For the past few months, years perhaps, I've been trying to soak up knowledge in the area of note buying. It has been especially intriguing to me since my partner and I handle a large volume of foreclosures and I get to see all of the post-foreclosure steps, but never really see the pre-foreclosure steps. I've seen hundreds of title reports, and all of the issues that can come up post-foreclosure. I have a good amount of contacts in various areas that are needed such as law offices, contractors, etc. I have always learned better by doing, than by reading. I like to study a subject to get the basics down, and then jump in head first, which leads me here. I didn't do an extensive search, but I didn't find anything that broke down buying a NPN from day 1, until the day you hopefully profit from the purchase. I plan to document the steps here to help others.

I did find numerous posts regarding FCIExchange and how it wasn't really worth buying notes on a portal such as FCI. I have found numerous notes on there that do not look like they are any sort of a profitable purchase. Conversely, I have seen plenty that do look like they could be profitable. This experiment is focused only on non-performing. Performing notes are more straightforward and much easier to see profitable, steady returns. 

The hypothesis for this experiment: If I purchase a NPN then I will make a profit from the purchase. 

I casually browsed the exchange for a few weeks until I was able to find a property nearby that was selling at a significant discount to the unpaid balance (UPB). The UPB in this case is $74,160.32, and the asking price for the note was $4,999.89.

I sent someone to look at the property and take some photos. I didn't want to personally look, because if I would ever do this on a larger scale, I'd have to rely on other people inspecting the property. Here is the front:

The property appeared to be older, with a new roof. They knocked, and no one was home (obviously?) and saw some construction materials in the hall. Comps on the block are trading in the $50K-$80K range, some with commercial zoning even higher due to the county courthouse being within 1 block. There are a good amount of investor purchases here to be used as rentals as well. A retail flip, not very likely.

I concluded that even if the inside is terrible, this property could likely still fetch $25K in a quick sale to another investor. There were only 8 sales in the zip code in the last 180 days under $25K, out of 201 total sales. Furthermore, if I couldn't resell for that amount, I could certainly turn it into a rental. 

I decided to proceed, and pulled up the mortgage docs for this owner. Locally it's a program called Landex that you need a subscription for, that I already use. It was only one lien, and the mortgage had been assigned a few times. I pulled a title report from FCI, which is done with the click of a button. The title report came back quickly, and I reviewed it. Straightforward, with some municipal liens for sewer and garbage bills, totaling about $6K. I made an offer of $2,500, was countered at $3,500, and it was conditionally accepted based on a due diligence period of 48 hours for me, the buyer. Once you come to terms, all of the documents for due diligence are released inside of FCI to download and review.

I contacted my attorney to tell him the next crazy thing I was up to and asked him to look over the documents, and shed some light on what my plan was in case I was overlooking something. He told me I was not overlooking anything but he doesn't do foreclosures, and gave me a referral to someone else who was well versed in foreclosing. 

I contacted the new attorney, and told him I had 48 hours to review the documents. We made an appointment, and I went in to meet him and look over everything. He does local foreclosures for some local banks. He assured me I wasn't crazy for doing this given my background. He said he wanted a little more time to review and the following day I hadn't heard from him. FCI was asking me to conclude due diligence and I felt confident so I clicked end due diligence even without hearing from the attorney. He ended up emailing me a short time later and said everything looked clean, phew. This new attorney is charging $250/hour, and took a $1000 retainer to begin work. His rates seemed fair, and given that he does this often, I'm OK paying top dollar to make sure it's done right and he holds my hand on this first one. If I continue buying, I would expect to renegotiate the fee.

The next step was to sign the note purchase agreement, provided by FCI. I signed and uploaded it. FCI asks if you want to record the note yourself when received, or pay them $200. The fees to record in this county are $66 so I will walk it in to the courthouse and record it. 

Next step will be to receive the signed purchase agreement from the seller, pay $3500 + $500 FCI fee, and receive all the mortgage documents. 

Total out of pocket to date: $1000 - legal retainer

I look forward to you following along. If I've missed adding details, shout it out and I'll be happy to provide. If I do something "wrong" you can feel free to point that out too, but as I said this is first and foremost a learning exercise so don't snicker behind my back ;) 

Stay tuned!