My 1st NPN

Tax Liens & Mortgage Notes
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My 1st NPN

Steve HodgdonPro Member
Investor · Novato, CA · Member since 2015 · 433 posts · 321 votes

I'm new to note investing and decided to take a learn by doing approach. I own some commercial real estate, ran a property management business for a while (ugh!) and owned a collection agency for 17 years.  So distressed notes seem to fit my experience.

What I bought:

A 1st from Harbour Portfolio through a Southern California broker. He sold me one account from a pool.

It took a few weeks for the hard file to arrive from NAA, Harbour's servicing entitiy.

I boarded the loan at FCI and hired a local experienced attorney to start the foreclosure process. Paid a $2500 retainer. $500 over the Fed guideline. I had a trusted local reference.

Why jump straight to foreclosure? I think I will every time. Urgency will help bring borrowers to the table.

All contact #s for borrower are no good. TLO had 2 potential hits, both parties claim no contact with borrower. Borrower made a $1600 down payment on a $32,000 note. Never made a payment. So, no reason to attempt a workout.

Harbour had repossessed this home from prior borrower. In fact they sold this home 3x over 5 years. Pictures from 2014 show a house that is marginally inhabitable at best.

Taxes are owed for 2015. $1400.

Property is assessed @ $60k. UPB including taxes and interest is $38,000. I paid $14k.

I believe I'm paying for my education. Broker has been very forthcoming with advice and experience.

By the time I get possession in 6 months, I'll be about $20k into the property. A pipedream sale @ $30k, but likely $25k.

I'll update as events warrant. I'm hoping to share newbie mistakes with my fellow BP'ers and get back new connections in return. Please feel free to comment.

Best of luck to all.

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
10y

Seems lot a lot of work for a rather small payoff, IF you are able to collect on the rest of the LC payments without more attorney fees.  If not a loss may be the ultimate result.  When time is figured in you already lost money.  I believe this is "the best" outcome with these toxic assets.  Other outcomes would involve taking 3 to 5 years getting ownership cleared, paying attorney, taxes, insurance in the mean time, and finally getting possession of a property so deteriorated that its declared a dangerous building and leveled by the city government, resulting in a near total loss of all invested.  When you average it all out, buying mortgages that have been picked over by hedge funds, investment partnerships, and bulk buyers, and are whats remaining, can not result in a profitable experience, on average, especially with adding a reasonable cost for your time.

I guess I somewhat understand the individual investors fascination with these NPLs.  The fascination appears to be based on the following misconceptions

1. I can buy NPNs at a low price

So what? A bad investment at $10,000 is still a bad investment.  If all you have is $10,000 why not use it for a good investment?

2. I'm acquiring the note for a fraction of the principal, so my downside is limited.

The real criteria is the price you pay in relation to its VALUE. The amount of the principal owed is not the notes value, and UPB can be a very misleading figure.

Further, the amount you lose can be far in excess of the amount paid for the note.  You can end up paying large amounts for attorney fees, property taxes, insurance, etc.  The amount you can lose can be double or triple the amount you paid for the note.

3. Buying NPNs are a way to acquire real estate for significantly less than its market value

Except that when you purchase a note you are not acquiring real estate, you are acquiring a promissory note secured by real property.  Your ability to turn that note into  clean ownership title depends on the laws of the state the property is located in, possibly the rulings of a bankruptcy judge, the quality of the paperwork associated with the note, how the note was serviced, existing liens and encumbrances on title, future liens and encumbrances on title, city code enforcement and violations, and about a dozen other things you won't know about until they happen.

While it is possible for an individual investor to make a profit on any individual NPN, a large enough portfolio of these NPNs purchased from institutional "left overs" will result in a guaranteed loss.

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  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    I like your approach, it is much better then paying $15000  for some seminar, can not wait to see your results  good luck 

    3Reply
  • Scott Mclaren
    Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
    10y

    I  am similar to you in that I have just started with note investing. I have bought some performing ones yielding right at 12%. I just bought a non performing first. I have a trustee sale date of Feb 15th.   I will start a new post about mine when I get the time.

    5Reply
  • Darren Eady
    Rental Property Investor · Lindon, UT · Member since 2015 · 862 posts · 438 votes
    10y

    @Steve Hodgdon - I wanted to reach out mostly because I grew up in Laguna Beach and spent my youth driving around Laguna Hills.  I also deal in performing mortgage notes that pay 12% annually.  NPNs are interesting to me, and from time to time, I end up with some, but almost all of my loans perform.  I'm curious how your experience plays out.  Let me know if you would like some performing notes as well.

    2Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    10y

    Steve,

    I am a novice in this area. I will follow your posts with interest.

    One question I have is did you order an appraisal of the property prior to taking the plunge on this note? Maybe this is not typically done with Note buying?

    Is subject property close to you where you can or could have driven by property? If not what area is the property located?

    John

    1Reply
  • Patrick Desjardins
    Real Estate Investor · Amherst, VA · Member since 2015 · 386 posts · 400 votes
    10y

    Congratulations on your first purchase. You're taking a small risk and will learn a ton.

