Purchasing Performing Notes with my self directed IRA

[Dan Shoemaker]

Hi, A prominent local investor recently sent out a list of performing notes he has available for purchase. The information he provided includes the following information:

Address, City, State, Loan Date, Rate, Term, Last Payment, and Balance as of 04/30/13.

They are accepting offers on the notes. So, I'm looking for some guidance on how to evaluate each property and what a reasonable offer might be. I've started reading some of the links from previous threads but most refers to purchasing NPN's (which looks really cool too!)

The note I am particularly interested in has the following numbers:
Loan date: 3/3/11
Rate: 9.25%
Term (or maturity, I'm guessing in this case) 4/1/16
Balance as of 4/30/13 - $48,743

I don't normally use websites like Zillow or Trulia to get an opinion of value, but I don't have access to the MLS where this property is located here in Texas. So in this case, I did look the property up on Zillow. There is is valued at $137,992.

I'm really looking to understand the way in which note purchases should be evaluated and would love to speak with someone here on BP over the phone about it.

Thanks!

[David Beard]

It's fairly common to sell properties on owner-financing for top dollar to credit-challenged buyers, and then to sell the notes after they've seasoned, all as part of a strategy. So I don't think it's automatically a red flag. Heck, Mitch Stephen of "My Life and 1000 Houses" book made a great living doing this in TX.

This a 1st mortgage or a 2nd? (assume that it's a 1st)
Is this a ballooning note (likely) or fully amortizing?
Are their any other liens on the property?
Any 30-day lates in the borrower's payment history?
Is the loan being handled by a servicing company? (preferable in order to get concrete validation of borrower payment history)
Are taxes and insurance escrowed?
You need an updated BPO to establish value (request from a real estate agent)
You need an updated title report.
Verify that property taxes are current.
These last three are vital to get at the actual equity in the property, in the worst-case event that you had to foreclose.

Marc Faulkner, Dion Depaoli, and Dave Van Horn are the professional note experts that post on the site, so you may want to page them, but the questions above will be on anybody's list of things to know to establish note value, so if you post the answers then those with knowledge can weigh in.