I wanted to take a moment and dissect a mortgage note deal in Williamsburg Virginia where the property owner had vacated the property. Typically, we like to buy mortgage notes with occupied homes and work with the homeowner to get them re-performing so we can collect the cash flow. However, upon our due diligence we saw high potential for profit in this deal which was a vacant property and so we purchased the note.
The foreclosure process in Virginia is very quick. It is a deed of trust state with a non-judicial foreclosure process which means there is a “power of sale” clause in the security instrument. The power of sale is a provision commonly found in a deed of trust, which is a legal document used to secure a loan on a property. It grants the lender the authority to sell the property in the event a borrower defaults on the loan. The power of sale is an alternative to foreclosing through a court process (i.e. judicial foreclosure like in a mortgage state) providing a more streamlined and expedited method for the lender to recover their loan amount. Remember the homeowner left and did not want to return, however in order to get clear title we needed to foreclose and wipe off the junior liens and get the deed. (NOTE: Our number one goal is to KEEP people in the homes if at all possible and foreclosure is last resort but in this case they had no desire to stay in house.)
So here are the numbers:
Note Purchase Price: $131,000
Property Sales Price: $209,900 (Sold to first time homebuyer getting a conventional loan)
Net Profit: $52,800 or 40.3% ROI in 12 months and 12 days (377 days to be exact).
LOW RISK: The investment to value upon purchase was about 65%.
SECURED: We own the deed of trust which secures the note.
We looked at other exit strategies like selling the house with some form of owner financing or on land contract but got an interested party to buy the house outright within 2 weeks of listing the property. So we took it.... 😃
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