It’s no great secret that even as distress continues to accumulate, foreclosures are slow in coming. The leeway banks have been given in modifying loans is one factor, and the lengthy time frame entailed by the process in judicial-foreclosure states such as New York, Florida and New Jersey is another. This is giving rise to note sales as distressed asset holders look to cut their losses by getting rid of those assets as quickly as possible. In the short term at least, we can expect to see more such sales, experts say.

“There are still a lot more modifications and foreclosures going on than actual note sales,” points out Kingsley Greenland, CEO of Boston-based DebtX. He adds, however, that note sales are “growing in usage very quickly” and he expects to see more such investment opportunities coming to market over the next six to 12 months.

Kevin Welsh, a senior vice president with the New York institutional group at CB Richard Ellis, would agree. “I like to use the expression ‘debt is the new equity,’” he says, adding that the notes are “typically being acquired by relatively sophisticated investors.” Some buyers acquire the notes with the goal of eventually gaining control of the property (see “Loan to Own? Expect the Unexpected,” beginning on page 14) while others are less concerned with real estate than with maximizing yield.

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