All Forum Posts by: Mike Hartzog

The counties put the current owner on the tax account.  You should be able to confirm with the title report. 

Forgot to mention Lenders Title Policy.  These transfer with the loan as it is assigned to new lien holders.  So if the loan is assigned to you, and some lien is discovered down the road in senior position to yours and it is not listed on their exemptions, you are covered.

Good move using a service for your first note. Assuming they are doing all of the tax and title level DD, including review of the note and assignment chains, I would recommend the following additional things to look at. 

Borrower Correspondence - These communications, especially those from the borrower to the lender, can give you important clues about the emotional equity the borrower may have for the property. For example, if you see that the borrower has expressed interest in or applied for a  loan mod or forbearance, that's a strong indicator that they would like to stay in the property.

Demand Letter - If a demand letter is present in the collateral, it means a default has been declared and the statute of limitations for the state comes into play.  The timer starts with the lender's declaration of default, or the with the last scheduled payment, whichever is earlier.  Generally speaking, the borrower must start foreclosure prior to expiration of the SOL, assuming there are no mitigating factors such as a bankruptcy stay.  (Your DD service should actually be looking at this.)

Those are the key things that come to mind for me right now.  Others may chime in with more.

@Christopher Winkler

I am no expert in this area as my focus is on 1st liens, however, my understanding is that the lien portion of secured junior debt can be stripped in a BK case, rendering the debt as unsecured. (So the mortgage or deed of trust goes away but the note, which is the promise to pay, lives on.)  I have seen unsecured 2nd mortgages offered from time to time by sellers.  Here's a Nolo article which describes lien stripping in CH13 at a high level. 

So if we agree on that point we can move on to the question Chris asked in the OP.  I think the question was how to go about collecting on the unsecured debt.  I suspect you will have to go after other assets in the same way as one would for judgments.  You might give Financial Forensic Services a call and ask about it.  They had a both at last years Noteworthy conference and the pitch there was assistance in determining if a borrower had assets worth pursuing in the collection of deficiency judgments.

Another thought, I suspect that @Dave Van Hornmay be able to shed some additional light here as well.

Jason I think you are the right track with your last paragraph.  Your biggest risk for NPNs generally is collateral value/condition.  CMAs and BPOs generally assume a saleable condition on the interior, and I have found that this is rarely the case with these lower value homes.  You cannot inspect the collateral, so you need to account for the cost of a major rehab in your projections.  Crime is another thing to pay close attention to.  It can be tough to get good contractors to work in high crime areas.

Hey Josh - On our larger transactions we have used our attorney.  I have done some checking in the past and found that title/escrow companies really don't have the skills to validate the things that need to be validated prior to release of funds.  If you do find one that can do it I would love to hear about it.

@Bob M.

My servicer does not populate this box, because they don't know the discount at which I purchased the note, and I don't think they would have the capability of reporting it even if they did know.  Long story short, I calculate it myself for each payment that comes in and book it to a Discount Earned account in the accounting software (QB in my case).  It's a pain, but it has to be done. 

Hi Patrick,

I think there are some fairly easy solutions here.  Use loan servicers to handle the bulk of your communications with borrowers.  There are many good reasons for this but one is that the borrowers don't need to know who the lender is.  If you do interact directly with borrowers, keep your home address out of these communications.

If you are worried about somebody looking up your home address from your business entity filing, you can use an agent.  If you do this, the agent's address is on the filing and not yours.  These agents are in business primarily to provide the required local presence for out of state folks who are creating business entities in the state, but they can service in state filers as well.  I use one for a couple of entities I have in Nevada (and am in WA).  Cost me $100/year.

Regarding the phone question, I use phone.com to provide a business number and route the call directly to my cell phone.  When people call this number, the caller ID shows as my business number and not my mobile number.  I can use their smartphone app to achieve the same thing for outbound calls.   I believe Ring Central provides a similar service, and there are others as well.

Mike

It's a good question.  One that your CPA or tax attorney should probably answer as the rules seem subject to interpretation.  I don't know the answer definitively, but my perspective is that:

• With a DIL, language in the contracts I use clearly states that the deed is conveyed as full consideration of the debt.  So in this case, the debt is not cancelled and the borrower has no tax liability.
• With FCL sale, the collateral is removed as security for the debt, and any deficiency between funds received and funds owed is debt that can still be collected via deficiency judgment.
• For debt forgiven as part of a loan mod, this seems to me that it would qualify as debt forgiveness. 

Would love to hear other perspectives on this. 

@Mark Gibbs

Hey Mark - To answer your question about seniority, you need to look at the date that the lien was recorded. Liens recorded after the recording date of your mortgage lien are junior and can be cleared in a foreclosure. Tax and municipal liens (water, sewer, code violations, etc.), and HOA liens in super lien states are exceptions.