Buy Notes – Do You Know 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 bank had 3 defaulted mortgages which were commercial loans based in the Los Angeles area.
How to Buy Notes…communicate with your borrower
Hear me out…
The bank told me that one of the loans was in foreclosure and had a sale scheduled in a couple of 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 answered: “No, because we feel the value of the properties is sufficient to pay off our loan.”
My Concerns With Buy 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.
And if you don’t work with your borrower, then you’re really hurting your chances of getting out of a note deal.
This is why…
There are essentially 5 Buying Notes Exit Strategies for all Payday Loans:
reperformance, refinance, short sale or deed-in-lieu, refinance, note sale, foreclosure.
Only 2 of those plays, foreclosure and note sale, can succeed without any communication at all with the borrower.
In this example, the bank has chosen foreclosure as the exit. But the time it could take to recover the property can easily be postponed, if the borrowers file for bankruptcy. This is one of the risks associatied with foreclosures.
Buying Notes – My Advice
When buying notes, you can earn terrific returns without having the either sell the note or foreclose on the property.
And if this is true, then not maintaining contact with your borrower will jeopordize 60% of your note buying exits. (3 of the 5)
Would a seasoned golfer get onto a golf course with only 5 out of their 12 clubs?
Would that be somewhat limiting to their game?
I’m pretty sure of it.
It sure would be entertaining watching him hit a putt with a 9-iron.
I know it can be painful, but working with your borrower is essential in the note buying business.
This is the same advice that I shared with the LA bank today.
Will they take my advice? I am going to be tracking her discounted notes to see if any of them end up in bankruptcy court.