All Forum Posts by: Mike Hartzog

Agree with Bob and Mark.  One thing to consider is that not everyone records their assignments, so there could be a number of "dry" unrecorded assignments prior to yours. 

A title search can show you which assignments are recorded so far.  It is important to get these recorded and they MUST be recorded in order or it will cause real problems if you need to foreclose for some reason.  Don't rely on the county clerks to get this right.  You can use an attorney to get this done or you can deal with the county directly.  If you go the direct route, you should indicate clearly the order of recording for each unrecorded assignment you send them.  I have found that clipping a piece of paper to each which says "Record First", "Record Second" etc. works well.  Also, you must send the original assignments, not a copy.  Because I don't want these to be lost I use FedEx and include a second FedEx envelope complete with label for them to return the recorded assignments. 

Here's a blog post which provides an overview of the topic.

Yeah, sounds like you would have to hold it for 3 years before filing the quiet title suit.  Most of us are just not that patient!  :-)

Here's a link to a decent write-up on Tennessee tax deed law.

http://notestinelaw.com/pdf/property_sales_tax.pdf

@Dion DePaoli 

I totally get your point and I agree, note investors should work to understand the rules of the game we are playing so that we can mitigate our risks as much as possible.  That being said, there are a ton of things to know, and I think there is a balance to strike here for a new note investor.  I believe there are ways of operating which can significantly mitigate risks while the investor is coming up to speed.

@Dion DePaoli With regard to Dodd-Frank, what investors need to know is how to conduct themselves so that they stay out of trouble.   I am sure the 2300+ page Dodd-Frank bill is riveting reading.  It is certainly good information to know, provided one could understand it.

My point is that as a practical matter, if an investor works through a licensed servicer and has the servicer handle interactions and communications with the borrower, the investor has a level of protection.  This is because servicing agreements have mutual indemnification included in them.  If the investor/lender decides to circumvent the servicer, then that's on them, and they better know how to stay in compliance with the laws and regulations.

The practical approach to compliance for note investors is to always use professional servicing for your notes.  Confirm that the servicer is licensed in the state where the property is.  If you need to originate a new consumer loan for some reason, use an RMLO.

You want professional servicing so that you are not dealing directly with the borrower.  Sounds like that is part of the plan.  Beyond that I would be looking closely at the worse case scenario, i.e., the borrower takes the money and runs or gets halfway through the rehab and stops.  The track record is an important indicator here.  I would not want to be financing someone's first rehab attempt. 

Beyond that I would be working to ensure that under the worse case scenario you could get out in decent shape. So that is LTV + foreclosure cost. You might ask the company you are working with what you should expect to incur in terms time and expense under a foreclosure scenario. If you tell me the state I can provide a cost based on Fannie Mae standards and a approximate timeframe for a double check on their numbers.

Yes.  Sounded like a new loan to me too.  These are not uncommon.  You would be a hard-money lender on the project.  Here's what I would look closely at:

• LTV - Because this is non-recourse, you will want to have some comfort in terms of ratio of loan amount to the as-is value of the home (not the ARV). Because the worse case here is the borrower skips out and you need to foreclose to take possession of the property as it is now. You want to make sure you could sell it for at least as much as you are loaning on it + foreclosure cost.
• Borrower Track Record - Has the borrower done these types of projects before successfully?
• Lien Position - Ensure that you will be first lien on the property.

If these check out you are probably in good shape, but that's just my perspective as a note investor. You might consider posting details on the Private Lending Forum.  I think you will find folks that have been through this process before and could provide qualified guidance.

@Account Closed 

Is this a new loan origination or are you purchasing an existing note?