Note Investing - Amazing Stories

[Chris Seveney]

When investing in notes, we all have those deals which are “head scratchers”. Interesting to hear your story. I have many to share (including offering a non paying borrower who hadn’t paid for over a year a free house in exchange for her deed which she refused), but I will leave that one for another day.

My head scratcher was a borrower who had a $75,000 home and a $30,000 mortgage. The borrower was not paying and ended up with a clogged pipe. In lieu of calling a plumber he let the basement fill with water and moved across the street. When all was said and done by not calling and paying the $150 for a plumber to unclog the pipe it ended up costing him $45,000 in lost equity as the house was taken back.

The house was worth less than $30k because of all the damage. He lost all that equity which even if he continued to not pay and house was foreclosed upon he would of received the balance of equity

Goes to show common sense is not so common so expect anything in the note business.

What’s one of your stories?

[Don Konipol]

@Chris Seveney

Well Chris, the longer you're in this business the more self destructive crazy decisions you see. Back in 2001 I still lend to SFR fix n flippers. I lend $45k to a women who had purchased a 2200 square foot house in a gentrifying area for cash and had completed about half the rehab before running out of money. She used the loan to complete rehab, promptly put the home for sale, and received an offer of $180,000, her asking price. While in contract she stopped making payments to me, and after a couple months we filed foreclosure, which can be very quick in Texas. She files bankruptcy which is immediately rejected by the court as she is a serial filer and has been banned from filing for 5 years.

So, we foreclose on the home; it appears at the foreclosure sale that there is lots of bidder interest which of course means that the winning bid will go far above what we’re owed and the borrower will be receiving a large amount of money equal to the overage. About 10 minutes before the auction starts the borrower appears wearing a sandwich board proclaiming that our trustee sale is illegal and anyone bidding will go to jail. She’s also yelling same and threatening retribution and physical violence against anyone bidding at the sale. No body bids except us so we get title.

The next day while I’m at the house a couple stops by and tells me they had a contract with the owner to purchase. I tell them we foreclosed and ask what happened to the purchase contract. They tell me that the property appraised for $170k, they could only get financing based on appraisal, and did not have the money to make up the difference. I promptly accepted $170k, and closed in 2 weeks. The borrower lost $125,000 cash because she wouldn’t accept $170k, she insisted on $180k.

Amazingly, the borrower contacts me 6 months later requesting financing for another property. When I ask her why she left $125,000 lying on the ground and didn’t pick it up she told me that the buyers were just trying to take advantage of her situation and she wouldn’t be taken advantage of.

Well, needless to say I passed on further financing. As luck would have it I’m visiting a realtor friend of mine at his office some time later and we hear a commotion outside. We go outside to see and find that the subject borrower is being evicted from a property she owns and has chained herself to a light pole on the property as the constable is trying to evict her. She yelling about this being an illegal eviction and how anyone involved with the eviction will go to jail.

I no longer lend on residential property.