Notes For Sale @ Price Exceeding UPB

[Marco Bario]

I was just looking at notes for sale on FCI Exchange and noticed a few of the Non-Performing 2nds priced >100% of UPB. They also happen to be in bankruptcy.

Here's one:

• Seller Asking: $43,196.47

• Current Balance: $32,796.65

As I mentioned, it's in bankruptcy.  Perhaps the real story comes together when reading the seller's comments?

"Pre-Petition arrearages of $24,816.84. Post-Petition balance of $27,024.91. Borrower will make post-petition payments to creditor. BK Trustee will make pre-petition payments directly to creditor. Monthly payment changes to $316.30 on 3/1/2022."

I'm new to notes investing, and especially new to bankruptcy. Would I really be buying $51,842 ($24,817 + $27,025) of outstanding debt for the price of $43,196? 

Thanks!

[Gail Greenberg]

@Marco Bario  another simple way to think about this is: you'll be getting a monthly payment of $316.30 minus your servicing fee (probably $15/month if it's performing). So in that scenario, your yearly net income - assuming you don't have to pay for forced-place insurance on top of that - is $301.30 x 12 = $3,615.60.  If you pay $43,196.47 for that note, your cash-on-cash return is only 8.4%.  You can buy performing notes where there's no history of delinquency or BK that yield 10-12% so why take a chance on this guy?

Now here's the real buzzkill. My servicer charges me a premium for a note that's in BK because it's a little more complicated for them monitoring the situation - they won't let me monitor the situation because, I suppose, they have compliance issues they have to legally abide by. But, bottom line is, you're probably not EVEN going to net $301.30 so your COC return will be even lower. I say.....NEXT!