All Forum Posts by: Mike Hartzog

Thanks for sharing Bob.  Fortunately the Fed has had some practice in stepping and and supporting the financial system from the 2008 financial crisis.  Let's hope for the best...

@Jeff S.  Good catch, I used the wrong term there.  We use term sheets in our lending to get mutual agreement on terms before closing.  There may also be a draw schedule, depending on the situation.  With borrowers we have long standing relationships with (which is most of them for us) we do the doc prep ourselves and review with the borrower prior to closing.

That's a good list of items in the referenced thread, many of which a lender might be concerned about, especially when working with new borrowers.  IMO however, a borrower need not be concerned about protecting the lender, as it is the lender's responsibility to take whatever steps they feel appropriate to protect themselves.  The borrower needs a mutually agreed PSA, title insurance to protect against unexpected liens which were not caught in the title search, a note that defines the terms or the loan, and a security instrument which secures the loan with the property.  Ideally there is no personal guarantee, unless the lender insists on it.  

Good points by @Ronald Isgate and @Jamie Bateman.  I would add that private money is generally quite expensive.  Most hard money loans are in the 10-12 percent rate with points.  You mentioned wanting to grow your portfolio, which means to me that you want to keep the properties for rentals long term. In that case, you would use private money as a short term bridge to permanent institutional financing.  Use it for purchase and rehab.  Once the property is repaired and in a condition that a bank would lend on, go get a bank loan to pay off the private money loan.  Rinse and repeat. (Brrr strategy)  Once you have a few of these under your belt and have a track record to point to you can switch over to using lines of credit from smaller local banks to do the same thing and avoid private money altogether.

Another point.  Title companies know how to do the doc prep and recording for closing a transaction like this.  Your lender would typically provide "escrow instructions" which call out the terms of the loan.  (You should sign off on this before it is submitted.)  Title company uses that to prepare docs for closing, and records the security instrument afterwards.  I say this because as long as you and your lender are in agreement on terms and can write them down, an attorney is not necessary in this type of transaction.  Title companies have their own attorneys to review docs and such.

@Wesley I.  Sounds like you need to buckle down for a potentially lengthy process.  In my case there is no probate, no obituary or any other real evidence that our borrower is deceased.  We are undertaking a standard foreclosure process and will see what happens.

I’m no expert in this area, but there are a handful of folks here that will be able to answer your questions.  I am curious about the risk side of the equation however.

As a mortgage lien holder, I can add the legal expenses of foreclosure to the loan balance as an advance.  This is important in cases where the borrower files for bankruptcy to stop the foreclosure action.  I am wondering if tax lien holders have the same protection. 

Thanks Bob! Will do.

Thanks all for your helpful feedback and advice.  Sounds like determining if there if the estate is in probate is key here.  Very helpful to think of that as being similar to BK.  

@Don Konipol - I agree with you. This particular loan was purchased as an NPN back in 2015, and has been performing since. I have many of these remaining in my portfolio, all performing, but have not purchased any new ones for the past couple of years. Originating commercial loans only these days.

@Bill B.  Nobody is living there, and there are no payments coming in.  That was the reason for the door knock.  The loan itself is not the issue.  If an heir decided they wanted to continue paying the loan and keep the property, it would not be a problem for me to support that .  The problem I am trying to solve here is identifying the best way to track down next of kin.  I will be reaching out to my attorney on this, but thought someone in this group may have jumped through these hoops before.

Hey Guys,

One of my paying borrowers has unfortunately passed away. I found out via a door knock.  The agent spoke to someone at the property who was hired to do maintenance on the property and had indicated such.  I had spoken with this gentleman a number of times over the years and we were on a first name basis with each other, so I am particularly saddened by the news.

Anyone have first hand experience dealing with a deceased borrower situation? It surprises me that I have not had to deal with it until now. Ideally I want to make contact with the heirs, which I presume exist as evidenced by the maintenance work being done. If that approach does not work, I am not sure if I can pursue a normal foreclosure procedure with notifications to heirs or need to do something different. (Texas property, DOT state.) Any guidance from those who have actually navigated this particular scenario would be appreciated. Specifically, how best to go about finding and contacting heirs would be my immediate concern.

Thanks in advance

Hi Andy - Good list here.  

I would suggest putting filing of the POC in the #1 slot.  My experience is that borrowers tend to understate what they owe, and filing of the POC can help you get the correct allocation of any BK payments the borrower makes.  Also, in Part 1 section 3 of the POC, I would suggest putting the loan servicer information in the "Where should payments to the creditor be sent?"  Those payments need to be applied to the loan and if you have the payments come to you, you will need to deal with endorsing them to the servicer and forwarding.  So good to avoid that. Also in that same section, put yourself or your business in the  "Where should notices to the creditor be sent?" section.  This last part helps avoid additional legal fees.  Many attorneys will put there firm's contact information there and then charge you to read the notices, which is completely unnecessary in my experience.

Another note with regard to borrowers who like to abuse BK to avoid foreclosure and not perform on their BK plans. The limit to the number of times they can foreclose and get an automatic stay is 3 within a 12 month period. (That's the rule in Texas anyway where I have the majority of BK experience. May be nation wide, but not certain.) So it pays to be ready when the 3rd one is dismissed if it is within the 12 month period. At this point the lender has cancelled foreclosure the two prior times and it should be a matter of quickly rescheduling the sale in DOT states.

Also it pays to closely monitor BK plan payments.  If the borrower fails to perform on their BK plan you can motion for relief to get the stay lifted.  I have done this successfully before, with the end result being an agreed order terminating the stay.  You are then free to foreclose without the threat of yet another BK filing blocking the sale.

One more point which may be obvious but your legal expenses for dealing with the BK are typically allowable to add to the loan as an advance.