Non Performing Note Exit Strategies

In this article I will share the three most common exit strategies that we use when working non performing notes. There are an indefinite amount of exit strategies, and that’s what makes the note business so dynamic. There are so many ways to help the homeowner. At the end, I will share some ancillary exit strategies incase the most common aren't in your favor.

Loan Modification: Nearly half of the notes you buy will result in reperforming with a loan modification. This is where you as the note owner modify the loan based on the homeowners financial situation. Being the note owner, you can increase or decrease the payment, interest rate, term and balloon payment if there is one. It gives you a wide array of flexibility. The three most important questions I ask the homeowner are as follows… What happened, What are you doing now, and what do you plan do in the the future. These questions will give you insight to what you can do with their loan. I usually have an attorney or the special loan servicing company rewrite the contract. There is a clause in the agreement that if the borrower violates it in any way the loan will revert back to it’s original clauses or the loan may become due.

Reinstatement: A reinstatement exit strategy is when you let the borrower start paying from where they are right now. Usually we require the borrower to come up with at least four to five months of back payments to bring their loan current. Normally when a borrower has not paid in a long time, there will arrears and interest payments that are past due. These can be modified as part of the current payment or as a balloon payment in the future. The most important aspect of this exit strategy is getting some sort of skin in the game from the borrower so you know they are serious about paying their loan. Time delayed is money out of your pocket.

Foreclosure: This is an option that is a necessary way to reclaim the property. We foreclose on nearly half the notes we have in our own portfolio. This happens when our special servicing company can not get a hold of the borrower or they are reluctant to work with us. We would let our special servicer know that we approve of the going ahead with foreclosure and they will use their attorney to get it going. Special servicers have attorneys in each state, and they specialize with working with investors, so they are on our side. They will send out the demand letter, letting the borrower know if they don’t pay, they don't stay. After that, depending on the state, the road to foreclosure begins. Skipping ahead several months, the house will sell at whatever price we set. Typically we want the property to move so will will set the price at ninety percent of fair market value or see if anyone wants to big higher. The velocity of our money is more important than getting top dollar. This exit strategy can yield the most return for your money in note investing and that's why we keep it as our top three.

We will now go through briefly some ancillary exit strategies.

• Deed in Lieu of foreclosure: When the homeowner is unable to pay their payments on their note because of an undesirable circumstance, they have the choice to deed their home to the investor. This way we don't have to foreclose on the property and wreck the borrowers credit.

• Cash for Keys: This is when you give the borrower three to five thousand dollars to deed you the property and keys and they move away from the house and leave it in good condition. This exit strategy saves the credit score of the borrower.

• Rent to Own: In this case,the borrower in fact can't pay their payments to you. What you can do is have them deed the property over, and have them rent it out. You can write in the contract that the payments go towards the purchase of the house and there will be a balloon payment sometime in the future. Homeowners like this strategy because many times they have lots of connections in their community and would like to stay in their house. This way allows them to and work on their payments. It's a true win win.

As you can see there are numerous exit strategies you can work with investing in non performing notes. Be sure to reach out if you have questions.

To your success!

Matthew Hell

http://BuyPaperAssets.com