Posted by John Behle on March 08, 2000 at 13:05:20:
If you buy the note at a discount, that discount is yours and is a buffer. If you buy the property, a bankruptcy later shouldn’t be a problem. If you are looking at just buying out the lender’s note and riding out the foreclosure, there is a high likelihood of bankruptcy. In that case, you will have to ride it out without payments for a while, get an attorney and deal with it. It isn’t likely the judge would alter the amount owed to you in total, but could lower your payment for a while if it was an 11 or 13. Something like 93% of reorganizations do not work and turn into a chapter 7 later.
buying a defaulting note from the mortgage holder - Posted by JVeler_Ohio
Posted by JVeler_Ohio on March 07, 2000 at 24:08:21:
Hello! (Thank you for the great into to notes in Atlanta)I have been focusing on preforclosure deals, which seem to have a very high LTV. Here’s the scenario: ARV:$85-90,000< $5,000 for repairs. Principal on the first (only) is $59,000 plus interest and fees totaling $71,000. The lender is New Century. The mortgagor has waited until a month from the sheriff sale to sell his house. He wants to walk with $10-15,000 of course there’s no room if I just take over the deed, so I decided to try to reduce the note to the principal or less. I offered NC $38k cash, no bites. Got their attention at $50k. If I buy the note for $55k, and step into NC’s place, is my payoff now also $71,000? Is that discount my insulation? What if he does declare bankruptcy after I buy the note? My goal is to buy him out and then retail the house–but if he doesn’t cooperate?
Nothing like taking a big bite at your first meal!!! I just don’t want to choke! Thanks for your assistance!!
If you’re going to buy a defaulting note, your goal should not be to buy out the payor. If he’s not interested in selling or giving his equity to you for a workout and curing the first lienholder, you’re coming from a different angle. As a mortgagee, you’re interested in a workout with the payor or a foreclosure to resell the property.
If the payor has a capacity to pay but cannot pay accrued interest and past due payments, you have a chance to reinstate the loan at a higher yield since you bought it at a discount. If you must take back the collateral to cure the default, you must foreclose and resell the property after repair. Your reward would be the spread between the sale price and the acquisition cost. Your pay day may be delayed by a bankruptcy filing. Thats why you’d never want to pay more than 50 to 55 % of resale value to buy a defaulted loan.