Data from RealtyTrac shows that sales of performing and non-performing loans peaked at more than 687,000 in the second quarter of 2012, up 57 percent year-over-year and up 341 percent from the third quarter of 2010.

It wasn’t just companies jumping in and buying loans though. Often loans cascade from big banks to institutions and ultimately end up with mom any mom and pop investors. RealtyTrac’s Daren Blomquist profiled some of these buyers and, ultimately, pointed out that not every note purchase ends in a win

“The truth is there are deals you are not going to make money on,” said Woods, adding that there are three primary items that need to be researched as part of an investor’s due diligence before buying a non-performing loan: property value, property title, and property taxes.

“Even if you have a first lien, which is all I buy, real estate taxes are the one thing that is going to go in front and could completely wipe out your mortgage,” he said, providing an example of a recent loan he purchased where it looked initially like the unpaid property taxes were $8,000 but turned out to be $18,000. “That mortgage is gone. It’s now worth zero. Whoever bought that property at tax auction owns a property free and clear.”

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