All Forum Posts by: Doug Smith

Commercial and Residential loans are different animals. a 4-unit property can go either way. You can go conventional residential, but you are right, you can't buy it in an LLC. Your financing terms will probably be better, but you'll lose the asset protection benefits of owning it in the LLC. If you go commercial, you are going to have a balloon of some sort, but you can use the LLC. Unlike a conventional residential deal where the paper is being sold off in a RMBS, the bank is accepting interest rate risk on longer term deals, so they will almost always want rate adjustments every 5 years. You will however, almost definitely need to provide a personal guaranty, particularly if it is done through a financial institution. The last financing deal you mentioned, a 30-year amortization with a 15 year balloon is an impressive deal. What are the rate differences? How about rate adjustments? There will be positives and negatives to each choice. Keep us in the loop if you have any questions.

It's kind of like Card Counters in Vegas. It's not illegal to have the ability to remember what cards have been played, constantly recalculate odds, and adjust your play accordingly, but it removes most of the advantage the casino has. It's not illegal, the house just doesn't like it, so they treat you as if you are a criminal and concoct a story that it's against the law.

George, be careful on this one. In addition to a possible "cocktail napkin" note (make sure a GOOD real estate attorney reviews the docs before you commit to buy), Mobile Home deals are a different animal than SFRs. Is the tongue cut off of the Mobile Home and is it permanently affixed to the land? Titling is different with a MH deal. You may want to walk from the deal if you have any concerns. There are many notes out there for purchase. You mentioned a while back in a previous thread that you are new to buying notes and this is not a plain vanilla note. You may want to be careful and live to fight another day.

@Ru Monsell What is it you are looking for exactly? Are you looking for lists in order to send out mailers to homeowners in hopes of negotiating a short sale or are you looking for lists from institutional lenders of notes they would be willing to sell? Just trying to clarify so I can better address the question.

@Michael Rivera You could take an entirely different approach as well. If you go through and find the last assignment or who filed the Lis Pendens on the county clerk's web site, you might be able to reach out directly to the lender and purchase the note. Once you become the bank, if you can't find the family, you can simply go through the foreclosure process. It really depends on the State the property is in as to the best course of action. Your home State of NY is particularly bad for doing what I am suggesting as the foreclosure process takes forever and is expensive, but if the property is in another State, it is a thought. There are a lot of pitfalls surrounding that strategy, but it is one we use often. Good luck with your endeavor.

That is one way to invest in notes. There are quite a few people out there that are buying notes and are looking for investors or partners. I'm surprised that several of the BP commenters that usually play "Debbie Downer" on notes aren't chiming in. If you are going to lend directly on owner-occupied real estate, then you will have to have a license to do so. The Georgia Dept of Banking and Finance has also been pretty aggressive in going after note buyers and sellers. They interpret the Safe Act differently than most other States. They want note buyers and sellers on owner-occupied residential property to also be licensed. We tend to stay out of GA on our residential note buying or selling for that reason. We have a lot of success in other States, but GA regulators make it hard in that State. If, however, you are buying notes on commercial property or non-owner occupied property, then the GA Dept of Banking and Finance has specifically stated that you are good to go (queue the Debbie Downer commenters). Let me know if you have questions. I'm happy to help.

@Shariyf Grevious We use mobile notary services for our deed in lieus and other notarized documents. Our title company sends the documents from their home office in Tampa through an e-mail to a local notary public, they go to the person's house, place of business, etc, have the person sign it, they notarize it, and send it back to them. Depending upon what they are signing, it might cost us $50 to $125 to have someone do that, but it's been well worth it. I even close loans from time to time (I happen have my notary from my banking days) for the national title company that arranges the mobile notaries for me. Since they are in 48 States, I just ask them to do it for me. Since they are handling the title work for our company, they don't mind arranging it. It's worked out well for us.

@Bryan Rodriguez It's not a question of whether or not a lender CAN act when the due on sale clause has been violated, it's a question of IF they will act. I've watched this thread for a while and stayed out of it until now, but it is a common business practice of many investors to do wraps. Wraps aren't illegal as some may claim, but they do break loan covenants...particularly the due on sale clause that virtually every mortgage/deed of trust will contain. It usually does trigger the default provisions within the mortgage and, as a result, a lender that is paying attention may be able to raise the rate to the default rate, usually the lesser of 18% or the maximum allowable by law, while they foreclose. The idea is that most banks/lenders, like the government, are huge bureaucracies. They don't pay attention to a loan until something happens that gets their attention, such as the loan payments quit coming in, the taxes aren't paid, or the insurance is cancelled. The lending/servicer staff members that usually watch this stuff are usually clerical in nature, underpaid, and really don't care. The higher ups might care, but they aren't the ones watching tens of thousands of loans. If the loan is sold off to a smaller, more nimble group like us, we're going to pay more attention, probably catch it, and we'll act. Many private groups, just like a real estate investor would, will see the opportunity to get the property back as a reason to act. The bottom line is that it is not illegal to do a wrap, but it does violate the terms of the mortgage/deed of trust and the lender can act accordingly. If they are interested in cash flows, the new payor is a stronger payor than the old payor, and the interest they are receiving is right, they may choose to ignore the breaking of the loan covenants. If, however, interest rates change or they feel they can make more money by foreclosing, then you may see the loan thrown into a default status. Grab a standard mortgage or deed of trust and read it. Pay close attention to the due on sale clause, default provisions, and the default rate and then take another look at this question armed with that knowledge. Ask yourself, 1) will the lender notice or care if a wrap is done and 2) am I willing to accept the risk. I hope this helps. In our case as note holders, we're probably going to throw the note into default, collect as much interest as legally/contractually possible, and move to get the property back if the note is upside down. Keep in mind, in the case of a mortgage that is upside down, we probably paid a lot less for the loan than what the property is worth.

@Serge S. Bulk Purchasing loans, whether performing or non-performing, is a complex animal that really does take some experience to do properly. There are quite a few things that you need to do in the due diligence phase, too many to list here, that are critical to you not losing your behind in the transaction. We find that many sellers don't understand what is truly needed for due diligence and, if you miss a critical item, you could find yourself in trouble. For instance, what if they sellers can't provide original loan docs (something we see periodically)? In some states, you have to go to a great deal of extra expense to enforce your rights as a creditor without originals. What is the assignment chain is broken? What about back taxes and certificate sales that, in some counties, don't show up on a website. The O&Es that are provided by some sellers are not only old, but they miss things. There are tons and tons of things that could go wrong with a bulk purchase. I'm not trying to rain on your parade, but perhaps you might want to find a good partner to work with that has a solid track record with bulk purchases. I wish I could help you with the due diligence, but we only deal in non-performing notes. If you can't get the info out of the seller that you need to do your due diligence, walk away and don't look back. There are many fish in the sea. Good luck, my friend.

@Dale G. Why not go to the county recorder's website and pull up the mortgage information and, if applicable, the filed assignments for the mortgage. You may have to pull the MERS number on line to find the actual servicer. You may be able to buy the loan docs from the lender through the servicer for less than what the property is worth. Wisconsin is a State that does take some time for foreclosure, but you may be able to fast-track it since the property is vacant. You'll be able to use that process to wipe out subordinate liens (save, of course, taxes, etc). The lender will spend a lot of time and money going through the foreclosure process, so you should be able to get it at a significant discount. I would have to know more about the loan balance and property value to be sure, but that might be a route to take. Become the lender...take over the property...you are the new owner.