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NPN Story: Complete Win Win Short Sale.

I love it when I can share a story where we didn’t have to foreclose. (I told a previous story in which we accepted a deed in lieu of foreclosure and allowed a borrower the opportunity to move on with her life.) This note didn’t have a great start but, with some patience, it ended up being a fantastic asset and everyone won.

Imminent Foreclosure Sale

In early 2019, we bought a non performing note backed by a single family home in a suburb of Chicago, IL. We were able to get a great price on the loan because of the low interest rate.

When a note is non performing, investors consider yield as a factor in pricing the loan in case it goes re-performing. The lower the interest rate, the lower the potential yield, so the lower the price an investor is willing to pay to get to that desired yield.

Day of the Sale

Coincidentally, the property went to sheriff’s sale on the day that we finalized the purchase of the loan. We had visions of having the highest annualized return ever if we sold the property at auction. With a one day holding time, that number would be through through the roof.

Instead, the borrower filed Chapter 13 bankruptcy, which stayed the auction.

Re-performing Loan

The plan was confirmed within a few months and we started receiving payments. One of our exit strategies is to sell re-performing loans at prices higher than we bought them. As long as we received 6-12 on time payments, we could do this. (Here’s another story in which we re-sold a re-performing loan.)

We like to explore other options as well and reached out to the borrower to see if he was willing to do a short sale. We didn’t get a response and happily collected payments instead.

Putting the Loan out for Bid

After about a year of collecting payments, we put the loan out for bid. The same low interest rate that let us buy the loan at such a discount hurt us when we tried to sell it. As a re-performing loan, investors base their bids off of yield and these guys wanted pretty deep discounts.


In March, 2020, we found a buyer that would pay us better than everyone else. We agreed to their price, which was a good deal higher than our purchase price. A week later, the COVID lockdowns started. The buyer backed out of our trade. We also heard that they backed out of several other multi million dollar note pool trades because of the uncertainties in the market.

Our borrower was late paying for one month but he quickly got back on track. We liked getting the monthly payments but we knew that we most likely were stuck with this loan for a while longer. At that time, the only people buying notes were expecting a huge discount. We didn’t need to sell so we decided to wait it until the market recovered.

Things Settle Down

In January, 2021, things had settled down enough from COVID that we put the loan out for bid again. The same buyer indicated that they were willing to buy the loan but for less money than they were willing to do a year earlier. Since we’d still make a decent profit, we were about to accept their bid.

I checked PACER, the bankruptcy database, to check on the loan before we sold it. I saw that the borrower’s attorney had filed a motion to sell the property. (In bankruptcy, debtors need to get permission from the court to sell assets.)

Short Sale

I investigated and found out that the borrower wanted to sell his property so that he could pay us off and settle the rest of his debts. Although our previous short sale offer had expired, he believed that he could make it all work if we would honor that previous offer.

Seeing that the short payoff would get us even more money than selling the loan, it was easy for us to agree to the short sale. This time, we backed out of the trade instead of the buyer of the loan.

We’re always willing to work with borrowers that meet us halfway when we can. Most of the time, borrowers are unrealistic or are just trying to stay in their places as long as they can without paying anything.

Win Win for All

It’s refreshing to work with someone who’s genuinely trying to improve their situation and do the right thing. This borrower was able to sell his house, clear all of his bankruptcy related debts, and get a fresh start. We didn’t get a full payoff but we came pretty darn close and made a great profit for our investors. A total win win situation all around!

Final Numbers:

Purchase Price: $116,323

Total Cost Basis: $90,680

Short Payoff: $172,500

Net Sales Price: $172,246

Net Profit: $81,566

Days Held: 853

Return on Investment (ROI): 89.9%

Annualized ROI: 38.5%

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