Note in default - NOT so fast…Caution ahead - Posted by Michael Morrongiello
Posted by Michael Morrongiello on June 14, 2000 at 19:59:38:
It is unlikely that most funders will loan you funds to purchase a deliqnuent non performing mortgage especially where the payor is in active bankrupcty. This is VERY speculative. Don’t get me wrong, there is some opportunity for profit on these types of deals but it has to be measured by the risk involved.
You need to either have the cash yourself or a line of credit to raise the cash or partner up with another investor who does have the cash and is willing to “weather the storm”.
If you purchase this mortgage and note, it MUST be in 1st lien position. If it is not then I would pass. Do a quick title search see if taxes are current,if they are not, then you have to factor that expense into the transaction.
I would also see what other liens may be juinor to this mortgage. These lienholder may be allies for you later on.
Another consideration is that your payor may elect to convert his/her chapter 7 bankruptcy filing to a chapter 13 creditor repayment plan. ( I just had to wait over 18 months before the debtor in this type of bankrupcty filing exited this plan). This could mean that as long as he makes his payments under the creditor repayment plan approved by the bankrputcy court, you CANNOT Foreclose.
Another area of concern is what is known as “redemptive rights or rights of redemption” that the property owner may have in order to redeem his /her property AFTER a foreclosure sale takes place. My recollection of Alabama is that it may be up to a FULL YEAR that a debtor has to redeem this property for the foreclose amount pluse arreages. This then may tie you up from doing anything with this property in the event you did acquire it through foreclosure. (the stiff drink known as the “Alabama Slammer” was arrived at from this ruling- just kidding)
Buying defaulted notes is NOT for the faint of heart. There is a lot of potential $$$ to be made, however you need to evaluate the transaction from the worst possible scenario and then add unknown expenses to that as well. That is how you would figure what is a good price to pay and part with YOUR Cash for this headache.
It may very well be that the $71K Cash offer to buy this mortgage is not enough of a discount given the battle to be wage ahead and the uncertain and uncharted waters that one must sail through to make a profit.
Best of luck my friend,