Below is a question I was recently asked. I thought this was valuable information, so I am sharing it with you here:

“I’ve been reading everything I can about why lenders would be willing to sell properties at deep discounts.

Dean, what would be the main concern of a lender that would cause them to sell mortgage notes at deep discounts? I feel that since we are trying to get into the mind of LMREP, it would be more to everyone’s advantage if we could sell our services to their main concerns.”

My Answer: Make sure you distinguish (in your thinking and language) property from mortgage notes. You mentioned both in your previous question.

You mention both in a question to a bank representative and if I were them I would immediately dismiss you as a knucklehead who doesn’t know a deed of trust from a deed and would not respond to any more emails or calls from you.

A tip for buying mortgage notes

Just a word of caution to brush up on the banknote lingo before talking to banks:

You have one opportunity to make a good first impression when you talk to the key person/guardian when purchasing mortgage notes.

How’s that for wisdom?

Some reasons:

Institutional Reasons to Sell Mortgage Notes:

a) banks in the process of merging or publishing quarterly/annual financial statements and need to remove assets from their balance sheet. The quick way is to sell the notes.

b) the bank may have a “relationship” with the borrower, or there are extenuating circumstances.

c) banks may be under pressure (image/marketing, legal or other) not to take “aggressive” recovery measures (foreclosure) against borrowers across the board (image has been hampered by bad press on foreclosure action), in a certain geography (Detroit/Cleveland, hard-hit urban areas seen as minority/poor/rich due to fraud) or in a certain situation (first-time minority homebuyers)

d) the bank may not want to take the borrowers up for sale, even though it does not have problems with the foreclosure proceedings. (I have often found myself in the position of buying mortgage notes from a bank 1 week before the sale because they didn’t want to be seen doing the actual foreclosure)

e) the loan is backwards and does not warrant a repossession action/expense (certain banks may never foreclose on small mortgages under $20k on similarly valued properties – great opportunities present themselves in many cases to purchase mortgage notes)

f) the bank wants to “price” a part or all of its delinquent portfolio, in which case it sends loans to offer to see how much the market would pay for them.

Individual Representative Reasons for Selling Mortgage Notes:

a) the loss mitigation representative is “fed up” with dealing with a particular borrower. Never follows through on promise of restitution/swears to loss mitigation representative/brands representative

b) the borrower does not respond, there is no contact

c) Prolonged Foreclosure Status/Process

e) representative or direct manager of representative has authorization on a certain level of cancellations and the sale of the mortgage note (unsolicited or requested) falls within that level (note here: for example, 30% discount on a $30,000 loan is $9,000; manager of representative may have authorization to cancel up to $20,000/loan, even 30% discount on a $100,000 loan exceeds that limit, require would have the boss send “higher” and it requires too much work for the rep and their boss, so to pass)

f) rep needs a few extra bucks to meet monthly payback fee – last minute mortgage note sale could fetch bonuses (generally banks, not mortgage/wall street/hedge companies or private equity funds)

I hope this has been helpful to you.