Dallas, GA · Member since 2012 · 7 posts · 3 votes
I have around $250k to play with, and I'm considering buying notes off FCI. Can anyone tell me what I'm missing? Many of the 1st position notes (non-performing) sell for a fraction of the value of the property. It seems like I could buy one of these and immediately begin foreclosure proceedings and net a considerable profit. I understand that I'm oversimplifying, and that foreclosure is more difficult in some parts of the country than others, but nevertheless it seems like a no-lose situation. Of course I'd make sure there were no liens or second positions, or if there were that they could be retired and still leave plenty of equity in the property. I know it can't be this simple, otherwise the note holders would be doing it. I'm just wondering what I'm missing....
All this is to say, I don't relish the thought of taking someone's home, and I don't know that I'm comfortable profiting off someone's misfortune. In any case, any and all input is appreciated. Thanks.
Note Investor · Black Forest, CO · Member since 2011 · 29 posts · 38 votes
13y
When I buy notes in default, a couple things come to mind.
First, I assume I cannot restructure the note to take advantage of the huge discount to benefit myself and the note seller. I try to figure the worst-case scenario and that would be taking legal action to foreclose and gain control of the property.
Thus, I require the large enough discount and a extra-large reserve to absorb the cost and time of foreclosure to acquire title via public trustee deed, gain control and cover the cost of repair, resale and, other unforeseeable expenses because you were not allowed access to the property before you purchase the note (mold, water damage, etc.)
Secondly, I require that the note is secured by real estate I know and understand. For me, that would be SFR real estate. Locally, I have the subcontractors to i bring the property back to marketable condition, I know how to market SFR houses with or without seller financing and local legal expertise if I need it.
In that regard, I would not know what to do with a stripmall… I'm not saying stripmall's are bad investments I just don't know anything about stripmalls. Therefore, invest in what you know.
As they say, the fastest way to lose money is invest in something you don't know anything about.
Third, and this requirement gets more important the older I get,(Ha!) I require that the security to the note is a reasonable distance from my office.
For example, It takes me an hour to drive to the south end of my County, visit with a sub-contractor for an hour, another hour to drive back to the office. Realistically, a half a day is shot. What if the property is three hours away or out-of-state? Then you're hiring out-of-state attorneys, contractors, title company, who don't have the loyalty to you like your local people do. More hassles, phone calls, researching, etc..… Something to think about.
Again, all this is assuming I cannot restructure the note and record a one-page note modification agreement. If this is true, then the note purchase can be a real feather in your cap.
Andrew, I am not telling you what to do but you do call yourself a "newbie" so let me say this; consider starting small so you can make small mistakes.
Real Estate Investor · San Diego, CA · Member since 2012 · 3 posts · 0 votes
13y
Take it easy.... "Note Godfather" LOL, it's only my second post here. I will take caution to slow down in the future and have my morning coffee first. Optimum exit strategy and my business plan is DIL and vacant properties, lots of options are on the table. It saves time and money, in hard servicing and reo fees, etc. I know how to connect the dots and risk envolved in this plan. That's optimum. Distressed note business is not for the faint of heart or is it easy, but it is very rewarding. Max...
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
13y
Thanks Bill, I did not realize that I would not have title if I ran my note through the forclosure process (GA is non-judicial).
If the property is vacant and the owner is no where to be found our too depressed to talk to you (have this happen all the time) what are the steps to get title?
I think I heard that I could sell/wholesale the property (after foreclosure) for the balance due or any price less than the balance due and the 2nd party then holds clear title, did I hear that correct?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Yes, you receive title (a sherriff's deed) from foreclosure if your entry bid (note balance plus allowable costs) are not met in a public sale. You now have the obligation to get the highest price you can, at least what was owed and after time on the market to show that good faith attempt (as the borrower could benefit) you can sell for what ever you can get. I suggest you not get into self dealing issues, like having one of your LLCs buy the property from your note holding/foreclosing LLC.
When you sell, the next buyer has good title, in equity and the chain continues.
Note Investor · Black Forest, CO · Member since 2011 · 29 posts · 38 votes
13y
“Trust but verify” BP is a place for thoughts and ideas but it is bad strategy to take action on anything posted without verifying it’s accuracy first.
No doubt, the majority of these posts are written with good intentions but we all make mistakes (including me) so as the old axiom says, “trust but verify.”
Be especially careful of undaunted advice and knowledge spewed by people who boast their credentials via “personal testimony,” because that is just what it is... personal testimony.
AKA, "blowing smoke"...
