NOTES... walking a fine line

[Rondell Garcia]

I have a lot of questions regarding notes. Like in all things. I want to make sure that whatever I do, it is on the up and up. So with that said I wanted to know the following. 

In a recent discussion, the following was said about NOTES:

Originally posted by @Patrick Desjardins:

The biggest issue is obvious - north east judicial states with potentially long foreclosure times and very expensive litigation. Most investors don't want a note where the average exit is going to take longer than a year (or two in NY).

Me personally, the only thing I would look at on that tape are vacant houses that would work with reo-to-rental. Which, given NJ taxes and bad winters, would be very few if any of the notes offered.

Parking that kind of money into one or two loans in the north east is a terrible idea if you don't know what you're doing. .... .... ....

My question is... is it 'illegal' to approach the homeowner and make an offer/agreement to buy them out , or let them know that you will be purchasing their mortgage note from thier bank and that you would like to come to agreement or settlement with them, BEFORE you actually buy the note?

Is that wrong to do?

Is getting a signed contract stating that the curr homeowners will be leaving the property after a 15-30day period with a small buyout; legal before seeking/purchasing the note?

Is any of that legal, AFTER you have the note?

Isn't that what wholesaler before they approach you any way?

[Darren Eady]

I think the line you are referring to is still undefined.  That is why you may or may not get an answer back through BP.  If you work out a deal with an owner-occupant, you become the bank on an owner-occupied property, which means you may or may not be subject to the Dodd-Frank disclosure rules that apply to lending.  When you take an assignment of the note, you become the lender with servicing, disclosure requirements, etc.  IF you go this route, there are servicing companies that offer the compliance you need.  

Another option is to have the current owner occupant give you title to the home and you sign a lease agreement with option to purchase the home from you at a certain point.  Then you will not be the lender, but the owner with a renter in the home - much easier rules to work with.