Due diligence on Non-performing notes

Due diligence is of vital importance in this trade

We are on the buyer’s list of this very active broker that sends inventory our way every week. The problem? We never agree on a price. From time to time we stop bidding on his assets, and when we do, we bid on one or two. Out of the blue, last week, a bid we placed was approved for the first time with him.

Once we started our due diligence I realized just how many assets we discard on this process. Although we spent funds researching these assets that we sometimes don’t buy, it is money well spent.

As we are dealing with paper, it is of vital it is of vital importance to have all the documents in order, especially title.

A title issue can make an investment useless if we have to foreclose on the property. That is why during due diligence we have to verify that:

  • Our lien is in the first position
  • The current owner is the borrower
  • Delinquent taxes
  • Existence of junior liens
  • Will junior liens survive after foreclosure in case we need to go there
  • That is why after our bids are approved we order a title search and we have a real estate attorney review it and the collateral file. If we don’t get the green light from the attorney, we don’t buy the deal, regardless of how sweet it might be.

On the bid that was approved we identified an issue that could cost us 5,500.00 if we have to foreclose on the borrower. We faded our bid and will wait for a response from the seller. Maybe we will still be batting 0-100 with him.

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