Preferred exit strategy for Non-performing loans

Exit strategy

Investing in notes is a multi-exit strategy investment.

Investing in notes is a multi-exit strategy investment. Depending on the borrower, property, title and collateral condition one ends up with one of an array of exit strategies. During the due diligence phase, we get a general idea of where the deal is going to end up in, but we never know for sure until we start interacting with the borrower.

To reinstate the loan the borrower has to pay the arrears to bring the loan to a current condition.

To reinstate the loan, the borrower has to make payments to bring the loan back to a current condition. He would have to pay all arrears or make a substantial payment to justify that we forgive or postpone some of the past-due installments or late charges.

In case that reinstating the loan is not possible, the loan can be modified. We can modify the principal, interest, maturity or a combination of the three. We always have to find the combination that results in a monthly payment that the borrower can afford with his current income and that meets the desired ROI on our investment.

When we are able to work out a reinstatement or modification the borrower starts making payments and keeps his home.

When we work out a reinstatement or modification with the borrower:

  • The borrower keeps his home which brings us personal satisfaction.
  • We start receiving cash flow almost immediately.
  • Our risk is minimized as we don’t have to take on any repairs.
  • Property related costs are handled by our servicer company with the borrower’s escrow funds.

After 6-12 months of enjoying the cash flow, we can sell the re-performing note and cash out of the deal, or we can keep it for as long as out joint venture partner feels comfortable with keeping the investment.

That is why our preferred exit strategy is reinstating or modifying the loan.

Howard Marcalle


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