All Forum Posts by: Sean M.

Question about re-affirming obligations under a Chapter 7.  If a borrower has a mortgage and has cleared a Ch 7 bankruptcy, then makes a payment on the loan, have they re-affirmed the obligation, such that it now effectively not a chapter 7 loan?  Key questions are whether they then become personally liable again and whether I can contact them again?  

Second scenario, same questions, but this time the borrower has entered into a loan modification agreement.  

Thanks 

@Andrey Yusupov, sorry my post wasn't very clear - maybe I should not have posted at 2 am.  Basically, I was trying to say that @J Scott is correct that the return of the leveraged investment must be higher than the cost of debt, but when determine the cost of the debt to you, it can be a bit more complicated that just the immediate interest rates.  Like he said above, that return and you cost of debt can be impacted by lots of things - appreciation, tax rates, even the ownership structure of personal acquisitions vs ULC vs S Corp.  So you'll need to find out what the actual cost is. 

Don't worry about the tax shield concept too much, it's one of the ideas underlying how leverage can be used (because interest is deducted before taxes are calculated so the debt results in less of the gross return being taxable) but it's a bit of a tangent.  All you really need to know if that if the actual end cost of debt is higher than the cost of capital, you will lower your returns through leverage - but if the cost of debt is it lower, leverage improves your returns.  

There can still be situations where you might choose to leverage anyway, notwithstanding a lower return, but those decisions are not "which return is higher decisions".  (If for example you had $1m and could earn 12% paying cash for a single building that cost $1m, some people might prefer to leverage that $1m so they could buy two buildings earning 10% due to negative leverage, because they feel they are reducing their risk buy spreading their investment over 2 buildings).     

I'm hesitant to weigh in here, but some of what is being said needs clarifying.  Before I say bob is 100% wrong, there is one very very specific circumstance where you might want to take bob's approach - but generally speaking, lookout for the "we lose money on every unit, but make up for it in volume" mentality.  But what is really missing from this discussion on leverage (aside from politeness and reason) is the concept of the tax shield.  It is possible to juice an improved return on an investment that unleverd returns say 10% when your cost of debt is higher than 10%, as long as your tax savings (from being able to write off the interest on the debt) are greater than the gap between the two.  @J Scott is correct, but the cost of debt needs to adjusted for the tax shield before you do the comparison, so your comparing net return to net return. 

@Mark S. Thanks for the heads up re: chapt 7's  getting scraped - I hadn't appreciated that about threm.  I thought that was only applicable to chapt 13s and that the risk for 7s was the senior foreclosing without the 2nd having equity. 

Seems like my sort of area - notes (and BK in particular) seem like the one place where being a lawyer might actually benefit me a bit!  

Thanks Mike, 

I sort of like the Chapter 7 guys, seems nice and clean.  They just sell cheap - makes me wonder what I'm missing? 

I'm looking at a note w/equity that's going into the Chapter 7, with equity.  Anyone have any experience? I'm comfortable waiting the process out, but want to make sure I'm not going to get jammed somewhere with an ongoing court process.  Anyone have any advice/suggestions? 

Thanks  

@Mark Scarola lol, you correctly summed up my 3 paragraphs in a sentence - damn lawyers, always use 10 words when 1 will do. 

@Mark Scarola  - there are a number of differences, but the regimes are broadly similar (in fact, the larger "cross border" funds are often two mirror funds, one in each country, that allow residents of each country to invest in the fund resident in their respective countries).  

Talk to your lawyer about your specific situation but generally the jurisdiction of your fund will be a natural result of the structure you choose and where you and your investors are located (in some industries it might be focused on a global hot spot for the industry).  You will have to comply with the rules of the jurisdictions of both your fund and your investors, so you can't avoid unfavorable rules by setting up outside of the US if that's where your investors are.  Also, mind and management tests could jam you up if you created a foreign fund, but undertook all activities locally.  

I'm over complicating it and I could go on for pages, but in brief - consider the interests of your investor group and create your fund accordingly.  Are they a friends and family group? If so, do they have the means to address the tax consequences of an out-of-country fund? Are they a larger institutional investor? If so, do they have regional guidelines/limits they need to abide by for their investment mix?  The rules are close enough in each country that in most cases it won't be a deciding factor - you will benefit more from choosing an objectively reasonable structure that is transparent to, and provides a smooth investment process for, your investors. 

Hopefully I haven't rambled too long and the 3 paragraph "it depends" is useful for you.  If you are thinking of setting up a fund, talk to a good attorney in the field, they'll know what is market in your area and have an idea of what the investors are used to seeing.     

Bob, just for clarity - I create funds for other people, I'm just the legal monkey putting it together for them.  I'm way to early/small to have a fund of my own.