All Forum Posts by: Mike Hartzog

@Don DeMarco

Welcome to BP Don!  Always good to see experienced note investors joining.  We generally use the Tax Liens, Notes, Paper & Cash Flows Discussion forum for notes related topics.

You can do this in an SDIRA no problem.  It's a simple cash purchase followed by a simple cash sale of a portion of the asset.  The thing you need to stay away from to avoid creating UDFI (which is subject to  UBTI) is using outside financing to acquire the asset or adding financing after the acquisition.

Many lenders like to escrow funds every month for property tax and insurance.  For the borrower, this is an additional amount that is paid to the lender monthly along with the regular mortgage payment.  The lender holds these funds in an escrow account and handles payment of annual property taxes to the county when they come due.   This helps them ensure these items are paid.

Assuming this is performing loan, your annualized yield would be ~65% at that purchase price.  This does not factor in monthly servicing fees (which would reduce your effective P&I payment), or one-time fees related to for the purchase itself, loan boarding , etc.  (Servicing fees for a performing loan are generally in the $15-$20/month range.)  Assuming performing loan with a good equity position relative to value and nominal purchase costs, its a good deal IMO.  

What is the value of the property? You need to run the numbers and decide what you could potentially recover and make a decision from there.  Even if you decide that foreclosure is not a good option, you might have your attorney send out an Notice of Default.  That first step on the foreclosure path is fairly inexpensive and can go a long way in motivating the borrower to work with you, and you can simply stop there and not proceed with foreclosure.

I had purchased one performing asset through the platform quite a while back.  I found the process to be very well implemented.  That said, the quality of sellers varies greatly and had found that it takes a lot of digging to find descent deals. I think that's the root cause of the negative remarks. Once you are in the game for a while you will develop more and better sources of assets.

The platform is very well done.  The risk here is that you are buying from a semi-anonymous seller, so there is no trust and no relationship to fall back on if problems arise after the purchase.  This being the case, complete and proper due diligence is extra important when buying this way.

Regarding the tax payment plan, I have a borrower who was delinquent on taxes and was able to work with the county and establish a payment plan to bring the taxes current.  I think Dion is correct that this kind of arrangement is not common.  My experience with tax authorities is that their approach is rather draconian in nature.

I suspect, however, that you may be referring to tax escrow payments? 

Yes, contacting the borrower prior to owning the note would violate most any seller's NDA, as well as a number of regulations which protect borrower privacy.  This is a "bright line" kind of thing which we just don't cross.

Regarding paying taxes and municipal liens, there's no hard and fast rule here.  One thing to keep in mind is that delinquent taxes have significant penalties attached, so if you believe you will end up with the deed, it's generally best to pay them now rather than later to avoid additional accumulation of penalties.  That said, I have left taxes unpaid in foreclosure situations where the property is desirable and in a relatively active RE market, i.e., when I have good reason to believe that a bidder at the foreclosure sale will pick up the property and take on the tax bill.  You might ask your attorney about the foreclosure rules related to taxes are in the county.  You may or may not have to pay them prior to the sale.

Hey Mark,

Great idea.  I look forward to your future posts.  You didn't mention checking the taxes.  That's important as many NPNs have several years of taxes due which are, in effect, a first lien on title ahead of your mortgage note.  If the taxes are delinquent, its a good idea to call the county and determine if a tax deed sale is imminent.

Here's a blog post which covers evaluation of NPN exit strategies.  Foreclosure isn't the only exit you should be thinking of here.  The others are usually better if feasible.   Also, here's another covering Tax and Title due diligence.  Seems your background puts you in good position to quickly grasp the fundamentals, but you may be able to pull some useful tidbits from these.  I have posted a few others which you can find with search.