What Are Your Favorite Exit Strategies For Notes?

Question

We have so many exit strategies for real estate notes.  Often the best outcome depends on the note itself. Here are some of the strategies we use broken down into Performing and Non-Performing Notes.

Performing Notes

• Pays To Term
• Pays Off Early
• Sell The Full Note
•  Sell A Partial 
• Combine With Other Notes for a Mini Pool/Portfolio
•  Help Borrower Refinance
•  Restructure For Early Payoff 
• Incentivize For Early Payoff 
• Trade the Note 
• Hypothecate The Note

Non-Performing Notes

• Payer Reinstates 
• Work With Payer To Catch Up
•  Restructure Forbearance or Modification
•  Accept a Short Sale/Short Payoff
•  Cash For Keys & Deed in Lieu of Foreclosure 
• Sell as Non-Performing
•  Pursue Foreclosure 
• Homeowner Sells House and Pays Off
•  Sells At Foreclosure 
• Get Property At Foreclosure 
• Sell Property As-Is To Investor After Foreclosure
•  Fix and Flip After Foreclosure 
• Rent Property Out 
• Lease Property With Option To Buy 
• Sell With Owner Financing

Would love to hear what are your favorites?

Chris Seveney · Answer

@Andy Mirza

Made me think of a borrower I have right how that has a foreclosure coming up very quickly - borrower is basically threatening us to take a significant short payoff or he will file Bk (he has filed 3x already). I told my attorney eff him - I have full security on the asset and won’t mind getting my money over 5+ years versus taking 25 cents on the dollar which is what they offered.

Andy Mirza · Answer

We have more of a liquidation model. We target the loans and that have the largest delinquencies where the most likely outcome is foreclosure. Usually, borrowers in these situations are too far behind and are just trying to stay in their properties by paying as little as possible.

In my world, Deed in Lieu, Short Sale, Selling to a 3rd party at Foreclosure Sale, and selling the REO are our most common tools. Every now and then we get a re-performer and we sell those after some seasoning.

My favorite exit strategy is not necessarily the most profitable but it's the most personally satisfying. We get a lot of borrowers that file Ch 13 BK and abuse the BK system. I get satisfaction out of figuring out how to resolve bad faith BK cases as quickly as possible.

Chris Seveney · Answer

Performing notes I typically like to sell a partial / hypothecate the note.

Non Performing getting them to reinstate is first. Foreclosures typically suck. I had a house burn down over the weekend, is that an exit strategy?

Andy Mirza · Answer

@Chris Seveney Haha! I love those!

In my opinion, if you could make a case for a bad faith filing right away, I would do it and go for MFR. I don't trust borrowers like that to complete their plans in 5 years.

I have one where the debtor's been sub-performing for almost four years. I switched attorneys, learned some new tools, and we should be close to getting relief. You can only sell a sub performing BK loan at a significant discount so your only option is to hold it if you want to make money on it.

Tracy Z. Rewey · Answer

@Wesley I.  Yes to all!  It depends on the note, the payor's situation, and how much of a discount the note was purchased at.  Many of the notes we buy have a face rate over 6% so it is easy to show them the kind of savings they would get over a 15 or 30 year term in the current under 3% mortgage refinance rate.

If that is not enough motivation we have offered the incentive of a discounted payoff.  For example on a $100,000 note we might offer a 5% discount of $5,000 if they payoff in full in the next 90 days. The numbers have to work and it depends on how much discount we have from the initial purchase of the note. We did that on note in Oregon last year that worked out well.

If you work with a servicer that reports to the credit bureaus then you can help the buyer/payor either establish credit or improve their credit with timely payments.  This will help them qualify for a refinance at better rates. A good relationship with a loan officer can help as well.

Yes, we do work with the servicer.  They have to be part of knowing there is a discounted payoff.  Depending on the servicer they may or may not want to be part of the initial discussion.  You definitely want to involve them and play by their rules.  Their job is to help keep you safe and compliant in the servicing and debt collection arena.

Wesley I. · Answer

@Tracy Z. Rewey

For helping refinance exit strategy, Do you typically present them with the numbers that say “youre going to save this x amount of money if you refinance”? give them a discount? Or a combination?

Do you do this through your servicer?

Wesley I. · Answer

@Chris Seveney

What happens next after it burns down? Insurance pays?

Tracy Z. Rewey · Answer

Agreed on the foreclosure.  It's my least favorite and last resort option.  Yikes on the burn down.  Hopefully everyone is ok and insurance pays it off.

Tracy Z. Rewey · Answer

Glad you enjoyed.  I'm doing an article on the topic and it made me write them all down.  If I had to pick a "favorite child" it would probably be partials but they all have a time to shine.

Nick Taylor · Answer

Great Thread! Thank you

What Are Your Favorite Exit Strategies For Notes?

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