Investing in NPN 2nd notes

[Terry Royce]

Recently I have talked to 2 investors one in my local market, and another out of town that have bought some smaller packages of 2nd position non performing notes.

Both investors have stated that the strategy is to make sure the 1st lien hasn't started the foreclosure process, and then try to either restructure the note and get the borrower paying again, or to work out a payoff. If neither works they can start the foreclosure process ahead of the 2nd which protects them, and then they can foreclose and sell the house. One of them stated that even if the 2nd gets foreclosed on they can file a deficiency judgement on them and or sell to a debt collector to get repaid. 

I am sure this is a big numbers game, and some of these will work out, while others have to be written off at a loss. 

I guess I am just trying to figure out, more about the process, and figure out where the holes in the above strategies lie at. It seems like it would be a great strategy to get some passive income going that is a similar but less hands on strategy than rentals.

I'd love to learn more about the process and both the upsides along with the pitfalls.