First Real "Solo" Note Opportunity

[Jon Krachenfels]

I am looking for some advice on a note purchase for a 12 unit multi-family commercial loan. 

I purchased a few properties from a banker and recently she called and asked if I had any experience in note buying?  I explained that I negotiated the purchase of a note once but didn't have too much experience. 

That being said I wanted to know if anyone could offer some direction other than the basic, buy low, negotiate a deed in lieu or foreclose and roll the dice at the Sheriff's Sale. Then value add and sell high. 

Or am I over-complicating the opportunity? 

Any assistance would be greatly appreciated. 

[Paul Birkett]

Hi Jon

Note buying is a due diligence business. You need to be 100% certain of the facts when you buy. The exit is a while away so you need to make sure you buy it right.

I suggest you ask her:

1. Is the note performing (if not, how long has it been delinquent). You want to understand the payment history. If it stopped paying, does she know why? Does the current owner want to keep the property or whats the backstory?

2. Are taxes current, if not, what is the arrearage

3. What type of loan is it (fixed, floating etc)

4. Does the note have an "assignment of rents" clause. Can you collect the rents directly from the tenants.

5. What loss mitigation effort has the bank made? Have they tried to "fix" the issue, modify the loan etc.  Why are they selling? If they just don't want the hassle then it could be an opportunity. If they have put a lot of effort into fixing the issue then maybe its less attractive. Ask for a copy of the collection notes from the servicer - -they will give you great insight.

6. Has Foreclosure action started

7. What is the latest BPO (and when was it conducted). Do you see value at that price? If yes, then it will be better value when you apply a discount to the UPB.

8. What price to they want for the note

9. Is the bank marketing the note to other buyers (you can spend some money on DD only to find that it sells to someone else - so be prepared to handle that)

.....the more I think of it, the most questions are dependent on the answers to the other questions!

See how you get on with this first list and then decide if you want to proceed

good luck with it

Paul