American Homeowner Preservation (AHP) Fund

[Mark S.]

I stumbled across the American Homeowner Preservation (AHP) Fund ad on a podcast.  Upon going to their website and researching further, it appears it's a hedge fund that buys discounted mortgages and supposedly tries to let homeowner's stay in their homes (and obviously make a profit) in doing so.  This is now open to non-accredited investors (as well as accredited) for as little as $100.  They keep any profits above 12% and it appears they charge about a 2% fee plus a couple other nonsense items (based on my very brief skimming through some info).  Anyone familiar with AHP?  Thoughts?

[Mark S.]

@Paul Bommarito

Took me a couple emails over a few days for a recent issue, but got a call back and email back today. They still haven’t resolved my issue, but hopefully in the next few days.

[Paul Chapey]

I sent Brian Hamilton an email today after seeing these posts. He responded in a few hours.  

[Paul Bommarito]

@Paul Chapey I was informed two weeks ago that Brian Hamilton is no longer with the company. A new gentleman named Michael responded to me in the evening yesterday. Sounds like they just have a new IR person who is getting ramped up 

[Paul B.]

Originally posted by @Amanda K.:

Has anyone received their initial investment amount back? Or started to receive initial funds?

I have been getting paid every month. I haven't been in it long enough to get my initial investment back. 

[Paul Chapey]

@Paul Bommarito I sent my email to Brian at the invest@.... address. He's been the only person I've communicated with in the past. The response wasn't signed Brian and neither have his numerous other emails in the past year. Perhaps even other responses were from another person. Since I directly addressed him, I'm surprised that whoever responded to me didn't point out that he/she wasn't Brian.

[Paul Bommarito]

@Paul Chapey I have similarly always spoken with Brian both via email and on the phone. When I called a couple weeks ago, I spoke to a gentleman named Ray who informed me Brian had left AHP. I was just trying to find out why I was having such a hard time getting in touch with them, but it seems like this is why.

[Matt Gallacher]

Is anyone else struggling with the fact it's 6 days away from the original tax filling deadline and we still haven't seen K1's?  Or have you seen yours?

[Chris Seveney]

@Matt Gallacher

K-1’s were due March 15th I thought ?

[Mark S.]

@Matt Gallacher,

Nothing yet.  It’s a little concerning, but my guess is because of the filing extension, they’re in no rush to get them out (even though we asked a while back and they said they were aiming for mid-March).  

On a slightly different note (no pun intended), has anyone looked at their financials through 8/31/2019?  Looks like they’re still operating at a loss if I’m interpreting correctly.  Does that concern you?

I have a lot of faith in Newberry, but the numbers are the numbers.

https://www.sec.gov/Archives/e...

[Paul Bommarito]

@Matt Gallacher I have reached out several times, and although they have been responsive each time, the timeline always extended. At first it was mid-March, then it was by the end of March, and the most recent response gave no timeline or update at all. My assumption is @Mark S. is correct given the extensions.

[Mark S.]

@Paul Bommarito, are you concerned with their financials?

[Paul Bommarito]

@Mark S. I am a little concerned yes. They are spending a lot of money to build the servicing business, primarily on hiring new people it seems like. But the revenues from it have not been growing fast enough to cover the expense growth or the monthly payment to investors. I am hoping they can figure it out soon and start finding more success, both on getting the non-performing loans performing again and driving revenue growth on the servicing side. I would appreciate more consistent and detailed updates from them as well. Hopefully they have enough cushion to wether the current environment and come out on the other side in a position to capitalize on opportunities that come as a result.

[Bob Malecki]

Just so you know, I'm partnered in 2 private equity funds that have a similar business model to AHP. With the extension for tax filing to July 15th and the disruption that both of our accounting firms in each fund have experienced from the virus, everything has been delayed for tax filings and issuance of K1s to our investors.

Most of our third-party team members are working from home including accountants, lawyers and our servicing staff. This of course will affect productivity and delivery schedules. 

[Jay Hinrichs]

Originally posted by @Bob Malecki:

Just so you know, I'm partnered in 2 private equity funds that have a similar business model to AHP. With the extension for tax filing to July 15th and the disruption that both of our accounting firms in each fund have experienced from the virus, everything has been delayed for tax filings and issuance of K1s to our investors.

Most of our third-party team members are working from home including accountants, lawyers and our servicing staff. This of course will affect productivity and delivery schedules.

WE got all of ours out by the 15th and filed all the state returns by the 15th.  had I known it was going to be delayed like this we would have slowed down the process.

with AHP is suspect when you have a NPN and a ton of them and with all the new laws in all these different states they probably operate in I suspect they are busy figuring out the new rules to the road.

