All Forum Posts by: Rushabh Sheth

Bob, 

Thanks for the invite to the Seattle Distressed Debt group.  I just signed up and look forward to meeting the members at the next meetup on Feb. 9th.  See you there.  

Hello all,

I am part of a consortium of investors in WA state seeking to invest/purchase notes in the following areas:

2nd lien notes:  nationwide

1st lien notes:  WA state only

We have recently purchased a WA 1st lien note from Kondaur Capital but these guys don't have that many WA 1st notes to sell and their reputation within the notes industry isn't unblemished, to say the least.  

Can anyone provide a referral to reputable hedge funds or other note holders similar to Kondaur Capital seeking to offload notes on an one-off basis or on a bulk basis?  Any information is appreciated.  Thank you!

Hello all,

I found a SFR REO property that looks like it was gutted completely for a renovation with the interior stripped down to the studs and may require some plumbing and electrical. I am thinking of rehabbing this property and I was wondering if anyone has recommendations for a reliable general contractor in the Contra Costa county in California? I could try searching for a contractor on my own but if there is anyone who has used a contractor in my area, I would prefer to go with the recommendations.

At this point, I need to know how much it would cost to completely rehab the property through a general contractor. Once I have a rough estimate, I can decide whether to proceed with an offer for the property. Is there an easy way to develop the estimate or do I still need to find a GC first to do the estimate? Thanks.

Problem with the financing that it requires W-2 paystub income verification. That is not possible for the self-employed RE investors.

Does HomePath have any financing available for self-employed RE investors?

Hello all,

I have an opportunity to buy a note directly from Kondaur Capital. The note is currently non-performing and the homeowner filed for Chapter 13 bankruptcy four months ago.

I like this note and the property - it's right in my area of operations. I have some questions:

1) Is it easy to deal with Kondaur? What kind of bids are they looking for?

2) How does Chapter 13 bankruptcy affect the note? I am not too familiar with BK notes. I do understand the process of buying and processing pre-foreclosure NPN notes but I'm new to BK NPN notes. Do they add a new layer of complexity? How would you go about processing a BK NPN note if you buy one? Can you do a deed-in-lieu? Do you need court approval, lawyer, etc.?

3) What is the "normal" bid percentage on the UPB of a BK NPN note? I understand that bid percentages range from 30% to 40% of UPB for pre-foreclosure NPN notes and sometimes higher, depending on the collateral. Do BK notes command lower bids?

Thanks in advance for your advice.

Hi Jasmine,

The subject-to deals work only when the loan is not underwater. If there is sufficient equity in the property, then a subject-to deal will work. This used to work great during the boom years but after the real estate crash, it became much more difficult to do subject-to deals due to the fact that so many loans went underwater as the property values declined. Some areas do not have so many underwater loans.

If you're looking at short-sale properties then the loan is underwater and simply not worth considering due to the reasons elucidated by the other posters above. You should focus only on "normal" properties with significant equity.

Mark & Bill,

Thanks for your input. Please consider the similarities between renting out the property for $X,XXX per month and financing a seller note for the same amount per month plus a down payment.

In the rental scenario, the lease will be for 1 year with the option for additional years. In the note scenario, the note will expire at the end of the year with the seller having the option to roll over for one more year.

In the latter case, if the buyer is unable to refinance the note within a year, you take back the property from the buyer and find another buyer. How is this different than just finding another tenant to lease the property to?

If the buyer is unable to refinance the property within a year and asks for a roll over, the seller can do that just to keep the income flowing. Heck, you can structure a note to have unlimited rollovers at the noteholder's discretion but that kind of defeats the purpose of structuring a note in the first place.

The point of having the note is to keep it for the short term so that once it is refinanced by the buyer, you can put the proceeds into other opportunistic investments. Remember, the situation will change within the next 3-4 years. Inflation may become a monster. The dollar may collapse. Gold may reach $4,000/oz. A lot of things can happen in the next 2-3 years. For this reason, you want to keep the note short-term.

If long-term income from a single property is your goal then you might be better off keeping/buying the property outright and generate rental income from that. It wouldn't make any sense to structure a note with a 5-7 year term. You are NOT a bank or a financial institution that can keep such instruments in your portfolio for the long term. If the buyer falls behind on the payments, you have to get involved in property management - you can't just dump the note in your portfolio and forget about it.

I just don't see any advantages of a long-term note over a a long-term rental. From the perspective of an individual investor, they're the same since you still have to engage in property management either way as far as the cash flow is concerned (although, I do admit that the level of property management will be less for the noteholder than for the landlord).

Given the above facts, it would make more sense to keep the note short term, to give the buyer a greater incentive to refinance. It's better to let a major bank or financial institution handle the note for the long term.

Jimmy,

The reason the mortgage lien is wiped out is because the state/county needs to generate tax revenue QUICKLY and one incentive for someone to make good on the unpaid taxes is to wipe out all liens except government liens. This provides a tremendous incentive for someone to quickly pay off the unpaid taxes in exchange for the opportunity to acquire the property free and clear of all liens except the IRS/government liens.

The state/county is interested only in getting their money FAST. Without the mortgage lien wipe-out, there would be less incentive for investors to purchase the tax deeds, even if they earn 10% to 15% on their initial investments. It would take much longer for the state/county to collect their money that way.

And the reason you will almost never see deals like a $5,000 lien on a $100,000 property is because the mortgage company will almost always redeem the unpaid taxes and thus take the tax deed off the auction block. It is very rare for a mortgage company to miss out on protecting their first lien position by redeeming the unpaid taxes.

That's why the tax deed sales are usually a waste of everyone's time - the good stuff is almost always redeemed and by the end of the auction, only the tax deeds secured by undesirable properties are left standing.

How was the tax deed bad? Can you elaborate as to how this deal burned you?

I gave up on the California tax deeds. It turns out that tax deeds on desirable properties are often redeemed before the end of the auction. The list of tax deeds on ************** (which is the CA counties' preferred auction method) do not really reflect the tax deeds that are available at the END of the auction. A lot of the good ones will be redeemed. So it is not worth the hassle of wiring money to ********** since it's more than likely you aren't going to be bidding on anything anyway.

As a notebuyer, I am skeptical about the 5-7 year balloon term. It seems too long in my opinion. Wouldn't it be better to have this note with a 1-year balloon with an option to roll over the note for another year?

Individual investors/notebuyers are NOT banks or financial institutions. They do not have the capacity to take on the market risk, interest risk, and credit risk associated with a 5-7 year term on a note, especially if the rates are not that much better than what is being offered by the banks.

Yes, I understand that the borrower's credit and payment history can be a predictor of future behavior but after everything that has happened in the past 2 years, I'm not sure why investors would be willing to keep the note for 5-7 years.

What are the disadvantages of structuring the note with a 1-year balloon with a rollover option? Would borrowers balk at this?