How to buy tickets… Know your seller

You have probably heard of Sun Tzu’s (the famous Chinese warrior) instructions to his soldiers to “know your enemy” before going into battle.

Well, the same goes for buying notes.

“Know your seller” should be the mantra for every note buyer (and stockbroker!).

Why?

Because if you don’t “know” your salesperson, you may be entering a negotiation with them without any idea of ​​their key negotiating points.

An example of how to buy notes, my recent offer

A bank has a first mortgage on a single-family home in Salt Lake City that it wants to sell.

The borrower has not paid the note in more than 120 days, and the note is more than 2 months past due, so the entire loan could be considered past due.

The bank has not served the borrower with a foreclosure notice.

And they’ve called you to find out if you want to buy your delinquent note and mortgage.

I looked at this loan first from a price point of view: how much could I offer for it.

We obtained a title report and a BPO and analyzed compensation provided to us by a local real estate agent.

And we present our offer.

My representative at the bank hinted that I would need the approval of a senior personnel committee at the bank.

But she was very cautious in answering any of my questions about where I needed to be in pricing.

to sell, and what was the status of the borrower.

I was a bit suspicious and tried to probe for more information, but she immediately shut up and said, “I’m not at liberty to say more about our borrower.” Something was going on in this note purchase agreement.

It was strange that the bank representative reacted that way; in fact, it was the first time he had seen that kind of response to an individual loan before.

How to buy tickets: tips for talking to the banker

So I called her up again and tried some exploratory language with her.

“Would it be safe to say that the bank has a unique relationship with this borrower?” I asked her?

“Absolutely,” she replied immediately.

I was curious: what was going on here in this delinquent mortgage deal?

So I kept fishing, fully understanding that she couldn’t reveal any information to me, but that she

He didn’t object to her insisting on more information, as long as he could answer yes or no.

“And there’s a reason the bank won’t foreclose on this one, correct?” I asked.

“Yes,” she answered simply.

“And you probably don’t have the freedom to tell me, but this sounds like it’s going to be a difficult relationship for him.”

bank to foreclose, is that correct?”

“Absolutely,” she replied again. “I can’t tell you anything more than that.”

“One last question,” I asked him. “Is it safe to assume that the bank may be more open to an offer for this loan

which clarifies what exit strategy we will pursue with the borrower rather than an actual purchase price

for the delinquent note?”

“Yes,” he answered briefly again. “That would be fine”.

So what was going on in this notes deal?

Well, what I learned in two more phone calls with the woman I was dealing with at the Bank was that the borrower was very well connected in political circles in Salt Lake City, and her ex-husband was a close friend of the bank president.

It turned out that executing it could create a political uproar for the bank. Therefore, the bank was exploring discreet options to dispose of its non-performing loan, namely through a note sale to an outside investor.

The lesson to learn from this example of How to Buy Tickets

If you don’t take the time to research WHY the seller is looking to sell a loan and the circumstances surrounding it

the sale, you may completely miss out on the seller’s key negotiating points in a transaction.

In this case, it wasn’t the price. It was what we planned to do to settle the promissory note with the borrower. Price was much less of an issue.

Your How to Buy Notes Action Items for this:

1) Always try to understand WHY a bank wants to sell you a note or group of notes.

2) Try to find out what are the key negotiating points for the bank to sell you this default

mortgage. Usually it is one or more of the following:

has. Price

b. Speed ​​with which you can close

against Your ability to close (in other words, the bank cares more about whether you can close than the price the Buyer is offering for the discounted note)

d. Your note purchase exit strategies (in other words, the bank can determine whether or not to accept an offer based on what type of buyer you are, are you a foreclosure with no modifications attempted, for example?)

So keep all this in mind the next time you talk to a bank to buy tickets.

A warrior who buys tickets will do you much better!

Talk soon,

Dean