How are PML/HML's handling the insurance crunch?

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How are PML/HML's handling the insurance crunch?

Account Closed
Investor · Member since 2023 · 118 posts · 61 votes

I have a note in FL, borrower isn’t paying the insurance, too expensive, I guess.

Borrower is very abusive and uncooperative with loan servicing … I’ve given up trying to work things out with them. I don’t want to foreclose, with a low ltv I will get paid off one way or another at some point. I watch taxes and pay them just before tax sale. All my expenses get added to the loan balance of course.

I put forced place insurance for a while, but the premium isn’t covered by their monthly payment, so I cancelled FPI.

It's a first position loan with a 15% LTV … I'm not worried if the place burns down, I believe there will still be enough equity to cover the loan.

I don’t see my situation as a big problem, just wondering if others are having similar issues.

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
Quote from @Account Closed:

@Chris Seveney

This attorney seems to be saying mortgages get wiped out in a FL tax deed sale.  Which is consistent with what I've always heard ... tax liens are super liens, senior to most other liens, except maybe municipal, condo liens and such.

Are you running into issues with borrowers not carrying insurance due the the increased costs?

Yes tax liens are superior, and when the tax lien holder goes to foreclose it will go through a tax deed sale. If it goes to tax deed sale its like being in 2nd position on a foreclosure, bid what you are owed. Lets say you are owed $50k, taxes were $10k, you bid $60k and if its really worth $500k then someone will bid above $60k. If someone bid $100k the taxes get paid, you get paid and the rest goes back to the borrower. 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y
    Quote from @Account Closed:

    I have a note in FL, borrower isn’t paying the insurance, too expensive, I guess.

    Borrower is very abusive and uncooperative with loan servicing … I’ve given up trying to work things out with them. I don’t want to foreclose, with a low ltv I will get paid off one way or another at some point. I watch taxes and pay them just before tax sale. All my expenses get added to the loan balance of course.

    I put forced place insurance for a while, but the premium isn’t covered by their monthly payment, so I cancelled FPI.

    It's a first position loan with a 15% LTV … I'm not worried if the place burns down, I believe there will still be enough equity to cover the loan.

    I don’t see my situation as a big problem, just wondering if others are having similar issue

    I would not pay taxes nor insurance. Let it go to tax sale. The tax lien will get issued, then it will go to tax deed sale and if the LTV is that low you will get paid off anyways...

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  • Account Closed
    OP
    Investor · Member since 2023 · 118 posts · 61 votes
    3y

    @Chris Seveney

    This attorney seems to be saying mortgages get wiped out in a FL tax deed sale.  Which is consistent with what I've always heard ... tax liens are super liens, senior to most other liens, except maybe municipal, condo liens and such.

    Are you running into issues with borrowers not carrying insurance due the the increased costs?

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y
    Quote from @Account Closed:

    @Chris Seveney

    This attorney seems to be saying mortgages get wiped out in a FL tax deed sale.  Which is consistent with what I've always heard ... tax liens are super liens, senior to most other liens, except maybe municipal, condo liens and such.

    Are you running into issues with borrowers not carrying insurance due the the increased costs?

    Yes tax liens are superior, and when the tax lien holder goes to foreclose it will go through a tax deed sale. If it goes to tax deed sale its like being in 2nd position on a foreclosure, bid what you are owed. Lets say you are owed $50k, taxes were $10k, you bid $60k and if its really worth $500k then someone will bid above $60k. If someone bid $100k the taxes get paid, you get paid and the rest goes back to the borrower. 

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  • Michael Norris
    Specialist · Strongsville, OH · Member since 2016 · 303 posts · 217 votes
    3y

    Why not foreclose and either rent it out or sell it?

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  • John O'LearyPro Member
    Lender · Winter Park, FL · Member since 2021 · 737 posts · 412 votes
    3y

    We have seen a 25-30% increase in insurance rates in FL with inflation and severe weather. I'm happy to give a few good referrals if you or the borrower want to shop around.

    [email protected]800-663-4122
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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    File judicial foreclosure process. Even if you give them Citizen's (insurance) phone number they are not going to follow the agreement. Don't engage in drama, just say, "no thanks, I'm taking the house back."

    1. file a lawsuit in the Circuit Court in the county where the property is located. 

    Lookup:  rule 1.115

    2. It's going to take a year. NOD, Summons and Complaint, Sherriff delivers, it costs money, do not let it stress you just keep to the course of operating your business.

    3. Eventually you get the property back. Monitor what they do with the subject. Document everything.

    1Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    3y

    A property with 15% LTV will sell at foreclosure to a third party... it will not become REO unless the lender is willing to pay close to retail.

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  • Account Closed
    OP
    Investor · Member since 2023 · 118 posts · 61 votes
    3y

    @Chris Seveney – that is one way, good point. Another is to keep taxes current (reimbursable), that way I don’t have to hope for over bid. As time goes on things can happen, ltv much lower due to market conditions or uninsured fire, nobody shows up at sale to bid, and whatever else.

    @Michael Norris and @Caroline Gerardo– as pointed out by @Tom Gimer, I will only get loan payoff at foreclosure sale thereby losing my high return, low ltv loan. I don’t want to put the money back into a low yield account waiting to find another good deal.

