How to Buy Notes – Your Enemies in Note Buying

How to Buy Notes…Know Your Seller

Sun Tzus is a famed Chinese warrior and everytime before going into battle he would instruct his soldiers to know their enemy.

Well the same is true with note buying.

Knowing your seller should be the mantra for any note buyer or broker for that matter.

Why is this?

Because if you dont know your seller then you might be entering a negotiation with them without having any idea of their key negotiating points.

A How to Buy Notes Example,My Recent Bid

A single family home in Salt Lake City has a 1st mortgage, and the bank want to sell it.

The note had matured over 2 months ago and the borrower hasn’t paid on the note in over 120 days. Technically the loan could be called due.

The bank hasn’t served the borrower with a foreclosure notice.

The bank has called you to see if you want to buy the nonperforming note and mortgage.

The first thing to look for is price, what should I offer? Helpful documents are the title report and BPO. Also, contacting a local realtor for comps.

And we put in our bid.

The rep from the bank advised me that approval from a committee of senior staff would be required.

But she was very cagey about answering any of my questions about where she needed pricing to be in order to sell, and what the status of the borrower was.

I became a little suspicious and tried probing for more information, but she immediately clammed up and said: Im not at liberty to say more about our borrower.

Obviously something was very wrong with 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-Tips on Talking to the Banker

I gave her a call back and tried again.

Would it be safe to say that the bank has a unique relationship with this borrower? I asked her?

That is absolutely true, she replied.

It grabbed my curiosity as I wonderered what was going on with this defaulted mortgage.

I was aware that she wouldn’t reveal any information to me other than yes and no answers, but I kept probing.

So there must be a reason why the bank hasn’t foreclosed right?

Yes.

If the bank forecloses it would put them in a difficult situation, right?

Absolutely, she answered again. I cant tell you any more than that.

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?

Yes, she answered briefly again. That would be 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.

Foreclosing on her could create a political ruckus for the bank, it turned out. So the bank was exploring discreet options to rid itself of its non-performing loan – namely via a note sale to a 3rd party investor.

Lessons Learned on How to Buy Notes

If you dont take the time to probe WHY the seller is looking to sell a loan, and the circumstances around the sale, you may completely miss the sellers key negotiating points on a transaction.

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.

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. Your note buying exit strategies (in other words, the bank may determine whether to accept a bid or not based on what kind of buyer you are – are you a foreclosure operation with no attempt at loan modifications, for example?)

So keep all this in mind when youre next talking to a bank to buy notes.

You will become a much better note warrior!

The Lastest posts in Mortgage

Mortgage Accelerator Knowledge Base
Do you know the ins and outs of the stock market? Well for most of us we are onl...
http://www.bizarticlezone.com/finance/mortgage/mortgage-accelerator-knowledge-base-5010/

Mortgage Accelerator Info
Most of us get our financial cues from the media or an advisor if we are lucky t...
http://www.bizarticlezone.com/finance/mortgage/mortgage-accelerator-info-4988/

UT Mortgage Glossary - Are You Familiar with the Terms?
Do you wish to apply for a UT mortgage? Are you familiar with the mortgage gloss...
http://www.bizarticlezone.com/finance/mortgage/ut-mortgage-glossary-are-you-familiar-with-the-terms-4736/

What is a Fixed Rate Mortgage?
What is a Fixed Rate Mortgage (AKA: FRM)? Simply put, FRMs are a type of mortga...
http://www.bizarticlezone.com/finance/mortgage/what-is-a-fixed-rate-mortgage-4695/

Today's Mortgage Refinance for 2009
When looking at Mortgage Refinance there are quite a few details to which you wi...
http://www.bizarticlezone.com/finance/mortgage/todays-mortgage-refinance-for-2009-4682/

Get Yourself a Refi (Refinance)
Getting into a bad loan is something easy to do, and getting a bad loan refi is ...
http://www.bizarticlezone.com/finance/loans/get-yourself-a-refi-refinance-4611/

Refinance Mortgage Loans To Unlock Instant Savings
This current economic state we are in has many American homeowners asking if it ...
http://www.bizarticlezone.com/finance/mortgage/refinance-mortgage-loans-to-unlock-instant-savings-4558/

Forget What You Thought You Knew About Refi (Refinance)
Getting into a bad loan is something easy to do, and getting a bad loan refi is ...
http://www.bizarticlezone.com/finance/loans/forget-what-you-thought-you-knew-about-refi-refinance-4449/

What You Need to Know About Second Home Mortgages
A persons home is the biggest asset that one can have to use for money. A home t...
http://www.bizarticlezone.com/finance/mortgage/what-you-need-to-know-about-second-home-mortgages-4448/

Smart Saving Advice on a New Home and Real Estate Loan
These days, foreclosure is rife in the US. Last year over 2 million of these too...
http://www.bizarticlezone.com/finance/mortgage/smart-saving-advice-on-a-new-home-and-real-estate-loan-4434/