All Forum Posts by: Mike Hartzog

I should add that if it were me, I would have funds in the account beyond the cost of the note which are allocated to pay for the expenses incurred working it.  If those funds are not there now, perhaps a purchase at this point is not a good idea.  I would plan for the foreclosure scenario given that it is most expensive.  5K for foreclosure legal expenses + servicing fees and taxes over the foreclosure period (plan on 9 months).  So perhaps 10K to be safe.   

Hi Bill - Your ownership of the note is documented first in the purchase and sale agreement, and then after the sale you have a mortgage assignment (which you will want to record with the county) and a note allonge. If you have a JV entity, I think it makes sense to use that on all of the documentation. The person who manages the JV entity is not a definition of the responsible party. Your operating agreement should call out some of this type of thing, like ownership percentages, and the like. The recording of the note assignment establishes the record of ownership, but it's really your operating agreement that binds the partners to performing from a financial perspective on the note after it has been purchased with regard to paying for expenses like professional services and such. Hope that helps.

This blog post provides an overview.

@Bob Malecki 

Thanks for sharing that.  I don't work with 2nds much so have not run into this issue.  Seems like there would be no way find this in DD unless you were to somehow get your hands on the servicing records for the 1st lien.

Hi David - No offense taken. I certainly understand. Regarding your question, there is no standard that I am aware of. Interest rates are defined based primarily on risk. If the borrower is in a strong financial position, the collateral is high quality, and the LTV leaves a reasonable equity cushion, a low rate might be in order. I think your strategy really depends on how you want to exit. If you are planning to hold the note, a lower rate along with higher payment and shorter term might be OK. If you are planning to sell the note, you will want to keep the rate higher. It sounded like you would like to at least partially cash out. You might think about asking for a partial payoff and agree to carry the remaining balance. Another alternative would be to do a partial sale, selling some number of front payments retaining the back payments.

Hi David - Need a few more details here.  Can you provide current collateral value, collateral state, anticipated sale price, unpaid balance and terms of existing note, and the payment amount and rate the new buyer is asking for?  There are likely a number of different options to consider.

Hi Gabe - When you do a mod, it is important that the end result is a solid performing note where the borrower can afford the payment over the long term.  Rather than focus on what is owed right now, I would suggest that the first step is to determine the maximum monthly payment that the borrower could afford based on their income and expenses.  Once you have that, you can play with rate, term, and principal balance to come up with the modified loan.  At that point you can decide whether a mod that works for the borrower is acceptable to you or not. 

I think there is a lot of uncertainty around the implications of bankruptcy for note investments, so people avoid them and prices reflect this.  If you as an investor can become knowledgeable, you will have an edge.  Personally, I like BK for this reason.

Most of the CH7 cases I have looked at are discharged in the 3-6 month timeframe.  One thing to check is if the borrower reaffirms the mortgage debt in the CH7 process.  If they don't, they will no longer have a personal obligation to pay the debt and can walk away without consequence, and you could foreclose uncontested.  If you were looking for a workout, CH7 can be helpful since the borrowers debts have been wiped out, this putting them in better position to make mortgage payments. 

Wow Dion that was a monster post even by your standards.  :-)  Kidding aside, good topic for discussion.  My thinking aligns with your right-side left-side, passive/active spectrum as well.  For me, I am working in both spaces right now, but not far right or far left.  In the end I want to be 100% on the passive side.  As for why, I think that notes, if used properly, can provide great returns and capital security not found in many other asset classes available to individual investors.  The business is also fairly scalable.  Also, for me anyway, there is value in helping people and those opportunities exist in notes, particularly on the non-performing side.