All Forum Posts by: Mike Hartzog

I believe that UBIT would come into play if the note you are hypothicating is held by your SDIRA. If you are funding a hypothication from your IRA, that is simply making a secured loan so no UBIT there.

Good news!  Fingers crossed.  Thanks for sharing @Andy Mirza

I don’t use FCI.  Fired them years ago.  I use Madison.  I would read the servicing agreement and see if there is any language there that would prevent you from exercising your rights as a lien holder as you see fit.  

@Account Closed  I’ve used Special Default Services numerous times for FCL in Texas.  Excellent service at a reasonable cost.  They are not attorneys however, they are fulfilling the role of trustee, which is what you need in a Deed of Trust state.  One other point, your servicer should not be dictating which attorney you work with.  Sounds like you may be in "full collection" mode with the servicer.  If that is the case, my advice would be to change the servicing level on the loan so that you are in the drivers seat with regard to the FCL, and work with the attorney or trustee directly.  Servicing fees will be less expensive as well.

As an active buyer of 2nd liens, Chris is going to have a far better perspective on market prices than I do.  I think we can all agree that the current levels are high, thus leaving little room to absorb mistakes on the buy side, or unexpected changes in market direction.  

@Dan Corbiani The wording you used may have thrown me off here, sorry about that.  Sounds like these both have equity remaining above the 2nd lien, so that's a good thing.  Still, the 60% is steep for a 2nd lien.  

I would suggest calling the county with the question.

You need to be looking at the equity position of the 2nd lien now, not after the 1st position loan is paid off. Non performing 2nds carry more risk and complexity than 1st liens. Typically investors buy them in pools with the understanding that some of them would be uncollectable. (And these pools would sell for 5-10 cents on the dollar, but those days are gone.) At the % UPB you have stated there, which are comparable to the levels paid for non performing 1st liens these days, there should be significant equity and the collateral should be very high quality.

@Sandy Uhlmann You don't need to worry about who redeems the lien, as long as it is redeemed by someone.  Keep in mind that redemption of a tax lien is simply a paying of the tax debt and removal of the lien from the property.  If it is the owner who redeems, that's great because the taxes are paid and the lien is gone.  If it is a mortgage lien holder, they get to add the amount paid as an advance to the loan, and that's all.  So if the 2nd lien holder redeems, it's good for you because you have preserved your current equity position (not increased the debt via advance), removed the lien from the property, and the taxes have been paid.  

With tax liens, the scenario to be concerned about is when they get to be a couple of years old.  In the tax lien counties I have dealt with, the holder of the tax lien has the right to foreclose after some period of time, and I think 2 years is common.  If that happens your loan could be wiped out in the process.  My policy is to bring the taxes current prior to tax lien sale, and if I buy something with a tax lien I redeem it right away.  These things carry high interest and that can add up quickly as a senior encumbrance on the property if not dealt with.

@Angela Russo - Expenses will be incurred in dealing with a loan in default.  For example you may pay a 3rd party to do borrower outreach/collection, and pay for attorneys to pursue foreclosure.  Once a foreclosure has been completed, you may end up owning the property and in that case, there is another set of service providers that will need to be paid to deal with the property.  

If you have a standard SD IRA where the custodian writes the checks, it can be a real hassle paying for these things. Paying for these expenses with non-IRA funds would be considered a prohibited transaction (a form of sweat equity). If you have an SD IRA where you have checkbook control, i.e., you are writing the checks rather than the custodian, then it is manageable as long as you have sufficient funds available to deal with the issue. Regarding how much reserve is required would depend on the state. Generally speaking, judicial foreclosure states can be significantly more expensive and time consuming than non-judicial states. I think it makes sense to do your homework on states you are investing in so you can ensure you have adequate reserves.

All this is to say that it is best keep high-risk notes out of your SD IRA.  Re-performing notes are, by definition, higher risk because the borrower has already defaulted once.  It is not at all uncommon for these borrowers to default a second time.