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preforeclosure note buying thought

reipro

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We have been working real estate for the past 7 years and 99% of all of our deals are preforeclosure. Most of them we have either purchased on of the mortgages on the property or went directly to the HO.

Use some of your own experiences to understand what I am talking about when a house goes into foreclosure.

Here is what I call the order of priority.


There are 2 people that you can deal with 1 is the HO and the other is the bank.

The HO is going to make an emotional decision based on there current circumstances. The bank is going to make a business decision.

How many people do you know that buy mortgages directly from banks? (none a few)
How many people do you know that chase HO's that are in FC? (maybe a few more)
How many people do you know that buy houses at the auction? (maybe a few more)
How many people do you know that buy houses from realtors that are REO's (a lot)

If you look at the process of Foreclosure buying directly from the bank before the sale is at the top of the food chain. We have wrapped up the deal before anyone else even gets a chance to get at it.

If you chase deals where you talk to the HO in FC and I have bought the loan at a discount I still make the spread even if you get the house. I can still chase the HO to get a deed instead of it going to FC.

If I get bought out at the auction I still make the spread and someone else gets the house.

I take the house back at the sale I still have bought the house at a great discount.

As you can see there are many benefits to being at the Top of the food chain.

Hope this helps!

David
If you think you can or you think you can't your right - Henry Ford
 
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ryanpal

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hi david, nice to have you hear.

(how's stacy? haven't heard from her in a while)

would you elaborate a little more on the process of purchasing the mortgage right from the bank?

-who do you contact?
-what do you say? i would like to purchase mortgages in default?
-what else is involved?
-don't you need a license when purchasing a certain amount of these?

thanks in advance,
Ryan
 

Bilgefisher

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There are many new laws dealing with pre-foreclosures. In Colorado, if you give any advice during your dealing with the HO, you are considered a foreclosure consultant and are no longer allowed to do a deal for the property. This is my understanding, please correct me if I am wrong.

I seriously thought about doing deals with pre-foreclosures, but the new laws have me second guessing.
 

reipro

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There are several ways around this issue. You can have different companies with different partners. This is the easiest way around this law. I am not sure that you have it in Colorado, but I do know of other states that have similar laws
 
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reipro

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Ryan,

Stacy is doing well. There are many different ways to purchase notes. We have started to buying notes in bulk. We still also buy on a one or 2 notes at a time.

In many states if you own or service more than 10 notes in any given year you have to be licensed.

Here is the typical scenario:

House is in FC
Value is $135K
1st is 85K
2nd is 35K

You will need to call the bank and say something like this:

Hi my name is David and I am with Cornerstone Capital and we are trying to get you paid on a note that you have. I have the name or address which would work better for you? They then will look up the note and transfer you to whom ever is handling the file. At this point you repeat what you just said and then ask for there fax number so you can fax them some information. You will then fax them an offer to purchase there note and deed of trust or mortgage.
 

andviv

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David, Thanks a lot for sharing this information with us. What has been your rate of success with this technique? What do you usually offer? 65%? 75%
do you go for the first mortgage only or also for the second?
 

nomadjanet

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David where do you get the information about the loan being in preforeclosure?
Is this public record?

I like your approach, I believe that if you keep the conversation as simple as possible you get a much better response from everyone. I expressed this thought when dealing with homeowners under durress.
Janet
 
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ryanpal

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David where do you get the information about the loan being in preforeclosure?
Is this public record?

I like your approach, I believe that if you keep the conversation as simple as possible you get a much better response from everyone. I expressed this thought when dealing with homeowners under durress.
Janet

Homes that are in preforeclosure can be found at your county clerks office. Yes it's public record and free to search on site. Some counties charge access from the web.

Ryan
 

ryanpal

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Ryan,

Stacy is doing well. There are many different ways to purchase notes. We have started to buying notes in bulk. We still also buy on a one or 2 notes at a time.

In many states if you own or service more than 10 notes in any given year you have to be licensed.

Here is the typical scenario:

House is in FC
Value is $135K
1st is 85K
2nd is 35K

You will need to call the bank and say something like this:

Hi my name is David and I am with Cornerstone Capital and we are trying to get you paid on a note that you have. I have the name or address which would work better for you? They then will look up the note and transfer you to whom ever is handling the file. At this point you repeat what you just said and then ask for there fax number so you can fax them some information. You will then fax them an offer to purchase there note and deed of trust or mortgage.

