All Forum Posts by: Andrew Kniffin

Thanks @Bob E. that is interesting.  I wonder how I could find out what small, local banks in my area are willing to sell nonperforming notes.  Any thoughts on that?

One further pointer/insight regarding the bank:

• My thinking was that the bank would NOT want to realize the loss on the Note, but rather have it "reperform" by having new persons make payments on it (via Sub2).
• But The Local Bank may prefer to "write off" this loan and expense the loss, rather than continue having it on its books as an underperforming loan.  
• Underperforming loans can look very bad when the bank is audited by Federal Regulators.  Thus better to have "clean" books with the loan removed, rather than have it festering as a laggard performer. 
• The only way to know the bank's actual preference would be to speak to the Bank's representative who's responsible for the loan.

I'm very thankful to @Mitch Coluzzi for his thoughts and insights:

• One idea was to (1) buy note directly from the bank (all-cash, with some discount to face value), then (2) pursue from Title Owner a Deed in Lieu of Foreclosure, then finally (3) pay off County in full.  

• This 3-step process would satisfy all 3 parties.  It would cost alot of cash upfront, but could financed out on the backend after a 6-month quiet title period (during this time, also, you'd prove your ability to manage the property so that the property is again 'bankable').  

• I am now very doubtful that negotiations with the County will be fruitful.  They are senior lienholder on the property, and will get their money one-way-or-another.  
• Current Local Bank is very unlikely to have PMI on the property. If they did, they would NOT have been willing to take the $210K short sale offer last summer (instead, they would have simply filed a PMI insurance claim and gotten paid in full). This means they should still be willing to take less than the full face value of the note.
• Don't be lulled into thinking that the property has underperformed merely because of "bad management".  That's often what you want to believe, but perhaps there are substantive issues going on; and I would face those same issues were I to own the property.  
• A Financial "Hall of Mirrors": even if you have someone's 2013 Schedule E, this can be misleading.  An owner may under-report real expenses (and instead allocate them to a different property) to make it seem more profitable than it truly is.  Solution here would be to look for minimum 3 years' Schedule E's.  In addition, get actual bank statements showing cashed checks/rent deposits.  

@Andrew Davis  Yes, that is one of my thoughts.  But the underlying note expired in July, so I don't think it's possible to do a Subject To.  (In other words, it's not possible to take Title "subject to" existing financing because there is no existing financing.)

The other question is the County "Taxes Owed".  If the county does not get paid by March 1, they plan to foreclose on the property.  They would then have to go through the whole sales process, and their fees would be very high doing so.  So, I wonder what options might exist for the County to take a "haircut" on their taxes owed.  Would they accept 50 cents on the dollar if they got cash at closing?  

All:

I'd like your help in structuring a creative solution to buy a 6-plex that is physically in good shape, though financially it's a mess.  

Here are the details:

• "Ask" price is $299K, though Seller's Agent has suggested to me that deal may be attainable at $250K. 
• Will be a Short Sale.
• Owner is in default on his loan to local bank: balance owed as of July 2014 = $254K.  Additionally, there are ~$14K additional in interest since July, and another $14K in late fees.  TOTAL DUE TO BANK would be $282K.  
• Mortgage with local bank expired in July.  Bank refused to extend/roll over.  It had been a 7 year note at 6.25%.  
• During Summer 2014, local bank accepted an offer where they'd net $210K after all commissions, fees, etc. That deal fell through. 
• Total delinquent taxes to County is ~$21,000.  
• Annual Revenue Generated is ~ $56K.  At $250K purchase, that would be close to "2% rule".
• Building is in good physical shape.  I ave already done a walkthrough.
• Market brochure advertises NOI of $42K, though that is high. I'm assuming net NOI of $27K, after reserves vacancies, property mgr, etc.

ISSUE:  How do you structure a deal that would satisfy the Short-Selling Bank, the County (backtaxes), and the Owner, while still being financially viable for Buyer? (Sidebar: does the owner matter - he would not get anything regardless.)

Would very much appreciate everyone's input here.  I want to be courageous, but not rash, in pursuing this one.  

@Account Closed 

I've heard that these MF Fannie Mae loans can have very good interest rates.  IE, 25 basis points lower than rates obtained from conventional banks.  Is that true? 

If so, do you access these directly from Fannie?  (As opposed to the loan being sold to Fannie on the 'back end' in the secondary market.)  If not directly, then how do you obtain those loans?

@Garrett Poshusta I think your comments are fair.  Hope we can meet up sometime and talk further on these issues.  Don't know that we'll reach perfect harmony, but happy to try!

I'm a young father too in Seward Park area of Seattle...looks like you're up to some cool rehabs.  Good for you. 

BP is not the place for a protracted conversation on tax policy, so I'll just make a few comments:

• You advocate discrimination when you favor that the law treats people differently based on income. 
• No one cries "foul" when milk costs the same to the prince as it does to the pauper.  Why is it so bad, then, for tax policy to do the same? 
• Good intentions do not equal good results.  There are always unintended consequences of policy.  

@Jay Hinrichs  Vote with your feet!

Regressive?  

A tax that applies to everyone uniformly is no more "regressive" than the gallon of milk you buy at the store.  It is the same price (rate) for everyone, regardless of their status.  It does not favor one person over the other, and is thus nondiscriminatory.  

At our best, our laws and actions are colorblind.  Why shouldn't we aspire to do the same with our tax policy?