Breaking Down My Latest Texas Non-Performing Note Acquisition

Hey, there! Hope you are well and are enjoying the change in seasons.

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In this post, I’m excited to share the details of a new non-performing mortgage note that I recently purchased through my company, 49th Parallel Properties. We just completed the funding process and are in the midst of getting the assignment of the mortgage recorded. I thought this would be a great opportunity to walk you through my investment process, potential exit strategies, and projected returns.

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Why Invest in Non-Performing Notes?

Non-performing notes (NPNs) can seem intimidating at first glance because they represent loans where the borrower is behind on payments. However, these investments often come at a steep discount, providing an opportunity for significant returns if managed correctly. The key is to thoroughly analyze the note, understand the borrower’s situation, and have a clear plan for potential outcomes.

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Acquisition Process and Initial Analysis

This particular non-performing note was acquired from a fund that was selling off a portfolio of both performing and underperforming assets. I was able to negotiate favorable terms and secure this note at about 82% of its unpaid principal balance. Here are some of the specifics:

• Type of Note: Non-performing first lien
• Property Value (PV): $495,000
• Unpaid Principal Balance (UPB): $163,720
• Legal Loan Balance (LLB): $232,975
• Acquisition Price (AP): I purchased this note at $145,000, which represents about 62% of the LLB and 29% of the PV.
• Borrower’s Status: The borrower has been delinquent for 18 months, but there has been communication with the borrower, indicating potential for re-engagement.

Analyzing the Potential Exit Strategies

With non-performing notes, it’s crucial to have multiple exit strategies in mind to mitigate risks and maximize profitability. Here are some of the strategies I’m considering for this note:

1. Help the Borrower Refinance with a New Lender: This option can be beneficial if the borrower is willing to stay in the property. Since the borrower has 53% equity and age qualifies, we hope to help the borrower secure a Reverse Mortgage. This approach allows the borrower to resolve their delinquency and stay in their home.?
2. Deed in Lieu of Foreclosure: If the borrower is unable to qualify or unwilling to try and refinance her mortgage, a deed in lieu allows the borrower to transfer ownership of the property to me, avoiding the foreclosure process which would impact their credit. Since the borrower has significant equity, I would also offer her cash at up to 65% of the property value to deed the property over to me.?
3. Foreclosure: As a last resort, foreclosing on the property would allow me to sell it outright at the foreclosure auction and recoup the entire legal loan balance.?

Expected Returns

Given the discounted purchase price and the property’s current market value, I’m projecting the following potential profit and ROI using the above exit strategies:?

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Have Borrower Refinance into a Reverse Mortgage

• $233k (LLB) - $145k (AP) = $88k (Gross Profit)
• ROI Calculation: $88k/145k = 61% ROI
• Assuming the process takes 12 months

*Note: This does not include amount we would be paying for property taxes or force placed insurance since the borrower is currently not paying their taxes and insurance.?

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Deed in Lieu of Foreclosure/Cash For Keys

• Offer Borrower "Cash For Keys" 65% of PV = $325k
• I would get a hard money loan to fund the purchase
• After paying off the mortgage note LLB, the borrower would walk away with $92k in cash
• If we then listed and sold the property as-is for $490,000:
• $490k (Sale Price)
• Less $45k (Sale Costs)
• Less $325k (Hard Money Loan)
• Less hard money loan costs (Points and Interest): $45k
• Net Profit: $75,000
• Assuming this process takes 1 year:

*Note: This does not include holding costs.

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Foreclosure

• Expected time to foreclose: 6 months or less
• Based on the amount of equity, I expect the final bid to be well above the LLB of $233k
• $233k (LLB) - $145k (AP) = $88k (Gross Profit)
• ROI Calculation: $88k/145k = 61% ROI?
• Assuming we can complete foreclosure in 6 months: 121% Annualized ROI

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Final Thoughts

Based on the above breakdown, I am looking forward to how this deal is going to pan out. I hope we can profit while also helping the borrower have a soft landing one way or another. The fact that there are multiple exit strategies available on a deal like this is one of the reasons why I like investing in Non-Performing mortgage notes.?

Calvin Ewing

Real Estate & Mortgage Note Investor

49th Parallel Properties, Ltd.

[email protected]

(403) 608-7481 - MOBILE

www.calewing.com

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If you’re interested in learning more about how you can get involved and profit from some of the non-performing note deals I am doing or want to discuss mortgage note investing in general, feel free to reach out!

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