​"Persist....press on....don't give up"

"Persist....press on....don't give up"

You have heard this advice a million times as a kid. Its easy to agree...but much harder to implement.

No matter how bad things get...don't ever give up. Exhaust every possible avenue because you just never know how close you are to turning things around.

The last 5 months have been brutal on one of our first lien deals

We bought a pool of 130 very distressed assets in November. We knew they were going to be tough to work with but the pricing was great. Sure, we knew there were tax arrears, some city violations, some pending tax sales, some BKs and FCs in litigation, a possible borrower fraud and a row of of tear-downs....along with 9 unsecured liens...but how bad could it really be?

Well, its turns out - really bad!

We are now at the end of April.....and since last November:

- Service transfer was rejected because we couldn't provide sufficient backup for the escrow balances. The seller Bank is out of business so that was a dead end. High balance loans with litigious borrowers and no Servicer - bad news.
- Borrower fraud turned out to be the worst kind....he tricked his mom into signing a HELOC then ran off with the money. Should we FC against a elderly Mom who was ripped off by her son? "He's a good boy really..." she says.
- The tear-downs were torn down - and the city billed us for their work. The most expensive 1-day demolition in the history of time.
- Contested FC's were running up massive legal bills. $43,000 in March alone
- City violations went to court and we were hit with another set of bills
- Did I mention the 9 unsecured?

It was going from bad to worse, it was misery...we were running out of cash.....were we going to lose money on this pool?

But this week was better.....much better

- Our accounting team was able to re-create the pay histories so we are now boarding the entire portfolio...very good news
- The BK loans are now all paying....there was over $100,000 in borrower payments sitting in suspense awaiting a Servicer to collect for us
- There are a bunch of workouts and DIL's in the works
- We have 23 approaching FC sale
- We were able to reach a nice deal with the Mom who's son screwed her over. We are rehousing her.

.....but here is the really great news

We bought 9 assets as unsecured. Commercial buildings with complicated title, ancient origination dates, no pay histories, multiple liens, multiples entities, several different parties. In and out of BK several times, divorce claims and settlement agreements. Each file is a few inches thick.

How easy would it have been to accept that the seller was right to mark them as unsecured when they sold them...I mean, they had originated the loans - they should know, right?

Just to be sure, we pulled 10 year title...and traced trough the relationships between all the various parties.You never know - its worth a gamble right?

Right indeed....we found 2 that are still secured! To the casual observer it looks like they were lost to foreclosure in 2008...but no, our lien is still in place. Assessed Values of $532,000 - a 10 unit and 16 unit.... and they appear to be fully rented. Whats even better...there is an assignment of rent clause in the note. These two throw-away's should just about cover all the problems of the last 5 months.

We are not done yet...but it just goes to show what a great team can achieve by working together.

So when things are tough...press on, don't give up. You never know how close you are to turning things around

Happy Note Investing!