All Forum Posts by: Andrew Smith

@Scott McLaughlin I'm going to assume any/all borrowers on the note are deceased.  In most states if anyone dies with real estate there should be a probate case (even if there's no will).  Search the probate court.  The court will appoint an executor or personal representative.  That person should have the power to negotiate a deed in lieu of foreclosure.  If there's no probate case then it's a straightforward foreclosure (judicial or non depending on the state).  Either way a great attorney can make the difference here since you are working with two intersecting legal areas - probate and foreclosure.

Title search will likely find out if the borrowers are deceased.  A simple google search will also find obituaries not found by the title company.

If any borrowers are alive I do not know how to value the note or why you would add it to your portfolio - it then becomes a roll of the dice whether the borrower draws on the loan up to or beyond the value of the property.  The most you can ever recover is the value of the property minus legal fees.  Good luck!

@Chris Seveney

Currently, these are performing but we'd like to be properly prepared for anything in these times.  

I will investigate getting a credit report.  Thanks! Andrew

Hello,

I know there are some older posts about insuring lender's interests in 2nd lien notes.  I wanted to get the conversation going with a few ideas we've heard.  The first option, which has failed for months, is having the servicer email the borrower for a copy of current HOI info.  Here are some other ideas.

1.  Don't worry about it.  If the house burns down they will rebuild and your note will still be collateralized by a house and land.

2.  Find the servicer for the 1st lien without asking the borrower and go directly to them asking for the info (but I don't know how to find the servicer from the title report).

3.  JB Lloyd has a policy for 2nds and it's not that much money.  However, we're possibly paying for duplicate coverage.

Thanks!

This is absolutely a path to take in order to get non-performing notes performing again.  We had an asset in Michigan go from the verge of foreclosure to fully reinstated with $20,000+ from the Michigan Homeowner's Assistance Fund.  It is time-consuming and funding varies from state to state but it is worth the effort.   Good luck!

This is a great outlook on the market, thanks Chris!

Collateral Storage and Loan Servicing are two different services.  Some companies offer both but it's priced accordingly.  Original loan documents should be stored in a safe or with a vendor such as Metasource or KC Wilson and Associates.

Have you checked out BIFI for servicing?  They are licensed in MI and many other states.  https://bifils.com/investors/

Chris,

Thanks for the insight and, as always, the great advice on how to approach BK when performing due diligence or bidding.

As bankruptcies increase, how do you think this will affect the supply of notes for sale?

Thanks, 

Andrew

The FTX bankruptcy is going to be a little more involved than an individual borrower declaring bankruptcy to halt a foreclosure sale on an NPL!  It will be fascinating to watch.  Thanks for sharing Chris!

We generally pass on loans not serviced by a licensed servicer. The loan documents should be drawn up and reviewed by a licensed attorney. These are big roadblocks for us if either one is not in place. As far as terms go, most note buyers purchase at a discount to Unpaid Principal Balance (UPB) and expect double digit returns on their investment. No pay history means more risk so buyers generally expect higher returns (and purchase at a deeper discount to UPB). calltheunderwriter.com can also help with origination. Any decent performing note calculator can help you see what investors might pay you based on the terms of the note.

A bigger down payment always means less risk for the lender...

One area I am actively investing in is 1st lien mortgage notes.  However, there are essentially no tax breaks which is drastically different than buying developed property to rent out.

To deal with this, I invest from a Self Directed IRA to defer those tax consequences. There are lots of great providers including Quest trust, Forge trust, NuView, Millenium Trust and AltoIRA.

These custodians will let you invest in note funds and buy individual notes.  Fees vary, so check out the fee schedules first.

Thanks,

Andrew