All Forum Posts by: Mike Hartzog

I have never had to make a claim, although there have been circumstances where an unoccupied house burning down would have been welcome news.

NJ uses a mortgage rather than a deed of trust for the security instrument. If the owner is accepting a note and mortgage as part of the deal, the buyer executes the note and mortgage at closing and is responsible for making the payments to the seller going forward.   You would add the terms of the financing to the PSA (or addendum to it), including amount, interest rate, term, payment schedule, and late penalties, etc.  The title company used for closing would prepare these documents based on the details included in the PSA, and would take responsibility for recording the mortgage after closing.  

I would suggest calling around to find an attorney or title company that has experience handling a seller carry back deals. They may have an format or separate document for specifying owner finance terms.  

The objective here is to agree on terms of the loan.  I use term sheets when dealing with new borrowers, and most other lenders in my neck of the woods use them as well.  It does not need to be formal.  A simple two column doc that spells out the details that should be included in the note is all that is required.  Interest rate, term, payment schedule (if applicable), late fees, points. Get that signed and provide it to the title company.  Let them know you want to review the note before the borrower signs it.  After you review and approve you can fund escrow and the title company will handle the rest.

The starting point would be to determine the zoning that is defined for the lot.  That can typically be done online using a zoning map.  Beyond that, you will want to check with the building department (the one that issues building permits) in the governing municipality for feasibility of building.  Determine if there are there any restrictions or issues you should be concerned about.  A good commercial RE agent could likely assist with this type of thing.

Another thing to check is title and determine what the encumbrances/liens are on the property are that would survive the foreclosure action.  I mainly deal with mortgage foreclosures so can't provide much guidance on what gets wiped in a tax lien foreclosure.  There are experts on this board though who could probably provide those details.

One strategy that can be used to get around the term issue is to create a fund, and sell your notes into it.  Investors are investing in the portfolio rather than individual notes. The investors don’t need to worry about personally dealing with defaults and foreclosures because the fund manager takes care of that for them.  Our fund has been running successfully for over 3 years now.  If one of our assets goes sideways, we buy it back at the same yield it was sold to the fund at and deal with it.  That approach to managing returns and protecting investors requires that we own some portion of the fund ourselves as an investor.

If the loan calls for regular monthly payments, the RATE() formula works well to produce an annualized yield.

=RATE(nper, pmt, pv) * 12

nper = Number of payments remaining

pmt = payment amount (you can also reduce this by your monthly servicing cost to get a more accurate yield)

pv = amount you paid for the loan, i.e., your cost basis

You could see if Madison can handle a wrap.  Pretty sure they will take owner finance loans. 

With note investing there are significant unknowns which need to be accounted for when setting your bid.  I would approach this with the assumption that property condition is worse than it appears and significant repairs will be required before resale or rental. Also assume that you will need to spend a couple of years to foreclose on the current owner.  Set you bid accordingly so that you come out with a decent investment yield even with these headwinds.  Then when you score a win like a DIL or workout on the loan you're situation improves from good to great.

Yeah even when you know this and work hard to avoid it you can still end up with properties that are extremely damaged on the interior.  I’ve never been favorably surprised by the condition of a property I have foreclosed on.

That last comment bears repeating: "I never buy notes on junk properties."  Note investors eventually learn this one way or the other.