    This loan is going to workout just fine. I was wondering if any other PML/HML's were having similar insurance issues.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y
    Quote from @Account Closed:

    @Chris Seveney – that is one way, good point. Another is to keep taxes current (reimbursable), that way I don’t have to hope for over bid. As time goes on things can happen, ltv much lower due to market conditions or uninsured fire, nobody shows up at sale to bid, and whatever else.

    @Michael Norris and @Caroline Gerardo– as pointed out by @Tom Gimer, I will only get loan payoff at foreclosure sale thereby losing my high return, low ltv loan. I don’t want to put the money back into a low yield account waiting to find another good deal.

    This loan is going to workout just fine. I was wondering if any other PML/HML's were having similar insurance issues.


    Yes but you are destroying your return by advancing the taxes. What is your total IRR every year when you discount for taxes?

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  • Account Closed
    OP
    Investor · Member since 2023 · 118 posts · 61 votes
    3y
    Quote from @Chris Seveney:
    Quote from @Account Closed:

    @Chris Seveney – that is one way, good point. Another is to keep taxes current (reimbursable), that way I don’t have to hope for over bid. As time goes on things can happen, ltv much lower due to market conditions or uninsured fire, nobody shows up at sale to bid, and whatever else.

    @Michael Norris and @Caroline Gerardo– as pointed out by @Tom Gimer, I will only get loan payoff at foreclosure sale thereby losing my high return, low ltv loan. I don’t want to put the money back into a low yield account waiting to find another good deal.

    This loan is going to workout just fine. I was wondering if any other PML/HML's were having similar insurance issues.


    Yes but you are destroying your return by advancing the taxes. What is your total IRR every year when you discount for taxes?


    I was wondering exactly that as I was writing the post. Do you know if advances (taxes, ins, etc) accrue interest at note (default) rate? Maybe it depends on the note, or local law. It's a Fnnie Mae note, OO.

    I could I guess be at the tax deed sale and bid it up to cover my loan, logistics permitting, I'm in CA the property is in FL.  

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @David C.

    Typically accrues at note rate not default rate

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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    Everyone is HATING on insurance industry right now. The cost is 200% more with less coverage in five states. 

    I would rather get 5% on a CD than deal with someone being nasty who I loaned my hard earned money to. You can charge them all the costs in the end.

    2Reply
  • Account Closed
    OP
    Investor · Member since 2023 · 118 posts · 61 votes
    3y
    Quote from @Caroline Gerardo:

    Everyone is HATING on insurance industry right now. The cost is 200% more with less coverage in five states. 

    I would rather get 5% on a CD than deal with someone being nasty who I loaned my hard earned money to. You can charge them all the costs in the end.


     You said it!  I feel the same way.  I'm putting my money in short term T-Bills right now rather then dealing w nasty borrowers (some are very nice and very experienced, a real delight).  I'm getting a little more than 6% on 3 mo t-Bills right now, tax equivalent yield.  Tax equivalent yield takes into account I don't have to pay California taxes on T-Bills.

    0Reply
  • Sandra Morrison
    Investor · Cincinnati/Fort Thomas, KY · Member since 2015 · 206 posts · 183 votes
    3y

    @John O'Leary I would be interested. We haven’t received a tax increase yet but expect it.

    0Reply
  • Account Closed
    OP
    Investor · Member since 2023 · 118 posts · 61 votes
    3y
    Quote from @Chris Seveney:
    Quote from @Account Closed:

    @Chris Seveney – that is one way, good point. Another is to keep taxes current (reimbursable), that way I don’t have to hope for over bid. As time goes on things can happen, ltv much lower due to market conditions or uninsured fire, nobody shows up at sale to bid, and whatever else.

    @Michael Norris and @Caroline Gerardo– as pointed out by @Tom Gimer, I will only get loan payoff at foreclosure sale thereby losing my high return, low ltv loan. I don’t want to put the money back into a low yield account waiting to find another good deal.

    This loan is going to workout just fine. I was wondering if any other PML/HML's were having similar insurance issues.


    Yes but you are destroying your return by advancing the taxes. What is your total IRR every year when you discount for taxes?


     The way I look at it, since advances accrue at the note rate, every advance is a new loan at the note rate.  Which works for me since the money would otherwise be in a lower yielding investment.  Enhancing my investment, not destroying.

    There are a number of different return metrics, IRR is one of them. MOIC and ROI are a couple more.

    Funds for example are usually advertised using the IRR metric, the higher the better. If the fund IRR is reduced by advancing taxes, then by all means, don't advance. I don't run a fund. I use IRR when comparing investments, not because it's the best necessarily but because it allows somewhat of an apples-to-apples comparison. I say somewhat because it has it's shortcomings, as illustrated in the memo "You Can't Eat IRR, by Howard Marks".

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    3y

        “The way I look at it, since advances accrue at the note rate, every advance is a new loan at the note rate”

    You are basically making more defaulted loans. A high rate on a non performing loan is not so great. I think you are fooling yourself somewhat. 

