Consider Buying Nonperforming Real Estate Notes

Today we’re talking about pros and cons of buying nonperforming real estate notes from banks. Check out our YouTube channel and this article from National Real Estate Investor for more on the topic!

We think some commercial real estate opportunities are about to become abundant in some areas of the country after the first of the year. Depending on what may pass through this latest stimulus act working through Congress, there will be fewer restrictions on the foreclosures on commercial properties and evictions for people who’ve been hurt by COVID-19, and we think you ought to consider taking a look at purchasing mortgages or notes on non-performing properties. Generally you would be looking at these with a with a lender who’s holding it, and doesn’t want to hold it anymore. You may be able to get in there before foreclosure and pick up some nice pieces of property in this way by buying the note itself.

Why would a bank want to do this? Foreclosure is expensive. It’s time consuming. It’s a a process based in law which they cannot negotiate with, or in other words change the rules. But if they sell the note in advance, then they’ve passed that burden on to the purchaser.

If you decide to go down this path, make sure that you get the lender’s entire file. Make sure that you know everything that they do about the borrower. Make sure you get the full payment history and find out exactly when the note started to be non-performing. If it was only non-performing during/after COVID-19, that’s useful information. You need to understand whether this borrower was having trouble even before the pandemic, so you want to conduct your own analysis on inspect the property, as well as the tenant.

Harvard Grace is actually forming a fund to pursue assets just like this, which we’ll be talking about here in the coming weeks. If we can help you do an analysis of a potential asset, let us know! We’re happy to help.