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Non Performing Mortgage Notes and Real Estate Investments

A real estate note (a mortgage) is where banks invest most of the money they receive in the form of deposits from bank customers. With prices in the housing market remaining low after the Global Financial Crisis and the associated recession, many mortgages are classed as non performing notes (the market value of the property is less than the mortgage value and the borrower is not making the required payments on the mortgage). Banks have many of these types of mortgages on their books and want to sell some of them to cut their own investment portfolio risk. This situation makes it is possible for investors to take part in similar estate note investing to that which the banks make and buy mortgage notes at prices that are heavily discounted.

Secured Real Estate Investment

Participating in real estate note investing by purchasing non performing notes through an asset management company provides a great profit opportunity for investors. Asset management companies buy in large quantities mortgage notes from banks at a value less than the appraised amount and offer these to investors (the bulk purchase enables the notes to be sold using a low-cost model). The investments are legally binding contracts that are secured with valuable real estate assets, the associated real estate note is in the name of the investor and they can offer a return on investment in double figures.

Standard Mortgages vs. Real Estate Notes

Real estate note investing (also known as a first trust deed investment) is different to a standard mortgage as three parties are involved than two (a lender and a borrower). The three parties are a lender (investor), a borrower and a trustee (the asset management company). The trustee purchases non performing notes from the bank and holds the title of the associated real estate until the mortgage is repaid. In this circumstance the borrower is offered a reduction in the principle amount of the mortgage, with a legal agreement…

Read More…. by Emily J Jayden

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