Proficient Note Buyers
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September 13, 2010
A Sucker Born Every Minute
We just recently completed our due diligence on a small non-performing note package from a bank. We sent the Purchase & Sale Contract to the seller early last week for review. As it was the same contract we used in an earlier transaction, we expected the verbiage to be acceptable and move on to funding. The week passed with no word on status, so I called the seller on Friday.

At that time I learned they hadn't sent the contract back because the bankruptcy attorney on one of the notes had requested to sell the property his clients were delinquent on. An offer had been submitted and it was for much more than the bank (and we, consequently) thought the property was worth. The seller explained they couldn't justify selling the note at a discounted price if they could get a full payoff when the house sold.

However, they offered to move forward to the funding table if we would agree to pay another $10,000 for the pool. After all, we were going to get all our money back as soon as the sale of the property went through, right?

OK, how many of you agreed with that last sentence? Did you think about the following possibilities?

1) The offer on the property was almost $20,000 more than two local real estate agents thought it was worth. Would you be confident an appraiser is going to say the property is worth, at minimum, the sales price? Yeah, me neither.

2) What if the buyer wrote a contingency into the purchase contract that they had to sell their own house first? Would you count on that happening? Yeah, me neither.

3) What if the buyer can't secure financing on the property? Qualifying for a bank loan isn't anywhere close to as easy as it used to be. Would you count on the financing process being seamless and guaranteed? Yeah, me neither.

So...what our seller wanted us to do was simply throw in another 10 G's in the hopes we'd realize a big payday a month or two down the road. Well, if wishes were fishes...

Needless to say, we didn't take the bait. What if we agreed to pay the extra 10 grand and the sale never took place? Do you think the bank would give us that money back? Yeah, me neither.

Instead, we stood pat on our price and offered to 'share the wealth' if in fact the sale happens within a certain timeframe. Doesn't that seem like a fairer way to handle it?

We're still waiting to hear back from the seller if that's a reasonable compromise. Do you think I'll proceed with the deal if they decide to roll the dice and simply remove that loan from the portfolio?

Yeah, me neither.

Make it a great week.

Clint


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