Re: Buying note from bank - Posted by JohnBoy
Posted by JohnBoy on March 13, 1999 at 13:37:42:
This would be two separate transactions. I didn’t promise the seller anything. The seller just wants to give the property back to the bank at this point.
As far as getting the bank to discount the note and finance it, I just asked. I asked them if they ever get any bad paper they would like to sell off which would save them from going through the foreclosure process. He said all the time. I said if they would be willing to finance it I would be interested in anything they have. He said that wouldn’t be a problem. They just did a loan for me so they already new what my credit was like.
He told me he has a property that they refinanced at 85% LTV less than a year ago. They will sell me this note at a $20k discount because the seller is delinquent on the payments.
If the bank sells me the note then the $20k they discounted would be mine to collect on since I would own the actual note. So how could the bank charge that amount off against the seller? That would mean the seller would owe both the bank and myself the same $20k meaning the seller would actually owe $20k more then they borrowed. If I bought the note and then I took the property back from the seller in lou of foreclosure then I would be the one that could charge off the $20k against the seller if I sold the property for $20k less the note, not the bank. The bank never would have taken title to the property.
Since the seller is just willing to give the house back, then I would go look at the property and if I wanted it I would have the seller deed the property over to me. Once I have the property deeded to me and before I record the deed, then I would make sure I can get title insurance and that there aren’t any other liens against the property. Then I would buy the note from the bank. Once I have purchased the note then I would record the deed and sell the property to another buyer on contract for the retail value getting a down payment up front and collecting on the spread every month.
Another way I could sell the property is by getting a buyer that would qualify for a new 80% LTV mortgage. Get $5k-$10k down, have them put a new first on the property at 80% LTV and carry back a second. This way I’m off the loan to my bank and I would carry a $15k - $20k second depending on the down payment amount my buyer has.
What I don’t understand is how the bank could report a charge off against the owner for the discount they gave on the note to me. The bank never repo’d the house. They only sold me the note at a discount, so that would be their loss, not the sellers. Once I own the note then the seller is liable to me for the face value of the note. It would be up to me to collect on the note at this point or let the seller out of it by taking the deed in lou of foreclosure.
I would think the only way the bank can report the $20k as a charge off against the seller is if they actually took the property back in lou of foreclosure and THEN sold me the property for $20k less than what they had into it. Is this correct or not? Am I missing something here?