buying a defaulted note?? - Posted by frankPA

Posted by David Butler on March 07, 2005 at 17:11:15:

Hello Frank,

Best we can do on the limited information about yourself and your personal finances - and the deal itself - is “YES… maybe!” Sounds great on the surface.

The things you’ll want to take into consideration can be found in numerous existing threads regarding your “objectives”; “commercial” properties and notes; working with “default” or “nonperforming” paper; and “payor defenses”.

Hope that helps, and best wishes for your successful foray into CREI using the “back door”.

David P. Butler

buying a defaulted note?? - Posted by frankPA

Posted by frankPA on March 03, 2005 at 10:23:16:

I have the opportunity to purchase a defaulted note on commercial prop. asking $25k. Balance left on MTG $55 FMV of building $90k.

Would it be worth it to purchase, foreclose on owner of prop and then have a building that is free and clear worth around $70-$90 FMV?

Then I could use this as collateral or exchange it right?

HDC issues - Posted by John Merchant

Posted by John Merchant on March 11, 2005 at 16:49:02:

Are you aware that when one does buy a defaulted note or contract, he is thereby put on legal notice of any & all legal defenses that the erstwhile debtor might raise in court when you try to sue him or foreclose upon him?

Those are called the Holder in Due Course (HDC) issues, and as a buyer of known “bad” paper you are thereby becoming, automatically, a NON-HDC and all those defenses are legally usable against you, if they do indeed exist.

Things like the debtor/buyer’s mistake or being a victim of seller fraud, or buyer/debtor’s legal incapacity, etc.

If you didn’t know of any of those defenses, you would possibly or probably be a HDC against whom they would not be legally usable, even if they did exist in fact.

So the fact that you do know, and you are on notice of buyer/debtor’s default, probably makes you legally subject to those defenses if any of such do exist.

Meaning? You have to be much more careful when buying bad paper, as the debtor may just have some powerful defenses against the payee, now including you.