Non Performing 1st Notes - Can I purchase to help grandmother keep her home?

Question

BP Experts,

I have a question about buying non-performing first notes. This one involves family so it really hits close to home. Recently, my grandfather passed away. Losing his income means my Grandmother cannot afford the house they purchased together (ARV $350k). They took out a home equity loan near the height of the market to put some upgrades on the home. Years later they filed bankruptcy, and almost got foreclosed on (ARM). They made some kind of deal with the bank for lower payments and went on paying the mortgage after the bankruptcy. So, to be honest, I'm not completely sure how many mortgages are on the property, if the home equity loan was paid, or if it was a second note, etc.

Now, with my grandfather gone, my grandmother hasn't made payments in 3-5 months, at all. This tells me the first and second notes would both be non-performing. If I let the foreclosure process start to take place, and have the borrower (my grandmother) willing to work with me, would it be possible for me to purchase these notes before foreclosure at the usual discounts? About .20/1.00 for the 2nd NPN, assuming there is one. That leaves the first at maybe .65/1.00. I'm not sure what the UPB is, but if I could get them for the right price or even set up the deal and provide it to another investor, there may be a way I can help my grandmother stay in her home. If I can personally get the notes and help her make payments I can make them performing again and sell them one day, or keep the property. What would you do in this situation?

Thanks Much,

Jason

Bill Gulley · Answer

Other refi programs may be available, much hinges on the modification that was done too. You can buy the note, but I doubt you'd get much of a discount especially if there is equity. You need to get a letter from the borrower requesting the loan be sold along with an authorization to obtain information.This will set the stage to give a lender another option other than foreclosure. I have done this many times (too often in fact) telling the lender that they may become liable in taking unnecessary actions that amount to punitive dealing destroying a borrower's credit, ability to borrow, loss of equities and displacing them when there is means to indemnify the lender from any financial loss. Going that route means they may want every dime, but you can then come back with costs and risks of foreclosure for them to negotiate a better price. It's an art twisting arms. You might have an attorney draft a letter. Any non-judicial FC can be forced to a judicial matter and presenting that strategy to a court will be an eye opener for any lender/servicer, securitized or not. Work with them, don't approach them with a big stick off the bat. You may be dealing with some low level servicer employee who could care less as that isn't their job, so you need to explain if you can talk to someone, you also need to notify the Trustee as they will have to inform the lender but they have no duty to talk or deal with you. Don't expect to deal with a Trustee, but some may only in keeping the lender from liability, some may not care too. If a lender does go forward, your have recourse, place funds in escrow with your offer to purchase the note, that shows your ability to perform.First thing you need to do is run title and see who is on what base before you pitch anything. Since you are related you don't have any issues in dealing in this matter, use that relationship to justify your involvement. I'd not advise doing a DIL with your granny, that is a forgiveness of debt and tax issue, she can transfer interests to you as an estate transfer and assume debt as your investment. See your attorney.She can also sell to you as an estate transfer and you can catch up the arrears, another option Again, see your attorney. :)

Jason Eyerly · Answer

Thank you for the information. Being in Nevada, I checked the requirements and she actually does qualify. This may just be what she needs, and I am going to look into it. Thank you for the information on dealing with the lender, this will be my second method of attack. I would be willing to hold the property betting on appreciation in this case. I know the local market pretty well and know the home is under valued because of the overall state of the market in Southern Nevada. So, maybe worst case scenario is we can do something through estate as you mentioned. This is a last resort because whatever her mortgage is, I don't think it's affordable for me. I don't want to hurt myself in the process, but am willing to do just about anything necessary to keep her in her home..

Bob E. · Answer

@Jason Eyerly One thing that you can look into is is she might qualify for HHF (Hardest Hit Funds). This is a bit of a long shot and depends on what state she is in.If you Google "Hardest Hit Funds State Name" you should be able to get a pretty quick idea if she is in a state where this might apply to her. If not a short sale or DIL is probably the way to go so she can move on with her life.

Dion DePaoli · Answer

If the account is only delinquent 5 months, not having a foreclosure started is not all that surprising. The account it self has to be delinquent 120 days before sending a Notice of Default which is the starting point of a foreclosure process. Upon sending of the notice, the borrower must be given time to cure adding another month. So NOD at 120 means a foreclosure start at best 150+ days past due.Now add in some states which have mandatory exploration of foreclosure alternatives and we add some more time. It was not clear what state the subject property is located.More than likely 65% of the FMV is a pretty aggressive number for an asset with no foreclosure start. With the OP arm's length relationship, it is understandable how it could work to some degree. If the asset is NY, like the OP, then those bids tend to be around in the mid 40% of FMV and lately have been trading for premiums 10% ahead of that more centrally located to the major MSA. We have not seen much middle value band assets trading lately in small batches. Some large trades but not much sub $30 million and they are trading in pools. The lower value stuff is literately everywhere. Doing a reverse inquiry to attempt to purchase the loan is very hard thing to get accomplished. The odds are stacked against it. Many of those loans are still held in securities. There are some legalities coming down the pipe with some of that litigation. A topic for another thread. The general idea here, likely unfortunately, is grandma should be looking to get out of the house. First line of attack is a short sale or deed in lieu. It seems like she can't afford it any longer. No sense trying to be around the bush with that idea since it doesn't stand to serve grandma's best interests. Instead of the note buying idea, I would recommend you help get to the bottom of a short sale or DIL. You are a family member so you can help her with these things but she will need to give you permission. The chances of this loan trading in this setting is not high and there is no sense spinning your wheels.

Jason Eyerly · Answer

She lives in a very nice house in a very rural area, so I don't have super accurate comps. And it's a semi-custom home. $350k is my guess based on my knowledge of the area and what they bought it for at market height. All I know for sure is that it's under water a nice amount, and now is NPN.

Bob E. · Answer

If ARV is 350k this will be an expensive purchase. Very unlikely it is going to go for .20c on the dollar. Does anyone have a feel for what higher price notes go for? Or do the bank keep these in house? I would suspect the latter but I usually deal in the lower priced loans so this is our of my normal area.

Jason Eyerly · Answer

Foreclosure has not begun, I'm just expecting it. I would not be able to afford the home, and they are underwater. That is why I considered possibly being able to use a HELOC to purchase the note.

Mike Hartzog · Answer

Agree with Bob. Banks generally sell notes in large pools to established buyers and don't do one-off sales to investors. My advice would be to determine the equity position your grandparents have in the property. If they are not underwater you could look at curing the foreclosure. If they are underwater, you might be able to arrange a short sale or purchase the property at the foreclosure sale.

Bob Malecki · Answer

Highly unlikely unless it is a local portfolio lender with whom you can contact and work something out. If they are filing foreclosure then that indicates that they don't have an interest in selling the note on the secondary market. This ain't necessarily so, but a valid indicator.