The specific step-by-step process to find and buy a note (without making a mistake)

Finding and buying a mortgage note without making a mistake requires following a strict “Waterfall Evaluation” process. This ensures you don’t spend money on due diligence for assets that are worthless or don’t fit your criteria.

Here is the specific step-by-step process to find, analyze, and close a note deal:

✅ Phase 1: Preparation

Before you look for a deal, you must be set up to buy one.

1️⃣ Establish Your Entity: Do not buy notes in your personal name; your name will appear in public records, exposing you to liability and borrower harassment. Set up an LLC to protect yourself.

2️⃣ Secure Proof of Funds: Have liquid capital (or a partner’s capital) ready. Sellers will often require a Proof of Funds (POF) before sharing detailed data.

3️⃣ Select a Servicer: You cannot collect mortgage payments yourself legally without specific licenses. You must have a contract with a licensed third-party loan servicer (e.g., Madison, Allied, FCI, LHFS) ready to take the loan once you buy it.

✅ Phase 2: Sourcing (Finding the Note)

You can find notes through four primary channels:

*️⃣ Online Exchanges: Platforms like Paperstac or NotesDirect are good for beginners to see inventory, though pricing is often higher (retail).

*️⃣ Direct Outreach (The “Matchmaker” Approach): You can target local banks and credit unions by reviewing FDIC data for “non-accrual” loans (bad debt). You then contact them via LinkedIn or phone to offer to buy their charged-off portfolio.

*️⃣ Reverse Inquiries: Search county records for Lis Pendens (foreclosure filings). Contact the attorney or lender listed to see if they would rather sell the note to you than finish the foreclosure.

*️⃣ The FIXnotes Trade Desk: Apply for access to millions in small balance notes (final prices between $800 - $10,000) by clicking here.

✅ Phase 3: The Due Diligence Waterfall (Avoiding Mistakes)

Once you receive a “tape” (spreadsheet of loans) from a seller, do not order expensive reports immediately. Follow this waterfall to filter out bad deals for free or cheap first.

1️⃣ Secured vs. Unsecured (The Deal Killer)

✳️ Action: Check the county tax assessor or recorder’s office online. Does the name of the borrower on your spreadsheet match the current property owner?

⚠️ Mistake to Avoid: If the property was sold or lost to tax foreclosure, the lien is unsecured. Unsecured notes trade for pennies (e.g., 1% of balance); do not pay secured pricing for them.

2️⃣ Lien Position

✳️ Action: Verify if you are buying a 1st or 2nd lien. You can often check recording dates in public records (the earlier date usually has priority).

⚠️ Mistake to Avoid: Buying a “first” lien that is actually a second because a subordination agreement was recorded, or buying a second lien thinking it’s a first.

3️⃣ Indicative Offer (LOI)

✳️ Action: Based on the data provided by the seller and your quick checks, submit a Letter of Intent (LOI). This is a non-binding offer.

⚠️ Why: You need the seller to agree to a price and grant you exclusivity before you spend money on expensive title reports and BPOs.

4️⃣ Comprehensive Due Diligence (Verify Value)

Once the LOI is signed, you spend money to verify the asset:

*️⃣ Valuation: Order a BPO (Broker Price Opinion) or use online comps/satellite views to determine the property value.

*️⃣ Title/Taxes: Order an O&E (Ownership & Encumbrance) Report. This costs ~$90 and reveals unpaid taxes, HOA liens, and breaks in the assignment chain. If taxes are delinquent, subtract that cost from your bid.

*️⃣ Senior Status (For 2nd Liens Only): Pull a credit report to see if the borrower is paying the 1st mortgage. If the 1st is current, the 2nd lien is highly valuable because the borrower wants to stay in the home.

✅ Phase 4: Closing and Transfer

If your research matches the seller’s data, you proceed to closing. If you found issues (e.g., house value is lower, taxes are unpaid), you “fade” (lower) your bid with evidence.

1️⃣ Execute the LPSA: Sign the Loan Purchase Sale Agreement. Ensure it contains Representations and Warranties (Reps & Warranties) stating the seller has the legal right to sell and the loan is secured.

2️⃣ Fund: Wire funds (consider using a third-party escrow for new sellers to prevent fraud).

3️⃣ Collateral Review: You must receive the “Big 4” documents: mortgage, note, assignment, allonge.

4️⃣ Record the Assignment: Immediately record your Assignment of Mortgage with the county.

✅ Phase 5: Servicing Transfer

Send “Goodbye” (from seller) and “Hello” (from buyer) letters to the borrower. This is a legal requirement under RESPA to inform them where to send payments.

✅ Phase 6: Make It Real

Inside the Buyer’s Club can submit 'Practice Bids' on live institutional tapes. Our asset managers will review your numbers, tell you exactly where you were high or low, and help you refine your pricing, before you spend a single dollar.

Click here to apply for the Mastermind to join the Buyer’s Club and more!

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The specific step-by-step process to find and buy a note (without making a mistake)