All Forum Posts by: Rob Cee

 Thanks Rob I appreciate your points.  If your local I agree going by the property yourself is good.  By 99.9% of all mortgage loans done in America are done with the funding lender and the end investor relying on an appraisal to fund a loan and never seeing the property.  With point #2, if a borrower checks the box on page 4 of the declarations section of the 1003 loan application that they are not going to occupy the property and signs the loan application, that is loan fraud if they personally live in the property in any way.  So with that I do not see how it could be argued that it is a consumer loan when they checked that box and signed the app AND got a investment insurance policy (you are going to know if it's a owner occ or investment insurance policy).  But yes I agree it is must to get them to sign a document saying it is an investment.  

OK so the list is below with my thoughts in parenthesis on what due diligence a trust deed investor can do to mitigate these issues...please add your thoughts on due diligence.  Also please keep posting everything that you have seen go wrong so we can add to the trust deed "gottcha"  list.

-trust deed not recorded (call title/escrow and make sure it gets recorded and get proof)

-borrower getting a cash out refinance is not on title (check prelim make sure borrower is on title)

-lending on a 2nd mortgage with multiple sr. liens unbeknownst to you (title check for liens or only lend on 1st trust deeds)

-Failure to check that Broker’s representation of nature and condition of collateral is correct (review appraisal closely, if in doubt hire a property inspector to check it out.  Could also get an appraisal review)

-Failure to catch that Borrower is substantially overpaying for property (2nd appraisal review, BPO in addition to brokers appraisal)

-Failure to verify that Borrower statement of business purpose of loan is inaccurate (loan in reality is for personal, household or family purposes) making loan subject to consumer protection laws and disclosure (make sure you have a borrowers statement of business purchase in file ...... by the way, if a borrower checks the box on page 4 of the 1003 loan app that they will NOT occupy does this trump getting a statement of business purpose of loan?) 

-Failure to verify that insurance is sufficient and the type of policy that covers lender as insured for loss (check insurance policy) or policy lapses after funding and servicer does not catch it; (make sure servicer is checking policy doesn't lapse - do servicers carry E&O insurance for this?)

-Failure to verify that broker or arranger is properly licensed such that lender exemption from usury is invalidated (in CA check BRE lookup page and check their NMLS license number at www.nmls.com)

-Failure to monitor and require borrower to keep property taxes current (a good servicer should do this - do they have E&O insurance for negligence?)

-Title company e-mail gets “hacked” and you wire funds based on fraudulent e-mail (call title person in person to get wire info over the phone)

-Not understanding the limitations on your options and problems that come up with "fractional" (multi-lender) loans when they go into default (don't lend fractionally, only buy whole trust deeds)

So I want to make a list of everything that could go wrong funding a CA trust deed.  So far Eliis mentioned on his example:

-trust deed not being recorded

-borrower getting the loan in a refi is not on title to the property

-lending on a 2nd mortgage with multiple sr. liens unbeknownst to you

What are some other real world examples that trust deed investors have seen gone wrong with others or things that have gone wrong for them causing them to lose money?  What are some real life examples of investors losing money because something was wrong with the loans docs?

Wow that is crazy. So this was a refi? I have only lent hard money on new purchase loans not refi's. Were they using a well known escrow title company for this deal? Were they going though a HML that has been in business say at least 10 years with references? I can't imagine a well know escrow/title company not recording a trust deed or allowing a loan to fund if the escrow instructions say that the lien is to be in 1st position and there are other liens ahead of it. I do look at the borrowers application & credit closely. If they own other properties on the loan app I check that they are on title for those...I do not ask for tax returns, bank statements or paystubs though (doing more asset based lending). I do check the title report....but escrow/title companies (Chicago, First American, Old Republic, etc...) fund tons of mortgage loans everyday and if the escrow instructions say for my lien to be in 1st position or it doesn't fund, I would think this would happen. I do check the appraisal (I could spend $150 on an independent licensed appraisal review for a 2nd opinion if I am uneasy about the collateral or a drive by appraisal by a 2nd appraiser). I do talk to Realtors about the neighborhood if I'm not sure of it. One thing I have not done though is have the HML's I use loan docs run though a good local mortgage attorney. Maybe I should be doing this ($1,500 was a quote I got for this). I only lend on stuff I would be comfortable owning as a rental if it came down to that. I'm only lending in CA & WA right now in urban areas with jobs. I have not been lending on new construction spec homes or high dollar fix/flips.

I may be being a little sloppy making sure all documentation is being done properly and relying too much on the HML and escrow and not checking their work thoroughly. Trying to figure out how I can do this better.

I think the Papersource has a NPN conference in November. There are some events listed on Gordon Moss web site: http://realestateandnoteinvesting.com/events/ 

Can anyone else chime in about good note buying conferences?  Maybe with classes & ideas?  Note sellers in attendance?  

I have never been but I have heard of the "Noteworthy" note conference in Ls Vegas in October.  Just Google Noteworthy.  Does anyone else know of any note buying conferences?

 Jeff, when you say, "don't ask me how I learned this", what bad experiences do you have with the documentation not being correct?   What ending up happening as a result?

 Hi Jeff,

These are not notes I am buying, I'm the original funding investor on these. I could have a mortgage specialist attorney review the docs, this would be about $1,500. There are a few HML's I lend with. One has been around since the 1970's another for 20 years and has a very good reputation. So I would think being in business that long they would be doing the loan docs correctly to protect the investor. There is another one though that does not have as long of a track record that I should have an attorney review their loan docs. The HML that has been around for 20+ years tell me less then 10% of their investors do drive by's on the properties, and likely none of the investors know the borrowers. In terms of the collateral I could also pay an 2nd appraiser to do an appraisal review for me or a local home inspector to go though the house if I have questions about the collateral. I think you have very good advice though that I should heed.

I think I'm pretty decent on valuing the collateral I'm lending on and the borrower's ability to re-pay. What I'm not as much an expert on is that all the i's are dotted and t's are being crossed with all the paperwork in funding a new trust deed in CA. I'm more relying on a licensed HML and nationally known escrow/title company to get all that right for me. Are there investors who run the documentation the borrower signs through a attorney on every HML they fund? I am also only doing non-owner occupied investment property.

Thanks Ellis, when you say "agreement" are you referring to the note? How do I know the note is legal and has been recorded properly? I'm relying on the HML (who is licensed with the NMLS & CA BRE) & escrow/title for this expertise. Do you have a checklist to make sure the HML and escrow/title are doing all the paperwork correctly when funding a new trust deed in CA?