All Forum Posts by: Andy Mirza

Full time Note investor.

Our management company is Coastline Capital Fund Management, LLC, which is the managing member and sponsor of all of our Funds.

Our Funds are set up as LLCs, where the investors are Preferred Members. Each Fund owns a pool of NPNs/Converted REOs that is separate from the assets of the other Funds.

Our Funds are focused on liquidation of first position loans. We don't have any 2nds, which involves a completely different business model. We like to focus on our strengths and stick to what we're best at.

@Peter Walther Yes, there was risk and I know it's not for everyone. My point is that you have to do the research to understand if it's worth the risk of taking on something without title insurance.

@Peter Walther We bought a non performing note in which the originator did not get title insurance. Back in the loosy goosy days of 2005, one of the big banks originated first position HELOCs, did some title work, and called it a day. I suspect that they expected to keep the HELOCs in house or just wanted to save money on paying premiums to outside companies.

The exact scenario played out where their HELOC (refinance) paid off two prior loans but there were never any reconveyances recorded. Before we bought the loan, we saw that a Quiet Title Action was being initiated to clear those prior liens.

No title company would insure this loan as of the date of origination. It's like trying to get car insurance after you get into an accident.

We did our research and decided that title would be cleared with the Quiet Title Action at an additional cost of $5k-$10k. The big bank note holders before us let this languish for 9 years without solving the issues. We bought the loan, resolved the issues, and foreclosed within a year. We sold the REO and did very well on it.

@Peter Walther I can think of a situation where buying a note w/o title insurance is a calculated risk and not a dumb thing at all. 

To avoid hijacking this thread, I started another discussion on lender's title policies.

(I wanted to start this thread separately to avoid hijacking another thread where this subject came up. The topic is important enough to warrant further discussion.)

As @Tracy Z. Rewey pointed out, there's a huge difference between getting back a clean title report and having an actual lender's title insurance policy. Before acquiring a note, you should know if there's an existing lender's title insurance policy on it. Not only does it affect the value of the note you intend to buy and hence the amount you should be paying for it, the lack of a lender's policy means that you're taking all the risk if there are title issues that can come back to haunt you.

In a way, it's similar to having car insurance. You can save the money on premiums but run the risk of having to pay for everything in case things go wrong. 

What kind of things can go wrong?

Once common issue I see are previous loans that never get properly reconveyed in a refinance or purchase transaction. 

Example: A seller sells his home to a buyer. Buyer gets a new loan to pay for the house. Seller's loan gets paid off during escrow. Normal transaction, right? Well, what if the seller's loan never recorded a reconveyance or release of lien? 

In our world, if you wanted to buy the buyer's loan and title still showed the seller's loan on title, there's a big issue. The buyer's loan is actually a 2nd and not a 1st, until proven otherwise. Whoever owns the buyer's loan can't sell their loan until this issue is taken care of. If they can't locate the recorded or unrecorded reconveyance, their next course of action would be to file a claim with their title insurance company.

Now, it would be up to the title company to clear up the title issue. In this situation, they would most likely do the research & track down the missing document. If they couldn't locate it, they would find proof of payment on the payoff & get another document executed by the appropriate party and record that to release the lien.

If there was something fraudulent involved and the seller's loan actually never got paid off, the title company might pay the buyer's lender the face amount of the loan. (We actually have a situation exactly like this with one of our NPNs.)

Personally, I'll pay the premium instead of risking the entire amount of my investment.....

@Tracy Z. Rewey You were probably accused of being "old school" by someone trying to convince you to buy paper without a title policy because they wanted to close their deal without any added expense or hassle. To me, that's not "old school." That should be common sense and a trusted counter party shouldn't give you any crap for it!

@Tracy Z. Rewey Just wanted to add to what you wrote about title insurance.

During due diligence, we always check that the loan had a lender's title insurance policy issued when the loan closed. We need to see the title policy with the policy number. If it was just a commitment for title insurance, we dig deeper to make sure the policy was actually issued.

If it was not,  we look into how much getting a title insurance policy that covers the loan prior to the date of closing costs. Usually this is not an issue and the price is reasonable. If it were an issue, then that would be a huge red flag and we'd drop that loan from the trade.

I would not buy a loan that could not qualify to get a lender's policy after the fact and you'd have a hard time finding someone willing to buy it from you. In that situation, your loan is less valuable and you run the risk of dealing with any potential issues yourself without a title insurance company to back you up.

Definitely talk to your CPA and get their recommendation.

As Chris pointed out, the interest portion would be taxable whereas the principal and refunds on your advances would not be.

@Dan Nguyen Familiarity with Ch 13 and 7 bankruptcies, how some borrowers abuse the system, and how to defend against those borrowers, are key parts of my business model. I can act smarter and more quickly than big banks resulting in far shorter liquidation timelines.

One point of contact that handles all of my loans.

Has a loss mitigation team that is motivated by the correct incentives (extra pay for certain outcomes) to make legitimate attempts to proactively resolve defaults with the borrower. What we have now is a servicer that just goes through the motions and thinks that extra calls to the borrower are loss mit.

I actually found a servicer who seems to fit that bill but we're not big enough for them yet.