All Forum Posts by: Mike Hartzog

Hi Gregg - Let's start with the legal.  It there a foreclosure action already going on this?

Thanks Gabe

@Arthur Mayer

Hi Arthur, I run calculations for each exit or mitigation path, i.e., foreclosure, DIL, reinstatement, short sale, and modification (the latter two based on what you are willing to accept/offer).  

The foreclosure path is the most expensive path and you can put a lot of weight on that one, i.e., if a foreclosure exit doesn't work, then the deal should not be done.  Analyzing reinstatement is a good idea as well since it is the right of the borrower to do this. It's particularly important to consider for notes with equity, i.e., determine what your investment yield would be if the borrower reinstated the loan.  Is that yield acceptable?

Note holding fees would include property taxes, insurance (if you are doing force placed insurance), and servicing over your anticipated holding period.  For the foreclosure exit you would also want to account for basic preservation costs such as re-key and lock box, and interior inspection and valuation.  Also include cost of sale if you are planning to sell as is, and/or repair costs if you are planning to hold and rent.

My last bit of advice here is to not plan for perfect.  You need enough buffer in the deal to cover unexpected scenarios.  For example, the borrower could file bankruptcy to delay foreclosure, increasing your holding time.  If they file CH13, you will need to cover the expense of filing a proof of claim and possibly moving to lift stay.

I recommend using a field services company.  Your servicer should have business relationships with them already.

I fairly certain that you cannot do what you are proposing legally.  At the very least you would be exposing yourself to lawsuit by a variety of parties, including the owner, the lender, and any tenant you put into a property you don't actually own.  I would recommend looking at gaining legal ownership in these types of properties though purchase of non-performing notes and via tax deed sales.  Washington state may not be the best hunting grounds though.  There are many opportunities like this in the rust belt states.

I agree with the others who have responded. I wouldn't mess with a loan at that rate unless absolutely necessary. Doing the math, it looks like your PMI is about 140/month right? If that's right, once that is out of the way you will be in positive territory again. You should also ask them to remove it now. Based on the numbers you have provided in the post, you are already paid down below 80% of original value threshold. Check out this CFPB article.

Be very careful with notes on low value properties.  Your small $ margin on these can easily be eaten up in costs.  Also, my experience has been that BPOs which are exterior only typically overstate value, especially on low value assets.  The interiors are frequently in worse shape than the exterior, and BPO agents make the assumption that interior is the similar condition as exterior.  I would encourage you to look for notes on higher quality/value properties.

We recently acquired a property in Lancaster TX which we would like to sell off-market and as-is to an investor.  It's a 2/1:00 built in 1958 with a two car garage.  There is significant repair work required.  I've uploaded a recent interior/exterior BPO which includes pictures and other details. 

Right now we are looking for bids, as we have not established an asking price for the asset.  I can provide lock box codes for access if you are interested and would like to do a walk through inspection.

Please contact me directly if interested:

Mike Hartzog

• Office: 425-947-0545
• Email: [email protected]

@Christopher Winkler

To answer your question of why I would not consider purchasing an NPN at par, the simple answer is because I know I will spend money to collect on the debt, and that puts me above par. Why is that bad if the total investment is far less than FMV? Because I don't own the property and I cannot assume that my attempts to acquire the property will succeed. If you pay more than the total debt (purchase price plus expenses) and the loan is paid off, guess what.. you lose money.  If the property has equity, there is significant motivation for the borrower to do what they need to do to avoid losing it.  They could sell it or call their rich uncle Bob to come in and bail them out.

That said, Dion's point is valid.  One must consider the entire debt here.  If there is a ton of accrued interest etc. which puts the total debt comfortably above the purchase price, then it might be an OK deal.  Just keep in mind that you can burn through a lot of cash trying to get to a foreclosure, especially when there is significant equity on the line.

FCI is an exchange so folks selling notes can price them any way they want. There always seems to be NPNs priced at 100% of UPB. I think the idea is that if the note is below collateral value the buyer could foreclose and acquire the property under FMV. Not a good strategy IMO.