Over the years I have learned from the "best of the worst" to trust on the surface, but ALWAYS verify.
A technique… my associates and I have found very productive is take the extra time and effort to read the state statutes to gain/learn the fundamentals of the issue. Then you will have an intelligent discussion with your counsel.
This approach alows me to trust but verify, that the one giving counsel knows the issue inside and out saving time and money. And do not be surprised, if they blow smoke too.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Kent, you seem pretty antagonistic in your attempt to gain recognition as a new poster on BP. Some searching of threads might show the comments of seasoned note investors here verifying my contributions. Actually, if you were to take a different approach with others as a peer you might find acceptance that could also lead to endorsement. It's usually not the best approach to attempt to undermine those with more experience than you, it's better to work in concert. My initial objection to your approach was the obvious marketing angle you were sending under the radar, to me obvious, others not so much. So far, you have not given specific advice that I've seen, shotgun blasts, lists of bullet points and an undertow of attacks won't cut it.
The ploy of having personal testimonials of individuals is well known here on BP, associates of gurus popping up, taking a team approach.
I, as well as others I'm sure, would rather see specific detailed opinions on topic. Most here know the quality of my advice having been there and still doing it and the broad experience dealing in paper.
Just asking that you calm the marketing side of promotion a bit and demonstrate knowledge of the nuts and bolts and we will get along fine. :)
Note Investor · Black Forest, CO · Member since 2011 · 29 posts · 38 votes
13y
Bill, seems I hit a sore spot or the High Horse has tender feet.
Relax, don't take the burden on yourself, no names were mentioned.
Humbly I admit and regret, I mistakenly marketed on my first post like a neophyte. Appropriately, I received a spanking by the moderator and since then, only thoughts and ideas.
Although I stand by my previous post... personal testimony is baloney and, as with MY POSTS and all others, feel free to trust but always verify as we all make honest mistakes.
Fund Manager · Wayne, PA · Member since 2009 · 1k+ posts · 1k+ votes
13y
Hi Andrew Faulkner,
My name was mentioned so I thought I might chime in and answer some of your questions. Although I've never had experience buying notes from FCI, they service several hundred notes for my personal entities and my fund and they do a great job. With that in mind, I normally don't purchase from a broker type platform like FCI, I prefer buying from a direct owner (like Granite Mortgage, Condor Capital, Gemini etc.) or directly from banks. But FCI has always seemed like a reputable company from the servicing side with me for the last several years I've worked with them, so I'll be interested to hear how your deal works out. You might also want to check out Note MLS, I've heard they have a similar platform.
As far as "this sounds like a no-lose" situation, that statement is pretty much right on the money most of the time. You're buying a first mortgage at a discount, if you're not able to come to terms with a borrower you can liquidate through the property. When doing 1sts, you have a stronger position liquidating through the property as opposed to a 2nd mortgage, but I almost always prefer exiting through the borrower because I'd rather rehab the paper over the house, although I've done both.
"Otherwise the note holders would be doing it" - there could be various reasons the note holders aren't doing it. If they're a bank, they may have originated the loan and they're in the deal for a larger amount of money and they might have to set aside reserves for their delinquent assets. The banks are in the lending business, not the collections business, rehab business, etc. They lose money on foreclosures, every delinquent asset they are required to have money in reserves, that means they can't lend that money out (which is where they make the most of the their money). If it's a fund, they're model might be based on velocity or liquidity, buying pools and turning their product. Plenty of companies buy assets at a wholesale price and mark it up a bit and sell the assets off to a buyer like yourself.
"I understand there could be tax liens and such that in some circumstances would make it less than worthwhile to foreclose" - the biggest thing with 1st mortgages is value; pricing is based on BPO value more so than just UPB (Unpaid Principal Balance) right now. And an O&E report (occupancy and encumbrance report) - will give you all the info on any delinquent tax amounts, junior liens, as well as the current owner. Although junior liens are wiped in a foreclosure, you need to know their status in case you do encounter a deed-in-lieu situation. I've had good experiences with companies like Universal Credit and CSCGlobal.com when it comes to buying these reports. As far as the price for checking title, that's just the cost of doing business.
You also mentioned tax concerns, but the biggest and most relevant tax implications are when you liquidate the note or the property, unless you're collecting payments then it's interest income (which is still better than earned income!). So taxes really depend on your exit strategy. If you need a good foreclosure attorney (or an attorney for note acquisition) in Georgia, I would recommend Brad Schilling.
All the best in what you're looking at. If you have any questions feel free to message me.