Note Buying

What Is A Note, Who Sells Them And How Do I Buy Them?

To put it in plain terms, a note is a promise of payment, a sophisticated IOU. The person who makes the promise is the payor and the promise is between them and the beneficiary. Because we deal directly with the FDIC and banks, the beneficiary in our case is the bank, and the note is secured by collateral. The collateral can be anything from a retail center, to a personal yacht, but it is usually real estate. When you purchase the note, the collateralized debt is assigned to you.

Compared to a hard asset, like a large apartment complex, a note is fairly liquid, but it’s not cash, which is why the bank is willing to sell the note for cash; this frees up capital and reduces the bank’s liabilities. Balance sheet clean-up notes are sold directly to a buyer without the involvement of the FDIC, and are done to improve the bank’s rating score and avoid government intervention. If a bank does not clean up its own problems, the FDIC steps in and sells the bank’s assets. Notes sold by the FDIC can be purchased at a discount, often as little as 40% of the unpaid principle balance.

Notes can only be purchased with cash. The FDIC is trying to clean up the bank’s balance sheet not make a new loan. Although the FDIC is interested in receiving the highest possible price for the note, there is a large backlog of notes to be sold so note sales move quickly and are deeply discounted.

So, What Are The Steps To Buying A Note?

Step 1: Register
Registration is easy. You just need to identify the type of Asset you are interested in, (Residential, Commercial, Retail), your Geographical preferences, and the amount of Capital you have to invest.

Step 2: Sign the Non-compete/Non-disclosure (NCND)

The purpose of the NCND is to protect the banks, the borrower, and you from the release of confidential information to the public.

Step 3: Get an Overview of the Asset

We always think with the end in mind so we discuss the viability of the asset with possible exit strategies.

Step 4: Create your Maximum bid

After you receive the due diligence paperwork, we will go through the information to help formulate a reasonable maximum bid.

Step 5: Wire Transfer Maximum Bid Amount to Escrow

Within 24 hours before the bid date, the full bid amount must be wired to the arranged escrow account. After the bid date, any extra monies will be sent back to you.

Step 6: Monitor and Submit Bid
We remain in constant communication on the bid date so you get up to the moment information on where the bidding is at and how bidding should proceed. We guide you through this process.

Step 7: Receive Notice of Successful Bid
Within 7 business days, you will receive a certified letter entailing the success of the bid. If successful, all pertinent loan sale documents will be forwarded.

Step 8: Wire Extra Money Back to You

We have a pretty good track record when it comes to successful bidding. Typically we win bids under the maximum bid amount so we wire you back the extra money.

Step 9 (Optional): Provide Exit Strategy Solutions

We call this the “Work-Out”. It is an extra service provided at an additional fee, and is completely at your discretion, upon your request. If you’re interested, you can at any time (even after closing), contact us for assistance.