The Non-Performing Junior Lien

“Neither a borrower nor a lender be” … (unless you buy the loan very, very cheap)

Why would an investor in his right mind consider the purchase of a non-performing junior lien?

Maybe they have dedicated the time, energy, and resources to fully understand this unique niche, and evaluated the risk/reward ratio and come to the conclusion that it might be the least risky and most profitable strategy available in today’s marketplace.

How can that possibly be?

Let me give you a bird’s eye view of this niche and exactly why we came to that conclusion years ago and have dedicated ourselves to understanding the current non-performing junior lien marketplace and the many strategies and tactics we have learned and developed.

Why Junior Liens

The current market is paying 50, 60, or 70 (CA) cents plus for a quality non-performing first lien and that is just too much money in our opinion – margins are too slim, add foreclosure costs with a large potential for bankruptcy and other related delays and you can have your investment dollars tied up for many more years than originally planned.

Wait a minute here you might say … “I can buy non performing first liens at 30, 20, or even less than 10 cents on the dollar from my local hedge fund – At this point I strongly urge you to read my previous blog on “THE BULK REO GAME” for the best insight –

I could possibly give you of my own humble and (very experienced) perspective on why this could lead you on a very short path to disaster.  These will be notes on the wrong properties, in the wrong areas, in the wrong parts of the country.  Some local pros might be successful at this niche, but I don’t know any of them.

Consider the possibilities when paying 15 to 20 cents for a non-performing junior lien on a better quality borrower and stronger quality collateral

What if you could buy a $100,000 non-performing junior lien for $15,000 and re-perform it at $700 a month for 30 years (tax deferred or tax free in your own self directed retirement account) and or season and resell it for $60,000.

Is it not true that you might have most of your investment back in a short time frame and an excellent rate of return?  Even a fraction of those numbers might be a profit margin worth chasing.

 Evaluating a Junior Non Performing Note

 Have you ever heard the old cliché that real estate valuation comes down to three factors – “location, location, location”.  Well maybe that is true…

When evaluating a non-performing first lien the three most important factors to evaluate might be “collateral, collateral, and collateral”… The chances of owning this property are very strong and your risk needs to be evaluated this way.

Evaluating a non-performing junior lien is a bit unique – It might be the “borrower, borrower, and borrower”. The most important factors in evaluating a junior lien come down to your ability to analyze a borrower’s “emotional equity” and his ability and willingness to work with you to keep his home and create a “win/win” solution that benefits all parties.

How might you do that?

Clues can be found in the “pride of ownership” (or lack of) in the condition of the house – Is the lawn mowed and are the rose bushes planted?  The study of credit reports is an art that once mastered can greatly increase your chances of success. They are by far the most important indicator even on notes with little or negative equity. Statistics show that the “Emotional Equity and credit history and potential of the borrower are what really tell you the story.

The Borrower Wakeup and Workout

Once you have purchased your non-performing junior lien you need to show your borrower that there “is a new sheriff in town” and that you are very serious, professional, and determined to “wake them up” and provide a workout solution through win/win options that benefit both parties.  I often tell them that “today is a good day for you – a human now owns your loan and we can accomplish positive outcomes that a bank cannot – if we can work together to solve your problem”.

It is a relationship you must develop with these borrowers to prove to them that you are not the faceless, soulless bank that treated them like a number. Do this, and your chances of getting paid over the long term will increase dramatically.

A long time expert tells the story that he tells his borrowers. “My attorney collects these payments directly and if they are late he will immediately file a foreclosure proceeding which will ultimately end up costing you the borrower thousands of dollars. ALWAYs call me directly if there is a problem (I am your advocate) and we will work something out”. He has had a borrower in the past he knew personally over the years call and say “I have a medical issue and will not be able to pay the $300 loan”. He said thank you for calling as we discussed. “Tell me what’s happening. – Well I have a medical issue coming up and will be off work for the next 3 months”. He replied  “Let me ask you this – can you pay $75 a month for the next 4 months? (this lender understands how important it is to keep his borrowers in a rhythm of paying monthly). “Absolutely I could do that”. “Then that is what we will do”.  “This will keep you current on your payments until you are back at work, and we will add the remaining balance to the end of your loan”.

