Prop in foreclosure -Can I buy a the note???

[Giovanni Soto]

Hi, i am part owner of a house in NY with only one mortgage. The property is in foreclosure. The loan is being serviced by Nationstar. I don't know if the mortgage is a FHA, BUT I suspect it is. Is there a group or other corp who can assist me in buying the note at a good discount. Might this note be bundled as part of some other default loan package? I understand the group will have to earn a commission.

as-is FMV- $270k, ARV- $340, mortgage debt- $325k, mortgage has not been paid in over 2 years.

Thank you

[Victor Menasce]

Lenders have different ways of handling distressed properties. Prior to the note going into foreclosure, they could sell the note at a discount to get it off their books. That's not a foreclosure. The new buyer of the note would have to negotiate a loan modification or foreclose. 

However, if the note is backed by mortgage insurance from Fannie Mae or Freddie Mac, then there is no reason for the bank to sell the note. The bank will be made whole by the mortgage insurance. If they sell the note, then they can't collect on the mortgage insurance. 

Their choices are to 

1) Use a federally backed loan modification program, or 

2) Foreclose. 

The judicial foreclosure process requires the property to go to auction on the courthouse steps. Any shortfall in the sale price will be made up by the mortgage insurance. If it fails to sell at auction, then the property will revert to the bank (REO) and the bank may try to sell it on the open market. At that point, the note can't be put for sale since it has gone through the auction process. Once the bank sells the property they would go back to the mortgage insurer and ask to be covered for any shortfall relative to the amount owing on the loan including fees.

Notes usually go for sale when the bank is required by the bank regulator to strengthen the balance sheet of the bank by eliminating a portion of non-performing notes on their balance sheet. This is a result of the so-called stress tests that FDIC has put banks through since 2008. This is done to get the balance of deposits back in range for the bank.

Hope that helps clarify how the process works. Let me know if you have additional questions.