This is Blog 3 of the FACTS system that I created for
Non-Performing Notes. This Blog clarifies the C part to “CONTROL the process”
of selecting and negotiating the contract to Buy the list from the bank:
The bank usually follows specific steps to sell the non-performing
mortgage notes that they have.
Here is a checklist to follow and control the process of buying
non-performing mortgage notes: (Analyzing non-performing notes is a separate
blog)
1.
Show proof of funds for a
specific gross amount that you will buy at a discount (Could be as low as 20 to
30 cents on the dollar- it depends on amount purchased- volume of notes and
bank relationship)
2.
Bank usually gives you the list of non-performing notes with a UPB column (the UPB is the unpaid
balance amount) that you need to confirm
3.
If you are buying in bulk, the bank usually gives
you approx. 45 days to do a due diligence (see blog about
Timing the due diligence)
4.
If you are satisfied with the due diligence, get
the actual mortgage (or trust deed) security instrument assigned over to you or your entity.
5.
The assignment, once executed and recorded,
will transfer all rights, title, and
interest in the instrument to you; the assignee. (If bank had started the
process of foreclosure, it may work to your advantage in saving you time and
money as well as creating a sense of urgency and better response from the
defaulted Borrower)
6.
Make sure you have physical possession of the original
promissory note instrument and it is endorsed over to you or your
entity. (This is the negotiable instrument you are purchasing and whose rights
you will be able to enforce for non-payment of the debt).
7.
Make certain that the assignment of the security instrument and the endorsement of the
note matches one another. (The endorsement can take place right on the
actual original promissory note instrument).
8.
You may want to obtain an
estoppel affidavit from the Bank/Assignor. They will affirm for you the actual
balance and terms of the note and this might be useful in a later dispute with
the debtor.
9.
Send notification
letters
to the defaulted borrower and the fire hazard insurance agent to notify them of
the transfer of the note account. (These are often referred to as so called
"goodbye," "welcome," and change of loss payee letters).
Now you are in
CONTROL on the Non-Performing Note and the collateral real estate asset backing
it up. Start by offering the bank
20 cents on the dollar. I paid as much as 50 cents on the dollar for good
Non-Performing Notes and as high as 85 cents on the dollar for Performing
Notes. The goal is to get the Non Performing notes less than 30 cents on the
dollar (The “dollar” being current value). It is all based on UPB vs market value.
In the next
blogs we will discuss how you can Time the process of final due diligence then close.
And Strategize by following the state rules for collection, foreclosure and/or
negotiation with the defaulted Borrower.
Always use a qualified attorney familiar with non-performing
notes to verify the control process describe in this blog.
Wishing you best investing results,
Cherif Medawar
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