American Homeowner Preservation (AHP) Fund

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American Homeowner Preservation (AHP) Fund

Mark S.Pro Member
Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes

I stumbled across the American Homeowner Preservation (AHP) Fund ad on a podcast.  Upon going to their website and researching further, it appears it's a hedge fund that buys discounted mortgages and supposedly tries to let homeowner's stay in their homes (and obviously make a profit) in doing so.  This is now open to non-accredited investors (as well as accredited) for as little as $100.  They keep any profits above 12% and it appears they charge about a 2% fee plus a couple other nonsense items (based on my very brief skimming through some info).  Anyone familiar with AHP?  Thoughts?

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Bob Malecki
Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
6y

The virus has impacted a fund like AHP mostly in administrative delays with foreclosing on properties and getting them converted to REO properties for resale. One large component of their business model is to acquire distressed mortgage debt then foreclose and resell the property as REO on the open market.

Due to moratoriums on both foreclosures and evictions, as I understand it, AHP is essentially experiencing a log jam on the back end of their exit cycle to recover investor capital and profit.

They've recently introduced a program called "pre REO" which gives them a strategy to help pull investment capital from these assets which are waiting for foreclosure and exit so that they can recover some of the investment capital from the assets to meet redemption and capitalization requirements for the fund.

It's an innovative program, but seems like an over-complicated solution rather than just waiting for the moratoriums to be lifted and proceed was foreclosures and evictions. Even when the moratoriums are lifted there's going to be a backlog for scheduling especially in judicial states so exits on these assets will be much longer than anticipated.

I suspect AHP has most of its investors capital deployed into these type of assets and now it's jumping through major hoops to meet their capital requirements. This may be why many of you are experiencing delays in redemptions and distributions.

In the fund which I co-manage, we've stopped foreclosure activity on many of the non-performing assets since it doesn't make sense to pay our legal resources for activities that are in moratorium. We've also postponed any new capital raising activities since deploying new subscriber capital into distressed assets that we cannot resolve quickly does not make sense.

This virus has definitely forced distressed-debt managers to become more creative and patient in a market that they cannot effectively control.

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  • Jonathan Hewitt
    OH · Member since 2015 · 3 posts · 2 votes
    7y

    What kind of tax forms do you get at the end of the year? In the latest offering, I read it is classified as a "publicly traded partnership," which leads me to believe a Schedule K-1 will be involved? Thanks!

    0Reply
  • Steve Bretzke
    Washington, MO · Member since 2015 · 7 posts · 6 votes
    7y

    K-1 is correct.

    1Reply
  • Paul Bommarito
    Rental Property Investor · Detroit, MI · Member since 2018 · 47 posts · 36 votes
    7y

    Curious if anyone is aware what transpired to bring on the new CEO/President, DeAnn O'Donovan. I am an investor and was talking to someone about the fund, and they actually said they had concerns over the Glassdoor reviews. I did not think to look at those before investing, but I also typically feel that people only write reviews if they have an experience that is either really good or really bad, so was hard for me to really take this into consideration when their performance has been just as expected for both funds

    0Reply
  • Steve Bretzke
    Washington, MO · Member since 2015 · 7 posts · 6 votes
    7y

    This was sent to investors by email on March 16, 2018:

    To the AHP Investor Family,

    Nearly 10 years ago, during the Great Recession, when nearly four million homes were foreclosed upon each year, AHP set out on a mission to help homeowners stay in their homes. We have succeeded in delivering sustainable solutions to thousands of families, eliminating over $100 million in negative equity, and saving families over $5 million on their payments each year. To date, almost 900 investors have crowdfunded over $33 million to support our efforts, and we truly appreciate your support.

    AHP begins a new chapter today. In addition to expanding our acquisitions of distressed mortgages, we are launching AHP Servicing, a national mortgage servicer. We intend to bring social responsibility and a willingness to do the right thing to an industry often devoid of caring, compassion and basic human decency.

    To spearhead our efforts, we needed a leader adept at building, managing and getting the best out of our team. After a year of canvassing for a veteran financial services executive whose values align with our mission, we have found a remarkable fit. I am delighted to step into the role of Chairman and introduce former Wintrust Mortgage Executive DeAnn O’Donovan as our new CEO. She brings over 25 years of mortgage and real estate experience to our rapidly-growing company.

