The first note I purchased is turning into a joyride

13 Replies

So I’m new in the world of Notes but I feel the fog is starting to lift. The first one I purchased was supposedly a performing modified note in BK. Turns out the owners are deceased and the person who is claiming to be the owner is a relative and did not receive the house in probate. The mortgage is non assignable. So she has no business claiming it in BK and she had no business negotiating with previous lender on a modification. I bought this as a performing one (or so I thought) as I wanted to ease into this. But Ce la vie. But I’m learning and I’m cool with it all. It’s led me to a lawyer I’m very comfortable with. An insurance agent as I need to place forced insurance on it that I’m very happy with (and has been helpful overall about the business) and the servicer has been helpful. So those on the fence, it’s not for the faint of heart but jump in the water is warm :) Have a nice weekend everyone
Originally posted by @Daria B. :

@Robert Beryl

How was it in the due diligence none of this was found out?

Well apparently I didn’t do enough of it and or I did it wrong. I probably should have learned more before I bid but you know the old paralysis by analysis; so I jumped in and can’t say I regret it. I should say I had a bid on 5 assets approved and after DD I narrowed it down to this one. 

It did have someone helping me but, well here I am. I can weep and moan or learn and move forward. Just glad I used my own funds as if and when I’m ready to take on investors I don’t want to learn on their money. 

Originally posted by @Robert Beryl :
Originally posted by @Daria B.:

@Robert Beryl

How was it in the due diligence none of this was found out?

Well apparently I didn’t do enough of it and or I did it wrong. I probably should have learned more before I bid but you know the old paralysis by analysis; so I jumped in and can’t say I regret it. I should say I had a bid on 5 assets approved and after DD I narrowed it down to this one. 

It did have someone helping me but, well here I am. I can weep and moan or learn and move forward. Just glad I used my own funds as if and when I’m ready to take on investors I don’t want to learn on their money. 

Ok I see. Good luck. I’m sure you have noted this in your DD for next time. It’s a never ending learning of what to look for and what to do.

Local here in FL? Foreclosure started?

@Wayne Brooks no it’s in Jacksonville. Foreclosure hasn’t started yet as I just found all this out a few days ago. My attorney is in contact with the person living there’s attorney. The person there doesn’t want to go so we told them our cash price. Her attorney was going to discuss this with her and get back to us.

My attorney emailed the lawyer again the next day (this past Friday) and we will get a game plan on Monday. If it does come to foreclosure, there’s nobody to contest it as like I said the borrowers are deceased.

@Robert Beryl I think the first thing to learn from this is reperforming means not much.. 50% 0r more that reperform you will foreclose on shortly ... once people go down that rabit hole they tend to do it again.. so when your buying a reperormer price it like a NPN.. at least I would.

only performing note that I would buy priced as performing is one that never had a default. or much or any lates..

Wouldn't death certificates cause the foreclosure to go pretty fast?  I guess the whole process must still run out in a judicial state though.  I'd guess that you would then have to start eviction proceedings to remove the 'tenant with no ability to prove a lease'.

Originally posted by @Jay Hinrichs :

@Robert Beryl I think the first thing to learn from this is reperforming means not much.. 50% 0r more that reperform you will foreclose on shortly ... once people go down that rabit hole they tend to do it again.. so when your buying a reperormer price it like a NPN.. at least

 Jay you're entitled to your opinion but what is this made up stat that people will foreclose on 50% of reperformers?

Can anyone on this forum say they've even come close to this number?

Good information here.

I wanted to add some thoughts to this thread. Re-performing notes can be a wonderful asset to own when the initial modification is handled correctly. 

We create modifications and purchase re-performing notes on a regular basis. While borrowers certainly can slip back into default, much of this depends on how the modification was initially handled.

Issues that set the borrower(s) up for failure are things like:

- Forcing them into a payment they cannot afford long-term.

- Failing to review their financial application and create a payment that makes financial sense for them. 

- Not getting a down payment from them at time of modification.

- Setting up the modification with a large balloon payment due at a future date.

- Setting an unrealistically high interest rate with the hopes of forcing them into a refinance in the future.

There is a bit more nuance to creating sustainable modifications, and I think this should be judged on a case-by-case basis. Much of this depends on the borrowers situation. The idea that someone fell on hard times once, and is now a repeat offender is not the norm in real life. I have not seen a reliable statistic of the re-default rate, as much of this depends on the above information. 

I can say that my experience has been less than 5%. Results may vary depending on the type of loans you buy and the overall profile of the borrower(s). I am certainly not implying all mods work out, as this is not the case. However when done correctly they can be great assets to own long-term.

- Josh

@Patrick Desjardins   this is based on my personal experience of doing probably 100 plus of these.

they all started off great but this was in PDX so other areas may be different.. only 2 ever paid us off.

and more than 50% of mine defaulted within 24 months.

but we were not dealing with low value assets.. so I can see if you have super low payments .. or something like that.. but that is my personal experience..

on the flip side on our performing notes that get set up correctly from the beginning default is virtually non existent.. but no one in the note business has zero defaults. that is for sure.

I think this new scheme of grabbing NPN getting them paying for 6 months then call them performing and reselling them like they are performing is high risk.. but that's my take on it.

@Abel Teklu Thanks Abel. Well for next time for one I found a law firm that will go through the collateral file; they without a doubt would have caught this.

Further, honestly the seller was being a bit pushy to get this funded and though I take full responsibility as nobody had a gun to my head, if I don’t understand something clearly no money will be sent.

I saw the bankruptcy paperwork but didn’t fully understand it. Really I just feel I have a better grasp on this, and I definitely have a better understanding of what to look for.

So you have a non contested foreclosure guaranteed. Congratulations with that. 

Getting possession of the property in one piece & free of occupants is a whole other mission. 

Join the Largest Real Estate Investing Community

Basic membership is free, forever.