This year, note purchases and discounted note payoffs are going to be a big part of the lending business, because some lenders are still trying to get out from under toxic loans, or are looking to get out of certain markets, or even certain types of deals. That situation provides the opportunity for specialty lenders to help some of these borrowers get their notes at reduced prices, or to just overall pay off their existing debt.
The situation does give a borrower that wouldn’t normally go to a hard money lender the opportunity to do just that, making that approach a lot more appealing and palatable. Although they may be borrowing at a 50% loan to value, those borrowers may ultimately be saving hundreds of thousands, if not millions of dollars, by using such money to pay off their debt.
One of the main factors impacting this trend is that to negotiate with a bank, a borrower’s success rate may be much higher having cash in-hand. It is very difficult for someone to approach a bank and say, “we want to negotiate paying off the mortgage, but we’re not 100% sure how that could be done yet.” Most banks won’t even listen at that point.
One caveat? A lender such as Kennedy Funding is still not going to be able to lend more than 65% of the underlying asset.