    What's the BPO value on it? Is it 25 or 30k? (assessed value not important except for tax purposes)

    At first glance the price seems high but you're going to improve your processes as you work through it.

    2Reply
  • James Cheung
    Investor · South Pasadena, CA · Member since 2016 · 22 posts · 11 votes
    10y

    great topic. I am looking at a NPN for the first time as we speak and would love to hear your experience.

    1Reply
  • David Putz
    Investor · Jackson, NJ · Member since 2010 · 167 posts · 55 votes
    10y

    Best of luck. We enjoy the NPN space for the past few years. There is always an influx of Performers as we modify loans and want to cash out!

    1Reply
  • Steve HodgdonPro Member
    OP
    Investor · Novato, CA · Member since 2015 · 433 posts · 321 votes
    10y

    Answering a couple of questions from above...

    I did NOT order a BPO. Selected only because I have trusted boots on the ground in Greenville SC. I had pick of the pool the broker was selling.

    Prop sold in 2011 for $60k. Pics from 2012 looked OK. Later pics show it's been trashed. Don't know condition since 2014.

    I'm sure I overpaid. Probably should have been a $9k purchase. My eagerness to get started on this process. Considering it cost of education.  I didn't want to buy blind off of FCI for 1st purchase. Again, broker has been great and patient with me.

    I'm new to BP also and am amazed at the community they're built. Thanks for feedback. Follow me for future updates.

    1Reply
  • Christopher Winkler
    Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes
    10y

    Good luck Steve, you will learn a lot, and one you already learned is to start foreclosure. Though it really is a good idea to get a BPO from the realtor or a service company so you know its value. What a realtor says and reality is sometimes two different things. That should be done after you make your offer and make sure its subject to fade if you find things like 2nd liens, tax liens, etc. You should also be running an O&E report to check for all title issues before you pay, as there are super liens that you can't wipe out...

    4Reply
  • James Cheung
    Investor · South Pasadena, CA · Member since 2016 · 22 posts · 11 votes
    10y
    Originally posted by @Christopher Winkler:

    as there are super liens that you can't wipe out...

    Besudes IRS and HOA, is there any other super liens ?

    1Reply
  • Bob Malecki
    Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    10y

    Hi @Steve Hodgdon in your due diligence, did you have access to that info which showed the borrower's extremely low down payment? Also was FC in your exit strategy analysis, and if so, did the actual outcome come close to your expectations? I'm curious what activities you deployed in your due diligence on this note before you purchased it. DD is the most critical stage of note investing IMHO.

    Bob

    1Reply
  • Dion DePaoliPro Member
    Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
    10y

    Steve this the contract for deed we looked for you not a loan, right?

    What did counsel say about how they were going to clean up the clouds of ownership?

     

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    10y

    Steve,

    I live in the greater Greenville area (Greer).

    If you need any help let me know and I will do what I can.

    I have rental property in Greenville and plenty of Real Estate Contacts for the area.

    John

    1Reply
  • Christopher Winkler
    Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes
    10y
    Originally posted by @James Cheung:
    Originally posted by @Christopher Winkler:

    as there are super liens that you can't wipe out...

    Besudes IRS and HOA, is there any other super liens ?

     James, I am seeing a city of Inkster, MI super lien on their huge water bill. IRS has a redemption period and they really don't want the house, so I believe its 6 months. Its really a state by state, and county by county, and city by city issue. Never a dull moment!

    0Reply
  • Steve HodgdonPro Member
    OP
    Investor · Novato, CA · Member since 2015 · 433 posts · 321 votes
    10y
    Originally posted by @Dion DePaoli:

    Steve this the contract for deed we looked for you not a loan, right?

    What did counsel say about how they were going to clean up the clouds of ownership?

     

    Yes, this is the contract for deed. Attorney is working on title now. He understood there is issue. Thank you. I'll be in contact about working together once the other property sells.

    0Reply
  • Steve HodgdonPro Member
    OP
    Investor · Novato, CA · Member since 2015 · 433 posts · 321 votes
    10y
    Originally posted by @John Underwood:

    Steve,

    I live in the greater Greenville area (Greer).

    If you need any help let me know and I will do what I can.

    I have rental property in Greenville and plenty of Real Estate Contacts for the area.

    John

    Wow! Thanks for the generous offer. Still working on debtor contact. Do you have a door knocker you trust?

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    10y
    Originally posted by @Steve Hodgdon:
    Originally posted by @John Underwood:

    Steve,

    I live in the greater Greenville area (Greer).

    If you need any help let me know and I will do what I can.

    I have rental property in Greenville and plenty of Real Estate Contacts for the area.

    John

    Wow! Thanks for the generous offer. Still working on debtor contact. Do you have a door knocker you trust?

     I don't mind knocking on a door unless you need a process server or something similar.

    Let me know if I can do it. I can reach out to my real estate club if you need something more.

    John

    2Reply
  • Steve HodgdonPro Member
    OP
    Investor · Novato, CA · Member since 2015 · 433 posts · 321 votes
    10y

    Update from attorney, redacted...

