I'm looking at a listing for a non-performing loan. The broker says that the property is default, and that I would purchase the loan, and foreclose on the buyer. Why don't they just foreclose themselves and sell the property? What am I not getting? Is this just bs?

Maybe it's not the 1st Mortgage . . . . but a subordinate 2nd or 3rd.

In the event of foreclosure, they may just get crumbs . . . . or even less.

I have one Seller here who Owner-Financed at the time of sale (and I got paid) but a few years later when the Buyer wanted to re-finance, the new Lender asked the former Seller (who had been the First Mortgage Holder) to sign a sub-ordination Agreement, thus making his Note secondary. When Foreclosure time came, the former Seller got nothing.

I have a suspicion that the "broker" you're referring to IS NOT a Real Estate Broker . . . . but I could be wrong. These are desperate times.

Are you talking to a real estate broker or a mortgage funds broker?

If you are buying the note are you purchasing lender direct or are you talking to someone in a daisy chain trying to get a finders fee?

Is this a commercial property? Banks sell off notes instead of foreclosing for many reasons which I can't list all of them here.

In fact in commercial selling off the notes at a discount is having much more success than short sales or commercial OREO.

If you are buying the note you need to know the position and restrictions and what collateral you would be foreclosing on and the costs involved.

Notes are analyzed on a case by case basis just like any real estate deal.

Its not direct through the lender. If I were to foreclose on the current owner, I would then have to satisfy all leins against the property, correct? I reviewed the title policy, it lists a few mechanics liens, and a couple mortgage liens. It seems if those were paid off, its still less than what the commercial property is worth.

I am not there so I can't say. If you were in buying Georgia I could analyze the deal for you.

When buying the note you have to make sure you are purchasing the senior lien. Meaning once you buy the note and want to foreclose if you were the senior lien you would wipe out all other positions except for property taxes and IRS tax liens (the IRS has 120 days to make claim or their rights expire).

Now at foreclosure any one of the junior lien holders could bid and pay you in full and you wouldn't get the property. The goal would be to buy the note at a discount.

Example property is currently performing at a value of 2,000,000.

Your note at face value is 1,000,000. You buy the senior note position for 700,000.You go to foreclose and one of the juniors is the winning bidder. They would pay the full 1,000,0000 value plus or you would take the property back.

This is simplified and there are a ton of variables.

no legal advice

Determining restrictions,state foreclosure laws and costs and redemption rights,and lien position of the deed along with condition and location of the collateral is most critical.

If I own the note, couldn't I bid whatever I wanted to outbid the junior note? Basically I would be paying myself anyway, right? For me to purchase this note, I wanted to get the commercial property out of it through foreclosure.

The owner of the property could file bankruptcy to stop the foreclosure action if they wanted to.

You would need to check if the loan is a recourse or non-recourse loan.

The bidding process and foreclosures vary by state.I would check with a foreclosure attorney prior to purchasing the note so that you are correct in your assumptions and your strategy.Some states have very long redemption periods after foreclosure for the previous owner.

If the owner of the property just wants out of it you could negotiate a short payoff to all lien holders and just have the owner quit claim the interest to you.

There are many,many ways to go with this deal and you need to really think about and make sure you go with the best option that will meet your goals.

Good luck-no legal advice

The amount of reserves banks have to set aside when foreclosing on the commercial asset are extremely high. In addition, they do not want to deal with the junior liens, potential BK filing and management of the asset.

As a result, many banks will sell the note for a significant discount and let you deal with those risks.