Purchasing a Non-performing Note

[TJ Verdiglione]

Hey All,

I have the opportunity to buy a note from a bank on a commercial office property for well under what the property is worth, about a 40% discount. I have attorney's involved but am not clear on this process. I know the owner being foreclosed on and there are two mortgages on the property. I would be purchasing the first standing note. The owner is looking to be foreclosed on quickly as the remaining debt that he owes elsewhere will be wiped out. 

Could there be risk from the second standing mortgage holder upon foreclosure? The outstanding balance is $396,000 that is accruing interest of 9.75% on a daily basis as it is in default. Any and all advice would be appreciated. Thanks!

[Chris Seveney]

@TJ Verdiglione

Put it in simple terms - say you owned a first position note that had a balance of $400k on one World Trade Center building which has a value of $5B.

If it forecloses and sells for $5B, you get the balance only (400k) you don’t get $5B. You only get what you are owed.

If it goes to bankruptcy it STOPS foreclosure process as they try and restructure the debt and go back to regular payments potentially (depends on type they file)

To be blunt if you never have bought a note before buying a non performing commercial note would be like handing the keys to a tractor trailer to your 16 year old kid and say go drive this as their first car they ever drove.