All Forum Posts by: Mike Hartzog

Adding to @Jay Hinrichs comment,  a lost note affidavit works, but I have been strongly advised by one of my attorneys that a copy of the note is also required.  I have closed on a number of deals which had copy only (no original) along with a LNA. 

@Jay Hinrichs - You would be surprised at how much easier the cloud has made using technology, so don't give your staff too much credit for that.  :-)

And yes, our fund does allow a limited number of non-accredited investors.

I’m with Adam on this one.  Prefer to trust myself with safekeeping of docs over any 3rd party.  Fireproof storage containers are relatively inexpensive,  and having immediate access to docs is helpful.

Have you tried talking with the county directly?  

I agree with Chris on this. The reason I say this, other than experience level, is that 30K is a marginal budget for NPN investing. You can certainly buy NPNs for less than that, but it may not be the best first move. New investors are commonly tempted to go for the low value collateral loans (low property value) because they are plentiful and the price is lower. Unfortunately these typically carry far more risk than higher value collateral investments. Combining forces with another investor to use more capital in taking down a higher quality asset is a better approach in my opinion. Remember, these loans are secured by property, and if the property securing your investment is worth 40K fixed up and requires 35K in repairs, you're very unlikely to recover your capital much less make a profit.

Another option is the BP marketplace. 

@Jay Hinrichs - That sounds like a sweet deal.  It's always fun to run into these easy high-yield scenarios.  It's all about relationships and 5th grade math.  Happy New Year!

@Peter Halliday - We see notes with foreclosure already filed for sale frequently.  IMO, that does not impact the pricing, but it could be an indication that borrower outreach has already been done and has failed, making a foreclosure exit more likely.  If you were to buy a note like this you would work with the attorney to move you into the plaintiff position.

As Bob mentions, notes with significant equity are valued based on total debt (UPB + accrued interest + advances). Because there is significant equity, the property is likely to sell at the foreclosure auction, so you can bid based on the profit you need out of the deal (total debt - bid = margin). In this case, the current lender is looking at a full payoff, so their motivation to sell will be based on saving some time and receiving a smaller payoff now vs. waiting for a full payoff. Typically the discount they are willing to accept will be relatively small.

The other thing to look at in determining your bid is a possible reinstatement, especially if the arrearage is small.  For example, what if the loan is a 4.5% loan and the borrower is only 6 months behind on payments.  They have significant equity and therefor significant motivation to pay the arrearage and cure the foreclosure.  If they do this, what is your yield on your 4.5% interest rate note which you have just purchased at a small discount?    

Most of us simply pay for a title search.  In a foreclosure auction situation, validating title is a step which must be done prior to bidding.  This is not the way a note purchase works.  Note sellers will indicate lien position of the loans they are selling and your indicative bid is based on the assumption that this is correct.  If your bid is accepted, you have a period of  time to complete final due diligence before funding the deal (or passing on it).  This final due diligence includes title search, so you are only spending money on those assets you are ready to close on.  I actually save it as the last thing to check in final due diligence because of the cost (~$100) and the fact that finding title issues is relatively rare (but common enough to make it an essential due diligence step).  I am much more likely to pass on a purchase for valuation or other reasons related to the property itself than for title.

We have tried a number of different approaches and have found that in non-performing scenarios, using servicers is not as effective as talking directly with borrowers.  I think servicers can be very effective in performing and sub-performing scenarios when a borrower misses a payment, but for borrowers who have not paid in many months, the servicer is going to come across a lot like a bank does.   In other words, the same type of thing the borrower has ignored for months.

For NPNs, we typically board them as "client managed" so that if the borrower calls the servicer, they are directed to contact us directly.  We kick things off by having our attorneys send a demand letter which starts the legal process and let's the borrower know that we are serious.  At the same time, we engage in borrower outreach with a soft and friendly tone.  We use a 3rd party who specializes in borrower outreach to do the skip tracing and make some phone calls.  We also send a letter which is informally worded and does NOT read like it comes from a bank.  If we get no results within a couple of weeks timeframe, we follow-up with a door knock.  In many cases, the demand letter alone will get the dialogue going, but sometimes it takes the full combination of carrot-and-stick approaches to get the conversation started.  While this approach works for us in the vast majority of cases, there are always those that simply refuse to talk, and we have the legal process to deal with that.  

Regarding staying out of trouble, my simple rule is to follow the rules/laws, be nice, be respectful, and never use threats or coercion of any kind.  The tone should be more along the lines of  "Hey, we have a problem here which is headed toward a legal solution.  Let's talk and see if we can find a better solution which works for everyone.  We have helped others and we want to help you too if we can."  This type of approach goes a long way toward building trust and mutual respect, and this can help keep things on track down the road after a successful workout is achieved or even in cases where a workout is not possible and the borrower has to surrender the property.