Study exercise and learning for Notes​

[Eddie Starr]

Hello, BP. I'm not sure if this is the right place, so mods, please move, if needed.

I'm in my education and learning phase, so I'm hoping some members can help enlighten me.

For this, I made sure all were NPNs, and all were 1st positions, as I felt comparing 1sts to 2nds would not be an accurate study. I know other factors, like the location, UPB, and such can also factor in the decision, so this is for general analysis & advice.

For UPB, how much of the percentage should I be looking at?

What, if anything, is good or bad about these examples? What options, if any, can be taken?

First is http://www.fciexchange.com/OHIO/Conventional/Non-P...

General Note Information

Product ID0040564

Lien Position1st Mortgage/Deed of Trust

Note StatusNon Performing

Note TypeConventional

# of Payments Last 12 Months0

Paid To07/01/2013

Loan Maturity07/01/2043

Property TypeSingle Family Res

Original Balance$47,708.01

Principal Balance$46,930.02

Est. Market Value$11,000.00

Payment Amount$328.14

Note Rate7.500%

Sold Rate7.500%

Seller asking: $1,877.20 (4% of UPB)

Next is http://www.fciexchange.com/TEXAS/Conventional/Non-...

General Note Information

Product ID0041039

Lien Position1st Mortgage/Deed of Trust

Note StatusNon Performing

Note TypeConventional

# of Payments Last 12 Months0

Paid To09/23/2014

Loan Maturity08/01/2028

Property TypeSingle Family Res

Original Balance$38,708.67

Principal Balance$37,267.30

Est. Market Value$40,000.00

Payment Amount$404.21

Note Rate9.500%

Sold Rate9.500%

Seller asking: $18,633.65 (50% of UPB)

Lastly: http://www.fciexchange.com/OKLAHOMA/Conventional/N...

Product ID0040910

Lien Position1st Mortgage/Deed of Trust

Note StatusNon Performing

Note TypeConventional

# of Payments Last 12 Months10

Paid To10/15/2014

Loan Maturity07/15/2026

Property TypeSingle Family Res

Original Balance$51,000.00

Principal Balance$44,187.50

Est. Market Value$0.00

Payment Amount$458.40

Note Rate7.000%

Sold Rate7.000%

Seller asking: $35,738.85 (80.88% of UPB)

[James C.]

Eddie,

I'll take a whack at this, the answer is going to be high level, as the question(s) requires a very involved answer.

Overall:

NPN are usually priced on % of the lesser of UPB or BPO price. Example, borrower owes 100K, property worth 50K. If you offer 50% UPB, then you are at 100% asset value. That is a big looser deal. You need to figure holding costs, FC costs, etc. The outside of a house can look great, and it's stripped inside. So, the BPO value is too high. Pricing NPN is a bit of an art.

That having been said:

NPN 1 - at $1800, it's a looser IMHO. The property value is 11K, it will cost you that and more to foreclose, The picture seems to show deferred maintenance. Youngstown is a tough market from what I gather. With a paid to date of 2013, it's highly unlikely the borrower will start making payments again. Plus, if it's on FCI, it's been worked at least twice, if not more. I would look at the file to see if any borrower contact had been made, and if they were amenable to paying, or issuing a deed in lieu, and do a quiet title for ~2500, but I wouldn't count on it. This assumes that the file is complete, the allonges are correct and title proves out... which are all money out the door before you buy... you get the idea.

NPN 2 - Nice area, close to areas that are building up. House is not bad for the area... but is on the smaller side. Loan notes indicate that there was borrower contact recently and the house is just vacated. So, you aren't going to get the borrower to start paying. You'll be taking this one back as well. Spend 19K to buy, ~15-20 to hold, foreclose and market. You're at the value of the house. If you can get a DIL, then maybe. Overall, another looser IMHO, but a better class of looser (there might be some money in it). I'd look at the file, and see if I thought I could do a DIL and go from there.

NPN 3 - Marketed as an NPN (correctly), but is really a semi-performer. These can be gold. This one requires a bunch of due diligence, mostly for allonges, assignments and original paper, plus asset and payment history. I'm curious as to why the current MH didn't do a modification, get the borrower current, then season to sell. That would be my approach. Assuming that the due diligence checks out; paper trail is good, and it's worth substantially more than the outstanding balance and the payment history is as stated, then you might have a good one here.

A note on FCI, the have a decent reputation on Bigger Pockets. I have had a conversation with Mr. Albrecht at FCI about servicing, and IMHO, they know their stuff. I don't think all their FCI listed notes are serviced with FCI servicing (they are different divisions of the same company), but I could be wrong. This means that if they haven't been serviced correctly (ie a reputable servicing company like FCI), you might have issues. I have not placed any notes with FCI for servicing, so I don't have any first hand experience to mete out.

ARV (I am guessing As Repaired Value), only applies if you are going to take the asset back, rehab it an rent or sell. If you overpay for the note, you are overpaying for the underlying asset. I would always calculate off of as is value, and discount that. Put another way don't try to arbitrage the property vs. the note, keep them separate. A note is not a property and a property is not a note.

NPN - again, no rules, but if you have a "clean" asset, and you have to foreclose... 50% or less of the lesser of UPB or GOOD BPO value is a target to look at. You might be able to go higher if there is additional pledged assets they still own, or they are making partial payments, or they are willing to do a DIL etc. etc. No hard and fast rules. The lower your purchase price, the more room you have to deal with issues.

Hope this helps. I'm sure others have different takes on this, but that is what makes it a market!

Good Luck!

Jim