I would appreciate feedback from anyone with experience in dealing with distressed properties on this one please.

We are selling the note to a developer for a condo building we originally financed the construction of for another developer for about $2 million under the note's face value. The new developer essentially steps into our shoes to continue with, and complete the foreclosure process.

We are also financing the discounted note for the new developer (as well as $XXX for him to finish off the project).

Our question here is how do we determine a new, or current LTC for the financing of the note and new money? We originally had about a 60-70 LTV (yes, V, not C) on the orginal loan.

There is not a BPO nor a new appraisal here. Is a LTC even relevant here since we are financing a note, and not an actual piece of dirt?

JJ - That is a tough one. Normally your collateral now would be the Note Receivable - but if you have documented proof, from your own experience with the original customer, that they cannot cash flow, I'm not sure how the regulators would look at this one for LTV.

I would like to ask how old your existing valuation was on this property and what the market is doing in that area?

The original valuation is about 3 years old, and the condo market has bottomed out here, especially where this building is, hence why we are selling the note for 2/3 of the original note.

By selling the note, and not the property, this allows the new developer to blow out the secondary and mechanics liens through continuing the foreclosure.

There would not have been an actual original cashflow per se, because repayment would have come with the sale of the individual units.

What really mixes this one up for me is that we are also lending $XXX on top of the note sale for final improvements to the building. So even though we are selling the note, the building is still the collateral... indirectly, sorta...

::tapping the mic::

Any other expereinces, thoughts on this?

Pick me! Pick me! I'm interested in all the strange aspects of this transaction.

I think you will be criticized for not have a current valuation when you were beginning the foreclosure process. How would you have know whether the sale of 2/3 of the original balance was adequate?

I agree that the building is still the collateral. It appears to me that there is no value under the NOTE other than the real estate. You sold the transaction for 2/3rds of the value and saw a bottoming out of that market in your area.

Look at it this way - you financed (plus some) the purchase of real estate in excess of the purchase price without know the current value nor the "as built" amount after advancing new funds to finish improvements?