I have been in the note space in various ways since 1985 with the purchase
of 20 acres in Scarborough, ME which was developed into 17 house lots. The last lot I sold with seller-carry.
To that point, in the last 14 months 4 notes have taken a turn for the worst and required developing a work out strategy to protect my interests or if a partial to protect the interests of the partial buyer.
Currently I buy, keep, create partials and broker notes from around the country. Mostly performing notes | Contract for Deeds. Very rarely do I purchase non-performing notes. It just is not my thing. However, notes can and do go bad. The payor has personal issues, etc. Life just happens.
CASE STUDY 1
I purchased a performing note in Mishawaka, IN in 2015. Great #’s great pay history. Good colateral. I found a buyer to fund the purchase via selling a partial and in effect a double close. It was good for them and good for my ROTH. Fast forward to April, 2018, the payors health took a turn for the worst. They called the servicer stating they would not continue paying and were going into a Bankruptcy. My 1st challenge was to keep my partial investor whole. I made up 4 months to the partial buyer, completed a deed in lieu with the payor, rehabbed the house and resold it in February, 2019 at which time the partial buyer was made whole. Throught the process, the partial buyer was in the loop and concurred with the workout and dispostion. They were made whole at the COE. A couple of months later they thanked me stating it was all good especially the net 11% return. To boot my ROTH cleared $20k on a small value asset of < than $70,000. It was a win for everyone. Even on a lower value property.
Note workouts are not rocket science. It is a matter of treating every party fairly.