All Forum Posts by: Paul Birkett

@Ron J. we see this all the time. In short, it varies by county. The purpose of these fines is to punish rogue landowners and encourage good behavior. 

In theory you can sell the land with the liens attached. You will get almost nothing for it because most people don't know that the problem can be solved pretty easily.

In many counties its simple to get the fines removed. Even Cook Co IL (a notoriously tough place to business) will forgive the fines if the new owner has a plan to fix the property and solve the problems which are usually public safety related. 

Here is what we do:

1. Find a local realtor to appraise the land - maybe its worth $7,000 or $70,000 or $0. I have seen BPO's all over the map. Assuming its worth $7,000....

2. Find a local lawyer who deals in building court matters. Explain the story and get them provide a fixed fee to remove the liens. They will tell you if its possible. Shouldn't be more than 1 hour of court time so $500 total. 

3. You will need to fix the problems on the land (garbage, grass longer than 8 inches, etc). If you have the time and interest, you could get outline plans for a home drawn up (only after you are sure you can get the liens released).

4. Get the liens removed - usually takes a month or so in total.

5. List the land with clean title

That will get you the best possible price. The key piece of the puzzle is figuring out if the land is worth anything and if the liens can be removed.

Good luck. Let us know how you get on

Hi @Syed-Shawn Azam. I would strongly advise against investing in notes given your level of experience (it looks like your are pretty new to the space - please correct me if I am wrong). Unless you plan on buying performing assets with a long payment history, its not an area for a newbie - certainly not one who knows nothing about the notes space. As a result, generating and IRR of 20% is not realistic. Seasoned reperformers should give you a net cap rate of ~12%. But again, you need to know what you are doing

You can certainly generate impressive returns over time if you build a highly structured methodical system to find notes and add value to them in some way. Either as @Mark Scarola says - by converting non performers into performers or by some other method.

I don't believe this is something that a new investor should attempt. Put it this way, all things being equal, you are more likely to lose money than generate a 20% return on your early investments. Note investing is a highly specialized business. You really need to know what you are doing. Its a tough business to learn in under a year (and I mean really working on it every day).

You might find my other posts on the topic helpful. But please don't buy notes thinking you can figure out what to do with them later. You are often buying assets that others (who know what they are doing) have rejected and are looking for the greater fool.

We have been doing this for 4 years, have 1500 notes on the books and do nothing else all-day-every-day.....and we still make mistakes. 

Don't believe the hype!!

Its a great space - but learn it thoroughly before buying anything

good luck

Paul

@Sandy Uhlmann and @Pari Thiagasundaram

In our experience, Simplifile is the easiest to use and has the best customer service (and that really matters). They go the extra mile to help the user.  

Simplifile is a user-friendly interface to the individual county filing systems. However, those individual systems are not precisely uniform. So, what works with one county may not work in another.  On many occasions, we have ended up calling the recorder's office to have them walk us through the process after several failed e-filing attempts. None of that is Simplifile's fault - its just part of the process.

While it is frustrating to have filings rejected, its better than having to fix mistakes later if the document is mis-recorded

The good news is that over time, it gets easier. We have filed a few hundred documents saving a lot of time and about $100 per document compared to outsourcing. 

Its certainly worth the trouble of persisting through the learning curve. Invest the time to watch the instructional videos and attend a webinar training then dig in. Be prepared for a frustrating first few attempts but after a few months you will be happy you did

good luck 

The only reason I can think of that you will need the application is if you eventually sell the note to an institutional investor. Such investors require all the documentation from origination to the present day. That said, an institution is unlikely to buy a loan that was in default for for a long period of time and/or is secured by a lower-value asset (under $150,000). So I don't see any real problem in not having the origination file.

It is nice to get the original application because it will often contain helpful information about the borrower. It will give clues to the earning power of the household and other information that may help with the workout. For example, we see a lot of low/no doc loans originated in the go-go days of '06-'07. For example: the borrower claimed $40,000 a year of income as a seasonal fruit harvester. The loan went into default in month 6 (or as soon as the teaser rent adjusted to the market rate). 

