All Forum Posts by: Dion DePaoli

Bill much of what you say is simply not true and is misguided.

First the Mortgagee (Lender) has to power to "substitute" the Trustee NOT the Mortgagor (Borrower).

There are terms and conditions to request a substitution of Trustee per state.

Buying into a note where default has occurred does not mean you should run out and substitute the Trustee. The Trustee is not an agent of the Mortgagee (Lender), as long as the Mortgagee (Lender) provides the proper notices to the Trustee, the Trustee must carry out their duty. The current Trustee has no obligation to accept being substituted.

The substitution of a Trustee is not a mandatory restart to the foreclosure process. Sometimes it is done if proper documents are not available from the previous Trustee. When the substitution is completed and executed it must be either recorded or sent with affidavit to the borrowers giving notice of the same. The notice of sale must also be updated with the new Trustee information on it. So provided you follow the rules, you buy into the process. If these things are not done, the loan is not tendered and the action can be void.

As a function of foreclosing, the balances due including fees, interest and alike are a part of the request to the clerk to continue the action, so they are looked at. If the clerk deems the fees unreasonable they may take action. In judicial foreclosure a similar action takes place and sometimes a "Referee" reviews the balance due objectively.

Regarding the accrual of advances. You are just wrong on that topic. There is no rules or laws which mandate the advances made by one investor can not be recaptured by the next. In fact, this is a very common practice in whole loan trading. Because mortgage servicing has governing laws, loans must be serviced in a certain manner which also means advances are applied in a certain way. The advances made regardless of the investor who owns the loan are the burden of the borrower to pay back. Fees advanced in the interest of the Mortgagee (Lender) to protect their interest in the property are available to be recaptured including taxes, insurance, property preservation, legal fees and home owner association fees as well as some others.

You will likely need to have a two year history to count the income into your DTI. It won't hurt to show them your new tax return once it is done. Bare in mind they look at present and past income so if you trended up this year, you are still dragging down because last year you didn't make the same money.

If you can defer or pay down or pay off some of your other liabilities your DTI will go down. For instance if you student loan is being deferred it may not be counted in your DTI.

It is more likely that the agent you are speaking with is either assuming information on one end of the spectrum or the other. Or you are providing more information to one agent opposed to the other. Lender's issue price sheets on a daily basis. Those prices attract what they want in their pool and push away what they don't want. If you are not going through a detailed interview and trying to compare you are likely comparing apples and oranges. Don't kid yourself, lenders do not price themselves out of the market and are very aware of what the going market rate is for each loan product.

A contrast with a more purposeful comparison would be a lender who portfolios their loans like a small community bank and a lender who sells most of their loans in the secondary market such as a "lender". Banks like Wells Fargo and Bank of America do a bit of both. Fannie/Freddie fundamentally pay the same for loans regardless of the originator thus the rates will follow a similar trend.

It does not sound like you are planning to carry reserves. You will be required to have reserves for each property, generally this is 6 months PITI for each property. You may find a local bank which will have a less guide but I have not heard too may folks finding it.

Chris the section you are referring to in a Master Trust Deed approved by Fannie and Freddie refers to the remedies of acceleration. Language in most standard mortgages and deed of trust is "reasonable fees", regarding a lender's pursuit of repayment or capture of collateral. Fee guidance thereafter is typically given on the state level. What the states do not do is assume they know a lender's cost of foreclosure, which would include judicial procedures as well as non-judicial procedures.

In California the trustee's sale fees can be up to $50 per public post and 0.50% of UPB less than $150k and 0.125% to $500k. A DOT Trustee does not represent the interests of either party, they neutral and obligated to enforce the DOT. Some of the above seems to blend these two distinct concepts.

A lender foreclosing, such as Jason should hire an attorney to represent his interests and interface with the Trustee. Jason's attorney role is really just correspondence to the Trustee. Fees for that type of attorney service is not a function of UPB. I have not seen, even in North Carolina any type of 5.0% charged.

