Knowing Where You Stand With Homeowners

This is a business! Once you have acknowledged that note buying is indeed a business you can then proceed to a well written plan of action and successfully begin cash flowing. If you cannot grasp the concept however, your cash flow will suffer, to say the least. Simply admiring the shiny object is not going to get you anywhere.

If you want to keep your money moving, you have to stay focused on the real objectives and goals. As a note buyer it is your job to help homeowners find a solution to their financial mortgage crisis, yet the buyer shouldn’t forget to help themselves in the process. Can the homeowner afford to pay? Who says they can only pay that much? You can’t be sure unless you do a financial statement. Every note buyer should create a plan to communicate and request documentation from homeowners, and come to a mutual agreement on a financial plan them which will then be sent to management for approval. Documentation from the homeowners should include two (2) pay stubs, two (2) checking account statements, tax returns, and some savings account statements.

Sometimes it may seem difficult to tell what a homeowner’s affordability really is. However, in such cases, take the time to step back, reanalyze things, and thoroughly review all documentation, such as financial statements, supporting documents, etc. It is normal to want to give the homeowner the benefit of the doubt, but it should be within reason. In the second mortgage space, a note buyer should always check the senior lien status on both performing and nonperforming notes. In this instance, never ever take the borrower’s word that they are current; in this business you must trust and verify.

What if the note holder is ignored after continuous attempts at making contact by telephone and sending notices by mail? This will then lead to starting the legal process with demand letter, which initiates foreclosure. The end goal, of course, is not to foreclose. However, when the homeowner is not responding, it is a good idea to begin the process, and sooner rather than later. By initiating foreclosure, you are reinforcing to the homeowner that the lien is binding and enforceable. Do not think though that just because you took that step, the property will get foreclosed on. Less than 10% of deals actually go through the entire process, even though foreclosure is initiated on over half. This means that oftentimes, after coming to the realization that the note holder is enforcing the lien, the homeowner will pull through and the property won’t actually foreclose.

Therefore, make sure to know where you, as the note buyer, stands. Know the homeowner’s income versus their expenses. Ever hear of arrears? It is the legal term for the part of a debt that is overdue because of failure to meet payments in addition to late fees. One can only foreclose on a property if the payment due is at least three months in arrears. Some note holders prefer not to put arrears at the end of the loan on a modified payment plans, in order for the loan to still be considered in delinquency. When you agree to put the arrears payment on the back end of the loan, you can not foreclose because effectively the homeowner is current. And at this point there is nothing to do but wait an entire three months of delinquency, as opposed to one, to begin the legal process.