What is a Note?
A note (more formally known as a Promissory Note) is simply a promise to pay back a loan. If you have ever borrowed money to purchase a car, for college, or most commonly to purchase a house, you have signed a note. In the case of real estate, a promissory note is secured by a 'Deed of Trust' or a 'Mortgage', depending upon the state in which the house is location. By pledging the property as part of getting the loan, the borrower is promising to use the value of the house to pay off the loan if they cannot otherwise meet the obligation.
Delinquent real estate notes end up on the lender's books when the borrower falls behind on payments. Borrows become delinquent for any number of reasons, and as the saying goes, bad things happen to good people. Traditional lenders are not well positioned to offer many options to delinquent borrowers, other than foreclosure. Ultimately banks and lenders often worry more about what Wall Street thinks than what their delinquent borrowers really need, so these delinquent loans (notes) get sold off to the secondary market at deep discounts. IEC Ventures locates, analyses, and purchases these notes.
Once IEC Ventures owns a note, using our network of certified and licensed servicers and vendors, borrower contact is established. The most critical first step is establishing a dialog with the borrower to understand their current situation and desire. Do they want to stay in the home? Do they want to walk away and start anew without the stigma and financial pain of a foreclosure? IEC Ventures offers options that the big banks rarely do. And we do it with empathy and compassion. The borrower is in a tough spot, and we do not lose sight of that fact.
Workout options:
- Reinstate the loan (borrower starts paying again)
- Modification of loan terms (known as a forbearance agreement)
- Loan Assumption (someone else takes over payments, such as a family member)
- Short sale (borrower sells the home at a reduced price)
- Deed in Lieu of Foreclosure (borrower hands property back without going through foreclosure)
- Cash payoff (borrower pays off the note, potentially at a reduced amount)
- Foreclosure (the last resort)
Depending upon the borrower's preferences and actions, either payments start being made again, the property is sold, or the property comes back to IEC Ventures as an REO (Real Estate Owned). As shown below, there are various exit strategies at our disposal. IEC Ventures carefully chooses the best exit strategy to maximize the ROI (return on investment), and meet the needs of the Joint Venture partner if applicable. Note that we only purchase assets where multiple exit strategies are forecast to result in above-average ROI.
Exit Strategies:
- After receiving 10 - 12 month of on-time payments, sell the note as a re-performing asset
- Sell the home to a retail buyer or real estate investor
- Put a tenant in the home, and after 6 months sell the asset as a turn-key rental property
- Keep the note for long term cash flow
- Put a tenant in the home, and retain the property for long term cash flow
Note Investing can provide above-average returns on investment, backed by the underlying property's Fair Market Value. Note Investing is also a great investment for your Self-Directed IRA. If you would like to learn more about Note Investing with IEC Ventures, and learn about how Self-Directed IRAs can be part of the equation, please contact us below.
