Buying and Selling Notes

Introduction

This tutorial provides a comprehensive guide on buying and selling notes, particularly focusing on debt portfolios and judgments. Understanding the process can help investors make informed decisions, navigate potential challenges, and maximize returns. This guide is based on insights from industry experts with extensive experience in forensic accounting and debt collection.

Step 1: Understanding the Debt Portfolio

• Identify the Type of Debt: Determine if the debt is residential or commercial. This affects the due diligence process.
• Assess Relationships with Banks: Build strong relationships with banks that may sell their debt portfolios. Understanding their needs can lead to opportunities for acquisition.
• Request Portfolio Data: Obtain data from banks typically in the form of an Excel spreadsheet detailing the debt, including:
  • Average balance
  • Minimum and maximum judgments
  • Location of debtors
  • Recovery efforts made by the bank

Step 2: Conduct Due Diligence

• Perform Spot Audits: Analyze the data to identify key metrics. Look for:
  • Age of each file
  • Last payment made
  • Assets attached to the debt at origination and currently
• Investigate Statute of Limitations: Understand the time frames for legal action on debts, which can vary by state.
• Determine the Viability of Collecting: Assess whether to pursue collections in-house or hire external forensic accountants and attorneys.

Step 3: Assemble a Team

• Hire Forensic Accountants: Engage professionals who can conduct deeper investigations into the assets linked to the debts.
• Select Legal Counsel: Choose attorneys who specialize in debt collection and ensure they understand your objectives. Control costs by directing them to submit invoices for approval before payment.
• Evaluate Resources: Decide if the team will operate in-house or if external partnerships are more effective for your strategy.

Step 4: Analyze the Assets

• Locate Bank Accounts: Use available resources to identify where debtors hold their bank accounts. Subpoena records for credits and debits to understand their financial behavior over the past 24 months.
• Investigate Property Ownership: Research property records to uncover hidden assets that could satisfy judgments.
• Examine Professional Licenses: Check if debtors hold professional licenses, as these may indicate financial stability or additional assets.

Step 5: Engage in Negotiations

• Prepare for Settlements: If significant assets are found, consider offering a discount on the judgment amount to encourage quick settlements.
• Utilize Findings Wisely: Use evidence of fraud or hidden assets to strengthen your negotiation position.
• Document Everything: Keep detailed records of all communications and findings to support your case.

Step 6: Execute the Judgments

• Docket the Judgment: Ensure that the judgment is properly recorded in the courts to begin enforcement.
• Follow Legal Procedures: Work with attorneys to initiate collection actions, such as garnishments or levies on debtor assets.
• Maintain Communication: Keep open lines with your legal team and ensure they are aware of all relevant developments.

Conclusion

Buying and selling notes can be a lucrative investment if approached strategically. By understanding the debt portfolio, conducting thorough due diligence, and effectively engaging with legal and forensic teams, investors can maximize their chances of success. As you move forward, consider your resources and the importance of meticulous record-keeping to support your investment decisions.