In reality, this borrower probably makes closer to $20,000 a year and can afford payments in the $5,000 a year range. That gives you a lot of clues as to what the likely exit will be. Is $450 per month in payments cheaper than renting? If so, you have a good chance of getting the homeowner to stay and reperform. If not, you are probably loooking at DIL or FC. 

As to pulling credit. I'm not sure why FCI needs the original application. It may be that at the time of applying for the loan, the borrower granted all future owners of the loan the right to pull credit in perpetuity. That's just a guess though.

Hope its helpful. Good luck

Paul

Hi Chris,

If you are already the owner of the note then the trustee is obliged to work with you as part of the BK process. You have an interest in the case and need answers to your questions. If you are doing due diligence as part of an acquisition, you cannot approach the trustee and they cannot provide any answers. In my experience many trustees will provide information that you are not entitled to receive - so it depends on how well they know the rules (and whether they stick to them or not)

good luck with your workout

Paul

Great news Bob and Wayne will be there too. Thats 2 rounds of beers I won't have to pay for! Thanks guys

thanks @Nathan Turner! We have 25 re-performers out for bid right now...but they might be too fresh for @Brian Byrd. Most only have 4-5 payments and I think he is looking for more seasoned assets

Dion is 100% correct....you often hear that NPL's are a great way to avoid "Tenants, Toilets and Trash". Nothing could be further from the truth.

The issues are just as challenging and as every bit as frequent as other RE investments:

1. Who maintains the asset when the homowner has walked away?

2. Who manages the tenants (or squatters) when the borrower has abandoned the place?

3. Who fixes the place up after the asset is broken into and all the copper is stripped? "They didn't take the mechanicals.....because they were taken last time it was broken into"

4. Who pays the city fines for leaving garbage in the yard or having grass higher than 8 inches?

....the list is endless

NPL's are time consuming and difficult. They are much more difficult to manage than rentals (in my experience).

However, if you are detail orientated, highly systematic and follow-up on every single issue every single time - they are highly scalable and can be very profitable.

But the golden rule is:

You absolutely have to know what you are doing - PERIOD

Brian

Make a list of all the things you need to have before you can start buying these target notes. 

Let me help you:

1. Capital

2. Courage

3. Dealflow

You already have the one thing that's the most difficult to acquire: Skill. Now you need to find deal-flow. That's a challenge as you move from an empoyee to an investor...but not insurmountable.

• Capital: You can build Capital without having any courage.....save as you have been doing. Maybe even partner with a private investor to increase your capital (friends family or whatever). 
• Dealflow: You can find your first deal without any courage. Keep your eyes peeled to find the next good deal that comes along

But you cant pull the trigger without Courage. That's what separates the men from the boys (if you can still use that expression!)

The only way to get courage.....is to get it!

Do all your due diligence:

Title - -check

Legal - - check

Taxes - - check

Building Code - - check

Water and sewer - - check

School or township liens - - check

Pull 2 owner title and review it all again

Re-underwrite the loan and make sure the borrower can afford to keep paying

Triple check your numbers and make sure the deal is rock-solid. 

THEN BUY THE NOTE!

It's that simple.

Good luck and best wishes

Paul

Email me to review the numbers live if you wish

Hi Ryan. What kind of a note is it? Is it owner carry-back or a NPL that you purchased and worked out a deal with the homeowner? Either way, these tend to trade at a discount greater than you are prepared to offer. If I was to buy at $38,000 that's an 8.8% return (I've made some assumptions).

Would you buy a note for an 8.8% return?

If we take Sam's suggestion of $25,000 as the purchase price....that's 19.5% return

Pros will want that....maybe more...depending on:

1. What type of home is it

2. What condition is it in

3. Who the borrower is and what has his pay history been?

4. Rural home or urban

5. Seller carry-back or CFD or Institutional grade paper?

All of that said, you might find a local investor who thinks that 8.8% return is a good place for their money...compared to a CD or whatever.

Hope this is helpful