Would or could a bank provide this type of solution?  I very much doubt it. A human being can bring solutions that a bank cannot.

Asset Management vs. Loan Servicing of Junior Liens

Let’s talk about loan servicing – years of experience in this field have taught me that no one cares more about your money and investments than you. I had hoped that my real job was to acquire these “broken” loans and that I could turn the loans over to the loan servicing pros and they would solve all of my problems and make me rich. It doesnt work that way. Let me say that again. It doesnt work that way

A loan servicer can be used to collect payments once the loan is re-performing. I know several pros that get their loans to a re-performing status and then turn them over to a loan servicer. They quickly take them back at the first sign of a problem and leverage the relationship they have established with the borrower to get them back on track.

Asset managers are the people that have the experience and expertise to fix a broken and non-paying loan. This skill is one that is very hard to find and I would recommend that you plan on mastering this skill yourself if you plan to be successful in this business.

The asset management of turning a non-performing broken loan into a re-performer is the real magic of this business.  It starts with a diplomatic and professional approach to making contact with a borrower who in many cases has written you off as a distant bad memory.  It is an unsettling shock to say the least for these borrowers to be reminded that a foreign entity has purchased their old loan (it says “charged off” on my credit statement)” and is taking very aggressive action including threatening foreclosure on their home to settle this outstanding debt obligation.

The real art of this is to build a relationship with these people.  I tell them my goals are to have them write me a letter at the end of the process telling me this was the most professional, respectful and mutually beneficial transaction they have experienced.  Many of them were surprised to hear this at the beginning of our conversations but have written these letters at the end.  You really can help people in this business achieve a positive win/win solution and build a mutually beneficial long term and profitable relationship.



As many of you have requested, I am creating a 10-week mentoring program designed exclusively for buyers of Non Performing Junior Liens.  This niche is very specific and requires a unique set of skills, focus, strategy, and the right mindset, dedication and direction for success.

I have focused almost exclusively on this unique niche for over three years with excellent results. Along with my 26 plus years of experience in the real estate and investing fields, I have sought out and learned from the most successful and competent instructors and active players in this Non Performing Junior Lien niche (nationwide hedge funds, investment groups, servicing companies, etc.).

My investment in time and resources is paying off handsomely for us and I plan to unveil our entire business plan, tactics, strategies and the exact details of this business in this course

Course Outline

– 10 consecutive weeks with a weekly call on Wednesday from 6 -7:30 p.m.    (Pacific Standard Time)

– Course to be recorded, video taped, and transcribed for you for future reference

– Small Group Learning Environment

– Topics to include entire business plan and all details required

The Big Picture Strategy – Why Notes? Why Now? Why Seconds?

Analyzing and Purchasing a Non Performing Junior Lien

Waking Up The Borrower – Biggest Challenge

The Workout Process – “The Art of the Deal”

–  Exit Strategies – More Possibilities for Profit

–  Re-performing Notes – Cash Flow or Cash Out Now

–  Loan Servicing – The Realities

–  Advanced Strategies and Tactics

Goals and Objectives

I have worked very hard to find a niche that works in today’s challenging real estate marketplace.  My goal is to find a few very serious and dedicated investors/students who truly understand what it takes to be successful in any business.  These students will have a background in real estate and the time and energy to focus on this course and profitably exiting their notes.  The group will benefit from my own personal, hands-on experience as well as the mutual experiences of all of the group’s members as we work through the challenges of our members’ non performing note workouts.

If you are committed, call me and we will set up a meeting to discuss the details of this program and make sure that this will be a good fit for you and for us.  This group will be limited to a very small group environment.


To your success,

Gordon Moss

Quixote Ventures, Inc.