3 Things Every Investor Should Know About Delinquent Real Estate Notes

by Dave Van Horn

Many folks start out all gung-ho about finding notes, but before you do, it’s probably not a bad idea to know where they come from. By that, I don’t necessarily mean that they come from the bank. It’s important to consider a few things. For example, how did the asset become delinquent to begin with? Did the bank underwrite the loan properly? And did they screen the borrower?

Even if everything was done right at origination, circumstances can change.

How Real Estate Notes Become Delinquent

1. Unfortunately, sometimes bad things happen to good people.

Of the reasons that people default on their mortgage, most of them are due to life events that are often times outside of one’s control. There are really four main reasons: job loss, death, illness, and divorce.

My partners and I wanted to learn how to manage distressed debt so that we could be prepared for the worst case scenario — yet I’ve seen so many note investors who think they can pick the perfect note. It’s like trying to pick the perfect property or the perfect borrower. The point I’m making is that nothing is foolproof. My buddy Jeff Brown refers to this as Murphy’s Law; if something can go wrong, it probably will.

Now, that doesn’t mean you should stop doing due diligence or that banks should stop doing appraisals. It just means that being prepared is valuable. No one has a crystal ball to tell them who will lose their job, become ill, pass away, or get divorced. These circumstances could really happen to any of us.

We do know statistically how many people will pass away, but we don’t know which ones. Just like with divorce, we may know that it will happen to half of the married folks, but we don’t know which couple it will be, or who won’t be able to afford their mortgage after the divorce.

2. Strategic defaults aren’t as common as you think.

Essentially, a strategic default is when someone who can afford the payment doesn’t see the economic value in making the payment. So, they’re choosing not to pay, and they’re walking away.

While this can happen in a bad economy when there’s negative equity, it still doesn’t happen as often as those four main reasons people default.

Life Cycle of the Loan

It took me a while to figure this out, but a delinquent homeowner is at a different point on the timeline of the loan. For example, the criteria for creating a new mortgage for a borrower is different in many ways than that for working with someone who’s in distress. Things like job history, credit, or even loan-to-value are less relevant when trying to work out a new payment agreement with a distressed borrower.

At this point, an affordable payment is more important than credit, for example. Obviously, their credit isn’t great because they’ve missed mortgage payments. Also, income and having employment becomes more important than job history when you’re re-working a loan.

3. Length of delinquency doesn’t determine the outcome or potential revenue.

It’s hard for many folks, including myself, to believe that a mortgage can be three, five, or even seven years delinquent, but it’s really not that uncommon. Of the distressed debt we’ve bought, our record is 10 years. It’s hard to believe that a homeowner could be that many years behind without the property being foreclosed on, but it does happen.

The bank may have set the loan aside or just kept on reselling it from bank to bank. This may be more common with second liens that are low-equity, as there could be little reward to the bank for liquidating said asset. Another possibility is that the bank sold the delinquent loan simply to get it off of their books and improve their balance sheet.

Some note investors say that they want to buy directly from the originating bank. But we don’t have the data to prove that approach as being an accurate determination of a favorable outcome. If you think about it, didn’t all the banks and servicing companies try to collect on the asset?

Leave your comments below!

Interested in Finding out More? Reach out below

Shawn Ireland

Phone: 913-225-6231

Email: Ireland_Investments@yahoo.com

Address: 1415 Main St. #823, Grandview, MO 64030


Website: www.irelandinvestmentsllc.com/

Facebook: @IrelandInvestmentsLLC/

Instagram: @irelandinvestmentsllc

Twitter: @IrelandLlc

Tumblr: ireland-investments.tumblr.com/


Ireland Investments llc

This information is intended only for the use of the intended recipient(s) and it may be privileged and confidential. Please note that any views or opinions presented in this post are solely those of the author and do not necessarily represent those of the company. This is reposted information and is not original thought of Ireland Investments or anyone associated with the business.

Popular areas we service;


Kansas city Missouri, Overland Park Kansas, Kansas city Kansas, Olathe Kansas, Independence Missouri, Shawnee Kansas, Blue Springs Missouri, Lenexa Kansas, Leavenworth, Kansas, Leawood Kansas, Liberty Missouri, Raytown Missouri, Gladstone Missouri, Grandview Missouri, Belton Missouri, Prairie Village Kansas, Gardner Kansas, Raymore Missouri, Grain Valley Missouri, Ottawa, Kansas, Lansing Kansas, Excelsior Springs Missouri, Merriam Kansas, Harrisonville Missouri, Cameron Missouri, Mission Kansas, Kearney Missouri, Smithville Missouri, Pleasant Hill Missouri, Oak Grove Missouri, Bonner Springs Kansas, Roeland Park Kansas, Parkville Missouri, De Soto Kansas, Richmond Missouri, Greenwood Missouri, Paola Kansas, Basehor Kansas, Tonganoxie Kansas, Odessa Missouri, Peculiar Missouri, Platte City, Missouri, Higginsville Missouri, Lexington Missouri, Edwardsville Kansas, North Kansas City Missouri, Osawatomie Kansas, Louisburg Kansas, Fairway Kansas, Mission Hills Kansas, Sugar Creek Missouri, Riverside Missouri, Buckner Missouri, Pleasant Valley Missouri, Lawson Missouri, Plattsburg Missouri, Lake Lotawana Missouri, Weatherby Lake Missouri, Wellsville Kansas, Edgerton Kansas, Westwood Kansas, Garden City Missouri, Gower Missouri, Claycomo Missouri, Lone Jack Missouri, Drexel Missouri, Lake Tapawingo Missouri, Glenaire Missouri, Dearborn Missouri, Avondale Missouri, Osborn Missouri, Sibley Missouri, Oaks Missouri, Unity Village Missouri, Levasy Missouri, Randolf Missouri, River Bend Missouri, Jackson County Missouri, Johnson County Kansas, Clay County Missouri, Wyandotte County Kansas, Cass County Missouri, Platte County Missouri, Leavenworth County Kansas, Miami county Kansas, Lafayette County Missouri, Ray County Missouri, Clinton County Missouri, Bates County Missouri, Linn County Kansas, Caldwell County Missouri, Crossroads Real estate, 18th and vine Real estate, Hospital Hill real estate, library district real estate, longfellow real estate, dutch hill real estate, quality hill real estate, river market real estate union hill real estate, Greater downtown KCMO real estate, East Side KCMO real estate, Midtown KCMO real estate, Westport Real estate, Hyde Park real estate, Northeast KCMO real estate, Northland real estate, Plaza Real estate, South Kansas City Real estate, Fairway Kansas real estate, Kansas city Kansas real estate, lake quivira Kansas real estate, Lenexa Kansas real estate, Mission hills Kansas real estate, overland park Kansas real estate, prairie village Kansas real estate, Shawnee Kansas real estate, weatherby lake Missouri real estate, westwood Kansas real estate

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

WordPress.com.

Up ↑

%d bloggers like this: