All Forum Posts by: Dion DePaoli

I didn't really follow you there. "To me the example means that those are the numbers at the end of each year." So, that is the NET cash flow at the end of each year, right?

The "worth" of an investment? How are you figuring this out?

"Worth" suggests you still own it, at the least, I would say this is sort of pointless to do more than once or twice a year at best. Seems more like an ego play opposed to an operational measurement.

You can't realize a gain until said gain occurs so what is the point of net worth outside of just talking point?

If "Worth" is being compared to a measurement like AUM (Assets Under Management) then you are going to use either your total purchase monies or total collateral values. The volatility of this number will depend on how active you are buying and selling new properties. Even still, it does not speak to how well you are managing anything. My AUM (Net Worth) can increase by 50% which really only means I bought a bunch of stuff not that I managed it well.

"Net worth gains weekly"? While I understand what you are driving at it seems this likely not a benchmark. Does your inventory move that much from week to week?

I suppose a monthly review might ("might") be relative but it would depend on your volume. If the reason for such volatility in the number on your balance sheet is say your bank balance which is going up and down based on your cash in and out puts then you are measuring the wrong thing and the data is not all that important but I suppose it might be interesting to know.

Again if you use the rule of you only have a gain when the investment concludes then you start to get to a homogeneous set of data to compare to.

Why are you not focusing more on transaction returns which you compare returns or cash flow yields over the seven years?

You really shouldn't calculate it like the example suggest to begin with. This stems from mixing up yield versus return.

The example fails to convey properly when the investment concludes. Is it like Example 1 or one of the sets in Example 2 (A,B,C)

Example 1
T0 = -100
T1 = 10
T2 = 50
T3 = 30

Example 2 (A,B,C)
T0 = -100 / -100 / -100
T1 = 110 / 10 / 10
T2 = 0 / 150 / 50
T3 = 0 / 0 / 130

In Example 1, the Geometric Mean is 24.66%, the Arithmetic Mean (or Average) is 30.0%. The Internal Rate of Return is -4.6%.

In Example 2, it is important to note that at the end of each set (A,B,C) 100% of the initial investment is returned. So set A is simple IRR = 10%, if you do not return the initial investment you have a negative IRR since you invested 100 and only got back 10. If you invested 100 and received 10 in T1 and we assume the initial 100 is safely out there somewhere to collect, then that is Yield not Return. Return can only be calculated at the conclusion of the investment.

The IRR of set B is 27.6% and IRR of set C is 28.2%.

If you just want to see what your average yield is, which sounds more like the question is asking then we have to clear up another detail in the example. The example says there is a factor of 1.10 for T1 and 1.60 for T2. This suggests that the cash from T1 (10) is being added to cash fro T2 (50) which is the only way you get to 1.60%. The IRR for this scenario would be -24.11%, the yield in T2 is 60%.

Now in the example year 3 is awkward, it says the factor is 1.20. The problem with this is it doesn't really fit the other two factors (1.10, 1.60). Year 3 earned 30 and the factor is 1.20. Well if year two is 1.60 which we can see looks like 10+50 then how do we get 10+50+30 = 1.20? Shouldn't the factor be 1.90? If the factor at T3 is 1.20 it would mean we lost money since at the end of T2 we were up 60 and at the end of year 3 we only have 20, so we lost 40.

If we just wanted to know what the overall yield is for the investment we would sum the cash flow (10+50+30) and divide by the investment (-100) which is 30%. In the event you had a greater gap between each years cash flow say like (10+150+30) then Geometric Mean of 35.57 is a better indication of the end result opposed to the Arithmetic Mean which is 63.33. It is the same as weighting the averages of going to the store and buying bread, milk and caviar. The caviar as an out layer to the population will push the simple average higher.

Good thread and discussion!

There is no exact way to know what will help one person and not the next but some general guides:

When shopping for auto loans, consumer credit or mortgages, the model allows for multiple credit pulls within a 14 day span and then again from 15 to 30. A consumer is expected to shop for credit and the "Don't get a bunch of pulls of credit or it will hurt your score" is more of a myth from loan brokers/agents than truth from credit reports. The actual influence of a credit inquiry outside of the allowed situations for no impact is very minimal. Typically folks confuse that event with other events which drastically impact their score and then blame it on their inquiries. All that being said, a lot of inquiries is not a positive thing for you outside of the shopping window.