The clause you quote, which is specific to North Carolina is the fees the Trustee can charge based on the "Gross Sale Price" not Unpaid Balance of the Loan. That is the sale price at auction, a different concept all together. The 5.0% number you are referring to is the maximum total fees for the trust sale. NC law dictates those total fees can not exceed 5.0% or similar language "...to all costs and expenses of the sale, including Trustee's fees not to exceed 5% of the gross sales price, reasonable fees and out-of-pocket expenses of attorneys and costs of title evidence; "

My statement is true attorney's do not charge fees as a function of UPB. Also, the language you posted is specific to North Carolina and is not found in a California DOT.

The commentary about whether the mortgagee is entitle to their balance and advances that you make is simply silly. Mortgages and Deed of Trust are recognized legal contracts whereas the mortgagee is entitle per the language in the document to those fees. The process of foreclosure is enforcing those rights to compensation and reimbursement. The nature of the process is in and of itself an approval for the same. He will not need to get any certificate or affidavit as that is what the clerk approves or foreclosure process proves...the debt is owed and payable to the mortgagee.

It is important to have an understanding of why the suggestions you heard were made.

Delaware is one of the best states to incorporate in. This is because the body of laws around corporations is pretty well detailed. Secondly in Delaware corporatism have strong privacy rules. Third there is no state corporate income tax in Delaware if not conducting business there. Forth, Delaware does not require a physical presence in the state in order to hold a company there.

Nevada follows suit with all of that but has a little bit of a limited body of law. (in your situation, none of that is a problem really). Nevada does require corporate income tax if business is conducted out of state. So in your case, you are going to pay for doing business in California.

California, well it is just your home state so it sort of makes sense. You don't have to worry about doing business there.

In regards to the address question, you can use a Registered Agent to satisfy this condition for all three states. Typically the service provided by these folks is pretty cheap and they will help you setup the company and will work with you for all of your additional responsibilities.

The reason to not use your home, well it is your home. Remember you business address is public domain so you will get marketing and people can look you up, etc. You can use a PO Box for your company address in those states above to avoid this but your Registered Agent must have a address in the state to deliver correspondence to.

The state which the property is sitting is of no consequence to any decision.

In your situation, a single owner LLC (it sounds like) forming in your state is really going to be the same for tax purposes. However chat with your accountant about it as well.

The member manager question is pretty simple. You, the sole owner of the LLC is "Managing Member". Members have interest in an LLC and Managers have control. This role is spelled out in your Operating Agreement. If you are the only member of the LLC, then you make all the rules so perhaps focus more on what happens if something happens to you regarding LLC surviorship for your family.

Hope that helps and points you in a direction to start figuring out what you want to make your own decision. It really is not that big of a deal and is pretty easy.

Chris some of what you said doesn't make a whole lot of sense. North Carolina is a Title Theory State (opposed to Lien Theory State) and uses a Deed of Trust state (opposed to a mortgage). Upon the creation and execution of the security instrument a trustee is designated, which is typical for all DOT's. The deed is held in trust by a trustee until the satisfaction of the loan.

Your statement "Note, I don't know CA law but in my state the noteholder can't represent in the foreclosure case and must assign a trustee to perform." is not really true. The note holder is always represented in any foreclosure, if they are not, there is no plaintiff. In North Carolina there has to be a hearing prior to proceeding with invoking the Power of Sale clause. That hearing is held by the clerk not the judge. The Mortgagee, the Trustee or a hired attorney can represent the interests of the Mortgagee at said hearing. That being said typically because of all of the paperwork, an attorney is hired.

Liens that are junior in nature and are not liens which naturally have the capacity to redeem on the property such as IRS, City, County liens (i.e.- Government) are "extinguished". The one exception to that rule is a HOA in a deed restricted community, which has a right to redeem interest in the property just like the city via the deed. The debt is not nullified, the capacity for the debt owner to collect by way of the property is extinguished. So provided the Mechanic's Lien is subordinate, they can not seek repayment from the property post foreclosure either from the note holder who is now the deed owner or any new deed owner created at sheriff sale.

i do agree getting an attorney is always a good idea and just like any deal due diligence is a must. If a newbie doesn't know what he is doing, find a real estate attorney with real estate litigation experience at some good tenure to assist. They will have a better idea of the in's and out's of the system. Just because a lawyer practices the above law does not mean they will do all your due diligence either.

