There are few things more demoralizing than owning an empty plot of land you can't develop, except, perhaps for holding the mortgage note on an empty plot that your borrower can't develop. This is not an uncommon situation, as the real estate market slowdown has put a sudden stop to new construction of all kinds.
Property development plans lingered on even as the housing bubble broke because optimistic investors believed (or at least hoped) that the downturn would confine itself to housing alone. Not so; the housing collapse has evolved into a general liquidity crisis. Even if you're managing a private note that isn't beholden to the system that created the problem, you still have to deal with the fact that your borrower needs to attract investors to develop the land, and they need loans to proceed. These days, banks aren't being particularly free with their money, especially when land is involved.
It's a desperate situation for everyone involved, and your ultimate instrument to recoup any losses ? foreclosure ? is a messy, expensive process. Fortunately, as a private note holder you do have several alternative options to pursue. To investigate any of these you'll need a real estate lawyer and a keen understanding of your own interests in the situation. Do you want a steady income stream from the borrower? Are you involved in the development yourself?
As a private citizen you're not bound by the ironclad policies of institutions, but remember that those policies exist for a reason. If, for example, you're willing to wait a while for a borrower late on payments to catch up, you'd better have an excellent justification for the decision. If the borrower is a family member (a common situation when private mortgage notes, land contracts or trust deeds are involved) you may not want to swoop down and demand money in hard times.
Ultimately, you should put the option of selling your note on the table as a preventative measure ? preferably before questions of foreclosure even come into the picture. This is because the value of your note depends on the payment history. If you have a note in good standing but aren't sure you can manage it in the event of an emergency, seriously consider selling your note. Not every note is for everyone, but every note is for someone. Selling your note results in a cash payment and removes the worry of a stalled land development or other complication.
