized as Dion covered. While there are repurchase agreements on secondary market loans,if the bank does buy it back then they would hold it.
Another reason not to sell to Joe, Bob and Joe are friends, Bob gets his note called, Bob calls Joe to be a straw man, Joe approaches the bank to buy and the bank agrees to a discount. Bob arranges the money for Joe, so the bank is short again even though Bob could have paid more on the debt. They made the bank think that Joe wouldhave to do the collections and secure the collateral.
Marie, if there was 100K owed the bank, you and the borrower have to approach the bank about selling the note for 87K, a better deal than the pending foreclosure we will say. They agree, you pay 87K then you turn around and accept 95K from the borrower the following week. Seems to me you defrauded the bank. If a bank sells a note to Dion at 87K, they know he's in the business of selling, he sells for 95K to someone else, that is an arm's length transaction, the borrower had nothing to do with it. See the difference? Now, if the borrower made payments for 9 months, defaulted again and you said you'd take 94,652, that's a horse of a different color. And, a borrower doesn't buy the note, they pay it off or they receive a forgivness of debt, not a discount.
And how does a bank know a note buyer is not in the business? Probably by talking to them for 5 minutes, besides that, they will probably ask and they can check to see if you are a registered mortgage entity in that state. :)
Vineland, NJ · Member since 2013 · 8 posts · 1 vote
13y
Is anyone familiar with a private lender, buying a short sale in foreclosure and leasing it back to home owner with the option to buy back with in 3 years?
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
Marie Johnson That has to be bought by a qualified non profit organization, and is only allowed by certain investors/lenders. Private lenders can't do it.
Vineland, NJ · Member since 2013 · 8 posts · 1 vote
13y
Wayne Brooks, thank you , but I should of consulted before I sent her a lot of my documents. I Google her name and she is a Realtor in Fla. Who claims she is in contact with private lenders
Abingdon, MD · Member since 2013 · 193 posts · 60 votes
13y
Originally posted by Bill Gulley:
Has anyone ever caught a fish and dropped it on the bank? It starts slapping and bouncing around wildly and more often than not, gets further away from the water as it probably thinks its being successful in getting away, have you seen that before?
Hahah, I actually thought you were talking about bringing a fish into the bank and dropping it on the bankers desk!! It took me at least a full minute to figure out you were just talking about fishing. lol. time to go to bed.
Milwaukee, WI · Member since 2014 · 8 posts · 2 votes
12y
I do agree with most of what I read, where I am Wisconsin the foreclosing process takes 6 to 10 mo. I have bought notes based on bank saving time legal fees and property damage during the foreclosure process, if you were buying residential paper I would look at the foreclosure timing first if it is like Wisconsin you can get the banks attention if it a very fast moving process like I am told florida is note purchass can be difficult
Branson, MO · Member since 2015 · 4 posts · 0 votes
11y
@BillG... If buying notes is not the way to go...then how do I buy Pre-Foreclosure and Foreclosure homes? Some I may want to flip myself, but others I would like to "wholesale". Thanks, Becky