At a cross road - What would you do?

Question

Hello fellow note investors,

I am wondering what a seasoned note holder would do if you were in my shoes.

I have a note that is non performing. It's in my backyard, I have it boarded with Peak Servicing (which you probably know is closing their doors) It was a slow pay performing note when I bought it, they stopped paying because they seen a way to take advantage of this issue --> we needed to take a verbal agreement that the note seller (who I bought from) and the borrower had lowered the interest rate from 8% to 6.5% so the whole time Peak is trying to get this simple mod done, they stopped paying, stopped responding to Peak's letters emails and voice mails. So the mod never happened, the only thing they had was a hand written note of the change on the top of the promissory note. (which I also had because I have the original note from the seller) Peak said I could except that if I wanted to and forget the mod. So I had Peak make a deal that I would except that and forget the mod if the borrower would pay up all missing payments and get current. roughly $4k

They had told Peak that they had all the payments that they didnt make ready to pay but were nervous about the loan mod, were confused, didnt understand, etcetc.

Well weeks went by and finally they made a payment of $1100 - So I had Peak try to reach out to them to find out whats going on, where the rest of the payments are, and got no answering the phones, no responding to letters, no returning calls, nothing so I told Peak to send a demand letter.

They did, its 30 days to pay up or we start foreclosure.

So hear is where my cross road is now, the 30 days is up - What would you do? (Remember Peak is closing their servicing doors) I have talked to other servicing co's and they really dont feel to good about taking this loan in the middle of the issue, or they want to charge hundreds to pick it up, or they want to start all over from the beginning.

So would you take it into your own hands and contact the borrower yourself? (What I am thinking about doing).

Put the foreclosure off and board somewhere else?

Foreclose with Peak (I think they will still see it through)

Maybe take back as REO and deal with that?

Thanks for your help

Dave Van Horn · Answer

Hey Jeff,

If I were in your shoes, one way or the other I would start foreclosure. If you don't, speaking from experience, the likelihood of the borrower paying you is slim to none. And if that doesn't work out, you'll be exiting through the property so either way you need to start Foreclosure ASAP either through Peak, your own attorney, or the speciality servicing department of your new servicer.

As for how you do it...I don't know exactly when Peak plans on closing up shop but if you get too far along in the process you'll run the risk of possibly having to start over with the whole legal process with a new servicer. It's a tough call because the FC process can be quick in Texas (assuming that's where the note is located) but there's always the chance of what I described above and losing money along the way.

If a servicer doesn't feel comfortable taking on this type of loan, I would move on and find another. There really shouldn't be an issue of boarding a loan like this if said servicer has a specialty servicing department. I would imagine a servicer like FCI would take on this loan. Now as I said, a new servicer may want you to start over in the legal process but that's usually because they don't want to jeopardize their standing with regulators if the process wasn't done correctly by the previous servicer. Also they may prefer to utilize their own attorney network. But if you switch now after only sending a demand letter, than that's not a huge deal. You're not really losing much.  As for the cost of re-boarding the loan, that's unfortunately just the cost of doing business.

I'm not sure you're experience level but to remain compliant, I would advise against taking it into your own hands unless you're a licensed debt collector or debt owner per the requirements of your state.

And if you take it back as an REO, that's after the fact of Foreclosure so no matter the exit, you'd still have to get clear on that first.

The good news is it's still occupied and since they paid in some money it looks the borrower may want to maintain their interest in the property.

Best of luck

- Dave

Christopher Winkler · Answer

I agree with Dave, we would go right to foreclosure, as that is what wakes them up. I would move it out of Peak asap ,as we just started foreclosing on 20 loans when they gave us the bad news, totally screwing up our foreclosures. I think Oct 1 is the deadline. I would try Madison Management, as Land Home has a minimum requriemnet, or go to FCI. You can also give him the option of a deed-in-lieu with cash for keys to avoid dropping an atomic bomb on his credit report with the FC.... Good luck and keep us posted!

Jeff Smith · Answer

Thank you Dave, that was a well thought of answer.

Patrick Desjardins · Answer

Small sample size as I was just trying them out. Borrower called them right away, then LH proceeded to call a wrong number for 30 days instead of simply calling the number they were called from. I had to ask them why they weren't calling her back at the same number.

Emailed and called LH repeatedly to send a demand letter, then 3 weeks later hounded them about starting foreclosure right after demand letter expires.. Oops, they forgot to send it.

TN foreclosure.. Quick right? It took their attorney FIVE months after FC to get us the deed. Every week there was a new excuse why it wasn't completed. Of course it's not entirely LH's fault but what was unacceptable was that once again I had to micromanage them and call/email non-stop. They would inquire with the attorney's office, not get a response for a week.. I'd have to push them to call back   and get an answer, etc. This went on for months.

Every single day came a new low. By that time I had moved stuff back to FCI and Madison and thanked baby J that I didn't transfer much to them, and it was my own money and not investors' money. How do you justify an uncontested TN foreclosure taking a year??? Autodialing wrong number for a month without trying to find the right number?

As usual, this is just my personal experience and someone else may have a completely different experience.

Mike Hartzog · Answer

I agree with Dave, Chris, and Patrick.  The recommendation I would add is to board with a servicer like FCI or Madison on a No Collection (Client Managed) servicing plan.  You don't need the servicer involved in managing your foreclosure.  Engage a foreclosure attorney directly to get the foreclosure done.

Christopher Winkler · Answer

Really? Why is that? They all stink, the question is, who stinks less?

Patrick Desjardins · Answer

Agreed with Chris, move it now and start the foreclosure.

Move it to FCI or Madison though. Land Home is one of the most incompetent company I have ever had the displeasure of working with.

At a cross road - What would you do?

Most Popular Reply