Curing the Defect: Restoring Par Value
You have acquired the defective loan at a massive discount. Now comes the value-add phase. Just like a real estate flipper buys a distressed house and renovates the kitchen to force appreciation, a note investor buys distressed paper and “cures the defect” to restore the loan to par value.
Curing Document Flaws
If the loan was rejected for administrative errors, the cure is purely operational. You or your legal team will work with the original title company, the originating broker, or the borrower to track down missing signatures, correct typos, or record missing assignments at the county courthouse. Once the file is perfected, the loan is fully cured.
Curing Payment Gaps — Creating RPLs
If the loan was rejected because the borrower missed a payment early on, the cure requires time. You utilize your licensed loan servicer to establish contact with the borrower and establish a solid 6-to-12-month track record of on-time payments.
Once a defective loan establishes a new, flawless 12-month payment history, it transforms into a highly valuable asset class known as a Re-Performing Loan (RPL).
The Value Creation
A loan with a missing signature is worth 75 cents on the dollar. A perfected file is worth 95 cents. A loan with a recent missed payment is worth 70 cents. A Re-Performing Loan with 12 months of clean history is worth 90+ cents. Curing the defect is how you force appreciation in the paper market.