Note Sale : What are the pros and cons of a Note Sale ?

In a Multifamily appartment deal, I would like to understand the pros an cons of a Note Sale ?
In Buying Property - Asked by Mani R. - Jun 22, 2010
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Rob B.
Chandler, AZ

The first question may be is it a performing or non-performing note? This is quite important not only in the pricing of the discount for the purchase of a note, but for the setting of a strategy for why the note is being purchased.
The second major question is what is the priority of the note? This becomes important in pricing and also in evaluating risk.
The third question is what is the quality of the multifamily asset that the note/s/ are attached to?
To attempt to give you the pros and cons of note pricing and note purchasing is a larger job that can be undertaken in a simple answer to what may be a complex question.
It would be my recommendation that you do not participate in a note transaction without sound advice from legal, financial and an experienced commercial, multifamily broker.
Rob Baird, CA RE License #544165 (One of the oldest active RE licenses in CA)
951 515-5855

Jun 22, 2010
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D D.
Irvine, CA

Rob Baird's answer below is quite accurate. Further considerations are that when purchasing a note you must realize that unless the borrower is willing to give a Deed in Lieu of Foreclosure you will need to complete the foreclosure process (typically 120 days plus) and pay all the associated costs of same. You have exposure of the borrower filing for protection under the US Bankruptcy Code and this could further delay your foreclosure.
With all this said it is not a negative issue for you to buy a note just consider ALL these matters when pricing the note for purchase. The costs to obtain a receiver to collect rents and maintain the property properly for example could be tens of thousands of dollars but could save multiple times that in rent collections and other matters.
If a Borrower declares bankruptcy you would need to get a relief from stay in order to complete your foreclosure and that may require the assistance of a attorney to perform and you will likely need some form of independent valuation to illustrate to the court your reasons and ability to foreclose with harming unsecured creditors.
All in all it is best to secure the assistance of a real estate professional that is experienced in such matters and has the proper rolodex of professionals to complete the various tasks needed to complete this more complex but potentially more profitable method of real estate acquisition.

Jun 22, 2010
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Mani R.
Richardson, TX

Thank you so much. I am a first time Multi Family investor, I will get the answers for these question in a few days. Thanks Robert and Dawson.

Jun 22, 2010
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