[Paul Chapey]

@Bob Malecki and @Jay Hinrichs bring up good points, but AHP should communicate such to their investors with a whole lot more transparency.

[Jay Hinrichs]

Originally posted by @Paul Chapey:

@Bob Malecki and @Jay Hinrichs bring up good points, but AHP should communicate such to their investors with a whole lot more transparency.

yes mass e mail or maybe a webinar..  when these companies don't communicate in a timely that leads investors to worry many time unnecessarily  if they just got ahead of it instead of working form behind..   I Just look at RealtyShares.. built a huge brand then it kind of implodes no communication and all sorts of issue ensued. 

[Bob Malecki]

Good point Jay. Operationally, we're working in tandem with our legal teams and servicers to address a potentially large amount of defaults on our loans from this pandemic. Since the pandemic has are there slowed or stopped the judicial system in most States we are postponing most of our foreclosure activities. This way we reduce our monthly legal expenses and have cash reserves to weather the next few quarters during the virus.

Looking into the future, after we stabilize our current portfolio of loans we intend to start looking for new opportunities on highly discounted distressed debt which fall out from the pandemic. Being fiscally conservative with our current expenses will help boost our cash reserves to acquire new assets.

Originally posted by @Jay Hinrichs:

WE got all of ours out by the 15th and filed all the state returns by the 15th.  had I known it was going to be delayed like this we would have slowed down the process.

with AHP is suspect when you have a NPN and a ton of them and with all the new laws in all these different states they probably operate in I suspect they are busy figuring out the new rules to the road.

[Jay Hinrichs]

Originally posted by @Bob Malecki:

Originally posted by @Jay Hinrichs:

Originally posted by @Bob Malecki:

Just so you know, I'm partnered in 2 private equity funds that have a similar business model to AHP. With the extension for tax filing to July 15th and the disruption that both of our accounting firms in each fund have experienced from the virus, everything has been delayed for tax filings and issuance of K1s to our investors.

Most of our third-party team members are working from home including accountants, lawyers and our servicing staff. This of course will affect productivity and delivery schedules.

WE got all of ours out by the 15th and filed all the state returns by the 15th.  had I known it was going to be delayed like this we would have slowed down the process.

with AHP is suspect when you have a NPN and a ton of them and with all the new laws in all these different states they probably operate in I suspect they are busy figuring out the new rules to the road.

Good point Jay. Operationally, we're working in tandem with our legal teams and servicers to address a potentially large amount of defaults on our loans from this pandemic. Since the pandemic has are there slowed or stopped the judicial system in most States we are postponing most of our foreclosure activities. This way we reduce our monthly legal expenses and have cash reserves to weather the next few quarters during the virus. 

Looking into the future, after we stabilize our current portfolio of loans we intend to start looking for new opportunities on highly discounted distressed debt which fall out from the pandemic. Being fiscally conservative with our current expenses will help boost our cash reserves to acquire new assets. 

Solid approach..  its got to be a lot of work for these larger companies since each state or county or city kind of has their own rules of the road today.  I like the sit and wait plan.. no sense burning cash on things that cant get processed now anyway. 

[Bob Malecki]

And having the press and the government promoting forbearance like its a constitutional right really throws a wrench into the works. This will definitely cause disruption in the mortgage markets and provide opportunities for those who keep a patient watch on activities. 

This thread is getting off track, so I say that I agree with @Paul Chapey that AHP should be more proactive in communications to their investors. It can be difficult to provide any predictive info (while scrambling in reaction to a worldwide pandemic), but at least a status update is always good. A few weeks ago I wrote a summary overview to our investors in both funds to prepare them for probably lower returns in the short run from potential higher defaults. Nothing an investor wants to read but I've always felt that being optimistically realistic is better than being silent. 

[Marco Bario]

Syndicators aren't always able to issue K-1s prior to April 15th. 

I'm not invested in note funds but for instance in a scenario where there's an Operator at the property level - such as multi-family self-storage, etc - and also a Syndicator who raised money for the deal. The Operator files K-1s with the Syndicator who then must create K-1s on behalf of the investment entity. Some Syndicators send communication early saying investors should file for an extension. 

This year is different - but in the past, this has been my experience. 

[Paul Chapey]

Perhaps ears are ringing...

I received this communication today from AHP:

Dear Investor,

We are finalizing 2019 Schedule K-1’s and you will be able to access these next week through your dashboard. The Federal K-1’s will be available first, followed by the Illinois state K-1’s.

