Most of you have heard of Sun Tzus. He is a famous Chinese warrior and his main instructions to his soldiers before going into battle was know your enemy.
This same belief is also true with note buying.
Know your seller should be the mantra for every note buyer (and broker for that matter!).
by Dean Engle
How to Buy Notes…Knowing Your Seller
Most of you have heard of Sun Tzus. He is a famous Chinese warrior and his main instructions to his soldiers before going into battle was know your enemy.
This same belief is also true with note buying.
Know your seller should be the mantra for every note buyer (and broker for that matter!).
Why is this?
Not knowing your seller will place you in a position where you will be entering a negotiation with no idea of what your negotiating tactics will be.
My Recent Bid, An Example on How to Buy Notes
A single family home in Salt Lake City has a 1st mortgage, and the bank want to sell it.
Since the borrower hasn’t paid on their note in over 120 days and the fact that the note had already matured, the whole loan could be called due.
The bank hasn’t served the borrower with a foreclosure notice.
And they’ve called you in order to find out if you want to buy their non-performing note and mortgage.
I looked at this loan first from the standpoint of price – how much could I offer for it. We pulled a title report and a BPO and looked at comps that a local realtor provided to us.
Then I submitted by bid.
The rep from the bank advised me that approval from a committee of senior staff would be required.
She became very hesitant to answer my questions when I asked about the situation of the borrower and where she needed pricing to be.
Her behavior was suspicious to me so I decided to probe for more information. When I did, she clammed up and would not discuss anything further with me.
Something was up in this note buying deal.
It was odd that the bank rep would react that way – in fact it was the first time Id seen that kind of a response to an individual loan before.
How to Buy Notes – Talking to the Banker
I gave her a call back and tried again.
I am assuming that your bank has a unique relationship with the borrower, is this safe to say?
That is absolutely true, she replied.
It grabbed my curiosity as I wonderered what was going on with this defaulted mortgage.
So I kept asking more questions to see what I could find out. She didn’t oppose them, but only answered yes or no.
Is there a reason why the bank hasn’t foreclosed yet?
Yes.
And youre probably not at liberty to tell me, but this sounds like its a difficult relationship for the bank to foreclose on, is that correct?
Yes, she simply answered. That is all I can tell you.
One last question, I asked. Is it safe to assume that the bank may be more open to a bid on this loan that clarifies what exit strategy well be pursuing with the borrower rather than an actual purchase price for the nonperforming note?
You are correct.
What is going on with this note deal?
After a couple more phone calls, I was able to gather that the woman’s ex-husband was a close friend of the banks President. She was also well connected in the political circles of Salt Lake City.
They could find themselves in political mayhem if the bank foreclosed on this woman. To get around it, they decided that a note sale to a 3rd party investor would be easier. That way they would be rid of the nonperforming loan.
Lessons Learned on How to Buy Notes
If you don’t take the time to probe around and find out what your sellers particular situation is, you will completely miss the sellers key negotiating points.
The bank was more concerned with our exit strategy rather than price. They wanted to know how we would work out the note with the borrower.
Your How to Buy Notes Action Items
1. Always try to understand WHY a bank wants to sell you a note or a pool of notes.
2. Try to find out what the key negotiating points are for the bank for selling you this defaulted mortgage. Usually its one or more of the following:
a. Bid Price
b. Speed with which you can close
c. If you are able to close (price you are offering on a discounted note won’t matter, if you can’t close a deal)
d. Note buying exit strategies (certain banks prefer investors that only foreclose once they’ve exhausted other options)
So the next time you are taking to a bank about buying notes, remember these key points.
You will become a much better note warrior!
About the Author:
Interested in learning more about the Note Buying Business? Watch Hours of FREE Training Videos here:
How to Buy Defaulted Loans Real-life, Up-to-Date Information for You. Visit NoteBuyingProfits.com or Call 718-783-7605 Or Click Here:
How to Buy Discounted Mortgages From Dean Engle & NoteBuyingProfits.com – This time on How to Buy Notes
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