What you need to consider before purchasing non-performing notes?

Some years ago, banks would have been more persuaded to foreclose on a non-performing commercial real estate property. Nowadays there are more and more banks decided to sell their billions of dollars’ worth notes.

Why is this happening? Because banks are in the business of lending money, they don’t make money owning and operating real estate, besides, when the bank sells the note, it stays out of the chain of title and doesn’t have any concerns about the time—and expense—of other property management and ownership issues; and if you add to this the cost and energy of marketing the property to possible buyers following the foreclosure and the many existing properties already being carried on their books, there is a clear vision on why banks were looking for an alternative to foreclosures. Note selling has become a new alternative.

For people who become a buyer, the benefit of purchasing a non-performing note is simple and clear: they have the chance to acquire the loan and underlying property at a great discount from its initial price. After purchasing the note, the buyer has two options: to negotiate a new loan with the borrower, or foreclose on the property itself. It is more common that the buyer owns the site and forecloses.

Fci non-performing notes

 

There are many cases of buyer success in this depressed market. However, buyers must be aware of the business, if there are people wanting to buy non-performing notes in multifamily; they need to think about this:

1. Make sure you learn about all the foreclosure laws in the state in which the underlying asset is located. In some states, there are non-judicial foreclosures and the process can be a long one. But in other states, the process can drag on for quite some time.
2. Learn about the percentage of the multifamily asset that is leased and, of such leases, how many tenants are paying their rent consistently.
3. Find an effective way to get the original note and all related amendments and assignments.
4. Obtain as much information as possible from the lender about the asset before investing money on due-diligence investigations. The lenders have many files about each asset so you will probably have to push them to release the materials to you.
5. The situation of multifamily improvements is most of the times more critical than other property types since the turnover of leases is so frequent.

If you need more information, go to www.fciexchange.com to learn more about purchasing non-performing notes. Like us on facebook at Fci Exchange or follow us on twitter at @fciexchange.