Illinois requires that we withhold taxes from non-Illinois residents and this will be identified on your Illinois Schedule K-1-P(3) line 19. If you live in a state with its own income tax, you might be allowed to credit your Illinois tax against your own state’s income tax.

For all investors utilizing a Trust, Tax-Advantaged (IRA, 401k, etc.), or Entity account please review the following choices carefully:

CHOICE #1: You can choose to join in our “consolidated” Illinois tax return. In that case, you don’t have to file an Illinois return and we will withhold your Illinois tax liability (equal to 4.95% for Estates/Trusts & 7% for Entities of your Illinois income) from the April distribution. If you live in a state with its own income tax, you might be allowed to credit your Illinois tax against your own state’s income tax. The Illinois tax can also be claimed as an itemized deduction (if you itemize deductions) on your Federal return. If you select Choice #1, there is no need to respond.

CHOICE #2: By completing and returning Form IL-1000-E, you can choose NOT to join in our “consolidated” Illinois tax return. In this case, we will not withhold any Illinois tax and you will be responsible for your own Illinois tax obligation, including filing an Illinois tax return. If your account is tax-advantaged, there may be no liability and completion of this form may be appropriate. Please consult with your tax professional.

If we do not receive your completed Form IL-1000-E by Friday, April 17th at 12pm CST you will be deemed to have made Choice #1. Filling out Form IL-1000-E simply shifts the burden of tax withholding from AHP to you and it does not get filed with the state of Illinois. 

Here are instructions for filling out Form IL 1000-E.

Section 2 – Fill in your information. Tax-advantaged accounts may select “Trust”.

Section 3 – Sign and date.

Please return completed form to (edited out because of Bigger Pockets Posting Algo Police)

If you have further questions please consult with your own tax professional with any questions. We cannot provide tax advice or recommendations.

[Andy Mirza]

Glad that you finally got some communication.

Investor relations and keeping your investors up to date (especially when it's bad news) is basic stuff and very important no matter what size your fund is. There's no excuse for keeping your investors in the dark, unless you're ok with losing investors.

I don't know anything about AHP but my understanding is that a lot of funds are late sending out their K-1s and, oftentimes, it's not entirely their fault as they work with different partners and systems.

For us, we like to finish up our books right away. We completed our taxes and got the K-1s out at the beginning of March before the lockdowns started.

As far as bad news, best practice is to communicate it along with what you're going to do to minimize or mitigate the impact as much as possible. You shouldn't dump bad news on investors without showing that you're doing everything you can and are on top of the problems. Experienced investors will know and expect that bad things will happen. They want a sponsor that will be upfront and do what's necessary for the good of the investment, especially when things are difficult.

[Mark S.]

K-1s for AHP Fund 2015A+ (old, 12% preferred fund) are now on their (old) website.  Haven’t seen anything for AHP Servicing (current, 10% preferred fund) yet but supposedly this week.  

AHP Fund 2015A+ K-1 now shows majority of income as “Distributions” (box 19) as opposed to “Guaranteed Payments” like last year.  There is a very small amount relative to the “Distributions” as ordinary business income (box 1).  

A buddy of mine talked to his tax guy who told him these “Distributions” aren’t currently taxable right now and simply adjust the basis downwards (almost like a return of principal), but when the principal actually DOES get returned (generally about 5 years out in this case), that the difference between the amount returned and this downward adjusted basis is taxable at capital gains rates - if held longer than 1 year, generally 15% tax.  

Does anyone else / anyone else’s tax advisor view it this way?  I almost feel like no taxes now for 5 years and then capital gains tax at the end of 5 years is too good to be true, especially on a note fund.

I will discuss with my tax team to ensure this is correct and to get a better understanding of how this specifically affects my situation (with other passive income/losses, etc.).

[James Mc Ree]

Does this change in accounting to distributions pose any risks to us apart from a deferred tax bill later?  I don't recall AHP telling us before now that they were returning principle to us and accruing interest.  It seems like they would have wanted to tell us this wonderful news if it really is good for us.

The only risk I see is any future losses are mitigated in accounting because principle is paid back first.  I can imagine a scenario in which $5,000 principle is returned on a $5,000 investment, then unfortunate news there is a loss and no other payments will occur: good news, you didn't lose your principle!  Of course, you didn't earn any interest over the years either.  I don't have any reason to think AHP would do this, just looking for ways this change could hurt us.

[Paul Chapey]

Has anyone received their April distribution? I haven't, inquired yesterday and no response yet.