A few years ago, we had the opportunity to purchase a nonperforming note in Columbia, Missouri. Once upon a time I worked for a financial institution in the town, so I knew it well. The due diligence file provided by the seller had a Broker’s Price Opinion that showed a very nice little house that could provide us with a nice return on investment.
As is our normal practice, we don’t trust any paperwork we are provided. We sent a contractor out to the property prior to purchase to give us an idea of the condition of the property. The front of the home looked just like the picture on the BPO, but the pictures of the back, however, were a different story. Someone had taken a chain saw to the rear of the property carving out a channel in order to steal the copper pipes in the walls. The cute little house no longer was all that cute anymore.
In another instance, a loan was included in a bulk sale in St. Louis that was secured by an older home on the city’s North side. I happened to be in St. Louis for a meeting, so I decided to visit some of the assets we held in the portfolio. Imagine my surprise when I pulled up to a grassy, empty lot where the home was supposed to be.
The moral of these stories is this…do your own homework. When a loan is being offered for sale, the seller uses third party vendors that are sometimes poorly paid to provide data on the loan and underlying collateral property. You get what you pay for. You can’t always trust the data that you are provided, so be sure to verify information you are provided on a real estate or note purchase.