All Forum Posts by: Andy Mirza

Many times, not always, lower balance loans are on lower value valued properties, which have lower quality borrowers with a higher chance of failing. To pursue collections in those cases requires time & effort, which could have been better spent on a higher balance loan with more there to collect. 

As Chad mentioned, higher servicing fees take a bite out of your returns. If the note goes non performing, your foreclosure fees represent a bigger percentage compared to the market value of the property. FC fees, for example, might typically run $5k-$10k in a certain state whether the balance is $10k or $500k.

Also, when taking a property back as REO, you have almost the same fixed cost of doing a $10k-$20k minimum rehab on properties in the $20k-$150k range.

@Dan Nguyen I misunderstood what you meant by BRRRR. I thought you meant: buy NPN with your own money and then refinance the note purchase using the note as collateral with bank or institutional money. Then go out and buy more notes.

Yes, you can BRRRR if you mean buy a note, foreclose, take the property as REO, and take your money out by refinancing the property.

This should only be one exit of a multi exit strategy business model. Some RE investors have it in their heads that buying NPNs is the same as buying RE. This is a mistake. You're buying a loan and the borrower has rights under the loan agreement, which conflict with the mentality of "I'm just going to foreclose and take the property." 

What the borrower does is outside of an investor's control and can greatly affect timelines. You might think you're about to liquidate an asset at foreclosure sale when the borrower files Ch 13 BK on you and extends your timeline out by 5 years. 

@Chris Seveney Interesting strategy to get people to pay their taxes. In reality, does that end up causing problems like this, where the owner of record is out of the picture and someone else is holding on to an unrecorded deed to the property?

What's the best strategy for the OP? I would tend towards the "forget about it and rest well." The OP recovered his investment and should be out of it but the property hasn't transferred to the new owner because of this recording restriction. What further liability really is there? (Again, just my thoughts and opinion. I'm not familiar with MI law or this situation.)

@Dan Nguyen The deals for underwater NPNs come when you find an information differential on property value. If the seller thinks the property is worth $100k but your research shows it's worth $150k, he might accept your $75k offer, which is 75% ITV according to him instead of the 50% that you're actually getting it for.

Also, BRRR is much more difficult to accomplish with notes. Not may lenders out there willing to lend on notes.

My partner and I buy mostly from the same Funds because of ease of doing business. I can't say if small banks and credit unions are willing to sell at steeper discounts but I suspect not. As a general rule, most people trading loans are aware of the going market rate for loans. Unless there is a specific reason that's out of the ordinary, most banks and hedge funds are trying to get the most they can get.

I've seen one smaller regional bank willing to take more of a discount because the pool they bought had a couple of rezi loans and they were focused on the rest of the commercial loans which is what they really wanted.

@Mike Mitchell I'm not familiar with MI laws so this just a guess. Have you thought about recording a Quitclaim Deed? This is one way of declaring that you have no further interest in the property and that it's transferred to the grantee.

The best answer to your question though would be from a MI RE attorney.

@Steve Morris That's exactly what we're talking about here. In order to enforce that clause, you need to get a signed order from a judge. When a borrower defaults, the rents don't magically transfer to your bank account.

Most notes these days include the requirement that an escrow account be established to pay for property taxes and insurance. I've encountered several notes from the early 2000s that have no escrow or are only escrowed for insurance and not property taxes. 

Also, unless you make arrangements otherwise, servicers such as FCI will not advance escrows. If you have a NPN and you don't advance escrows, they will cancel the account.

This is similar to another post about advancing property taxes for NPNs with a few differences.

We will make advances for escrow accounts for owner occupied loans, in which the borrower may file Ch 13 Bankruptcy. Keeping the escrow account active makes it a lot easier to collect your advances in a BK. 

The servicer will do an escrow analysis once a year and include any escrow shortages which you advanced. As the borrower makes payments, the servicer will refund you the advances that you made out of the escrow account.

If the account is not escrowed, you have to do a lot of work to get the borrower to pay for property taxes and insurance if they're not doing so on their own. 

@Ian Green Sorry to hear about that first situation. I'll definitely keep that in mind when dealing with HOAs.

Moving the case forward is our top priority in getting the Assignment of Rents. In our case, we took away the main reason why the borrower would file BK by depriving him of the ability to skim rents.

Plus, we get a headstart on dealing with the occupants. We can deal with them now as opposed to waiting for the sheriff's sale and confirmation hearing.