I get this question quite often. So many investors base their timeline to close a real estate transaction based on their “traditional” experience of buying and selling real estate. Well that’s where most people go wrong. Buying notes is usually a faster transaction, especially when you compare it to doing short sales and the time it takes to negotiate one of them.
The best way to explain the timeline is to just list how things go down. Let’s just start with the point where you have talked to the bank and the bank has agreed to send you a list of notes that they are willing to sell. To get this list you usually have to sign a non disclosure agreement (NDA). Once you get a list and identify a note or two that you want to make an offer on, you should write up a letter of intent (LOI). A LOI is just that, you stating your intent to purchase that note and what specifics you would like to see in a contract with you and the bank. You should outline what documents you want the bank to provide, due diligence period, funding period, and who the contract is to be made out to. Oh yeah, let’s not forget to include the amount you want to pay for the note. That’s the most important part.
After submitting your LOI, most banks will get back to you within a week or so on whether your offer has been accepted, countered or denied. Some banks will do it faster or they might have to wait for a loan committee to determine how close your offer is to what they want to receive.
Once the bank accepts your offer, they will work up a loan sale agreement (LSA). This might take a week to create. Sometimes the banks will send you over a servicing transferring form and a company information form that they will want you to fill out to help them write up the LSA. The bank will usually give you a week to get that back to them signed. Sometimes a bank will want earnest money, and some won’t.
Once you sign the LSA, your due diligence period begins which is usually two weeks. Once you complete your due diligence, your funding period begins. Now in a note deal, there isn’t usually a traditional closing at a title company. It all comes down to you wiring your funds to the bank and the bank then sending over an assignment of mortgage or assignment deed of trust. You will want to have title pulled before your due diligence period ends just in case you can’t get something cleared up. You will want to communicate with the bank on any hiccups that pop up. Banks realize that stuff can pop up from time to time and they are glad to help clear it up to make the deal go through. I’m still working on a deal that is taking the bank 2 months to clear up. The last thing you want to do is to unknowingly take over someone else’s problem or problems and be unable to clear it up before you own it or become the bank.
When the bank sends over the Assignment Deed of Trust, the bank will send the borrower an estoppel letter that informs the borrowers of who their new lender is and where to send their payments to. This usually takes 14 days and once that happens, the bank will send you the whole loan file for your records. At that point, you are the bank.
One thing to keep in mind is that the bigger the deal, the longer you should ask for due diligence and funding periods. Remember that banks want cash to sell notes. Financing contingencies are usually not applicable in note sales.
As you can see, when compared to the short sale process, buying notes can be a lot faster. The great thing is that there is less competition and plenty of product out there for you to be looking at buying. You just have to make the connection with the bank to find the deals.