    I would let it go to tax sale. At the auction you can bid it up to what you are owed because you will get the surplus back. 

    0Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    3y

    I am not clear on something. If the guy has a $1000 payment with payment and escrow. If you put forced insurance and lets say it costs 2400 per year. Now his payment is 1200 per month. If he continues to pay 1000, he gets late fees, and will soon face foreclosure, right??

    NOT paying the forced insurance is not an option. How can he NOT pay it? Its now a part of his payment.

    Why wait for taxes to become due. BUT even if you do, isn't this the same situation when you pay taxes for him?? He now has a bigger payment. How can he pay the original mortgage amount and NOT the taxes?? I would have foreclosed on him, added all the taxes, forced insurance, attorney fees, servicing fees, etc. 

    I would not have let it go more than a few months before starting foreclosure. I also dont see why paying off a 15% LTV loan is such a bad thing. Let him pay you off or foreclose. Am I missing something??

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    3y
    Quote from @Chris Seveney:
    Quote from @Account Closed:

    I have a note in FL, borrower isn’t paying the insurance, too expensive, I guess.

    Borrower is very abusive and uncooperative with loan servicing … I’ve given up trying to work things out with them. I don’t want to foreclose, with a low ltv I will get paid off one way or another at some point. I watch taxes and pay them just before tax sale. All my expenses get added to the loan balance of course.

    I put forced place insurance for a while, but the premium isn’t covered by their monthly payment, so I cancelled FPI.

    It's a first position loan with a 15% LTV … I'm not worried if the place burns down, I believe there will still be enough equity to cover the loan.

    I don’t see my situation as a big problem, just wondering if others are having similar issue

    I would not pay taxes nor insurance. Let it go to tax sale. The tax lien will get issued, then it will go to tax deed sale and if the LTV is that low you will get paid off anyways...


    he would be entitled to the overages ??   on letting it burn down keep in mind there can be some pretty heavy costs associated with burn outs.  cleaning them up and such.. I personally would put the force place on it.. 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y
    Quote from @Jay Hinrichs:
    Quote from @Chris Seveney:
    Quote from @Account Closed:

    I have a note in FL, borrower isn’t paying the insurance, too expensive, I guess.

    Borrower is very abusive and uncooperative with loan servicing … I’ve given up trying to work things out with them. I don’t want to foreclose, with a low ltv I will get paid off one way or another at some point. I watch taxes and pay them just before tax sale. All my expenses get added to the loan balance of course.

    I put forced place insurance for a while, but the premium isn’t covered by their monthly payment, so I cancelled FPI.

    It's a first position loan with a 15% LTV … I'm not worried if the place burns down, I believe there will still be enough equity to cover the loan.

    I don’t see my situation as a big problem, just wondering if others are having similar issue

    I would not pay taxes nor insurance. Let it go to tax sale. The tax lien will get issued, then it will go to tax deed sale and if the LTV is that low you will get paid off anyways...


    he would be entitled to the overages ??   on letting it burn down keep in mind there can be some pretty heavy costs associated with burn outs.  cleaning them up and such.. I personally would put the force place on it.. 

    Sorry if not clear, borrower gets overages not lender. 

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  • Account Closed
    OP
    Investor · Member since 2023 · 118 posts · 61 votes
    3y

    @Ned Carey, @Rick Pozos

    The sentiment seems to be foreclose as soon as there is a default … that’s fine, but not everybody looks at it that way. In his situation foreclosure is simply an early payoff since it will certainly be sold to a 3rd party investor giving me nothing more than a full payoff.

    Keep in mind that defaulted loans still accrue interest on principal and advances. With that low of an ltv, whether borrower pays or not, it’s a high yield investment that is very secure (I would argue more secure and higher yielding than a CD at Silicon Valley Bank). Furthermore, whether foreclosure, refinance, or sale, I get a full payoff and have to, at least for a while, put my money in some kind of a low yielding liquid account …. Cash drag, yuk.

    These choices depend on investor experience, risk tolerance, investing goals, specifics of a particular deal, other options available, cash available, timing, etc. One size does not fit all.

    0Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    3y

    @Account Closed I think to sum up all the above and answer your original question...most lender's aren't in a position to worry about the insurance issue because they're minimizing the situations where they're dealing with it directly. In your case if you allowed a tax sale or placed the FPI and then foreclosed for lack of payment, you'd be made whole one way or another, and you'd not be dealing with the insurance issue. By not pursuing either of those options you're artificially creating an insurance related issue for you that isn't typically there...

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    3y

    @Account Closed I recocgnise exactly how you are evaluating this. Yes interest on additional costs you put into this property acrues at a high rate. That sounds great on paper. I understand you feel you have litle risk due to the low LTV. However you do have risk. Especially the risk of a Black Swan event.

    You have described the borrower as troublesome. While you may not conciously see it as a problem, this is likely a mental drain that is costing you. 

    I sense this is a non performing loan. Why not get your money back and invest into a better asset at a high rate. You are making two assumptions, that I suggest you re-look at. 

    1)Your risk is zero - while your risk is low it is not zero

    2) That you cant find another good invstment to put you money into. 

    Good luck in whatever you choose to do. 

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