All Forum Posts by: Mike Hartzog

One other note here, which may be an unpopular perspective with the folks here.  If you are concerned about inflation due to the 3 trillion stimulus, with more on the way, it is far better to hold real estate than  debt.  Also better to be a borrower than a lender.

There are risks for sure, but they can be mitigated.  My perspective, it's all about the underwriting.  Make sure the buyer has a good credit history and solid employment.  Collect a reasonable down payment to ensure the buyer has skin in the game.  Using an RMLO to do the origination will make the loan more marketable in the event you want to sell it later on to cash out. 

It's important to understand that, with some exceptions, it takes a foreclosure or a payoff to remove a lien.  Sometimes individual liens can be negotiated, but that likelihood is not generally something you would want to hang your hat on.   If you are buying the property from the owner, an IRS lien can be removed if you can establish that the owner received no consideration in the sale.   (The same may apply to other personal debt liens like a judgement but I have no personal experience with this.)

To wipe junior liens, you would need to buy the 1st position note and then, assuming it is in default, foreclose on it.  (A variation of this, assuming you can buy the note, is to have the property quit claimed to a throw-away business entity with liens attached, and then foreclose, which avoids complications with the current owner.)  Rule of thumb is that municipal liens and property tax liens are senior to a first position mortgage lien and would not get wiped.  

Desktop Accounting software like QuickBooks ideally.  If you don't have that, spreadsheet.

The Assignment of Mortgage/Deed of Trust is the document that conveys ownership.  Typically the buyer has the responsibility of recording this, which ensures that if the property is sold, your entity is on record as the beneficiary of the lien and you get a payoff when the sale closes.

With regard to servicing, your purchase and sale contract should state specifically that payments received after the closing date of the note sale are due to you, the buyer of the note.  So if servicing transfer takes some time, the seller must send you any payments they receive from the servicer after the sale date. 

If the choice is between missing loan payments or doing a forbearance, I would recommend the forbearance route.  Delinquency, i.e., getting behind on payments is far more damaging to your credit.  It seems there is the potential for some negative reporting around forbearance but there are differences in the way lenders report these things to the credit bureaus, so it's a good idea to talk with the lender about that.  Here's a recent article from Experian on the topic. 

Financing fix-n-flip projects is where many private lenders start. Tough these days with construction activities shut down in many places. If that is of interest I would recommend establishing relationships with one or two folks who have decent track records. Start slow, get some projects under you belt, and build from there. Local REIA is normally a good place to meet these people but but given the situation social media may be the best option right now.

Hey Bob - I like your approach generally, in so far as it is good to have a paper trail on these things.  I have used forbearance agreements in the context of non-performing workouts, i.e. "we will not foreclose on you over this time period if you perform in this way... make these payments on these dates etc."  Typically it is a plan to bring the loan current.

In this case, we are simply deferring payments and extending the loan without any performance requirements, other than they resume making payments on a future date .  So perhaps a forbearance is the correct tool here, or maybe an extension agreement.  This is uncharted territory for me. 

@Chad U. - We had tried using the servicer for preparation of forbearance and mods.  I found their work to be expensive and sloppy, requiring a lot of back and forth to get it right.  Finally threw in the towel on that.  We do our own doc prep now and that has worked out much better.  

We have some performing loans in the portfolio and have been contacted by a two of our borrowers (so far) who are currently out of work due to COVID-19 lock downs.  They are asking about skipping payments until they can start working again.  I contacted our loan servicing company (Madison) to understand the scope of what can be done in this regard quickly and easily.  The two things mentioned were waiving late fees for a period of time, and deferring payments.

I chose to go with the payment deferral approach because it provides the assistance they need.  Deferring payments essentially pushes the next due date forward for a predefined number of months.  The payments are still due, but due at a later time.  Interest does not accrue over this period, and there are no late fees and charges.  It essentially puts the loan on pause for a time.  The downside here is that the last payment in the amortization schedule pushes out past the maturity date of the note (or as defined by the last modification), so at some point in the future a mod or extension agreement would need to be executed to true that up.

I would be interested in hearing about any other strategies folks are using.

@Jacob Sampson agreed that normally payroll is much larger.  However, once you close your doors due to lockdown and lay off all of your employees as a result of that, rent moves up on the list.