What % discount to buy a non-performing 2nd note?

[Richard Dee]

I am looking at purchasing a non-performing 2nd note on a property that is barely above water on the 1st mortgage.   It hasn't been paid on in over 8 years and am curious what the typical discount would be for a $110k non-performing 2nd note with little to no equity. I'm sure many will say they would not buy it but I'm just looking to know the ballpark discount on this type of note.  Thanks in advance!

[Bill McCafferty]

Always purchase Non-Performing 2nds based off of the loan's Unpaid Principal Balance (UPB), NEVER off of the Payoff. The Arrears are always a bonus. Purchase price is based off of:

1. Status of the 1st Mortgage. 

2. Equity covering the 2nd.

3. The state (Non-Judicial or Judicial).

I see NP 2nds selling between 5% up to 70% of UPB. Always remember what you purchased it for and what you're in the deal at. With 2nds it's always a numbers game, some work out and some don't. It's always about the portfolio and what's best for the portfolio, rather than the deal itself. I definitely need to see a credit report. It's more about the information on the credit report rather than the credit score, because majority of the Borrowers have messy credit in this business.

I love no equity deals, but I understand they all don't work out great.  You would be surprised what Borrowers can do when their house is going to Sheriff Sale.  We as investors get caught up with equity, equity is definitely nice, but you also pay top dollar for equity notes.  Majority of your exits with 2nds are through the Borrower, not the equity in the property.  Borrowers aren't going to give up their equity easy.  Investors also associate no equity in the property with the Borrower having no money, which is absolutely not true.  Plenty of Borrowers have money and no equity in their property. 

it's the art of the deal with 2nds, nothing easy about it.  Hope that helps.