The use of your credit is important. Ideally balances of 50% or less is the best policy as stated above. Paying balances off to zero does have adverse affects on your score. This is because when you pay to zero, your available balance of credit to use is adjusted. Example, if you have two loans where one is $9 out of $10 and the other is $2 out of $10. You have $9 of available credit. If you pay the lower line off ($2) you now only have $1 of available credit out of $10 instead of $20, You are now riskier to lend to.

All of it begs the question. What is good credit? It seems that good credit scores come more from the capacity to use credit but the refrain from using large portions of the credit. What you ideally want is to have a large amount of available credit but only use it a little. You want to "have" credit and have it currently available to you. Old credit lines are old and with everything on a credit report, time diminishes the affect.

Certainly you can look at your credit and contemplate fighting some of the derogatory credit lines. Be careful with this as well. Most people look at a credit line from 5 years ago and get emotional about it being on the report and want to make it go away. If the line last reported 4 years ago and you dispute it you may cause that line to be updated which have a stronger affect on your score than it was having being 4 years old. You now have a "recent derogatory credit line" opposed to a "dated derogatory credit line" which again time is one of the largest influences in all models.

Also remember not all creditors report to all three repository. A creditor has to pay to report on you. They are not obligated to report. Sometimes you can get a good creditor to report to a repository they are not reporting to by calling and asking.

Your credit score is like a rumor about you in another room. It is a living breathing thing that you don't have too much control over.

The only way around the agent is to figure out who the mortgage servicing company is. Sometimes they might be listed on the tax record or named in a suit on the property. EMC Corp, shouldn't be on the new title, so perhaps see who that is, could be a new investor or could be a mortgage servicer. EMC if still in the deal would likely have to vest title in the name of the LLC which owns it. That will not be EMC Corp more than likely.

Once you get the name, it is a pretty tough battle to get a hold of the right person but it is 100% "NO" if you don't try.

The agent has a duty to bring all offers to his client and since he is the REO agent you are not likely going to just push him out of the way. It is not like the investor has any other local boots on the ground to deal with the property and the REO agent is doing his duty monitoring the property, etc.

Understand as Jon is pointing out that there is a difference between the "Note" and the "Deed of Trust" (or mortgage). They have a relationship to each other but can trade separate from each other.

Just because a bank or investor has Charged Off a debt does not mean they sold anything. Charge off's are not always 100%, or in other words a small portion of the debt can be charged off. The debt is charged off when it is deemed noncollectable and has some regulation around the rules if owned by a bank or financial institution. If I charge off debt today, I can still collect on it. The charge off is reduces my capital position in the asset. If I charge the debt off in full and collect on it later in the year, my gain has no cost basis to it as the charge off says I wouldn't collect.

In many cases when a bank or investor does charge off the debt, they do sell their note. If a collection company has been involved sometimes they strike a deal with the bank to collect on the note or purchase the note outright. Just because a collection company is involved does not mean the bank is not involved. Not all banks have enough man power to handle the defaults and use third party services to assist.

If the DOT has not been extinguished or satisfied by the owner of the DOT/Mortgage it is a valid lien and that lien is enforceable as long as the note is unpaid. An example of how they trade a part, a second position mortgage can be extinguished by the first mortgage foreclose but the debt (note) is still owed. In many cases collection companies by these "unsecured" notes to collect on. Sometimes the bank will co-participate with the collection company by putting the note over to the collection company but still retain partial or full ownership and they share in any collections made or simply pay a fee for the collection service.

If you called the bank and they said he can still pay them, then that could be very true. You can ask them about the collection company and see what they say. If you are unsure of the story, you can ask them to prove the ownership of the DOT. DOT/Mortgages are assigned by way of Assignments of Mortgage and those instruments are in public record and recorded. Notes are conveyed through an "Allonge" which grants the interests in the note to the named party. Allonges are not record but are kept in the file at the bank or mortgage servicer or mortgage bailee. This is the legal ownership of the instrument so you should be able to ask for it, although many collectors sitting a call center may not be so informed about the question so think about taking it to the manager.

