Due Diligence - Areas of Research

[Omri Liba]

Hello all,

I've started compiling a list of issues to check for when performing due-diligence for a performing-first lien note. I am aware this list should only be used as starting points or "areas of research" towards more detailed and specific DD, but would still very much appreciate if you can let me know whether or not i am missing a significant area of research.

The list as it currently stands:

Collateral File

• BPO & exterior condition (as indication of interior)
• Property insurance up-to-date
• Taxes due & Tax liens
• Taxes & property insurance escrowed
• Neighborhood crime rate & other neighborhood safety statistics
• Owner has all necessary insurance policies
• Is owner occupied? Is vacant?

Loan File

• Chain of assignment
• Title – Verify lien position, other junior liens
• Note modifications / forbearance
• Origination documents – 1003, disclosures, HUD
• Verify Fee simple estate

Servicing File

• Mortgage payment history

Borrower

• Credit rating

Legal

• In bankruptcy process?
• In or pending foreclosure process?
• Compliance with regulation
  • SAFE act
  • Regulation X & Z
  • Qualified Mortgage rule
  • Ability to repay rule
  • State specific compliance
• Mortgage / Deed-of-Trust State?
• HOA "Super-lien" state?

Scenario Analysis

• IRR in "Business-as-Usual" scenario
• IRR in early repayment
• Salvage value in case of foreclosure – State FC remediation policies, FC cost & timings, LTV, FC types allowed in state, REO sale discount rate, holding costs (taxes, HOA, insurance, …)

Is this list missing areas or issues that need to be examined?

In any case, i plan to use a DD service for at least the first couple of notes..

Thanks!