NPN Note Investing

[Morris Lucas]

Good morning everyone!

I have been trying to do research on liens and note investing for the past couple of months, as it seems like a strategy i will venture into, but like to get extremely well informed way before i make a move with real $.
I think i have the tax lien buying/selling/interest/foreclosure process pretty much understood, but my question is with notes. Mainly, if i were to purchase, say, a 2nd position note at a steep discount, what rights do i have if it is NP note? Can i try to foreclose on it before the 1st mortgage?
Can i wholesale the property to an investor pending the 1st mortgage? Lease option it to an owner-occupier subject to 1st?
Also, would it ever be a situation where it would make any sense to purchase a 2nd lien on a vacant property where homeowner has left?
Seems as though it is a very risky spot to be in if you don't have a clear strategy, and if your state has fast foreclosures.

Finally, would local smaller banks and credit unions be a good place to cherry pick these kinds of notes to purchase, or do you have to do the direct mail, website marketing, drive-around deal like other strategies to find these mortgages?

Thanks for any input, and if anyone has any blogs or recommended reading on the subject, please PM me!

[Dave Van Horn]

Morris Lucas My company, PPR, is a hedge fund that specializes in purchasing institutional 2nds directly from the bank and sells directly to investors (in one-off form and in mini-pools). We've done thousands of notes and I can say that David C.'s posts are the most accurate when it comes to answering your questions especially in where to buy, 2nd lien rights, senior lien monitoring, etc. The only things I would add are that:

- Owning a secured lien in any position in most states gives you foreclosure and reinstatement rights to protect your interest. However if a loan is in redemption or if the 1st knows the borrower is deceased they may not let you reinstate. 99.9% of the time the bank does allow you to reinstate, they would love you to pay.

- David is right when he says "fail to keep insurance and lose it all if the house burns down", If you weren't named insured or they didn't have enough coverage to payoff the 2nd you wouldn't get insurance money, BUT usually the first is paid off through insurance if the house were to burn down and the second position would now be in the first position and you'd now own the lot (which is most likely worth much more than what you paid for the 2nd note). And once we get a loan re-performing we are named insured as part of our process. Most named insured lenders are titled for example "GMAC and/or assigns" which means that policy would travel to whoever the new lender is.

- We've never been sued over any origination docs or robosigning, but that's not to say it could NEVER happen it's just how often? Just trying to give you perspective on these worst case scenarios.

I have a blog here on BP that offers some info on things like foreclosure from the 2nd position, the importance of equity, etc.: https://www.biggerpockets.com/blogs/2872-daves-blog

Hope I could be of help,
Dave