Finally!!!!!!!! My FIRST DEAL EVER!!!!
Contractor · Columbia, TN · Member since 2015 · 52 posts · 24 votes
I finally put up an offer and was accepted. I placed a $ 2,000 bid on a NPN of $ 92,000, but the house has a value of only $ 65,000 max. I'm thinking if I can get the current occupant to agree with a restructured and lower principal balance that I can turn this into a Performing Note. If not, I can still foreclose and sell the house 20-30% below market value and still make some money. This is my first deal, hope it all goes well....
Allin,
Congratulations on getting into a deal.
The purchase price was $2k and the RE Value is $65k and UPB is $92k. Is this a first lien or a second lien? What state is the subject property in? Also, when was the last payment made on the borrower's account?
That is an unusually low purchase price for a first lien worth $65k.
FCI does not do any title work. That is the title company which the report is from. I also was not aware that FCI does any level of real due diligence which includes reconciling the title report that was ordered or any other level of file review. I have heard some of that misunderstanding before.
To clean up some of your jargon:
Mortgagee = Lender
Mortgagor = Borrower
You are the Mortgagee when you buy a loan.
You would not hire a "property inspector" to inspect the home. More like an agent or appraiser. As a Mortgagee you have limited rights to enter the property. So property "evaluations" are typically exterior only while the property is occupied.
If a borrower vacates a property you may NOT simply rent it out. It is the borrower's property still NOT the Mortgagee's. The borrower must still be foreclosed or turn over the deed.
Offering cash for keys is a method of getting the borrower to sign over the deed in lieu of foreclosure. Often times called a DIL. If the borrower does DIL you can enter the property but that doesn't mean you will not still have to foreclose. Getting the property deed is not the same thing as having clear title to the property.
Anyhow, back to your asset that you purchased. I am concerned for you that price is too low and there is serious defect in the loan you purchased. That loan, if first position, should have been north of $23k. So something here doesn't line up well. Is the property in disrepair, in which case it is not really worth $65k until it is fixed up? If so, what is the value of the property as is, right now?
While every once in a while a patient investor can pick off a pretty good deal in NPN's, they still follow a general market price level. When a price is excessively low, like in this case if the lien is in first position, then the low price should be a red flag that something is wrong and you should look for that defect and ensure you can deal with it.
This is another world to me, but congrats! I wish knew more so I could invest in notes. Good luck! @Alin Toncz
@Christian Bors,
Thanks a lot for the well wishing. Hope and pray you'll succeed in your endeavors also.
Good to hear. Hope for your success. Let us know how it goes. Are you using a servicer?
congratulations to you. This is Greek to me as well but I'm happy for you keep making deals
Congratulations Alin. Glad to hear you taking action and going after your goals.
Sounds like you landed a great deal. I would love to here how you did you due diligence on this property, Did you inspect it personally or have some one do it for you. How did you find out about liens or back taxes that might be owed on the property? are you having a service company handle the note or are you doing it all your self? With that much of a discount, it sounds like you have many exit strategies. I'm very impressed with what your doing. Can't wait to hear how it all goes, thanks for the post, and a boost of motivation.
Congrats again.
Are you sure you are buying a 1st note. If It's a second note and the first note is say 70k, you would have to pay the first note with foreclosure proceeds before collecting any money. Make sure to do a good title search or pay somebody to do one.
Allin,
Congratulations on getting into a deal.
The purchase price was $2k and the RE Value is $65k and UPB is $92k. Is this a first lien or a second lien? What state is the subject property in? Also, when was the last payment made on the borrower's account?
That is an unusually low purchase price for a first lien worth $65k.
FCI does not do any title work. That is the title company which the report is from. I also was not aware that FCI does any level of real due diligence which includes reconciling the title report that was ordered or any other level of file review. I have heard some of that misunderstanding before.
To clean up some of your jargon:
Mortgagee = Lender
Mortgagor = Borrower
You are the Mortgagee when you buy a loan.
You would not hire a "property inspector" to inspect the home. More like an agent or appraiser. As a Mortgagee you have limited rights to enter the property. So property "evaluations" are typically exterior only while the property is occupied.
If a borrower vacates a property you may NOT simply rent it out. It is the borrower's property still NOT the Mortgagee's. The borrower must still be foreclosed or turn over the deed.
Offering cash for keys is a method of getting the borrower to sign over the deed in lieu of foreclosure. Often times called a DIL. If the borrower does DIL you can enter the property but that doesn't mean you will not still have to foreclose. Getting the property deed is not the same thing as having clear title to the property.
