Freedom Financial Funds, LLC Provides $6.5m Loan To Purchase Defaulted Note

A long-time client asked Freedom Financial Funds to provide the capital necessary to acquire the 1st lien on a building it had previously purchased. The client wished to preserve the 2nd lien on the property due to its low interest rate and determined that the only way to accomplish that goal was to buy the 1st lien.

When presented to Freedom, the client had already entered into a purchase agreement with the 1st lien holder, a bank, and could not change the terms of that transaction. To make matters more complicated and time critical, the bank had declared and recorded a Notice of Default. The only way to preserve the client’s equity and the 2nd lien was for the client to buy out the bank. To add to the challenge, the bank would not allow Freedom to step into its client’s position in the note sale contract. Further, the bank insisted that the close would have to occur within two weeks, or it would file its Notice of Sale.

Financing the purchase of a defaulted note can be a complicated process. It is not only necessary to perform due diligence on the asset securing the loan, the loan documents that are being acquired must also be analyzed. Before Freedom could begin the property and note due diligence required in this matter, it had to develop a structure, ensuring that the selling bank was satisfied, the 2nd lien holder not disturbed, and that the client would be able to execute as contracted.

Freedom came up with a solution. It was agreed by all parties that in a simultaneous close, the client would buy the note as agreed from the bank, Freedom would buy the note from the client, and the client would agree to the extension and modification of the newly acquired Freedom loan documents.

Ultimately, Freedom was able to make the above happen and meet the seller’s demands.This required Freedom to negotiate a week-long extension from the bank, since it was impossible  to provide all requested documents as quickly as required to meet their original timeline. When the dust settled, the bank got out of its loan, the client cured the default and got a one-year bridge — all in just three weeks.

Freedom was instrumental in solving the client’s immediate needs as well as creating lucrative opportunities for the future. The client was able to preserve ownership so that if a pending lease materializes, it could make a profit nearly the size of the new loan.