All Forum Posts by: David Fligor

I read the law firm memo, and it sounded like further clarification might come from the Ohio Division of Financial Institutions (DFI) on whether or not registration would be required for note owners with notes serviced by a third party servicer that itself is registered with the Ohio DFI. The law firm says for now they are presuming registration is required. That said, I would want to dig into this if I owned a note secured by a property in Ohio. The name of the law firm is Barham & Maucere LLC (https://b-m.law/) in case you want to contact them.

Are there any associations that could speak up for small note investors in state legislatures?

@Mike Hartzog said above that "every front-end partial contract I have reviewed calls for the note to be assigned in its entirety to the buyer, who agrees to assign it back to the seller again once the payments due under the contract have been paid." This implies that the buyer of the partial would have the right to foreclose on the borrower in the event of a default. In that case, wouldn't the exemption for notes secured by a home mortgage apply because the buyer of the partial stepped into the shoes of the seller? It does not seem the same as the case of a promoter offering a guaranteed passive investment and maintaining title to the note the whole time.

This is a very old thread, but TValue now has an online version that works on Macs, iPads, iPhones, etc. Price is very reasonable at $60 per year. See  https://www.timevalue.com/tvalue-online. I have not tried it, but it looks better than trying to build everything you would need in Excel. 

Booked my tickets to attend for the first time. I'm looking forward to learning and meeting others interested in notes, partials, etc. I'm an attorney working at a tech company by day, and I'd be happy to provide whatever business law education that might be helpful. I'm also closing on my first note purchase next week after a few months of study, so I'll be a new note investor by the time the conference starts. @John P. - you should attend so that there are a few of us who are basically just starting out and can learn the business together.

I am dealing with something of a mystery and would love to get pointed in the right direction or told not to worry about it.

I have placed a bid on a 2nd NPN on a single family house in Connecticut, which was accepted. Before placing the bid, I reviewed a credit report that showed fairly bad credit, but a lengthy history. As part of due diligence, I asked for an updated credit report. The new report shows zeros for everything; not enough history to track. As if the borrower vanished. SSN on the new report and the old report match.

This is a 2nd NPN, and appears to have plenty of equity covering the first and the second, assuming the original information about UPB on the senior loan (from the original credit report and from the seller's information) and this junior loan is correct. FMV conservatively $225k, senior note UPB $135k, the 2nd lien note I am buying UPB $19k with about $10k of arrears. The ProTitle current owner report shows clearly that neither lien has been released. All taxes are current, no bankruptcy, and the house is not being foreclosed on. Therefore, even though this is a 2nd, I was more focused on the collateral than on the borrower's credit.

Any ideas on why a credit report on the same name and SSN would go from a lengthy history to a bunch of zeros? Should I close on the note anyway given that there is plenty of equity and starting foreclosure will either get the borrower to wake up or else will result in me receiving the full UPB plus interest, etc.? Thanks.

In partial answer to my own question, there is a company that is already doing something like this called Unison. See  https://www.unison.com/homeowner/. The main difference is that they provide the homeowner with something like 10% of appraised value and then take 40% of the appreciation.

Hi there,

I'd be interested in the collective wisdom of the Bigger Pockets community on anything that might stand in the way of solving a problem for house rich/cash poor homeowners while giving investors a leveraged return on hot real estate markets. 

For homeowners in hot markets like Silicon Valley who bought either long ago or in 2009-10, they may be sitting on paper gains that can be in the millions of dollars. We might have hypothetically $2.7 million in home equity and an LTV on the only mortgage of 32%. Sure, we could tap it by refinancing or taking out a HELOC, but why not sell a relatively small equity interest (or something like equity) to an investor?

So the question is what are the flaws in the following deal for the owner of a principal residence and the real estate investor? If there are flaws, would there be ways to modify it to make a deal make sense? Assume an accredited investor and no securities law issues for simplicity.

1) Homeowner pays for a legitimate appraisal.

2) Homeowner grants the right to Investor to receive 10% of any appreciation above the appraised value when and if the house is sold.

3) In exchange, Investor pays the homeowner an amount equal to 10% of the appraised value, with 20% down and the rest on an interest-only promissory note held by Homeowner.

4) The note bears interest at Prime + 0% and does not have any origination fees or prepayment penalties.

5) The investor gets credit for 10% of the eventual net proceeds from sale with the net being 10% of net sales proceeds less the remaining balance of the loan.

6) If the investor defaults on the loan and fails to cure the default, the claim on the equity is forfeited.

7) The homeowner remains fully responsible for costs of maintenance, insurance and taxes, but this is offset somewhat by the interest on the loan and the cash received upfront.

8) Presumably if there is a gain beyond the homeowner's basis, there is no tax for now unless the proceeds exceed $250k for an individual or $500k for a couple. Upon a sale, the amounts received from this deal would eat into the exclusion.

9) The appreciation rights of the investor and the note could be sold off to other investors if either party got impatient.

10) A maximum LTV on mortgages on the property in the range of 60% could be established to reduce the likelihood that the seller gets behind and does a short sale that wipes out the investor.

11) If this arrangement might cause a problem for the homeowner when refinancing or taking out a HELOC, the investor could agree that the investor's interest is subordinated.

Benefits: The homeowner's net worth is less concentrated in Silicon Valley single family home performance, and the investor gets a leveraged return on an asset that has potential to appreciate at faster than the rate of inflation. If the homeowner has 90% of the appreciation potential, there is no risk that they will not have incentives to maintain the property and maximize value.

Why is this not a thing? This is not an offer, just a request for help in structuring a potential offer to accredited investors.

Thanks.

David