What types of Notes will be sold at auction?

Our auctions will 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 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.

What is a Mortgage Whole Loan?

A Mortgage Whole Loan is a loan secured by real property that has not been placed into a mortgage-backed security (MBS), 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.

Is there a difference between the terms “Note” and “Loan?”

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.”

What is a Loan or Note sale?

A Note (or Loan) sale is a commonly used term for the sale of a mortgage whole loan or a pool of whole loans from a lender or originator to an investor. All note sales powered by AUCTION.COM use an open, transparent, on-line auction market to achieve best execution.

Who owns the Notes being offered at these auctions?

Typically, the Notes being offered are owned by lenders which originated the loans and now desire to sell their interest as opposed to holding them or foreclosing on the underlying real property. In other cases, Notes may be offered by institutional or private owners who purchased individual or portfolios (pools) of Notes from various lenders, such as banks and insurance companies, the United States Department of Housing and Urban Development (HUD) or the Federal Deposit and Insurance Corporation (FDIC).

How will Notes be auctioned?

Notes will only be sold through on-line auctions, which are referred to as “Events.” There will be no live, ballroom events for Notes.

How do I get started on reviewing detailed information on Notes?

Prior to gaining access to an individual Note Item (details page), Prospective bidders must first register and provide user information, and then execute a Confidentiality Agreement, User Registration & Qualification Agreement and Privacy Policy Statement, all of which are provided on-line. In addition, certain Note auctions may require further qualification, disclosure and financial conditions.

Are prospective Note buyers allowed to conduct site inspections on the underlying real properties prior to bidding on Notes?

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, confidentially 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.

What information is available to prospective Note bidders?

At the Note Item 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. These files may certain loan documents, legal filings, appraisals, environmental reports, physical needs reports, loan purchase and sale agreements and other pertinent information and documents enabling a prospective bidder to formulate a bid price. In addition, prospective bidders may contact the Loan Sale Advisory listed on Note Item page for further information.

Are only defaulted or troubled Notes offered for sale?

No. Notes offered may be performing, re-performing (restructured), sub-performing, non-performing and/or non-performing where the borrower is in bankruptcy.

Who is qualified to bid on Notes?

Each Note auction may involve different bidder qualifications depending on size, property type and other factors. Generally, investments in Notes involve a higher degree of risk than an investment in real property. Therefore, 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.

Is financing available for Note purchases?
Typically, there is no financing available for the purchase of Notes and all purchases must be funded in cash. However, each prospective bidder is advised to check with the Loan Sale Advisor on each Note, as well as established banking and financing relationships, in order to ascertain if any form of financing is offered.

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?   

On 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. As a result, bidders are encouraged to enter into contractual arrangements with their Assisting Parties prior to beginning the bidding process.

What is the cost to purchase a Note?

In addition to the standard and customary costs of reviewing and closing Note transactions, the winning bidder will pay a Bidder’s Premium on the transaction’s closing date in an amount set forth on the respective Note’s Purchase and Sale Agreement.

            Max. Bidding Limit                                  Initial Deposit

Up to $1 million                                    $10,000

Over $1 million to $5 million                   $25,000

Over $5 million                                     $50,000

Instructions for funding the Initial Deposit are prompted when registering for a Note event.

Is an earnest money deposit required by the winning bidder?

Yes. A successful bidder will be required to deposit additional funds into escrow (i.e., add to the Initial Deposit amount) in an amount equal to 10% of the Winning Bid Amount to serve as the “Earnest Money Deposit.”

What documents will the successful bidder be required to execute at closing?

The successful bidder will be required to execute a Loan Purchase and Sale Agreement, Loan Assignment and Assumption Agreement and other pertinent and customary documentation involved in the purchase, sale and assignment of Notes

Are the terms, conditions and process of each Note auction different?

While the process of bidding and purchasing Notes will be similar in each auction, the particular Bidder Instructions for each Note auction can be found in the Secured Data Vault at the respective Note Item site.

How do I start the bidding process?

When registering for a Note auction event, prospective buyers will be prompted to complete the process of “building your bank,” which includes steps to establish an escrow, deposit initial funds, and other prerequisites for bidding on and closing Note transactions. Once complete, a bidder can begin the bidding process.

Is a deposit required in order to bid?

Yes.  An “Initial Deposit” in an amount determined by a bidder’le Agreement, Loan Assignment and Assumption Agreement and other pertinent and customary documentation involved in the purchase, sale and assignment of Notes.

Where and how will Note closings be consummated?
Typically, Note closings occur at an escrow (title) office or designated law firm agreed upon by the parties, and upon the execution and recordation of all documentation, title endorsements, the satisfaction of all closing conditions and seller’s receipt of all funds due.