One of the things that people want to know often is how to determine the value of a real estate note. A few weeks ago, I got a call from a friend who wanted the same. I spent several minutes asking him questions about the note, and I suspect he was impatient with all my questions. Just as it takes a little investigation to determine the value of a piece of land or a house, so it takes a little investigation to determine what is the value of a home. Here are some of the things that I will want to know about in trying to determine the value of a real estate note>
THE PROPERTY- Tell me about the property. Where is it located? Is it in a growing, stable, or declining neighborhood? How many bedrooms and baths does it have? What is the BPO on the property?
THE BORROWER- What is the credit score of the borrower? Do they have a job or source of income? Do they pay in a timely manner? Information about the borrower is critical in determining the value of the note.
WHAT IS THE BORROWERS’ SKIN IN THE GAME?- What size down payment did they make when they bought the property?
SEASONING- How many payments have they made on the note (also referred to as seasoning)?
WAS THE BORROWER QUALIFIED FOR THIS NOTE OR LOAN?- Dodd-Frank federal regulations require that a person buying their primary residence should be qualified by a registered mortgage loan originator. Did you have the borrower qualified? That can influence the value of the note?
THE PAPERWORK- Are the taxes paid up to date? Is the property insurance current? Are their liens and judgment on the property? Do you have the loan serviced by a third party loan servicer? These can affect the value of a note.
What is the value of a real estate note? My general answer is that “it depends” on these factors. Best wishes in your real estate pursuits. May it be a great year.- RLW