Yesterday was another content packed day at the Austin Path to Profits Workshop, and one of the things that Jayme Kahla promised everyone was a Due Diligence Checklist for Buying Defaulted Paper, which is posted below.
We also spent time learning…
- How to raise private money to fund deals with Dutch Mendenhal,
- Chatting with hard money hedge fund manager Sal Buschemie,
- Grilling hard money lending expert Kelly Kenne on the best ways to ensure you can get all the hard money you need on the very best terms, and
- Working with credit repair expert Mark Garcia who revealed several ways to even the playing field with the credit scoring companies
Today is the final day of the workshop which is starting soon, so let’s get right to the point of this post, which is…
Due Diligence Checklist For Buying Defaulted Paper
The due diligence for buying defaulted paper is relatively simple. The steps are as follows:
Step #1 – Determine Value – Determine the true value of the property through independent sources. Do not accept the value that the lender gives you! This is the most important step.
Step #2 – Check Title – Check the title of the property to make sure that the lien that you are purchasing is accurately represented. If you are buying a first lien, you obviously want the note to be in first lien position! If your county is online, you can check the deed records and determine what is filed on the property or if you have a relationship with a title company, they can pull a preliminary report for you.
Step #3 – Develop Your Exit Strategy – Determine your exit strategy. If your strategy is to modify the note and keep the homeowner in the property, make sure there are no other liens or judgments behind your lien that would have to be foreclosed to clean up the title.
Step #4 – Check Taxes – Check that the property taxes are paid. Property taxes cannot be foreclosed out so you must take unpaid taxes into consideration when purchasing a defaulted note. Either have the seller of the note pay them or lower your pay price to compensate for the taxes that you will have to pay.
If you follow these four simple steps in our Due Diligence Checklist whenever you are in the process of buying defaulted paper, you will have protected yourself from the most common risks in making this type of investment.
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