What passive investors do when performing notes go bad

[Chatree C.]

Hello Notes forum, I'm new to notes and want to get in starting with performing notes purchase, with the goal of being able to handle non-performing in the near future.

My question is for someone who's just starting passive investment with performing notes, what happens if the note become non-performing? There's a chance it could happen right? Do I need to start learning how to deal with it, talking to attorney, etc… or would note servicing company take care of trying to get the note re-perform?

[Adam Adams]

Usually the servicer will start the process. It is usually good for you to know the process so that you can tell if your servicer is handling it correctly. First they have to go into default. 30 days usually does the trick, but some servicers will wait for 120+. Then the legal notices go out, or postings and such, depending on the state. Each state is different, so different things can happen. Some states you can accelerate the note and demand full payment of the entire note. Some states will only allow reinstatements, such as Michigan. Some have a combination where you have to give a reinstatement period and then you can accelerate the note. You should not be doing anything in regards to this without talking with your local attorney. Some states are quick and some take years. And then get all that, then the borrower declare bankruptcy and you have a whole new set of rules. So a shorter way for me to answer this is... every state is different.

And with all of my comments comes the caveat. You are the passive. Bug the lead in the deal and make sure he knows what's going on. He should know the rules of that state that you are investing in with him.