All Forum Posts by: Mike Hartzog

Bob - There is a technique I am aware of where one owns the first lien note but takes a DIL from the borrower (which leaves the liens in place).  In this situation, you deed the property to an entity which you own and foreclose on the first lien note to wipe out the juniors.  It would be used in a long FCL state as a way have possession of the property through the FCL process.  Is that what you are thinking of?

Hi George,

I imagine someone has to come up with cash in the deal to make the purchase, correct?  So if your buyer is not coming up with the cash, that leaves you.  You would need to purchase the property and sell it to your buyer on terms as a flip rather than a wholesale deal.  Owner financing is not difficult if your buyer is a business entity.  If they are not a buying through an entity you would need to go through an RMLO to originate the loan.  Personally I think the best answer to this to keep looking for another buyer.  If you end up financing it, you might consider changing the terms to include some interest rather than extending credit at 0%.

Mike

Hi Kyle, 

I am aware of a note trade show shaping up for November 6-8 in Dallas.  Should have major sellers and service providers in attendance.  I will share details with you as they become available.

Mike

I agree with Nathan.  Find an agent who has done short sales with Citi and knows people in their loss mitigation department.  Put together a purchase and sale agreement and present it to the bank.  The bank has already indicated its willingness to do a short sale and the owner has said no only because they are not interested in sharing their financials.  It may work to skip the sharing of financials and go straight to the purchase and sale.  Its worth a shot.

Thanks Chris - Sorry if I wasn't clear. This is an REO property not a note.

Mike

A note investor friend of mine is foreclosing on a suburban Dallas single-family 3/1.00.  He is looking for a quick off-market sale at investor-friendly pricing and will consider short term owner financing with a reasonable down payment.  Email me if interested and I will share details and connect you with the seller.

My 2 cents:

I am focused on non-performing 1st lien notes. I expect to sign an NDA for anyone sharing note details with me and ask the same if I am sharing. I avoid NY and NC. I like to do workouts rather than FCL/DIL, and favor occupied single family or multi-family 1-4. I avoid condos, commercial, raw land, and extremely rural properties. I have never been asked for proof of funds, but I purchase through a business entity and tend to buy from sellers who know me already. I would expect to be cut off if I fail to fund. Most note sellers I work with require buyers purchase through a business entity. This may be is a better way than POF to filter out some of the chaff.

Sorry.  Typo in my prior post.  Math was on 104K note, note 109K.

Owner finance can be a great strategy, but it must be done properly.  I agree with Brian in that you will be fine with an RMLO, and that is a good way to go anyway to ensure that you create good marketable paper which can be sold to a note buyer.  Also I recommend parking it with a licensed servicer to ensure compliance in servicing as well.  Allied and FCI are the ones I use, but there are others.  Servicing costs are not much, maybe $20 per month.  The Dodd-Frank and SAFE rules are there to protect consumers.  You are not as restricted when doing a commercial loan, i.e., loan to a business entity.

Regarding the discount when selling the note, it depends on the credit worthiness of the borrower, the quality of the underlying asset, LTV, loan terms, and the payment history. A brand new note with no history will sell at a steeper discount because the buyer is taking more risk than with a seasoned note. The more information you collect as part of creating the paper, the easier it will be to sell. If you have it professionally serviced, that makes it easier to sell to because the payment history is documented.

Most performing note buyers I know are looking for a yield in the 12-14% range, but again this is dependent on the factors I mentioned.  I ran the math on your 109K note @ 9% over 5 years and found that selling it at 92K would provide a 14.38% annual yield to the buyer.  So, seems like a reasonable deal for the buyer, especially if he knows the borrower personally.

Speaking only about non-performing 1st lien notes, once you purchase the note YOU are the lender.  It is then up to you to do a workout with the borrower to get the loan re-performing or if that is not possible, to take possession of the property via deed-in-lieu or foreclosure.  The reason more people are not doing it is, in my opinion, because it is fairly complicated and carries significant risk.  The risk can be mitigated with the right level of knowledge, but that knowledge is not as easy to come by as it is for standard real-estate investing.  There is much to learn with regards to performing due diligence to purchase notes profitably, work with servicers and attorneys, and comply with state and dodd-frank laws.