    “I couldn’t be more excited to join AHP and launch our servicing business at this pivotal time in the company’s history,” said O’Donovan. “I’ve had the opportunity to get to know AHP’s founders well and believe their ten-year history and financial stability provide the building blocks for growth. Establishing an in-house servicing operation is a natural complement to the company’s core business purchasing and repositioning past due residential loans. This will allow us to have closer contact with our borrowers as we seek consensual solutions that work for our investors, our borrowers, and communities nationwide.”

    O’Donovan previously served as the Executive Vice President & Chief Administrative Officer of Wintrust Mortgage. In this capacity, O’Donovan oversaw its corporate functions, and established Wintrust’s centralized residential loan servicing and default loan servicing departments. Prior, she served as the Senior Vice President of the Purchased Asset Division for Wintrust Financial Corporation, managing the First Chicago Bank & Trust portfolio acquired from the FDIC.

    More important than all of her senior leadership roles is her heart. DeAnn is on the Board of Directors of National Able Network, a not-for-profit which seeks to help veterans, and other workers in meaningful employment. In AHP, she has an extraordinary opportunity to not only build a financial services powerhouse, but also positively impact the lives of struggling homeowners across our country.

    Please join me in welcoming DeAnn.

    Jorge Newbery

    Chairman

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  • Bob Malecki
    Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    I've met DeAnn and discussed having AHP take over servicing for our note fund. She's smart and I would expect she will do a great job with AHP. 

    Bob

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    7y

    @Bob Malecki - is this new servicing company going to be servicing 3rd parties as well or just AHP?

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  • Bob Malecki
    Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    Hi Chris, as I understand it AHP servicing is planning to service third-party clients as well as their own loans

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    7y

    I'm an investor in this fund since 2017. I have been getting my distributions every month.

    1Reply
  • Aristotle Kumpis
    Specialist · Long Beach, CA · Member since 2011 · 879 posts · 398 votes
    7y

    I have also recently discovered AHP, and was thinking of investing with them. Does your money have to be invested for a minimum, or can you exit when you want?

    0Reply
  • James Mc Ree
    Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 937 votes
    7y

    I think their minimum is only $100.  Read their site.

    0Reply
  • Paul B.
    Rental Property Investor · Dallas, TX · Member since 2015 · 503 posts · 504 votes
    7y
    Originally posted by @Aristotle Kumpis:

    I have also recently discovered AHP, and was thinking of investing with them. Does your money have to be invested for a minimum, or can you exit when you want?

     If you need your money back, I believe there is a 30 waiting period. There might be a fee involved in redeeming it though. I haven't read that closely. But liquid in 30 days sounds like a nice feature. 

    1Reply
  • Kelli Huang
    Landlord · Jonesboro, GA · Member since 2015 · 65 posts · 17 votes
    7y

    I invested $600 recently and received my first pay of $0.50 :( 

    1% return?

    0Reply
  • Paul B.
    Rental Property Investor · Dallas, TX · Member since 2015 · 503 posts · 504 votes
    7y
    Originally posted by @Kelli Huang:

    I invested $600 recently and received my first pay of $0.50 :( 

    1% return?

     Fraction of a month maybe? Hopefully next month will be the full amount.

    0Reply
  • Kelli Huang
    Landlord · Jonesboro, GA · Member since 2015 · 65 posts · 17 votes
    7y
    Originally posted by @Paul B.:
    Originally posted by @Kelli Huang:

    I invested $600 recently and received my first pay of $0.50 :( 

    1% return?

     Fraction of a month maybe? Hopefully next month will be the full amount.

     You are correct. I just checked I received the $0.5 for 6 days of investing. Thank you for reminding me. 

    0Reply
  • Mark S.Pro Member
    OP
    Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes
    7y

    They’re super slow to get K-1s out and there was no mention this year of being included on their aggregated state return.  Anyone else a little frustrated?

    0Reply
  • Mark S.Pro Member
    OP
    Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes
    7y

    I had an interesting and insightful conversation with my tax team recently about how AHP is reporting these "preferred returns" on the K-1 as "Guaranteed Payments."  What I didn't realize is that not only is this taxed as ordinary income (I knew that part), but it also triggers SELF-EMPLOYMENT taxes as well.  The issue is that, according to AHP Fund's Offering Statement (PDF p. 28 of 78), this seems to be reported incorrectly on the K-1s due to these payments not really being "Guaranteed Payments," but instead "Preferred Returns."