For the above example, which loand which you attempt to buy? The first at a large discount and then the 2nd for pennies on the dollar or else you just foreclose them off right?

Also, if I'm not with a company such as cornerstone capital are they less likely to work with me? If no, what would I want to reprsent myself as? Just a note buyer?

Thanks,
Ryan
 

kwerner

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David -

Great post (as usual), Speed ++

I too am curious about Andviv's question....

What has been your rate of success with this technique? What do you usually offer? 65%? 75% do you go for the first mortgage only or also for the second?

Thanks for offering your wisdom and experience.
 
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reipro

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In todays market there are a lot of first that are willing to sell as well as seconds. Normally for minimal cash out lay you would buy the 2nd from anywhere at 10 cents on the dollar to 35 cents on the dollar.

I would say our success rate is as good or better than offering a HO 75% of what a house is worth when they are actually trying to sell it.

It also depends on the bank. If we have a realtionship with them, then it is very good.
 

kwerner

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I'm trying to figure this out, I think I'm missing something....

What do you offer the bank (percentage-wise) if the property only has a first mortgage on it?

For example, let's say you've found a property being foreclosed on for $70,000, the homeowners have lived there for a number of years, and the FMV is now around $100,000. Do you contact the bank, fax them your purchase offer for 80% (?) of the $70,000 that they are foreclosing on?

I remember Stacy talking about this once on the RD forum, I don't recall what the document was, but you then have to send the homeowner info letting them know that you are the new note holder, right?

Then from there, do you proceed to foreclose on the property or do you have to start the foreclosure process over again, since the note holder has changed?

Then from there, can you still try to contact the HO (to get them to QC the property to you) or is there a conflict of interest there, since you are the holder of the note?

Sorry for all the questions... Damn rookies, we're always asking so many questions... :smxF:
 

reipro

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Ok here it goes. Kansas has a whole different set of rules, but here is what generally applies.


The house goes into foreclosure. You have to look at who owns the equity in the house.

If the house is worth 100K and the first is only 70K and there is no 2nd the HO owns the equity so you would need to talk to the HO. The bank would not likely take a discount on this note.

If house is worth 100K and the first is 100K you would need to talk to the first mortgage holder. As you can see talking to the HO would be a waste of time as they have no equity in the property

If the house is worth 100K and the first is 60K and the 2nd is 35k You would need to talk to the 2nd lien holder and buy their position. Most of the time we would offer the 2nd between 10 and 50 on the dollar so this puts us into the deal counting the first at around 65-75%.

Yes there is a whole bunch of paper work that goes along with buying a note. And yes we still talk to the HO to get a QCD from them.
 
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nomadjanet

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Homes that are in preforeclosure can be found at your county clerks office. Yes it's public record and free to search on site. Some counties charge access from the web.

Ryan

Yes, thank you for your response. I know that once the foreclosure notice is filed it is public record, I thought there was some how that they were getting notified of items that had not been filed as yet but were about to be. Guess I was confused about the concept.
Janet
 

nomadjanet

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Also, if I'm not with a company such as cornerstone capital are they less likely to work with me? If no, what would I want to reprsent myself as? Just a note buyer?

Thanks,
Ryan

Oh but you can be with a company, all it takes is a few pieces of paper and a few dollars and you can be Equity Capital or Linoln Capital or whoever you want to be. :smx1:
Janet
 

reipro

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Janet,

We do get list from banks that want to sell the mortgages all the time. So we do get notice a lot of time before there is a FC in process that is public record. If you want to work your area then the Notices of Default (Non-judical state) or Lis Pendis (Judical States) is the best way to go
 
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ryanpal

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Oh but you can be with a company, all it takes is a few pieces of paper and a few dollars and you can be Equity Capital or Linoln Capital or whoever you want to be. :smx1:
Janet

Yes Janet, I'm aware of that. I guess I should have been more specific. Who do I say I am if I want to represent myself as an individual ... not as a company :)
 

kwerner

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David - Thanks for the reply; that definitely clears up some of the questions I had. I also found one of Stacy's old posts from the RD Forum (I've saved all of hers in a file) that also made me realize some of the risks associated; but it still seems to be worth looking into.

