Your initial due diligence can make or break your investment – we all know that in real estate, you make money when you buy right.Rob Hytha, Founder FIXnotes
Watch Rob here talk about How to Research & Analyze Mortgage Notes
Lack of information: In many cases, there may be limited information available about the property, the borrower, or the lien. This can make it difficult to accurately assess the value of the investment and the likelihood of successful collection.
One piece of information in particular that some find challenging here is finding tax information on a non-performing junior lien. This can be due to several factors, including:
- Complex tax laws: Tax laws can be complex and vary by jurisdiction, which can make it difficult for investors to understand their obligations and potential liabilities.
- Multiple taxing authorities: Properties may be subject to taxes from multiple taxing authorities, including federal, state, and local governments, each with their own rules and regulations. However, if you are already a FIXnotes Mastermind member, you have access to our Counties App, which makes this part of the process much easier!
- Unpaid taxes: Non-performing junior liens are often the result of the borrower’s failure to pay property taxes. This can make it difficult to determine the current tax status of the property and the lien.
- Liens and judgments: The property may have other liens or judgments against it, which can impact the priority of the junior lien and the investor’s ability to collect on it.
Legal risks: There may be legal issues with the lien that can make it difficult or impossible to collect. For example, there may be other liens or judgments that have a higher priority than the junior lien. Or the lien may have been improperly filed or recorded.
Market risks: The value of the property may decline during the period of non-payment, reducing the potential recovery amount. Additionally, changes in the local real estate market can impact the value of the property.
Operational risks: Collecting on a non-performing junior lien can be a complex and time-consuming process that requires significant resources and expertise. If the investor lacks the necessary experience or resources, the investment may not be successful.
Borrower risks: The borrower may have financial difficulties or other issues that make it difficult or impossible to collect on the lien. Additionally, the borrower may have legal representation that can make the collection process more difficult or costly.
It’s important for investors to carefully evaluate these risks and conduct due diligence before making an investment in a non-performing junior lien. This may include reviewing public records, and working with experienced legal and real estate professionals. Conducting a thorough analysis of the potential recovery amount and associated costs is also critical.
Our free course goes in depth into how to satisfy your due diligence process and mitigate as much risk as possible for your note business!