    Here are two excerpts from the offering statement on PDF p. 28 of 78: 

    How Much We Decide to Distribute: 
    To decide how much to distribute during any calendar quarter, we start with our revenues, which include the proceeds of sale and refinancing transactions as well as payments we receive from homeowners with respect to their mortgage loans. We then subtract our actual expenses, which include management fees, bank fees, appraisal costs, insurance, commissions, marketing costs, taxes, and legal and accounting fees. Finally, depending on the circumstances at the time, we decide how much should be held in reserve against future contingencies. The amount we distribute is therefore our revenue, minus our expenses, minus the reserve amount.

    No Guaranty
    We can only distribute as much money as we have. There is no guaranty that we will have enough money, after paying expenses, to distribute enough to pay a 12% annual return to Investors or even to return all of the invested capital.

    The second paragraph above "No Guaranty" to me, means that these distributions of preferred returns should not have been reported on the K-1s as "Guaranteed Payments," creating not-so-ideal tax implications for investors in the fund due to triggering self-employment taxes.  Has anyone else noticed this?  This seems that it will have a negative impact on all investors.

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    7y

    @Mark S.

    I am not an accountant but money taxed as ordinary income requires you to pay SE taxes.

    This is not something I see as “shady” by the sponsor. It is up to the investor to have their accountant and attorney review any PPM and operating agreement to understand the tax liability. My guess is that is stated in their documents.

    Note I have not invested in this fund so cannot comment on its performance - only discussing the topic notes above.

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  • Bob Malecki
    Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    Distributions from a regulation d fund like this should be treated as passive income and therefore not be exposed to self-employment tax. Since the distributions are from a preferred return they are not guaranteed payments. 

    1Reply
  • Mark S.Pro Member
    OP
    Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes
    7y

    @Chris Seveney, do you pay self-employment taxes on your interest income from money you have in savings that is also taxed as ordinary income?

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    7y

    @Mark S.

    I pay self employment taxes on myinterest income from mortgage notes because I am considered a “dealer” and am in the business. Every individual is different just as every venture may be different. Interest from a bank account is taxed differently than interest from a t-bond and different from a municipal bond.

    My point was related to always making sure you speak to your CPA to understand the investment and what impacts it will have on your taxes.

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  • Mark S.Pro Member
    OP
    Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes
    7y

    @Chris Seveney, understood.  My point is that the way these non-guaranteed, “preferred” returns on a passive note investing syndication are reported on K-1s for passive investors like myself where our money is at risk and the payments aren’t actually guaranteed appears to be reported incorrectly. 

    0Reply
  • Diane E.
    Murphy, TX · Member since 2014 · 20 posts · 21 votes
    7y

    @Mark S. , my take is that I think you're right that these shouldn't be reported as guaranteed payments.  

    Partnership guaranteed payments can be either for capital or services. Internal Revenue Code section 707(c) defines a guaranteed payment for capital as payments that are determined "without regard to the income of the partnership".  So, I would think your distributive share is more of a priority allocation of net profits, and I would expect to see K-1 Line 1 ordinary income reporting.  (This could potentially qualify your distributions as QBI -qualified business income - subject to a 20% deduction under 199A.  Guaranteed payments aren't eligible for QBI deductions.)  Also, I would want to see Line 14 SE shown as 0 no matter whether it's reported as Line 1 income or Line 4 guaranteed payments.

    Good luck in pursuing with AHP if you choose to go that route.  

    1Reply
  • Duke Giordano
    Investor · Passiveadvantage.com · Member since 2019 · 166 posts · 91 votes
    7y

    I thought this was treated as passive income "Box 1" on K1?  Does anyone have a redacted K1 from them or thier own they can show with blacked out info?  Box 1 on K1 should not be subject to SE tax as far as I know.

    0Reply
  • Amanda K.
    Los Angeles, CA · Member since 2016 · 29 posts · 9 votes
    6y

    Has anyone received their initial investment amount back? Or started to receive initial funds?

    2Reply
  • Paul Bommarito
    Rental Property Investor · Detroit, MI · Member since 2018 · 47 posts · 36 votes
    6y

    Has anyone else had a hard time communicating with AHP lately? I have had a couple emails now go without response for a few days, and am having a hard time reaching anyone when I call the support number.

    0Reply
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