Debt portfolios include information pertaining to debts owned by businesses or individuals. Lenders often sell these debts when they are unable to collect them, and if you purchase a debt portfolio, you may be able to turn a profit. How does this work? You find a debt portfolio for sale, purchase it and try to sell the debt to a purchaser. The goal is to sell it to a buyer for more than you paid for it.
Groundwork to Purchase a Debt Portfolio
Debt portfolio buyers should first clarify their reasons for buying the debt. It could be for in-house debt collection, to outsource to a third-party debt collector or to resell the debt through a brokerage. Whenever debts are backed by contracts stating the debt can be sold, it then becomes available for sale. Keep in mind that some debts are easier to liquidate than others, and there will be different laws that you have to follow; these can vary from state to state.
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Some of the portfolios that you may be able to purchase include credit card debt, student loans, personal and payday loans, bail bonds, mortgages and installment loans. It is wise to get licensed and bonded in your state, even if it is not necessary.
InsideArm.com is a good resource for finding out about state licensing laws in these matters. Many experts also advise filing to become a limited liability company (LLC) or an S Corp in order to protect your personal assets. You might also want to invest in secure software with secure file transfer protocols, since you can end up having access to third-party financial information, bank account numbers and Social Security numbers.
Finding Debt Portfolios for Sale
Forbes points out that practically every lending entity has the ability to sell off its debts, but you will need to negotiate a fair market price based on the age and type of debt, its history and the likelihood that it will eventually be collected.
You can also find debt portfolios for sale on websites like Debt Connection. But before you get started, reach out to other debt buyers to get a good idea of the debt's value and pricing. You can also contact some third-party collection agencies to see what kinds of assets they specialize in and if they are interested in working with you.
Agreements and Pros and Cons
After you determine how much you can invest in a debt portfolio and make a connection with a collections group, they will want you to sign a nondisclosure agreement. After that, the debt seller or lender can give you a "masked" copy of the deb portfolio. This includes the original loan amount, dates, overall average balance and charge-off dates. It will not have the borrower's identifying information.
Not all debt portfolios are good investments. If the chains of title (CoT) in the documents are incomplete in any way or it is missing the proper verification, there could be fraud involved. Also check to see if the debt has passed the statute of limitations, because if a certain amount of time has passed without payments, the debt cannot be sued for recovery. Makes sure that the seller warranties that the debt portfolio information is correct.
Consider also: How to Buy a Debt Portfolio