A bank is under tremendous regulation and can not just "keep" money for an asset they do not own. There are mortgage servicing laws that deal with this sort of thing. That being said, accidents do happen so you can just try and work with the bank to get comfortable.

If he pays or does not pay, there is no way to know what the bank's intentions are for the note. If they have charged off the note in full and he starts to cure the arrears, they may sell it to get off their books. It is completely up to them on what they want to do with a little influence from regulation on why they need to do things.

Since the bank is still involved I would work more with them than the collection company. You can still ask the collection company to prove they have a right to collect on the note by asking them to send you paperwork if you have to. If they can not send it, I wouldn't deal with them. Typically the bank knows who they sold the asset to so you can always call and ask them as well.

Anytime you have a forgiveness of debt it is considered an income event and is taxable. So if the bank forgives principal for a satisfaction or though modification there are possible tax liabilities. There are favorable rules in place for primary residences but have him chat with his accountant on the matter as well.

Certainly whole loan transactions are different from real property. And for some those differences are difficult to get comfortable with. Take all the issues you know of regarding real property and add a whole other universe of things to know on top.

That being said, one of my favorite statements is "there is no magic in mortgages". Folks unfamiliar with the industry can get picked off in price and costs if they are not prudent and informed. Most of the horror stories I have ever heard are rooted from trying to do business with brokers who are not really in the industry, but they do think they are. There are several sites which conduct legitimate business and are good people. I personally know them and have done business with them.

Having a competent industry professional on your side is always a good idea. Things make sense in the industry and usually that is a good way for a newbie to vet deals and details. For instance, the statement above which I make about voiding the CA foreclosure does not negate the collectability of the DOT and Note, it simply means the foreclosure process must start over. Unfamiliar folks tend to jump to conclusions from a mix of their opinions and horror stories they hear but have never got their hands dirty to know the in's and out's.

If you entered into a contract to buy a mortgage/dot then your collateral will consist of the original mortgage/dot all of the related assignments, the original note all of the related allonges, title insurance and other documents in the credit, legal and property portions of the file. In the whole loan space, the files are not "pretty" so being prudent in due diligence is important. If you are a newbie, have someone help you who knows the business. For instance, if the seller does not have the original note is that a big deal? It can be worked around and become a moot point. However not having a clear chain of ownership could cost you your investment as you may not be able to collect or give the loan back to the seller for you money back.

I have traded, owned and dispositioned many whole loans and I personally believe they are good investments if you understand what you are doing. Going into the space uninformed or by the hand of the uninformed will cost you time and possibly money. Just like any industry, there are good participants and bad participants it is always your duty to look after your own interests.

I think Chris is spot on with structuring the deal as debt. Keep it simple. The investors may like the idea since you are now in first loss position on the deal.

If you provide a PO Box "AND" a Registered Agent who has an address you will be fine. Many services or attorneys who setup corporations will provide this service for a reasonable fee.

Steve he is not asking about a tax deed sale. He is asking about a mortgage foreclosure. PA is a "Lien Theory" state which means a judgement from court must be rendered in order to send the property to sale. I am not sure why you keep adding the word "Tax Deed" into your post.

You are correct the proper term is "Ejection" whereas "Eviction" is what a landlord does. As a function of the foreclosure suit, the lender essentially proclaims a legal right to the property greater than the borrower and unknown tenants. Provided the foreclosure complaint is drafted properly. Legal possessin of the property is granted before physical possession of the property if their is an occupant in the property. Ejectment is commonly refereed to as eviction.

The Protecting Tenants at Foreclosure Act of 2009 gave tenants in residential property certain rights and time frames to vacate property. While a relationship is not realized between new deed owner and tenant, they are afforded the rights granted by this rule. Abiding by the rule and granting the time to the tenant may not make the tenant move out, which in order to take physical possession of the property a separate Ejection suit must be filed by the deed owner and rendered by the court.