Top Real Estate Articles

Buy Notes - Hitting a Put Shot With a 9-Iron

May 28, 2009 Real Estate Properties

Buy Notes - Who is Your Borrower?

I just got off the phone with the Sr. Vice President of a California bank in charge of note sales, and a note broker friend of mine who set up the call.

The Sr Vice President advised me that they had 3 non performing notes that were commercial loans in the LA area.

A Buy Notes Lesson about Golf Clubs and why to Communicate with Your Borrower

Stay with me here…

As we continued our conversation…the SVP at the bank notified me that one of the loans had a scheduled foreclosure sale in 2 weeks.

The bank had not been in contact with the builder/developer (borrower).

I asked her if she was worried about possible problems when taking over the properties through foreclosure. And if she had any other concerns regarding the loans.

She let me know that the bank didn’t have too many concerns because the property values were enough to pay off their debt.

My Concerns With This Buying Notes Situation

The most important thing that I have learned is that building the relationship with your borrower is key. This is probably one of the most important concepts in the note buying business. Manage your relationships.

By not working with your borrower, you can really mess up your chances of getting out of your note deals.

And here is the reason…

There are basically 5 Exit Strategies in Note Buying:

reperformance, refinance, short sale or deed-in-lieu, refinance, note sale, foreclosure.

Foreclosure and note sale are the only 2 exits that you can do with no communciation to your borrower.

But the risk that the foreclosure runs - and foreclosure is the path that the banker is taking in this example - is that the borrower may file for bankruptcy and postpone the time when you recover the property.

My Advice on Buying Notes

Buying notes can bring you high returns without have to foreclose or to sell the note to someone else.

If that’s true, then losing contact with your borrower essentially kills 60% of your note buying exits (3 of the 5).

Would any professional golf player get only a course with 5 out of their 12 clubs?

Would that be somewhat limiting to their game?

Probably.

But boy would it look funny hitting a putt with a 9-iron.

Working with your borrower is essential when you are buying notes. It can be painful, but it is what has to be done.

This is the advice that I gave to the SVP at the LA bank today.

We’ll see if she takes my advice - we’ll be tracking her nonperforming notes to see if any of them end up in bankruptcy.

If those notes do end up in bankruptcy, it’s for certain that she will be wishing that she kept communication with her borrowers.

Tags: buy notes, Foreclosure, home loans, how to buy notes, Mortgages, note buying, Real Estate, Real Estate Properties, residential housing, sell notes, selling notes, Short Sales

How to do Short Sales- A Short Comparison to Buying Bank Notes

Apr 2, 2009 Real Estate Properties

How to do Short Sales, Not so Easy!

This article is for those of you who have tried your hand at Short Sales and realized that they’re harder than they look.

A side by side comparison…

How to do Short Sales…What is Required?

Short Sales are transactions that involve a willing borrower you’ve spent time convincing that they would be a likely candidate for a short sale.

And a loss mitigation officer overwhelmed with short sale proposals who often takes forever to get back to you documentation.

Compared to buying bank notes, short sales require bank statements, tax information, proof of income, letters explaining hardship, closing statements, and cash.

If you’re able to close a simultaneous short-sale, you may not have to fund anything. Otherwise, you have to finance the purchase from the bank.

How to do Short Sales Compared to Buying Bank Notes

Real estate note buying won’t require you to gather documentation. You will be working with a secondary asset manager or loss mitigation officer who already has the documentation for you, all you will need to do is review the information. The documents that you will need to worry about are the purchase and sale agreement and the loss mitigation officer. Most lenders will follow the same process.

Yes, in defaulted mortgages you will need money buy the bank notes. There are many strategies that you can look into that require very little capital. I will tell you more about that later.

California - Short Sales and Buying Notes

When you are taking title as part of a deed in lieu negotiation, the constraints that equity purchasers have don’t apply. You are also exempt from Civil Code 1695. There are multiple exits strategies that you can pursue, these include deed in lieus, loan modifications, refinances, or even reselling the note. In short sales, you are limited to the need of finding a buyer and selling the property.

There are no licensing requirements when you are buying bank notes with a singular interest.

Potential litigations will not arise for you as they would with lease option deals. (a lease option deal is interpreted as another loan and you will be accused of equity stripping). Your real estate note purchases will allow you to modify the loan. Just remember that you will be subject to changing foreclosure laws because you will be the new lender.