    We’ve done some research on Mr. X, which has resulted in some curious findings. The only document relevant to the property at issue is the attached building permit application that he signed in Feb. of 2015. It was filed in the ROD office. It shows he applied as ‘owner’ of the property for construction work he apparently undertook, or sought to undertake, on the property.

    I’ve also uncovered a troubling number of civil and criminal cases that have been filed against him (just in Greenville County), most of which relate to fraud and forgery-type offenses (some of which appear to have resulted in his incarceration, the last being in Dec 2015). I don’t see any civil cases that resulted in a pending monetary judgment against him; however, some of the criminal cases did result in civil judgments. Notably, some of those civil judgments are still valid. I’ve attached records for some of the criminal and civil matters that have been filed against him. You’ll also see where he’s used an alias in the past of ‘YZ’.

    Other than the building permit application, there is no evidence in the public records of his interest in the property. His interest in the property as evidenced by the Agreement with Harbour should only amount to a leasehold interest, which should not be the basis for any judgment lien to attach. However, the title and language in the agreement could provide a basis for the judgment creditor to at least make a claim that X’s interest is more than a leasehold interest. Even though I don’t think any such claim would be successful, I’m of the opinion that it’s not worth putting ourselves in the position to potentially face any such claim.

    As I understand it, you believe someone is occupying the property, and it may not X- the individual having represented that he purchased the property via auction.

    That being said, here is what I think is a good strategy. I think we file the deed from Harbour to you. We do not file the X agreement, but we do send him a formal termination notice regarding the prior agreement (unless you can provide me with one that has already been sent, which I haven’t seen). We then file an action for eviction against the occupants of the property (as ‘John Doe’), naming X as a defendant based on the prior agreement. Once that eviction claim is filed and served, we should get a very good idea of who it is that is occupying the property and their basis of occupancy (should they even file an answer to the eviction claim). Depending on any such response, we can then determine next steps. If no answer is filed and the sheriff then evicts the occupants, the property should then be ready for resale, as the title search (attached) did not result in any liens against the property.

    If you can get me more information on the current occupants, that would be helpful.

    So... We move slowly to taking possession.

    Lessons so far:

    • Tenant always looks like the property (I knew this already)
    • This squatting game is widespread. Low down payment is indicator.
    • Harbour didn't underwrite loan using traditional standards.
    • Lender docs aren't what you think.
    • Look at title history FIRST!
    • BP'ers (@JohnUnderwood) are fantastic!

    I may have possession in 3 months?

    Please feel free to comment.

    1Reply
  • Steve HodgdonPro Member
    OP
    Investor · Novato, CA · Member since 2015 · 433 posts · 321 votes
    10y

    Mr. X returned my call! Left a message with a cousin stating that I was interested in buying the property. (Hint to those with less than 20 years of debt collection experience, DON'T TRY THIS)

    Based on what I discovered about him, credit, disability income, criminal record, I was thinking we were going straight to foreclosure.

    He told me a tale of woe about Harbour. Claims to have made 5 payments. Harbour never supplied payment history to me, stated no payments. Mr. X said he stopped paying when he applied for SC State help in getting rehab loan. Since title transfer was never recorded, lender (operated by United Way) couldn't help him. So, he tried to get them to file. Harbour refused. Mr. X stopped paying.

    Next he winds up in "special assets". Usual rounds of collection calls, refusal to work this out. He was offered $200 cash for keys. "Why would I do that?" he says to me. Guess I wouldn't do it either.

    He's done some repairs. Wants to keep house. I told him to bring me an offer.

    0Reply
  • Bob Malecki
    Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    10y

    As I understand it the Harbour Portfolios are being liquidated due to some SEC violations. I see their assets on various tapes we get. 

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    10y

    Can you not move forward with foreclosure if you hold note and he is not paying?

    0Reply
  • Bob Malecki
    Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @John Underwood:

    Can you not move forward with foreclosure if you hold note and he is not paying?

     Sure you can but if the borrower wants to stay in the home, why not do a workout and save the court costs and emotional duress?

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    10y

    Hopefully he will offer something that will work out for the both of you.

    Tell him you will take that boat in trade. It is worth some money.

    1Reply
  • Matt Goldstein
    new york, NY · Member since 2016 · 4 posts · 1 vote
    10y

    Hi my name is Matthew Goldstein and I am reporter with The New York Times. My colleague Alexandra Stevenson and I are interested in learning more about Harbour Portfolio and any reports the firm may be selling properties. Please feel free to reach out to either of us.

    0Reply
  • Steve HodgdonPro Member
    OP
    Investor · Novato, CA · Member since 2015 · 433 posts · 321 votes
    10y

    So, round and round we go. Me and Mr. X. I'm blessed with negotiating with a guy who is a true street hustler. I know I'm being worked because I'm doing the same with him!

    He tells me of poor condition to property, many hours spent repairing. Motivated to stay, but not liking my proposal.

    Mr. X offers $1800 down and $15k note. I want $6000 down and 24k note. Both of us taking a little time to think it over. I'm into the note for  $19k. Bought $14.5k, $2500 to attorney, $1700 in back taxes.

    The dance continues!

    0Reply
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