Buying Mortgage Notes – What Motivates a Lender or Bank Rep to Sell?


Below is a question I got asked recently. I thought this was valuable info, so I am sharing it with you here:

“I’ve been reading everything I can about why lenders would be willing to sell properties at large discounts.

Dean, what would be a lender’s main concern which would get them to sell mortgage notes at deep discounts? I feel that since we’re trying to get into the minds of the LMREP, it would be more advantageous to all, if we could sell our services to their main concerns.”

My reply: Make sure you distinguish (in your thinking and in your language) properties from mortgage notes. You mentioned both in your question above.

You mention both in a question to a bank rep and if I were them, I’d immediately write you off as a knucklehead who doesn’t know a deed of trust from a deed and wouldn’t respond to any further emails or calls from you.

A Tip For Buying Mortgage Notes

Just a word of caution to bone up on your note lingo before you talk to the banks:

You get one chance to make a good first impression, when you’re talking to the key person/gatekeeper when buying mortgage notes.

How is that for wisdom?

A few reasons:

Institutional-Level Reasons to Sell Mortgage Notes:

a) banks in the process of merging, or posting quarter/annual financials and needs to get assets off its balance sheet. Quick way is to sell the notes

b) bank may have a “relationship” with the borrower, or there are extenuating circumstances.

c) banks may be under pressure (image/marketing, legal or other) not to take “aggressive” recovery action (foreclosure) against borrowers either across the board (image has been hindered by bad press in foreclosure action), in a certain geography (Detroit/Cleveland, hard hit urban areas seen as minority/poor/fraud-rich) or in a certain situation (1st time minority home buyers)

d) bank may not want to actually take borrowers to sale, though having no trouble with foreclosure procedures. (I’ve often found myself in the position of buying mortgage notes from a bank 1 week prior to sale because they didn’t want to be seen carrying out the actual foreclosure)

e) loan is upside down and doesn’t warrant recovery action/expense (small 1sts sub $20k on properties of similar value may never be foreclosed on by certain banks – great opportunities in buying mortgage notes present themselves in many cases)

f) bank wants to “price” a part or all of its non-performing book, in which case it sends out loans to bid to see what the market would pay for them.

Individual Rep Reasons to Sell Mortgage Notes:

a) loss mitigation rep is “sick” of dealing with a particular borrower. Never follows through on reinstatement promise/swears at loss mitigation rep/ticks rep off

b) borrower is non-responsive, no contact

c) long foreclosure state/process

e) rep or rep’s direct boss has authorization over certain level of write-offs and mortgage note sale (unsolicited or solicited) is within that level (take note here: e.g. 30% discount on $30k loan is $9k – rep’s boss may have authorization to write off up to $20k/loan, same 30% discount on $100k loan is over that limit, would require boss to send “up the line” and takes too much work for rep and his boss, so they’ll pass)

f) rep needs a few extra bucks to meet monthly recovery quota – a last minute mortgage note sale could get them bonuses (usually banks, not mortgage companies/wall street/hedge or private equity funds)

Hope this was useful to you.


Source by Dean Engle

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