12 Feb Why Banks Sell Their Non-Performing Loan Portfolios?
Selling Non-Performing Notes at Discounted Prices
Many banks sell their non-performing loan portfolios for many reasons. Not just actually banks but also others like credit unions or private lenders. Most of these notes come from discounted prices. Many banks are willing to get rid of these notes as soon as they can. Even selling them at very steep discounted prices.
Do you ever wonder why? You can find most of the popular reasons why banks are willing to sell their non-performing notes at discounted prices.
- They sell the notes to avoid future liabilities. There are many private lenders or financial institution who will have the non-performing notes such as an old factory or gas station. Often they don’t want it for foreclosure for possible contamination in the environment. It will be their responsibilities to clean up the mess that can be future liabilities or litigation.
- They avoid long and hassle legal procedures and cost due to foreclosure. In every state, there are different laws regarding foreclosures. If the bank has a lot of non-performing loans in an area where the process can be long and tedious, they are more than to sell the notes than do the foreclosure.
- They are not as flexible as private investors have. The bank is not as flexible as private investors are when it comes to the approach of the loan due to the regulation they are following. Banks are regulated by the government which means that they must work according to the set law in restructuring or putting a note into a “rehab”.
- Selling non-performing notes are easier and fast. A certain bank can immediately sell a non-performing note within a month. It means that they will have additional funds for their bank rather than foreclosure. They can eliminate months of effort, labor and legal fees for a certain note. Just consider the process of foreclosing a property rather than listing them and selling it to willing note buyers.
As a note buyer of non-performing notes, they can be a good investment only if you know how to invest in a non-performing note business effectively. Many great benefits are underlying on these notes bought at a steep discount.
When you purchase a non-performing note, as a buyer, you have a choice to negotiate with a new loan from the borrower or foreclose the mortgage. You got a chance to turn the property around where you get a chance to gain from the note.