Sell Note - Bank Notes for Investment

Sell Note - Bank Notes for Investment

Sell Note - Bank Notes for Investment

Many brokers in the note business often find spreadsheets or tapes of a portfolio of bank notes that are either non-performing and don't have a lot of value or the bank notes have very little equity. These type of notes often have very little chance of getting sold, or if they do they are purchased in large quantities by institutions. Conversely, if you can establish a relationship with a bank portfolio manager then there are notes that can be very good investments. A bank will often sell a note just to get it off their books which is good for the investor looking for a deal.

The Texas Note Company networks with a series of bank managers and portfolio managers to be able to have access to bank notes that are ripe for the investor. Often is the case that we are able to come accrtoss a note that is owned by a bank and purchase at a deep discount. We look at the notes individually rather than in pools. Often the notes have gone through trouble in the past but now are performing again. Here are the details of the note:

Orig Note Amount: $68,000.00

Modified Amount: $78,808.00

Appraised Value: $82,200.00

Monthly Payment: $530.06

Interest Rate: 7.5

Term: 360 Months

Payments Made: 29

Payments Remaining: 331

1st Payment: 5/1/2008

The original note was created in 2006, the payor made a year worth of payments on time then ran into difficulty when like many people in this economy was laid off from her job. It was a difficult time for her to maintain the payments with no income and looking for a job. After about ten months she was able to land a new job. At that time she worked with the bank to restructure her note at which time a modification was done and a new note was created with a balance of $78,808.00. Since the time of her modification all payment have been made and on time.

To better understand the risk associated with this note we had to perform our due diligence and fully understand what we wwere getting into. The credit of the payor was still less than average even though she had take a turn for the better. She still had some outstanding credit accounts that had been closed or were delinquent. It takes time to get your credit back to where you wantit to be.

There were a several important variable for us to buy the note. The appraisal of the property, verify the payment history, payor interview and getting the right price for the note. The appraisal came in a little lower than we wanted at $82,200 which gave us a higher Loan-To-Value, (87%), but if the other variables were good we would let this be a deal breaker. We confirmed the last two years of payments since the modification; the bank , of course, had good records of the payment history just a little difficult to get it out of them surprisingly. The payor interview. Anytime we purchase a note whether from a bank or not The Texas Note company conducts a payor interview, you never know what you may find. In this case though it went great. The payor was a great person and enjoyed the fact that we were real people and would be available to her should she have any questions or concerns in regard to her mortgage.

The final determination was price. The lower than expected appraisal, could have made getting the price we wanted a little tricky. We wanted to be sure that if a default would occur we would get our investment back. We made an offer of $40,000.00, 55 cents on the dollar. The bank tossed and turned on that for a day before they finally cam back with a counter of $43,000.00 which turned out to be 58 cents on the dollar which in turn we accepted.

We in turn are happy with the investment, 42% discounted note with a 7.5% interest rate to give us a final yield of 49.5% return if we hold the note to turn. If the payor decides to pay off early we will receive 7.5% monthly payments and a $30,000.00 principle payment on top of our investment. All in all a good investment for us.

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