A Thought on Short Sales and Buying Bank Notes

I’ll leave you with this - whereas you may have thought short sales were a pain-in-the-butt because of the uncooperative lender you were negotiating with. You may find yourself on the other side of the table if you buy a bank note, and have an investor come to you with an offer asking you if you’ll take a discount on your defaulted mortgage in order to sell the property.

That would be a good change of pace right?

Tags: bank notes, buy notes, cash flow notes, how to do short sales, Mortgages, note buying, Real Estate Properties, REOs, Short Sales

How to Buy Notes - A Note Buyers Dream…Understanding Your Borrower’s Needs

Mar 28, 2009 Real Estate Properties

One Lesson on How to Buy Notes

Its funny how the little things (so u think) are actually a big deal for your borrowers.

What am I saying?

I have two stories to share with you. They are about Natalie and Judy, 2 borrowers that were included in one of my portfolios.

A Story on How to Buy Notes…Introducing Natalie

My first example is about Natalie, she had a performing first mortgage that was included in the pool of non-performing notes that I purchased. Natalie was an ideal borrower, whose mortgage payment was due on the first of every month. She owed $93,000 and paid a monthly payment of $680 like clockwork, the only thing was that the payment was received around the 5th of every month.

So, when I called Natalie for the first time, guess what her biggest request was? She asked me sheepishly if I might be able to push her payment due date back from the 1st of the month to the 7th of the month so that her paycheck had time to clear in her account!

What does this have to do with make money as an investor who is learning how to buy notes?

Because of one simple thingin the market today, and just in human relations in generalthere is one fact when it come to the financial relations of people.

It’s sometimes the little things that matter the most.

As an investor in non-performing notes, when a borrower like Natalie asks me if she could pay her mortgage a few days after her due datehow did you think I responded?

I said of course, what date works for you?

You mean, you CAN do that for me? She sounded incredulous.

Thats all it takes, just me asking?

Wow. Eye-opener for me in this business of how to buy notes, I tell you. That something as simple as changing a due date could make such an impact.

So of course, my next step involved asking Natalie if I could refinance her real estate note. I asked her if I could put her in touch with a specialist that worked on my team, and because she now trusted me.she provided all the information that I asked from her.

A Lesson Learned on How to Buy Notes

If you actually listen to what your borrower is saying, and can determine their needs, you can create a relationship based on the fact that you helped them. Anytime that you help someone in need, they automatically feel an obligation. Use that feeling of obligation to your advantage.

Another Example of How to Buy Notes, Judy’s Story

I have a 2nd story that I want to share with you. This one is more recent.

Judy is from Tennessee, she has the cutest accent that Ive ever heard.

Her accent is so sweet, you cant help but smile every time you hear her voice.

And when Judy spoke, what do you think she said in regards to her defaulted mortgage?

Dean, I owe you all a HUGE thank you for paying my taxes.

My first thought wasWhat?…taxes?? So of course, I looked through my file to see what I did. I quickly realized that after running my tax check (something we do towards the last business day of the month), it was in my best benefit to pay her taxes current.

How to Buy Notes-Benefiting Both Yourself and Your Borrower

We advanced it to her loan obviously (property taxes advanced by you can be charged to the principal of the loan), and since her delinquent note rate is pretty high, we get to accrue interest on that advance. So from my perspective, it was both protecting our interest as well as making a smart business decision that would make us money.

And from hers, it was the sweetest and nicest thing we could have done, because we were looking out for her. The actual words she used with me were: Dean, I want to thank you for helping me keep my house. Ive been here 20 years and now Im finally caught up thanks to the patience youve had with me.

I was floored. Absolutely amazed at how a simple decision to protect our real estate note position, pay the taxes owing so they wouldnt fall further delinquent and threaten a tax deed sale (Tennessees a tax deed state, not a tax lien state - more on that in a later post), could be perceived by the borrower as a generous move to protect her own interests.)

You can only imagine how the rest of my day went, it was wonderful! Nothing feels better than to sit there and receive such gratitude over the phone. It really touched me. In the business of buying notes, experiences like this dont happen very much.

And I also learned today how useful it would be to explain advances to pay taxes and insurance for any other borrower in terms of helping to protect their home and to help them to protect their home.

A situation where everyone wins doesnt seem so clich now does it?

Not when you look at what Natalie and Judy taught me about the experiences in how to buy notes.

Tags: buy notes, discounted mortgages, Foreclosures, how to buy notes, learn how to buy notes, Mortgages, Non Performing Notes, note buying, profit from buying notes, Real Estate Notes, Real Estate Properties