Mortgage notes?

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Sclass
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Mortgage notes?

Post by Sclass »

So somebody mentioned to me about this deal where you buy a note from a home buyer and you get an easy 10-30% interest. He said if things went wrong he could foreclose technically. I didn't want to pry too much because this met my uh oh criterion of > 20% interest...somehow every Ponzi scheme I've seen advertised this rate or more.

Also I didn't want to pry into my pal's financial affairs. I just said that's nice. Good stuff.

Well I typed in mortgage notes at google and all these sites come up. People basically saying that investors with small amounts of capital can play bank and buy these notes - from the website of course - and get 10-12%. The scary part is all the testimonials by innocent sounding people about how easy it is. "Forget buying and leasing just buy notes and collect the checks." Wow. Really? Just search our listings, see the map, check the borrower profile then buy the note and start receiving income.

Anyone know anything about this? It's some kind of industry out there. I'm not sure how they can safely give you those rates. Is it a con? Or is the borrower risky? Why would anyone not go to a bank during QE unless they're a credit pariah?

Just curious. I've heard of groups buying up lottery annuities. There's a really entertaining book about it called Money for Nothing. So I get it, people buy up income streams...but a state lottery commission is a heckuva lot more credit worthy than Joe and Jane borrowers who skip getting a bank loan.

jacob
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Re: Mortgage notes?

Post by jacob »

You're talking liens. I think there was a very old thread here by someone doing this but I can't find it.

What could go wrong is that you end up owning a foreclosure that's essentially worthless; but now it's in your name and the city is demanding you bring it up to code or be fined. Also, RE taxes.

You're essentially buying a call option on a piece of property. As I understand it, you pay, say $1000 and now you get 20% yield. This can go two ways. Either you get all your money back + 20% (Yay! That was easy!) Or ... the property owner says screw it, stop paying you, and now your lien is no longer a high yielding security but a claim on the property which you may have no interest in actually taking over (Oh Crap!) unless you want to.

Probably best seen as an alternative way to obtain the kind of real estate that everybody else is giving up on (for whatever reason) for little money.

I'm presuming that the enthusiasm comes from beginning investors that haven't had anything go bad on them. Similar to the initial enthusiasm in the P2P-loan industry.

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Sclass
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Re: Mortgage notes?

Post by Sclass »

Thanks for the info. I will let somebody else buy this.

Seamus
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Re: Mortgage notes?

Post by Seamus »

Interesting. So say you're renting month to month and buy one of these notes nearby. You either collect, or foreclose and move in while you bring it up to code. Win-win as long as long as you had a realistic idea of how costly the renovation would be from the start?

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Re: Mortgage notes?

Post by jacob »

Or the foreclosure drags on in court for months because of legal challenges, etc.

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Sclass
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Re: Mortgage notes?

Post by Sclass »

Right. As we saw in 2010 foreclosing can be easier said than done. I also just heard an FOF story about somebody trying to get a lien back for money owed. He had to check back constantly to see if the house sold and had a narrow window to catch it during or before escrow closed. I don't know all the details but I'd say the people who sell these notes stating "technically you can foreclose" are not explaining all the difficulties in this.

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