All Forum Posts by: Arthur Mayer

Hey @Dion DePaoli great post, and I do share the same sentiments as you on the "gurus" and the ebook peddlers 

One thing you mention though is the default rate on NPN: "Fact of the matter is, most defaulted loans end up in foreclosure. Not reinstatement. Most reinstated loans end up in foreclosure not perpetual happiness of cash flow bliss. Less than 7% of all defaulted loans end up with a deed in lieu. Yes, we all strive for the early exits. The reality is, it does not come around all that often."

And I ask this not to attack you by any means, but because I am a newbie and like to further understand your thoughts. Why in the world would you be in a industry for 15 years of buying notes if the doom and gloom of it, as you suggest, is that most notes will not be re-performing and DIL are few a far between and the only answer is Foreclosing and the exit strategies are rarely early as you suggest? 

According to someone like David Van Horn only 8% of his portfolio ever goes fully through Foreclosure (although he files Foreclosure on more than 40% of the portfolio of pools he buys). I bring him up because I assume (unless others feel different) that he is a very reputable and knowledgeable guy in the note business. 

Hi folks, 

I wanted to ask you all if you started doing NPN with a partner or individually. If so are we allowed to ask on the forums for people interested in a partnership on the forums?

I'd also like to join the conference call. Shoot me a message if you already have it set up. 

 In your experience would you buy a note like this and what would you of paid for a note of this caliber? 

Scenario:

House is worth $65,000. (BPO)

Homeowner has a 1st for $58,000 and a 2nd for $15,000. (CLTV 112%)
Purchased the NPN 2nd for $2,000

She is behind on both her 1st and her 2nd by about 30 days now.   The homeowner no longer wants to keep the property, but doesn't want a foreclosure. 

My question is what would be the benefit and/or drawbacks of doing DIL, SS, or C4K? 

Thanks for the advice in advance! 

Curious is a Reg D fund the same as Crowd Funding? Does it require accredited investors to invest in your re-performing notes?

 Hey @Tasha McKoy

No this is purely Hypothetical. However it is a type of note I would like to add to my inventory because I know it's a type of not that most people would touch due to it's high risk. 

Let me attempt to answer my own question based on the knowledge I know, and if a more experienced note investor feels my information is incorrect please chime in.  

I'll break this down into Two Scenarios:  

A) The borrower's motivation is to sell the property/let it go and 

B) Outcomes based on the borrowers wanting to keep the property.   Again this the outcomes I am perceiving based on my limit knowledge and expertise.

I am also going to assume you can contact the BK Attorney and he is somewhat flexible or willing to work with you.

A) Borrower is not going to pay and is planning to sell/let the property go

Outcome 1 :Since the borrower is no longer liable for the debt on the property a work out package with the borrower is not going to happen, and it looks pretty gloom.

Actions to take/Exit Strategies #1:  It does not remove the debt from the property; only the borrowers liability for the debt and the only action you can take is proceed with foreclosure process after the BK is discharged. Let's assume the property sold at about $80k on the foreclosure auction.  Obviously at this point since the property's value did not compensate paying off the first, any taxes and your 2nd.  Now as mention above, the State this foreclosed in is NY, so as a secured lien holder this state DOES allow you to do a deficiency judgement against the borrower for the amount owed on the property. In essence, you are suing the homeowner.  (http://www.alllaw.com/articles/nolo/foreclosure/an...)  Probably the worst case scenario due to the cost of doing a deficiency judgement plus, the borrower probably doesn't have many assets. Can't squeeze blood from a stone as they always say. So you may not only lose your capital, but the additional attorney costs of going this route. 

Actions to take/Exit Strategies #2: Proceed with the same procedure as above. I am assuming a Deed in Lieu or a Short Sale will not allow you to profit due to the lack of equity (Correct me if I'm wrong). The second exit strategy you can do is reinstate the first in foreclosure as @Bob E. mentions above (which goes to show how important due diligence is with rent rates on dangerous loans) since your 2nd is "Paid off" you can see if you have the rent rates cover the cost of the mortgage and maybe hope that the 1st lien holder will be able to do a modification to reduce the monthly liability since the property is upside down.  

B) Borrowers motivation is to keep the home

Actions to take/Exit Strategies: So again, I'm assuming the attorney is willing to work with you, since you aren't allowed to talk to the homeowners, although I've listen to a program where the investor had "accidentally" contacted the borrower and did a workout package directly with the borrower.  Obviously in this example, the attorney probably didn't have the homeowners best interest doing a Chapter 7 vs. a Chapter 13 according to my research. (Again, I could be wrong with this). However, if you have the cooperation of the attorney, you can do a pretty nice workout package with the borrower through the attorney and have  flexibility due to the cheap price you paid for the note.  Since the borrower has probably removed any unsecured debt in the BK, the DTI ratios are probably a lot more favorable for the borrower to afford the home they plan on keeping. Without going into extensive details, you than hopefully see how much of the arrears you can get from the borrower and what payments they can afford on the 2nd. (Hopefully a workout package is being done or was done on the first via Loan Modification and possibly a balance reduction due to lack of equity). This will allow you to cashflow very nicely while giving the borrower a much better payment on their 2nd! 

Hope this helps! If any of this information is incorrect let me know! 

And I should clarify, you BOUGHT the note for $3,000 for the 2nd.

 I appreciate your input on the obvious that this isn't a good deal. In fact, I thought I made it pretty blatantly obvious it's a very dangerous/risky note in of itself based on yhe scenario I laid out. The question as stated before is what actions could you take on a note such as this, since there are gurus out there who state that you can make money on a note such as this scenario?  

Obviously the big challenge would be the inability to provide an exit strategy with the borrower