Forclosures on non performing notes and its process?

[Cameron York]

I know that every situation is different regarding who the borrower is and the foreclosure regulations regarding the location, but I was wondering how often it happens and how the process usually pans out when purchasing a non performing note (whether a failed loan modification or initial purpose for foreclosure) and issuing a foreclosure. Is it painful and is often like pulling teeth? how do bankruptcies affect a foreclosure? how long does it typically take? is it advised? 

[Dion DePaoli]

@Cameron York

This is the second thread I see you have posted on.  Welcome to BP.  Congrats on diving in at such an early age.  Props for that.  

My suggestion for you is as Jay alludes, do not start in non-performing loans.  Start with loans that have cash flow.  That will provide you a platform to earn a return while learning the industry better.  This is an industry of you not knowing what you don't know and that can be very painful.  

It wasn't clear what the objection to PL's was other than you seemed to think a deeper discount means a better deal.  That is not true.  The discount applied on a loan is a function of the time and capital it takes to recover from the loan.  So in fact, the deeper the discount, the worse the loan is in that sense.  Loans with the highest discounts have the least likelihood of recovery.  You can also see my commentary in your other thread.

Purchasing a performing loan does not preclude an investment from realizing a positive return in a short investment timeline.  Loans prepay more often than pay to maturity.  Further, nothing says you have to purchase a loan which has a remaining term that far out.  Shorter term loans are in the market place.  For instance, hard money loans are often short term loans that repay in less than 24, 12 and 6 months.  

Often times newbies get visions of grandeur in their heads of huge potential returns on note investing.  This leads newbies to chasing loan investments with greater degree of risk which often leads to loss or at least unnecessary risk.  

One idea you have not defined, which you don't have to share publicly, is your desired return target.  If you are seeking returns north of 20% you are chasing unnecessary risk, which as a newbie is probably something you shouldn't do.  Again, don't know what you don't know.  If you are chasing returns between 10% to 20% then there ample opportunities in performing loans to achieve those returns if you understand what you are buying and how to best manage those investments.  Here is a hint, it is not all handed to you on a silver platter in a straight forward discount.  The higher on the return target the more risk there will be to achieve that return.  Such is the nature of investing.  You can find safer returns closer to 8% to 10%.  Bare in mind the prime mortgage market is around 4%.  Most private investors want to see at least 6% to 8% passively or 10% actively.  

JV's are something that often sounds like a good idea but frankly I don't care for much of the structures I have seen from our clients in the market place. Typically an "expert" teams up with a noob who puts up all the capital to split the returns 50/50. That to me is not worth it and overly aggressive on the "expert" side. If we presume an average NPL returns 20% you risked a bunch of capital to make 10%. Yea, for what? You could have earned the same amount in a less risky loan. Like I said, they don't make much sense.

Where I would summarize your place right now is just swinging the door open to a universe you only thought had one planet.  So not the case.  There are lots of loans out there and lots of ways to manage prudent investing within the space.  It is good you have found the boards and good you are asking questions.  Hopefully if you thought you were within inches of the starting line you now see you should take a little more time to look around and gain some more knowledge.  

This forum has many threads that can help you learn more.  Read the already posted threads.  Ask questions.  Follow some folks and see where they have posted.  Be careful what you take as gospel even on these boards.  Lots of comments and a wide range of real experience.  Like I said, right now you don't know enough to be able to tell what is proper information or advice or not.  Go get there.  Just don't be in a rush.  Good luck.