All Forum Posts by: Mark Warlick

I am looking to buy a non-performing note in Detroit as a property acquisition strategy.  The note is about $3k and the value of the property is around $20k-30k.  The owner is deceased.  So, rather than foreclosing on the deceased owner, I would like to facilitate having the property title transferred to an heir, then do a "cash for keys" deal with the heir.

First, does anyone know what the probate process is like in Detroit?  How much does it cost and what is the time frame for completion?

Second, is there a simple "transfer of title" of the property as an alternative to doing a full probate.

Thanks!!

Thank you all for well thought out responses.  I appreciate all the experience that was brought to the table.  I find interesting that when analyzing the housing starts data, we can clearly see that the builders changed models to determine housing starts in the mid 80's and again in the mid 90's.  The year to year variance of housing starts has become tighter over time.  By the time the last bubble hit, the year to year variance was miniscule.  We know this by experience in that builders no longer build an entire subdivision, then wait for buyers to show up.  Now, buyers have to qualify and provide a substantial deposit before the builder will lay the foundation. This shows that the industry is willing to make adjustments for its own survival.   They are smart and will make corrections.

We all know that having multiple exit strategies is important.  I dont think that anyone can state that any specific exit strategy will not be used.  As I am sure we have all been in board rooms where a strategy and plan was developed to penetrate a new market or utilize a new technology.  Of course there are problems.  And, builders can certainly look at the money being made by fix and flippers and wonder how they might participate, particularly given that they are not building like they have in the past.  Any executive worth his salt is always looking to increase revenue and profits.  This is a strategy question/issue.  Do you think any major builder in the land have thought about it?  Thanks again. @Scott Carson and @Mark Gallagher and @Jay Hinrichs and @Account Closed

Thank you for your response @Mark Gallagher. The point is that I think that there is a potential for major home builders to enter the rehab market, thus challenging/redefining the "fix and flip" model. I think it is easier for the institutional investors of these notes to foreclose, then unload in bulk to the home builders. I agree that it is easier for Freddie/Fannie to get out of their traditional method of REO sales. But, that is only part of the story. The question becomes, what happens after Freddie/Fannie liquidate? These loans have not performed for 4-6 years. Yet, the underlying assets have appreciated.

“The sky is falling,” says Chicken Little. The sky may not be falling, but, there are signs that experienced real estate flippers would do well to notice. Astute business people know that when something becomes “popular,” it is time to start looking for the exits. Before the stock market peaks, there is a noticeable increase in “water cooler” conversations about hot stocks. When real estate loans were so easy to get, hairdressers could qualify multiple high end properties, or when rap mix tapes and CD sales out of car trunks impacted traditional record store sales, it was clear that an adjustment was about to occur in the marketplace. Have you noticed that “flipping” has become sexy? Have you noticed all of the shows about flipping real estate, which has never happened before? Have you noticed the increase of the seminars, workshops, and gurus selling their wares that will guide you to riches by flipping homes?

Freddie Mac and Fannie Mae have began selling their “Non-Performing Notes” to institutional investors. First of all, what are Non-Performing Notes and where did they come from? Here is a quick primer.

When a person decides to purchase a home, often times Fannie Mae or Freddie Mac will insure the loan, which allows the borrower to have a lower down payment. When the borrower stops paying on the loan, thus defaulting on the loan, the lender, goes to Freddie Mac or Fannie Mae to collect on their “mortgage insurance policy.” So, Freddie Mac/Fannie Mae pay the bank according to the dictates of the policy, and the lender transfers the note to Freddie Mac or Fannie Mae as consideration for collecting on the policy. So now, Freddie Mac and Fannie Mae has an inventory of defaulted, non-performing notes, which are backed by the homes.

Now, Freddie Mac and Fannie Mae are selling these Non-Performing Notes back to some of the same institutions that originated the loans in the first place. Now, this is where it gets interesting.

These borrowers have not paid on the notes for up to 6 years. And the stated expectation/hope of Fannie Mae and Freddie Mac is that the institutional purchasers of the notes will work with the borrowers so that they can keep their homes. Yea, right.

Freddie Mac Non-Performing Loan Sales by 6 months

To date, assuming that each loan represents a property, over 75,000 properties backed by Non-Performing-Notes have been sold to institutional investors by Freddie Mac (37,787) and Fannie Mae (37,640). That represents over 5% of the annualized housing starts. We cannot expect that the Non-Performing Note sales are over. More sales will come.

So, what are the institutional investors going to do with these notes? Will they work something out with the borrowers? Will they foreclose? If they foreclose, what will they do with the properties? Will they sell them one at a time or sell in bulk, like they bought them? Who would want to buy them, $1 billion at a time, like they were bought? Is it possible that home builders could purchaser these homes in bulk and rehab them, as a way to grow their business that has not reached the pre-bubble levels?

Major home builders have the economies of scale for labor and material to rehab properties that local “fix and flippers” will not be able to compete with. And, it is the local companies that are getting some of their financing from friends and family IRAs and 401Ks. The sky may not be falling, but, there are things on the horizon to start noticing. As surfers say, “Its not the shark you see that is the problem.”

http://fanniemae.com/portal/funding-the-market/npl/index.html

http://www.fanniemae.com/portal/about-us/media/financial-news/2015/6235.html

http://www.housingwire.com/articles/37032-goldman-sachs-subsidiary-again-buys-non-performing-loans-from-fannie-mae

http://noteinvestor.com/buy-notes/billions-non-performing-notes-selling-2015/

http://www.dsnews.com/news/02-10-2016/fannie-maes-largest-non-performing-loan-sale-ever-the-winners-are

http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000568-Selling-HUD-s-Nonperforming-Loans-A-Win-Win-for-Borrowers-Investors-and-HUD.pdf

http://www.dsnews.com/news/02-10-2016/fannie-maes-largest-non-performing-loan-sale-ever-the-winners-are

http://www.tradingeconomics.com/united-states/housing-starts

http://www.freddiemac.com/npl/non_performing_loan_offerings.html

http://www.housingwire.com/articles/37530-fannie-mae-announces-winners-of-non-performing-loans-sale