Note investing book?

[Nicholas R.]

Hi All,

Not sure if this post is in the right place.

I am monitoring and reading through the tax lien, and note forum here on BP. In addition to that I was wondering if anyone knew of a good book for beginners on the subject? There seems to be a lot to learn from a legal perspective. I want to be sure I understand the risks fully from each lien position. Do my risk in those positions vary from state to state? How am I protected? Where am I exposed, etc?

[Dion DePaoli]

Originally posted by @Bob E.:

Your protection is based on the collateral and your claim on it.  So 1st lien will have pretty good protection but there can be other liens in front (taxes) etc..  Note the three things that can kill the value of a note are 1)  poor property condition, 2)  Back Taxes  and 3)  a cloud on the title. A second lien has the same risks but also has a 1st lien in front of it that has to be paid off before the second lien holder gets anything.  

I do not agree with the 3 things listed here as what can kill the value of a note.  

In reverse order:

3 - Clouds on title - Moot issue for a properly recorded instrument since the issue will have superior lien status.  A foreclosure action would wipe the lien out, making it of no consequence.  The exception to that idea are Super Liens like property taxes which automatically take priority.  However, their presence is not always an automatic value kill at all.

2 - Property (back) Taxes - Property taxes are a Super Lien when levied, they rise to first priority automatically which gives them the power to extinguish the rights and interests of ALL interested parties inferior to them.  That said, property taxes can be Advanced by the Mortgagee at any time when they may interfere with the superiority of the Mortgagee's lien.  Advances made by a Mortgagee are recoverable expenditures, further reducing the true impact of a past due tax bill.  The real impact as it pertains to past due taxes is on the total return calculation since often times newer investors do not factor in the advance and the time it may take to recover said advance.

1 - Poor Property Condition - This is an idea relative to the capitalization of the asset and the timing of acquisition.  As such, I would not say it "kills" as much as it simply has affinity on value.  Property can be improved and rehabilitated by the property owner.  A Mortgagee can actually affect and guard against such things.   Mortgagees have a right to preserve the property and the borrower has a obligation to maintain the property.  The core idea is valuing the real property in an As Is/Where Is state at any given time relevant.  A property in a lesser condition to contiguous comparables simply means it captures lesser of the value than the comparables.  While at certain lower levels of value, this is a slippery slope to zero, in median and higher value properties the affects on that risk is mitigated.  

Further, and I think this happens often with newer note investors, the lens being used in an idea of poor property condition stems from trying to treat Note Investing like Real Property Investing. A counter-intuitive example would be a borrower who holds the cash equivalent to the UPB in the bank, makes great income and has never missed a payment in a majority of the term but lives in a run down shack. As a Mortgagee all you are entitled to is the principal and interest due not the property. Diamond in the rough or disaster waiting to happen?