The non-performing note (NPN) is the nucleus of real estate investing, and Become the Bank™ is the Road to Wealth. The note business in real estate starts with a mortgage, or a promise to pay.
When a financial institution does a loan modification or a reinstatement, the loan process starts all over as though a new mortgage is written in terms of income. With foreclosure, the financial institution repossesses the property and sells it as an REO. By “Becoming the Bank,” the investor can manage this process, except that there are more options. The road to wealth starts with the strategy of investing in NPNs. The additional strategies are implemented once the investor controls the note.
In real estate notes, the intent is not owning the property but controlling the paper. The options for management in “Becoming the Bank” are many. First, let’s review a few steps:
- Locate a good source for non-performing notes.
- Establish acquisition criteria: area, mortgage balance, current market value, type of loan acquiring, etc.
- Establish one or more exit strategies.
As the bank, we have a responsibility to the consumer to assist in getting the note re-performing, understanding that re-performance will not apply for all notes, for many reasons.
In note acquisition, we recommend the Model of 10™. When 10 notes are acquired, six will re-perform, two will accept cash for keys (deed in lieu) and walk away, and two will need to be foreclosed.
1. Make sure you are working with a reputable servicer. Being the bank requires you to be in compliance, especially when you are working with the consumer and have access to sensitive information.
2. Provide the servicer with your strategy on working with the mortgage holder. The servicer may modify to a point but remember, you are the bank. Notify the consumer of change of lender who owns the note, contact information, and next steps.
3. Understand what your objectives are. Get your note re-performing, adjust interest rate, modify note balance, re-configure loan.
Using the Model of 10™, two properties will accept cash for keys, or deed in lieu of foreclosure. Establish your payment threshold as well as terms and conditions, such as leave property in 30 days and in good condition, etc. These properties, once settled, become the REO for rehabbing or wholesaling (liquidate at a lesser price). If the option is to rehab, you create a rental; contract for deed or leasing are alternative income potentials. If wholesaling, you become a source for flippers.
The remaining two are foreclosures. Your choices are to foreclose yourself (pick up where the original lender left off, which is recommended) or sell them off as NPNs.
Become the Bank™ provides the investor open-ended opportunities with many paths and provides long- term wealth. When buying NPNs, you the investor become the note holder, and as the note holder, or “the bank,” you have flexibility in working with the consumer/mortgage holder. In working with the consumer, you must stay in compliance; as the note holder, you implement the strategy.
The Non-Performing Note is the nucleus for all real estate investing in distressed product and essentially is the beginning process to all distressed properties. As the investor, you become self-sufficient in creating other real estate models all the while building long-term wealth.