All Forum Posts by: Doug Smith

Theresa, I was just down in Sarasota visiting a client. I'm sorry for missing your original post, but would be happy to chat with you about the good, bad, and ugly of note investing. We're based in Tampa and we buy notes all over the country. Here's something to think about...our entire business is centered around non-performing notes. That is all we do. I've been in either note investing or lending for 22 years. I told you all of that not to brag, but to drive home the following point: we rarely buy residential notes in Florida. Think about it...this is what we do...and we avoid our home State! There is so much to know about the note business that is not present in real estate investing. The laws change in each State. Since we are neighbors, I would be happy to grab coffee and answer any questions you have. It's not an easy business and I'll give you the good, bad, and ugly.

Great question. There are many good answers. We are different as we buy 1st mortgage notes, work through the issues to get the property back, and then sell the property for a profit, so we are going to be different from a flipper, but here is how our investors typically do it with us:

We open a segregated LLC for each investor, not one for each note. The principal is all owned by the investor or his/her entity. Several notes are then purchased, but our average turn time is about 120 days, so we leave the profits in the LLC until the end of the year when we, the manager, pull our portion. We do take $750 when an asset is purchased and $250 when the asset liquidates, but that covers costs and overhead for us as manager. When the investor decided it is time to liquidate, we work through the liquidation process as quickly as possible and cover costs first, principal second, and then split the proceeds in accordance with our agreement. The LLC does cover such items as legal fees for foreclosures, servicing costs, and other costs that arise from the process. That structure puts us on the same side as the investor, so our goals are always in line. It seems to work very well for all involved. We also are able to manage multiple notes in the sale LLC and then we can pour the proceeds from sales (along with profits) back in to compound yields.

I know there are many ways to do it, but I hope this helps you with at least how we manage things. The note management business is a bit different than real estate flipping, but the base principles are the same. Let me know if you need further help. I'm always happy to answer questions.

Jeff,
We see this a lot. We buy mortgage notes from larger servicers and, for reasons passing understanding, they will take the foreclosure process right up to the sale and then they will cancel the sale. The first thing I would do is to call the county and ask what is owed in taxes. If he's not paying the mortgage, he probably isn't paying the taxes either. Don't forget to clarify if the tax certificates have been sold. Sometimes when you call or go on line to look up the tax situation, they will not include tax certificates that have been sold and must be redeemed. That can make a HUGE difference in what you will end up paying. If you do a short sale, the bank makes sure the taxes are paid and you get clear title...unless there are subordinate liens. You'll have to look at that too.

If this is your first transaction, I would be careful of simply quit claiming the deed over to you without addressing the mortgage or subordinate debt. We recently had someone do that in the Midwest on one of our deals. It didn't end well for him as he lost the money he paid to the borrower and we got the house.

Some institutions are great to work with. Chase is not, however, likely to work with you. If they will let you buy the mortgage note from them and the underlying collateral is worth $140ish with a payoff of $125Kish, I wouldn't pay more than $80K or so for the note. Chase sells notes, but they sell them in pools to investors. If you approach them to buy a specific note, the price goes way up to close to par value.

You will probably have to short-sale the house, but don't go under contract without doing a title search and a tax search. Good luck.

Since we only buy mortgages that are distressed, our process is a bit different, but there are going to be similarities that might help. I am happy to help, but need to understand what you are trying to buy; a mortgage, a property at a foreclosure sale, REO from a bank/lender, etc. If you can clarify a bit, I would be happy to help in any way I can.