Anyhow, back to your asset that you purchased. I am concerned for you that price is too low and there is serious defect in the loan you purchased. That loan, if first position, should have been north of $23k. So something here doesn't line up well. Is the property in disrepair, in which case it is not really worth $65k until it is fixed up? If so, what is the value of the property as is, right now?
While every once in a while a patient investor can pick off a pretty good deal in NPN's, they still follow a general market price level. When a price is excessively low, like in this case if the lien is in first position, then the low price should be a red flag that something is wrong and you should look for that defect and ensure you can deal with it.
I agree @Gloria Mirza. Are you sure you got 1st position? If not, you are liable for the 1st. How much due diligence did you do? For 2K on a NPN with property of that value I have initial reservations.
@Alin Toncz FCI is not an irresponsible company, however they do make it clear that note buyer/bidder must perform their own due diligence.
For $2K, your ante to play, you have now entered the wild, wacky world of notes.
If you understand the collateral and the legal aspects of debt enforcement and possession, you'll have a good solid investment and eventually, a good return. It sounds you have several exit plans in mind.
Here's another one: seller or swap the note.
If you did confirm that your purchase is of a first lien position mortgage you have plenty of options. If you didn't, maybe you'll come clean and post what you discovered.
Hopefully, the borrowers won't burn the house down while you try to get it re-performing. That's what forever placed insurance is and FCI has a program for that for thir servicing clients.
You'll never learn anything without taking action. One way or another, you're going to get an education.
@Rick Harmon,
Yes, I am a 1st place lien holder on the note. Im working right now on due diligence and I will do my best to try to work with the owners of the house to make things comfortable for them and keep them staying in the house without breaking my back. There's only so much help I can give them before they realize they have to help themselves also. I also bought about selling the note for a little more profit, but I'm waiting for a comp analysis from the agent I hired to tell me real numbers about the actual property value. Once I know that, I'll probably make my move to sell the note and at what discount.
Thanks again Rick for your input,
Alin
Congrats! I hope it works out well. Due dil is a must. I looked at a second that was a feature note on FCI exchange and when I did a little digging, it turned out that the house had been sold in a short sale approx a year before. Made me wonder if the note was even valid anymore. From what I understand, normally the first may offer the second lien holder a couple thousand dollars in order to convey a clear title. Needless to say, I steered clear of that one.
Congratulations please keep us updated. I am in the hunt for my first Note as well and would like to know what happens.
Have to agree with Dion. If you bought a NPN for $2k, it is Extremely unlikely it's a legitimate first mtg. and the property be worth $20k or better. Just too many potential note buyers chasing the available notes.
This is a reply for all:
NPNs are non performing notes where a mortgagee failed to pay his mortgage for sometime. The note or mortgage holder that has had enough, puts the NPN up for sale on a servicer site: I'm using FCI Exchange. If the mortgage is for $50,000, the note holder will sell that mortgage note for a discount (many times for less that 50%). Now, I buy the NPN for let's say $20,000, I can use the servicer to do all the title & lien searches while I hire a home inspector to inspect the property. I can also use the FCI servicer to communicate with the mortgagee and either ask how much can the mortgage afford to pay a month. What I can do is restructure the payment with a lower interest to make it affordable for longer periods of time. If mortgage refuses to wot work with me, I can use the FCI servicer to initiate foreclosure, where I have to pay foreclosure costs. I can also offer the mortgage cash for key helping him avoid 7 years of bad credit & foreclosure costs for myself. Once they move out, I can rent it, sell it outright at lower market value or finance it to a new buyer. Hope this helps: I tried put it into words as I understood it explained by Eddie Speed
@Wayne Brooks we speak a language nobody wants to hear. Eddie Speed said everything will be "fine". Just pay for an asset before you do due diligence. You know, like no other note investor in the world works. But hey- we got a nice key chain. All of those guru programs are a complete and utter joke.
@Dion DePaoli I am a Note School student, I have been to the three day, and yes, I paid for the mentorship. I have NEVER heard Eddie Speed or anyone in the Note School organization advocate buying a note without doing full due dilligance.
We paid 25k for our mentorship and made it back several times in less then two years. Maybe you are a banker or had someone to walk you through the process. If you figured this business out all on your own then good for you. For the rest of us normal human beings this is not so straight forward. We have been very happy with the return on investment we got from Note School.
@Bob E. we have had this debate of sorts before. The issue at hand is more than "we had to learn somewhere". First, I am not even sure much of anything is being learned. We have had many, many clients from the various courses, classes and seminars by all of the popular gurus. I have not been impressed by the take away of any of the students who have turned to us to help them.
If we concede to your statement that these gurus do not advocate not doing due diligence that doesn't mean the opposite is true where they advocate actually doing due diligence. This thread is one of many on here where a student of those courses is looking for direction after realizing their tuition fees to the guru seminar left them unprepared to venture into the asset class while believing they should jump right in.
