SECOND LIENS
A note about second liens: Second liens, by their very nature, represent a higher risk than first liens. That having been said, none of the numbers I have stated above apply to second liens. Instead, you should adjust your offer downward. For example, on a second lien where the payor has completely stopped paying, I would never offer more than 50 cents on the dollar, and in most cases, I would offer considerably less.
PERILS AND PITFALLS– Things To Check Before You Buy!
Just because you find a note that you can buy at a substantial discount, keep in mind that in the case of ugly paper, the payor still represents a greater risk of foreclosure! You should, therefore, take specific steps to insure that you end up with a deal that you can not only live with, but one that is going to make you a nice profit, too!
CRITERIA FOR BUYING UGLY PAPER
While there are numerous items you need to check before ever signing a piece of paper (including an offer to purchase the note), they ultimately fall into four categories:
1. Do you want the property? You really need to think about this one, because chances are you’re going to end up with it anyway.
2. Can you work with the payor? Many of us are in the business because we enjoy helping other people. Remember, though, that for it to be “win-win” bothof you have to win! One can’t take advantage of the other. If the payor doesn’t want to cooperate, help him be successful – in another house!
3. What does a title search tell you about the property? There are a LOT of hidden costs associated with ugly paper, but most of them can be determined by getting a good title search completed. You’ll be amazed – their may be unpaid taxes, liens from the HOA for unpaid dues, weed liens, etc. attached to the property, along with possible personal and government judgments. Getting rid of them is another course entirely (…shameless promotion: come to the Paper Power workshop).
4. After factoring in all of the costs, does the deal still make sense? Hidden costs abound, but you’ll find that a little bit of homework cures a lot of ills!
