Notes Auction FAQ's
Pre Auction
Q. What types of assets will be sold at auction?
Ans. Our auctions focus on the disposition of Notes (also known as “Mortgage Whole Loans” or “Loans,” as more particularly described below) which are secured by first or secondary mortgage liens (or deeds of trust) on commercial, multifamily and residential real estate properties. In some cases, loans backed by the (unrecorded) pledge of ownership interests in the entity which owns a real property – so-called, “Mezzanine Loans” – are offered for sale.
Q. What is a Mortgage Whole Loan?
Ans. A Mortgage Whole Loan is a loan secured by real property, and can be bought and sold (traded) among lenders and investors with all of its legal and monetary contractual rights in place. We primarily use the term “Note” to refer to a Mortgage Whole Loan or Loan.
Q. Is there a difference between the terms “Note” and “Loan?”
Ans. When used in the context of selling and purchasing Mortgage Whole Loans, there is no difference – the terms “Notes” and “Loans” are interchangeable and both are widely used. However, from a technical standpoint, the term “Note” refers to the actual promissory note, which is a negotiable instrument (a legal term meaning it can be transferred and assigned to a new owner) and represents a borrower’s unconditional promise to repay a debt subject to the terms and conditions thereof. As such, the Note is the key document evidencing a debt or a loan. In a real estate loan, the Note is secured by additional documents, such as a recorded mortgage (lien) or deed of trust on the underlying property, and, depending upon the property type, an assignment of rents and other security instruments. Thus, when a buyer purchases a Note secured by real property, the entire loan file, i.e. the Note, Deed of Trust and all supporting documents, is transferred to the buyer, and is collectively referred to as the “Loan.”
Q. What is a Loan or Note sale?
Ans. A Note (or Loan) sale is a commonly used term for the sale of a Mortgage Whole Loan or a pool of Mortgage Whole Loans from a lender, special servicer or originator to an investor. All Note sales use an open, transparent, on-line auction market to achieve best execution.
Q. Who owns the Notes being offered at these auctions?
Ans. Typically (but not always), the Notes being offered are owned by lenders which originated the loans or may be offered for sale by a special servicer on behalf of a Commercial Mortgage Backed Security (CMBS) Trust that now desires to sell their interest as opposed to holding them or foreclosing on the underlying real property.
Q. Are only defaulted or troubled Notes offered for sale?
Ans. No, Notes offered may be performing, sub-performing, or non-performing.
Q. Are prospective Note bidders allowed to conduct site inspections on the underlying real properties prior to bidding on Notes?
Ans. No, the current owner (holder) of a Note does not own the real estate that secures the loan. Accordingly, they do not have the right to allow third parties access to underlying property; in fact, confidentiality agreements related to Note purchases are very explicit in prohibiting prospective bidders from contacting borrowers directly or arranging formal site inspections with borrowers or borrowers’ representatives. Therefore, prospective Note bidders must limit site inspections to what is available to the general public without legally trespassing.
Online Auction Process
Q. How will Notes be auctioned?
Ans. Notes will be sold through on-line auctions, which are referred to as “Events.”
Q. How do I start the bidding process?
Ans. When registering for a Note auction event, prospective buyers will be prompted to complete the easy auction registration process. The process includes creating a profile at www.Auction.com, registering for the auction event you wish to participate in and submission of a fully refundable deposit (One Thousand Dollars-$1,000) via a credit card authorization (your card will not be charged) or via a wire transfer or other certified funds through our designated third party escrow firm. Once complete, a bidder is authorized to bid on one or more items in the auction.
Q. How do I get started on reviewing detailed information on Notes?
Ans. Certain information is available regarding the Note following your creation of a profile and by providing some basic user information. Prior to gaining access to the Documents tab (which is a secure data vault) for a particular Note, prospective bidders will be required to execute a Confidentiality Agreement (usually electronically) prior to gaining access to the secure data vault. In addition, certain Note auctions may require further qualification, disclosure and financial conditions. Please access this information at www.Auction.com and www.JLL.auction.com.
Q. Do I need to register to bid at the auction?
Ans. Yes, we recommend that you register at least 48 hours prior to the beginning of the online auction in order to receive information relating to the event; however you may register up to 48 hours prior to the expiration of the bidding period. The registration is easy and there is no obligation to the registered bidder to bid. NOTE – You must register separately for each auction event listed in the auction calendar.
Q. Is a deposit required in order to bid?
Ans. Yes. A refundable bidder deposit of One Thousand Dollars ($1,000) is required to bid in each auction event and will be refunded following the auction to unsuccessful bidders.
