getting started with performing notes

[Account Closed]

I've owned a couple of rental properties before. I've been thinking about buying another, but a friend suggested I look into notes instead. I'm most interested in buying performing 1sts for cash flow, and I will be buying with my own cash.

I've found some interesting small notes on sites like loanmls that seem like a good place to start, but I'm uncomfortable making any offers because I don't know what the process should be like.

Say I make an offer that they accept, then what happens? Is there a purchase contract like a normal real estate sale, so I know they're not going to sell it to someone else while I'm doing my due diligence?

Would I use a title company to do the transfer? Is this something any title company will handle?

I've seen talk about note brokers, should I be starting out with a broker to help me through this? If so, how do I find one? All I've found is people who want to buy notes or people who want to train brokers. 

[Dion DePaoli]

It has become popular with some of the exchanges to allow additional bidders into an asset until a final bid is delivered and accepted.  FCI for instance will allow an additional bidder into the asset, which you will get a notice of, until you complete your due diligence and the Seller accepts your "Final Bid".  

As stated above, you do indeed need to protect yourself by understanding the procedures of sale.  In the above example, you can lose time and money invested if a second bidder enters the asset and moves faster to get to a final bid the Seller then accepts.  

There is not a lot of exclusivity for loan sales and that certainly applies to the platform and sellers who are actively engaging one off buyers.  Their obvious risk is execution, meaning the buyer simply does not execute the purchase.  If they grant exclusivity to the buyer the loan is essentially off the market and a failed buyer would mean starting that marketing all over again.  

There is absolutely a contract for purchase and sale.  Don't buy loans without a contract.  Loan sale contracts are not like real estate contracts because loans are not real estate.  The closer to the street you get with a loan sale the more simplified the contract has become.  Most sales are AS IS WHERE IS and many fail to address interim servicing terms costs and obligations along with clear definitions of delivery of collateral and what is collateral.  Moral of the story, for an unknown third party seller you may want an attorney to review the contract to make sure you have protections.    

Additionally, typical loan sale contracts do not carry escrow provisions so most of the time you would have to create a whole other contract which incorporates the escrow agent and terms of release of payment and collateral, etc.  Most of the time, not worth the hassle.  The contract will define or should define the terms related to payment and collateral delivery.  That is also what you would use to pursue any violation of those terms.  Never agree to make an escrow deposit on a loan without an attorney reviewing the terms of those funds and where/who will hold.  Most of time I would say, just walk away if that is a Seller's request.

I have noticed some sellers out there holding private sales like to take weeks if not months to deliver collateral.  That really should not be acceptable.  Often times this means the Seller you engaged with doesn't actually own or have the loan.  For a one off trade the loan should ship within 3 to 5 days of payment.  Within a day of funding you should get a copy of the executed assignment and endorsement which would then ship with file.  

FCI does act like a clearing agent for their trades.  Each party sends in their side of the deal which they loosely verify and then ask for release permission.  The provisions of them clearing the trade are included in their paperwork and they do a good job.  LoanMLS is also a reputable site with establish procedures.  Both of those will have you in good hands from a platform standpoint.  

You will still have to manage your own risk in bid to buy transitions.