Again, to highlight the point, we have a student of the course who bought a loan and is NOW trying to do due diligence. So it seems the teachings of these courses falls drastically short on emphasis of buying correctly. Otherwise this thread in its entirety wouldn't even exist.
Further, the premise that simply learning something, somewhere is better than not doesn't hold to be true. Learning things that are improper and not prudent are far more damaging than not knowing. It creates a false sense of knowledge that is then relied on to take risks. It is akin to learning to sky dive by jumping on a trampoline because you had to learn somewhere. Yet you never actually get to use a parachute.
So I guess that is sort of the point, the lack of purposeful direction and competency illustrated by students of these programs speaks for the program itself and it's guru teacher. They are lousy wastes of money.
We could suggest that the folks who post on these threads and those students whom we have worked with are just out-liars but I can honestly tell you I have not met a skilled note investor from ANY of these programs.
Sure some folks have taken the class and then taken the plunge and perhaps managed to wade their way through the lack of knowledge in the industry. Those too are not common.
As an aside, I wasn't taught this industry by anyone or book or seminar or video or online conversation or any other crap like that. I learned the industry by working in it.
You mentioned earning your tuition back but hasn't your portfolio mostly been real property? Or at least those assets you tracked on here were if I remember correctly. I wouldn't credit note seminars as basis of success with real property. That wouldn't make much sense.
Moral of the story, the evidence at large is these programs are not worth the money paid to attend and they are more damaging than knowing nothing.
There is no cause to take my word for it, I admit, I am just a guy with a lot of experience in this asset class who happens to understand it pretty darn well.
I got the title search back. Here is what is portrayed:
The title is filled with city liens for uncut grass, boarded house violations, judgments and a tax lien dated to 2008. Adding everything up is over $ 15,000 in fines.
Note Purchase: $ 2,000
Liens & Judgements: $ 15,000
Foreclosure costs: $ 4,000
Opportunity costs: unknown but could be positive
Hassle with bureaucracy of Chicago
Lots of headaches and money for each paperwork
submittal request: maybe more than $ 1,000
Value of home according to COMPS $ 40,000 - $ 48,000
Selling to an investor or a buyer for $ 30,000 - $ 35,000
IS IT WORTH IT????? Options of anyone are greatly appreciated.....
Ricardo NPN = Non Performing Note sometimes also referred to as NPL = Non Performing Loan.
The re-trade numbers are pretty far off. If nothing is done to the loan dealing with the default then an investor buying the loan is looking at deploying an additional $26k on the low side to work through the loan. So selling it for $30k or more simply won't work. Nobody would offer that as they will not come out whole with $56k into a $48k property.
On the workout side you have a shoot at a reasonable return depending the time you take to get through foreclosure and the amount of rehab money that may be needed to market the property. In addition, property with a value less than the minimal conventional loan amount of $50k can take a little longer to sell than those properties where a borrower has financing more readily available.
Other ideas may affect the amount of time it takes to process through the foreclosure which will cause further capital to be deployed and time. If the occupant is not the owner you may not obtain possession until 90 days have passed from sale. If the borrower requests mediation or attempts to defend, the process may draw out more. Generically speaking every month is going to cost you around $200 with servicing and taxes and insurance.
You are looking at a disposition timeline of somewhere around 14 months or a little more depending on foreclosure defense and occupants. However, if the property is vacant you may be able to fast track the process reducing time. Often times that increase the amount of dollars that need to go into a property to make it marketable again due to deferred maintenance.
While it is possible to reduce capital into the REO for sale, that typically means the sale price drops as well as the potential buyer universe shrinks. It may not be finance ready at all or/and investors will be the likely buyer and they will want some meat on the bone to buy and repair. I would sure up that value of $40k to $48k that is a 20% swing and will a noticeable impact on the outcome. Further what repairs you will need to make to sell the property?
I note after reading the above post again the property is boarded up. So it is likely vacant unless you have squatters. That is good. The borrower can still contest the foreclosure as well as the verdict the property is abandon. If the abandon decision is overturned by a borrower's defense, then you are back to the longer timeline. If not you can greatly reduce your time as the expedited process can progress you through within 4 to 6 months. That will reduce the expenses and increase the return potential.
As another side note, you best keep an eye on those outstanding tax certificates as they at a point where they can petition for a tax foreclosure for lack of payment. That would wipe your lien.
A note investors highest and best use of a defaulted asset is typically to work through the asset not a resale.
I'm guessing the comps aren't also boarded up houses. Guessing the house needs $15-20k in rehab, you might come out whole.