Q. Will I be required to demonstrate proof of funds to bid?
Ans. Yes. To complete the registration process, all private investors (non-institutional investors) will need to provide the Auctioneer proof of available funds. Please be prepared to provide a recent bank or brokerage account statement which demonstrates that you have funds available (e.g. cash, stock, bonds, mutual funds) to purchase the subject asset. The statement must be less than 75 days old.
Q. Can I purchase more than one Note in an online auction event?
Ans. Yes.
Q. What is the Buyer's Premium?
Ans. A five percent (5%) Buyer's Premium is added to the Winning Bid Amount to establish the Total Purchase Price. For example, if the Winning Bid Amount is $1,000,000, then the Buyer's Premium would be $50,000 (5% of $1,000,000). The Total Purchase Price is then calculated as the Winning Bid Amount plus the Buyer's Premium, or $1,000,000 + $50,000 = Total Purchase Price of $1,050,000. *Minimum Buyer's Premium may also apply. Please refer to the website note detail page for specific information.
Q. What if I buy more than one Note, what is my Earnest Money Deposit requirement?
Ans. If you buy more than one Note, then a separate Earnest Money Deposit is due for each Note.
Q. If I am the winning bidder, can I assign my contract to someone else?
Ans. No. The purchase and sale agreements are not assignable. All parties who wish to buy must register for the auction and execute the necessary documents if they win.
Q. What if I change my mind? Can I cancel the transaction after the fact?
Ans. Once the online auction is final, you have agreed to purchase the Note, unless such Note sale is subject to the seller’s confirmation. That is why it is important for you to conduct all of your due diligence and inspections prior to the auction and prior to bidding on the Note. Winning bidders may be subject to liquidated damages if they fail to complete the transaction. Please review the Auction Terms and Conditions for further information.
Q. Do you publish auction results?
Ans. Usually no specific auction results are publically published.
Q. What are the benefits of an auction?
Ans. The benefits of the auction process are numerous. Achieving a price through competitive bidding is many times the only method to determine an asset's true market value. The auction provides a marketplace where sellers and buyers can meet. The buyer is exposed to multiple offerings simultaneously enabling market comparisons quickly and easily. Additionally, the buyer is able to set their own price based on the research and due diligence they complete.
Q. What information is available to prospective Note bidders?
Ans. At the Note details page for each Note offered, there is secure data vault which is a repository for various files and documents to be used in the due diligence process. To access the vault, bidders must execute a Confidentiality Agreement (usually electronically). These files may contain loan documents, legal filings, appraisals, environmental reports, property condition reports, loan purchase and sale agreements and other pertinent information and documents enabling a prospective bidder to formulate a well informed bid price. In addition, prospective bidders may contact the Loan Sale Advisor (Jones Lang LaSalle) listed on the Note details page for further information.
Q. Who is qualified to bid on Notes?
Ans. Each Note auction may involve different bidder qualifications depending on size, property type and other factors. Each bidder is responsible for determining their own suitability for an investment in Notes and are highly encouraged to consult with their respective legal, tax and investment counsel to insure they have the requisite financial resources, risk tolerance, sophistication and legal knowledge prior to bidding. We encourage you to speak with the Jones Lang LaSalle Loan Sale Advisor assigned to each note you are interested in.
Q. What if I use a broker, advisor, attorney and/or contractor (one or more, “Assisting Parties”) to assist me in the due diligence and/or bidding process?
Ans. In Note auctions, the Seller is represented by a Loan Sale Advisor. Bidders will be solely responsible for any and all compensation which may be due Assisting Parties working on their behalf in connection with a Note auction and subsequent purchase.
Q. Are the terms, conditions and process of each Note auction different?
Ans. While the process of bidding and purchasing Notes will be similar in each auction, the particular terms and conditions for each Note auction can be found on the Note details page and in the secure data vault for each Note.
Registration Process
Q. Can I use credit card for the bidding deposit and/or the Earnest Money Deposit?
Ans. A credit card authorization can be used for the bidding deposit, however credit cards are not accepted for payment of the Earnest Money Deposit.
Q. I am trying to register for the auction…why won't it let me?
Ans. One must be registered no less than 48 hours prior to the scheduled conclusion of the online auction. If you experience any problems, please contact the customer service group.
Q. Can I bid if I am not a US citizen?
Ans. Yes, anyone can bid. The registration and bidding process are the same for all bidders.
Q. I registered for the website, but why can't I bid?
Ans. You may have created your profile at www.Auction.com, but did not register to participate in an auction event. Please go to the “Online Bidding” tab, click on the auction event for which you'd like to participate and then click on the “Register Now” button.
