Bad Note Deals??? - Posted by Charles

Posted by Charles on June 05, 1999 at 21:12:00:

Thanks John,
I was thinking of usung a national funding source and just creating a spread for myself in this hopeful deal, however if I can put it together you certainly have given me some other options to think over.

Thank you

Bad Note Deals??? - Posted by Charles

Posted by Charles on May 31, 1999 at 11:16:08:

John, or anyone with sound advise, I am newbie to REI and have been taking small steps to getting my first deal done. This site has been very helpful to me along the way.

I continually read the legals to get an idea of up comming auctions, one that really caught my eye was on a small appartment unit, the lenders attny. told me the delinquent 1st and only note was ~$500K, tax assesment and appraisal come in at ~$950K. The owner wants full price to sell property, but the lenders atty. said they may consider discounting the note, What should I do next?

Thank You

Re: Bad Note Deals??? - Posted by John Behle

Posted by John Behle on June 02, 1999 at 13:24:44:

This could be one of those cases of going after Mobey Dick in a row boat. Sounds like a great catch, but can you reel it in? The bank is going to want cash unless you can convince them to finance you. I’ve had them do it, but they don’t do it often.

It can’t hurt to ask, but it can also weaken your position in negotiating. If you don’t have another source to go to, then start with the bank. If there is no success there, you might want to go to your local REI group and look for someone with cash or financing abilities. It shouldn’t be hard for someone to get a loan against this property once you own it, but - - - you don’t own it unless they do not ever reinstate the loan and it goes through the foreclosure process without any higher bidders.

So, you would need money to buy the note without any assurance you would own the property. In that case, you would need an investor that is willing to put the money in the note for an acceptable yield. That may mean a substantial discount off of the loan depending on it’s terms.

So, the big question comes down to whether you know someone who can fund the deal. This might be someone who has equity in other properties.

Example… Investor pulls money out of a property at 8% interest and invests it into buying the note to yield 10-12%. You hope to get the property and worst case scenario is the investor gets a better rate of return on his/her money. You can take a piece of the action if you get the property and a piece of the cash flow. Let’s say for example that you negotiate the note discount to yield 12% and give the investor 11%. You pick up 1% interest on a good note or 50% equity in a property if it goes bad.