You two have always been so generous in sharing your time and expertise; I'm sure I speak for everyone when I say "thank you", I am truly grateful.
 

ryanpal

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David,

Few Questions if you don't mind:

1. Is it better to contact the bank/lender during the Lis Pendens stage or shortly
before they go to sheriff sale?
2. Should I have the paperwork ahead of time or will the person handling this file
instruct me on what I need to provide etc.? (The reason I ask this is because for short
sales, it's my understanding that you should have everything in place so that it's as
easy as possible for the employee)
3. In the scenario you gave FMV 135k, 1st is 85k, 2nd is 35k. Let's say I purchase the
2nd for a decent discount. What's the next step?
4. I mentioned above but I guess you missed. When I call up the bank, it's ok to say
"Hi my name is Ryan. I'm a notebuyer and I'm trying to get you paid" correct?

---
Many properties that I have overlooked can fall under this category. I'd like to take action and start making calls immediately. I just want to have some of the basics down pat so I don't look like I've never done this before.
Any info is appreciated.
thanks,
Ryan
 
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reipro

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Ryan,

You live in KS correct? If you do we need to talk as the normal rules do not apply in KS. let me know
 

kwerner

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Ryan,
You live in KS correct? If you do we need to talk as the normal rules do not apply in KS. let me know


I think you might have been thinking of me :) I'm from Kansas.

Would you mind if I contact you personally sometime this week to bounce my REI plan off of you? I'm still working on putting it together, but once I get the loose ends tied up, I'd be honored if you'd critique it or could offer some additional suggestions.
 

triple J

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A 1st mortgage wipes out a 2nd if you foreclose on the 1st, so buying the 2nd might not be necessary. If you purchased a 2nd, you would need to make sure you're in a position to not be wiped out by the 1st in a foreclosure and have a plan.

Just wanted to point out that you can't get a mortgage on a mortgage. Purchasing notes- at a discount- requires cash. Please correct me if I'm wrong.

I know a group of people who have bought $millions in non-performing notes and I use to help them find and sell them. Very interesting business!
 

reipro

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RyanPal,

That would be fine. I would be more than happy to look at your plan. NJ is a great state to to business in. The only bad part is the long FC process.
 

reipro

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A 1st mortgage wipes out a 2nd if you foreclose on the 1st, so buying the 2nd might not be necessary. If you purchased a 2nd, you would need to make sure you're in a position to not be wiped out by the 1st in a foreclosure and have a plan.

Just wanted to point out that you can't get a mortgage on a mortgage. Purchasing notes- at a discount- requires cash. Please correct me if I'm wrong.

I know a group of people who have bought in non-performing notes and I use to help them find and sell them. Very interesting business!


Triple J

You are correct about the first wiping out the 2nd. The second has many options if you know the business. We have a rather large line of credit that we use to buy mortgages with from a local bank here. We can use the money to buy all over the country. So yes you can get a loan to buy mortgages. We also have a 7 year successful track history.
 
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traderjphx

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Great post. How do you pay for the note? Can you use hard money? Can you assign your purchase of the note prior to having to pay for it just like wholesaling a purchase contract? Joe
 

reipro

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Yes if you find the right buyer. There are note brokers out there just like mortgage brokers and real estate agents
 

andviv

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bump.

This thread has great information in my opinion.
 
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Deuce

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Yes, DEF great info here! I'm glad it was brought back to life!!
 

kwerner

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How ironic that you bumped this up today Andviv. :)

I'm actually getting ready to buy my first note & mortgage (a 2nd that hopefully I can get discounted down to 10-20%).

Right now I'm looking at setting up a new company for the purposes of buying notes.

The angle I'm taking is finding pre-foreclosures with a second mortgage where the homeowner has their house LISTED FOR SALE with a Realtor - I check the MLS "status" update of it every day, and if it goes under contract, that's when I make my offer to purchase the 2nd at a discount.

I think this strategy will greatly reduce my chance of getting wiped out and should be an easy way to get cashed out (at full value of the note) in a relatively short period of time.
 

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