Q. I registered, but it didn't ask for a bidder deposit, how do I put in my bidder deposit?
Ans. Make sure you are registering for the online only auction event. Please go to the “Online Bidding” tab, click on the auction for which you'd like to participate and then click on the “Register Now” button.
Q. I forgot my password, how do I get back in?
Ans. On the sign-in page, click on "Forgot Your Password?" and fill in the answer to your security question. Your password will be automatically emailed to your user email address.
Q. Can I put my purchase in my corporate name?
Ans. Yes, you can put it in the name of a corporation, limited liability company, trust or partnership.
Bidding Process
Q. Can I bid on more than one Note?
Ans. Yes. You determine your bidding limits, and as long as you have enough funds you can bid on more than one Note.
Ans. Some events may include a proxy bid period, where you are able to set a bid amount and we will bid up to that amount for you automatically. On events that do not include this feature, you must make bids yourself. See Terms and Conditions for applicability.
Ans. The first Note closes at the posted end time and the remaining Notes (if any) will end in numerical order at various intervals. A Note will have extended bidding time added if a bid is placed in the final minutes of the auction.
Q. Do all the Notes close at the same time?
Ans. Properties are scheduled to end in sequence, approximately 30 seconds apart on the date and time indicated on the bidder page. End times for some assets may be extended in added time increments due to aggressive last minute bidding by multiple parties.
Q. What does the term “reserve” mean?
Ans. A “reserve” is an amount established by the seller which represents their minimum selling price. Reserve prices are not published and the starting bids do not represent the reserves.
Q. What happens to my bidder deposit if I'm not the winning bidder?
Ans. All deposits will be refunded and credit card authorization holds released as soon as possible following the conclusion of the auction if you are not the winning bidder.
Winning Bidder Process
Q. How will I know if I am the winning bidder?
Ans. If you are the highest bidder when the Note auction ends and your bid meets or exceeds the reserve price and the seller accepts such bid, then you will receive a winning bidder confirmation via email in very short order. The email will be followed up within 24 hours by a phone call from one of our auction coordinators, who will discuss with you the remaining steps.
Q. I received an email stating I am the highest bidder, but no one has contacted me. What do I need to do?
Ans. You will receive an email when you are the current, highest bidder on a property. If at the conclusion of an auction you have not received another email indicating you were outbid, you should receive an email indicating you were the winning bidder for this Note (assuming the reserve has been met and the seller accepts your bid). If you have not been contacted, please call customer service.
Closing
Q. I haven't received my purchase and sale agreement, what do I do?
Ans. If you have not received your purchase and sale agreement (and related documents) within 24 hours of the conclusion of the auction, please contact the Transaction Manager at commercialbids@redcgroup.com .
Q. Can I add another name on the purchase and sale agreement after the auction?
Ans. All parties on the purchase and sale agreement must be added at the time the agreements are being drawn up. We cannot add co-buyers after the documents are sent out. The contract delivery and signature process will be handled electronically via Docusign unless otherwise indicated.
Q. What is the cost to purchase a Note?
Ans. In addition to the standard and customary costs of reviewing and closing Note transactions, the winning bidder will pay a Buyer’s Premium (which is added to the Winning Bid Amount to equal to the Total Purchase Price paid by the Buyer) on the transaction’s closing date in an amount of five percent (5%) of the Winning Bid Amount.
Q. Is an earnest money deposit required by the winning bidder?
Ans. Yes. A successful bidder will be required to deposit additional funds with the closing agent in an amount stated in the loan sale agreement. Such funds must be posted within 24 hours of being selected as the winning bidder. The winning bidder will be required to pay the Earnest Money Deposit by wire or casher's check within 24 hours following the conclusion of the online auction. You will be provided with a receipt via e-mail showing that the escrow/closing company received your Earnest Money Deposit. There are no exceptions to this requirement.
Q. Is financing available for Note purchases?
Ans. No. All purchases must be funded in cash.
Q. What documents will the successful bidder be required to execute at closing?
Ans. The successful bidder will be required to execute a Loan Sale Agreement, Loan Assignment and Assumption Agreement and other pertinent and customary documentation involved in the purchase, sale and assignment of Notes. Such documents will be available for review in the secure data vault and are non-negotiable.
Q. Where and how will Note closings be consummated?
Ans. Typically, Note closings occur at an escrow (title) office or law firm designated by the Seller, and upon the execution (and in some cases, recordation) of all documentation, title endorsements, the satisfaction of all closing conditions and Seller’s receipt of all funds due, the transaction shall close. Such closings typically are required to occur within fifteen (15) days of being declared the winning bidder.
Q. What if I want to foreclose on the property (underlying collateral) or wish to restructure the current loan?
Ans. Please seek appropriate legal counsel on these options.
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