Pricing expectations on assets in advanced foreclosure state ​

[Michael Vaughn]

I have recently to looks into more and more deals which includes loans currently in advanced foreclosure status, for example , anything from a few hearings done to FC sale date set and it is 30-60 days.

How do you change your price offer in the bid stage to address that, given everything else equal? For example given a mortgage loan where the debt is 60% of the house value (so we are covered in equity 100%), borrower has not paid in years. in general I would have offered anywhere between 50-65c on the dollar on such a loan, depending on a few other factors, how should that change given the asset is very advanced in the fc process? (one would even say why they sell it if the the sale date is so close). Keep in mind this is before doing any due diligence, so we don't know exactly all the details.

[Bryan Hartlen]

Hi @Michael Vaughn.  I would say it depends on the asset class (<$25k, < $50k, etc) and market.  Asset class because FC costs are fixed and affect the classes differently.  Market because the going rate for REOs will be the cap on the premium you’d pay for these notes.  

We estimate roughly $5k to complete FC from start to finish and 6 to 12 months time depending on the state.  The farther down the road the seller is the less time and money you’ll need to spend to get it re-performing.

The question is more, what's it worth to you? Are you a performing note buyer looking to dip your toes into the NPN world or are you NPN buyer that's finding new pipeline source or partially worked assets. If you are the former finding notes closer to FC might be a good thing as it limits risk. If you're the latter then you're paying for part of your value add and your cutting into your returns.

For what it’s worth... in our limited experience, in every situation we purchased a note that already had legal proceedings in play, we tried keeping the seller’s attorney to avoid disruption... it never worked out. We ended up switching and it didn’t save us as much time as we expected.  (Maybe part of the reason the notes we’re being sold mid-process?)