All Forum Posts by: Mike Hartzog

Hi Bret - Ownership of mortgage loans are transferred using an assignment of mortgage (or deed of trust). Each assignment should be recorded, but this is not always done in a timely fashion, especially when someone purchases a note and sells it to someone else in a short period of time. In this case, the complete chain of lien ownership includes the unrecorded assignments, and the recorded chain does not. I am not familiar with the term "Full Original Chain", but I suspect it is a reference to the complete chain whether recorded or not, i.e., the hard-copy assignment documents.

As part of the closing process, FCI should validate that the hard-copy collateral file provided by the seller includes a complete chain of original assignments, ending with the current seller. They will also produce a new assignment which conveys ownership of the lien from the seller to you (or your business entity), and ship the collateral file to you. When you receive the collateral file, you will need to get an O&E report (title search) to check how much of the chain is recorded and then take steps to record any dry (unrecorded) assignments. I believe FCI can also do the recording for you as an additional service if you wish.

Hope that helps.

Bob's points are good ones.  I would add that real estate provides an effective hedge against inflation, i.e., real property gains value with inflation, while the value of a note will decrease with inflation.

Another angle on this. Notes are great investments for self-directed retirement accounts, since they have no tax advantages on their own.  Real estate, on the other hand, is more difficult to own in these accounts due to the requirement that financing must be non-recourse.  In addition, you waste the tax advantages inherent with rental real estate when the asset is owned by the retirement account because the income produced is rendered tax free/deferred.

Given all of this, my view is that it is good to have some diversification, holding both rental real estate and notes in the investment portfolio, favoring ownership of notes in self-directed retirement accounts where possible.

@Rob Cee 

Unfortunately there is not much in the way of free education out there for notes.  This blog covers tax and title aspects of due diligence which applies to both performing an non-performing loans.  It's a start anyway...

Foreclosure wipes out liens which are junior to the foreclosing lien.  If the 1st forecloses you would want to bid at the foreclosure sale to the amount equaling 1st + 2nd unpaid balances + arrears to ensure that you either acquire the property at that price or, if someone outbids you, you will be paid the balance of your lien from the sale proceeds.  If the 2nd forecloses, the first is not wiped out, so title is taken subject to the first lien.  In other words, if you foreclose from 2nd position and end up acquiring the property, the 1st lien is still there so you would need to either pay it off or continue making payments, because if you don't you could face foreclosure from the 1st lienholder. 

If there is significant equity above the 2nd and the property is desirable, its a good bet that someone will bid above the total amount owed and your lien will be paid from the sale proceeds.

Welcome to BP Jerry!  I think the answer to your question is that the techniques you mention are specific to certain types of investing disciplines, and they are used widely for those types of deals.  I would advise taking some time to get educated.  The forums are good for specific questions, but I think the BP podcasts are an excellent way to gain a broad understanding of RE investing quickly. I learn something new from every one of them. There are also a number of good books available on the site.

It's not a good scenario for mortgage lien holders.  As Dion stated, the laws vary state to state.  Generally speaking though, mortgage liens are wiped out.  Depending on the state, mortgage lienholders may be entitled to receive amounts paid over and above the amount of taxes due.  Also, there is potential legal recourse if required notifications of the foreclosure sale were not made to the mortgage lienholder.  Best to avoid the scenario entirely.  I have seen notes for sale where the collateral property had already been foreclosed on and sold in tax deed sale.  Proper due diligence is key.

It's not a problem.  The liens can be redeemed, but you do not necessarily need to do it right away.  It depends on your workout strategy. For example, if you are able to get the borrower paying again, perhaps with a  loan mod, you could potentially make payment of the tax liens by the borrower a condition for the mod.  Or you could redeem the liens and add them to the principal balance in the mod.  If you end up acquiring the property via deed in lieu or foreclosure, you will want to redeem them.  One thing I always check on when there are significant delinquent taxes due is the date when the property could potentially go to tax deed sale.  The county tax office can provide that sort of information.  I make this call as part of due diligence prior to purchase. 

Good news on both counts.  Sent you an attorney reference in PM.

Hi Cavan - I think your next step here is to find a good foreclosure attorney practicing in the state.  Your attorney should be able to provide guidance on foreclosure costs and guidance on the lift of stay.  Regarding the bankruptcy, it matters whether the bankruptcy is active or not and whether it is chapter 7 or 13.  You can get an account on pacer.gov and look up the bankruptcy details.  If you provide the state, myself or someone else may be able to provide an attorney referral. 

I see you are from Texas. If the collateral properties are in Texas, you are in luck.  The state is relatively fast and inexpensive to foreclose in.

I am a lienholder on a SFH in Pleasantville NJ which I will be acquiring via deed in lieu in the next week or two. I am looking for a good experienced listing agent who works primarily in that specific market. If you know someone good who you have done business with in the past and can recommend, please shoot me a PM or email.

Thanks!