If Investor H currently owns the subject property and he wishes to add it to a grouping of additional property and capital for improvement/development, I do not see where he has gained (yet) to even have tax liabilities. He would have to have a gain to be worried about using a 1031.

Why not just join C-LLC with his contribution as his property and vest the property into C-LLC's name?

If C-LLC is buying subject property from Investor H then to qualify for a 1031 he would have to do a TIC and take title separate from C-LLC to avoid the tax liability.

Outside of that, I am not sure how he could join the deal, receive money and not have tax liability.

Jason,

"Lis Pendens" is Latin for "Suit Pending". It is not a suit in and of itself. Nor is Lis Pendens a lien, it is a notice of pending suit related to the property, that is all. The LP could be related to a recorded lien, like a mortgage or a unrecorded lien like a city violation for not cutting the grass. So the Lis Pendens can be a mechanics lien, it could be a loan foreclosure or anything similar that is claiming an interest in the property. Look at the names on the Lis Pendens, the platiff should be listed, is it a lender or a construction company or the IRS, etc?

See if you see any information about the lien in the title history of the property. For instance a mechanics lien would file Lis Pendens but you would see a notice of commencement for work that opened but didn't close because they didn't pay, thus they are proclaiming their suit against the property for the work. Your title attorney or title company should be able to help you with this. If you didn't order title when you bought your loan, stop reading this and go order it. See if you can get an opinion of title from an attorney if you are not good at reading the abstract.

Don't assume that any event on title is subsequent to you, make sure. Compare the dates. The date of the loan you own should be first in history.

Because you have not said who the parties are for the Lis Pendens, there is no way to say whether it is a concern or not. However we have covered that if you are in priority (first in history) and the liens are not government in nature like the IRS city, county or alike, you should be fine. Any title agent or attorney should be able to point out concerns when looking at your title report.

As the owner of the loan, prior to trustee sale, you are entitle to all of the unpaid principal balance plus all the interest arrears plus all of the advances on the loan both T&I and Corporate. You will have the capacity to give a bid which you are willing to take prior to sale, that if a bidder bids that number or more you will consider yourself paid off. In the event that a bidder does not at least bid to your number, then the property will revert back to you. Until you get your money, no one behind you gets paid a penny, except the office doing the sale of course.

Your property is in California which is a non-judicial state for foreclosure. It goes fast and is not all that expensive. If someone told you $100k, they have no idea what they are talking about. They Google'd the question or read the balance sheet cost to banks, which was $77k and is not the same as your question, I would presume.

You should be able to get to sale within 90 to 120 days from the notice of default unless some objection from the borrower arises. Be mindful of the tax bills that are due and that the property is not insured, those are your concerns now to protect your interest.

Regarding attorney fees be a percent of loan balance. No, never heard of that. Especially residential foreclosure. Balance has no affinity to the legal work. Most attorney's will list what they will do for their fee and the fee can be either per hour or per file. In California we have used both before, however many attorneys are reverting to hourly fees to not loose money on troublesome cases.

PA is not a favorable state to own loans in. The state has terms which favor the borrower and prolong the foreclosure and eviction timeline. Most investors who loans are happy to dump PA because of this, so it does not surprise me that you don't see too may reps bidding up the foreclosures at action.

In PA eviction is a separate process from foreclosure. You have to file a complaint and the occupant must be served and has 20 days to respond. From that time, if they do not respond you can move forward and file for a judgment and then file to have the judgement enforced by the sheriff and the occupant ejected. That could take 30 to 90 additional days depending on location or in some places, local PA counties and sheriffs have put a stay on evictions altogether. If the eviction is objected, it will take longer based on the response and its merit.

It is probably a good idea to find a local attorney who does eviction and foreclosure real estate law and keep him in your pocket. Speak with him about what he sees/knows locally.