Due to the current lack of inventory, many investors have been thinking outside the box to obtain investment property in the valley. One thing I have started to see more and more of are note sale transactions.  To most, note sales seem like easy money but there are a lot of twists and turns that you need to be careful of. I would highly recommend if you are new to working with these types of transactions that you have an agent or attorney assist you.

As the purchaser of a non performing note, you will need to collect a lot of information from the seller of the note. These items would be things like the promissory note, the deed of trust, the assignment of beneficial interest, etc. One of the things I have seen that will kill the deal is when the buyer fails to obtain the financial status of the account.  Usually the lender will supply a payoff statement for you to present to the trustee but the best thing is to have an account statement that discloses the payment history of the account.  When you are buying a non performing note, typically you are buying the ability to exercise the rights granted to the beneficiary to foreclose on the loan. Keep in mind though that in order to foreclose, the substituted trustee must be able to define the default, and the trustee must be able to substantiate the terms of the note and define the default.  If you miss one item you have just bought a piece of paper not worth much more to you than the ink it is written on. You have to remember as the purchaser of a non performing note you are stepping into the shoes of the lender.  Arizona revised statute 813-D reads that the trustor (borrower) or any person with a recorded interest in the property shall have the right to expect from the trustee the exact amount necessary to reinstate the trust deed, separately specifying costs, fees and any other amounts that are required to be paid as a condition to the reinstatement of the trust deed. You do not want to give any opportunity to the trustor to object to the completion of the trustee sale. You really do not want to fight it out in court.  If you get all the information prior to close and use a trustee that knows what they are doing (you can always ask your favorite title company for a referral), note sales can be very lucrative.

Remember as you approach new investment opportunities keep your same business sense and use your experts to help do it right.  As with any transaction, I do not recommend you close a note sale without title insurance. You would be buying a loan policy instead of an owner’s policy because you are considered a lender not an owner.  Title insurance will ensure you have no liens that would cause you a headache in the foreclosure process and that you are not inheriting anything that would survive the trustee sale like city liens, etc.  Chicago Title has many experienced Escrow Officers for these types of transactions and it is IMPERITAVE that you work with someone that knows how to close this type of transaction.  Title insurance will add an additional (and in my eyes), an invaluable layer of protection from the unknown.

Remember, Chicago Title is here to help with anything you need and just a phone call away!