Banks selling you a note?

[Daniel Mohnkern]

I just got an strange idea.  Is it possible to buy notes directly from regional banks?  And, do they generally sell notes at a discount?  My thought was, wouldn't it be interesting to get a loan from a bank as an investor in RE and then later buying that note as an investor in notes?  Is that even possible?  I could see it making sense if they were selling the notes at a discount.  Then, you could effectively get a discount on the real estate and pay no interest (to yourself).  Is that too far fetched?

[Chris Martin]

Yes, it is too far fetched! Banks do sell off notes/loans, but they almost always do so because they have some major problem with them... like the borrower is in default. And the idea that you could peel out your single loan is not likely either. 

Here's a few lines from a local bank's recent SEC filings regarding notes: "During the third quarter of 2014, the Company identified problem assets and began the disposition process under the asset resolution plan... the Company transferred $11.2 million of loans held for investment to loans held for sale in anticipation of near term loan sale..." I guess some people may consider this an opportunity. Maybe. But not for me. 

[Ned Carey]

Most banks want to sell portfolios of notes not the occasional onesy twosy.

[Daniel Mohnkern]

@Chris Martin and @Ned Carey Thanks for the input, guys.  In the past, I have heard that some banks sell notes as fast as they write them. This is what made me think of it.  I figured it would be a bit far fetched but wondered if it would even be theoretically possible. Thanks for the insight.

[Mark Scarola]

Theoretically, yes. Realistically, no. A bank would only sell you a pool (group) of mortgage notes. So if you're thinking of looking through a list of notes at the bank and saying "Hey, that's the loan for my house. I'll have my company buy that one. The bank won't know my plan because I'll buy it under my company's name, and then I'll be able to give myself a discount on my own mortgage"... that just won't work. 

But yes, it's "theoretically" possible that you could buy several hundred notes from a bank and end up knowing one of the homeowners. Maybe you'd even end up with your neighbor's, sibling's, or friend's loan.

[Scott Carson]

I'm going to contradict a few people because this is what I focus on in my niche of real estate.  Will banks sell you a note?  The answer....It depends!

Don't waste your time with the top 5-10 banking institutions. They won't sell you anything less than a $10 Million dollar portfolio. And its not often at that great of a discount depending on where the assets are located. If you look at the recent FDIC sales, you will see the % of FMV has been above 70% for a ton of the sales. Banks might sell you performing notes in the 90% of UPB range.

Now non performing is a different story for regional banks and where the assets are located. Wells Fargo might sell you a one off commercial NPN but it will depend on how defaulted the asset is.

I've bought plenty of one off, small balance commercial NPN's from "What's in your waller" over the past five years along with assets from Synovus (SE part of the country), WF, and other regional banks.

If you are looking for residential assets, there are those banks that will sell one off's but its a matter of dialing for dollars to find them.  Depending on value, condition, default rate and foreclosure time frame, these all come into consideration with pricing.  

If you are looking for assets in OH, MI, and some other states in the mid west, the answer would be closer to yes.  If you are looking for CA, NV, AZ, TX and GA, probably not as those markets are just too fast on the FC side.  

Some mortgage banks that are portfolio lenders will move stuff from time to time but you've got to follow up with them on a regular basis.  It's definitely a niche market and the market didn't exist prior to 2009.

In only 2 scenarios have I ever bought a note from the bank on a specific property that I was in contact with the borrower prior to being direct to the bank.  Otherwise, the bank provided me with a list (tape) that I could cherry pick from or do a mini bulk purchase.

All I focus on is buying non performing 1st liens from banks and hedge funds.  Its work and a longer process then fix and flip, but the returns are phenomenal along with the numerous exit strategies.  

Yours in success,

Scott Carson "the Note Guy"

[Daniel Mohnkern]

Fascinating stuff!  Thanks for taking the time to reply.

[Scott Carson]

Anytime,

As a side note, you will see most of the product from hedge funds in FL, OH, IL, MI, NC, SC, TN, NY, NJ, TN, KY, AL, MS, LA, AR, MS, PA & KS.  There are opportunities there, you just have to work through the deals.

[Chris Martin]

Originally posted by @Daniel Mohnkern:

@Chris Martin and @Ned Carey Thanks for the input, guys.  In the past, I have heard that some banks sell notes as fast as they write them. This is what made me think of it.  I figured it would be a bit far fetched but wondered if it would even be theoretically possible. Thanks for the insight.

The banks are selling these notes to Fannie Mae (or Freddie Mac, ...)  after origination. All the details are in the Fannie Mae selling guide.