All Forum Posts by: Andy Mirza

@Tim S. I'm dealing with this issue as we speak. Unfortunately, our previous attorney didn't have any good advice and we were stuck in the position of advancing property taxes and paying for FPI. We then filed a PPFN for whatever we advanced. We would get paid back eventually but there was no pressure on the debtor since this amount is just added to whatever the trustee paid us for arrears.

Not only did we have to come up with capital to pay the advances, we had a less valuable loan because note buyers would ding us for this.

We switched attorneys. The new one suggested that we issue a Notice of Default to the Debtor. (Completely different than the NOD when you start a foreclosure.) In most BK 13 plans, the debtor agrees to pay for insurance and property taxes. If they do not do so, they're in default on their plan. We issued the NOD in October, 2020.

The "BK" NOD gives the debtor notice directly of the default and what he or she needs to do to cure the default. In our case, we indicated that the debtor owed us several thousand dollars for the back taxes and FPI. They weren't responsive after 14 days, so we filed a MFR.

The MFR was a tool to get the debtor to do something about geting caught up. Before the hearing the debtor's counsel finally contacted us about an Adequate Protection Order. For our part, we required that the debtor get her own insurance, establish an escrow account with our servicer and gave her 12 months to pay the advances. Debtor's counsel agreed so we pushed back the MFR to this month to let the debtor work on this.

The debtor provided proof of insurance so we got that knocked out. (The proof was from August, 2020; thanks for promptly letting us know!)

We know the debtor has contacted our servicer but she has not set an escrow account up yet. 

I expect that debtor's counsel will ask for an extension. We'll say no and go in front of the judge. I'm hoping that the judge will sympathize with us since we've been proactive in solving the problem and the debtor is dragging her feet. Who knows what the judge will rule but this is much more progress than we've had than the previous 2 years.

What are investors attitudes and processes when deciding on advancing property taxes?

Big banks advance property taxes on every asset (unless it falls through the cracks for some reason). Much simpler that way since they eliminate the risk of tax sale or penalties and late fees.

As a smaller investor that can pay more attention to individual assets, I consider more aspects than just the risk of the tax sale. Most tax sale situations require delinquent taxes for 2-5 years before someone can foreclose. 

Since most of our NPNs liquidate in less time than that, I've let taxes go delinquent knowing that I'd foreclose sooner than a tax sale would occur.

The main advantage is that it's essentially a loan I don't have to obtain that frees up my capital. This is especially true when the property sells at foreclosure sale. The delinquent taxes become the winning 3rd party bidder's problem.

If it becomes REO, I consider the penalties the interest I would have paid if I got a loan to pay the taxes. Sometimes this can be significant and it makes more sense to advance than to pay 20% plus in penalties.

The main risk of not advancing property taxes on a NPN is forgetting to redeem or pay taxes that become too delinquent and having the property go to tax sale.

The best way to mitigate this risk is to schedule a task to look up the tax status once a year on each NPN.

We have a liquidation model and don't plan to hold any of our notes long term at this time. We don't have a set criteria. We look up the addresses on google maps and make a quick judgement. If it's rural or remote, we don't spend more time looking at it. We buy in urban core, urban, suburban, and some exurban areas only.

@Chris Seveney Thanks for sharing! I'll be checking out some of what you use.

Coincidentally, I was working on optimizing SmartSheet this morning.

Asset Management and Overall Management- Smart Sheet

E-recording - CSC

Marketing - MailChimp

Data Storage - Egnyte (although we'll be moving to something else soon)

REO management- Pyramid

@Chris K. The best metric to use for what you're looking for is Internal Rate of Return (IRR). This will take appreciation and loan paydown into consideration when calculating an approximate annual return for your investment. It will also take into consideration your cash flows when they come in.

Your inputs are your general ledger entries. The first one will be the purchase price. The last one will be the net proceeds when you sell. Your regular cashflows will be all of the cashflows in between. For simplicity's sake, group them by year or month.

You can use a financial calculator but excel is quicker and easier. Research the =IRR and =XIRR functions.

@Chris Seveney Chris could you share which states you know of that are requiring forbearance for non-GSE loans? As far as I know, the states we have loans in don't have a mandatory requirement. I think CA might be one of those states but it only applied to delinquencies post-COVID where the borrower could prove it was related to COVID in some way.

Cook County is just starting to open things back up. We had to send a CARES Act letter out to the borrowers to advise them of what a covered person is. After 30 days, we can proceed with judgment.

@Alecia Bolton Nice goals!

When you mention raising $1.5 M and controlling $1.2 M in assets, it makes me think that your spend amount is $1.2 M and that you'll keep $300k in reserve. Is that what you meant?

When I think of Assets Under Management (AUM), I look at the value of the assets as opposed to what I had to spend to get them. To those I've spoken to in the industry, UPB is what one uses to value notes. Property market value is what I use to value REOs.

Since I'm buying notes at discounts, the AUM will be a lot more than the purchase price of those assets. In one sample of one of our note portfolios, AUM was 1.35x the purchase price. So, for me, I would project $1.62 M in AUM for $1.2 M spend.

(Not trying to critique your post! Just trying to understand :))

Interesting & pertinent questions since these get asked all of the time. There seems to "what you should do" or are "supposed to do" answers and then there are "what do people actually do."

From my experience, it seems that many brokers and note investors alike are not licensed. The consequences seem to depend on how aggressive states or regulatory agencies check compliance AND penalize non-compliance.

In GA, we've heard that the state aggressively seeks unlicensed note investors and forced a note investor to sell his whole portfolio. This was third hand info but enough that we decided to avoid GA.

I asked this question of a couple of attorneys in IL. The consensus was that the licensing laws were vague and that if our LLC was registered as a foreign LLC, we should have our bases covered. One attorney mentioned that he'd seen borrowers raise defenses against these two issues before. The plaintiffs resolved the issues by getting the proper licenses and/or registrations but the loans were still held as valid.

Generally, I would ask your foreclosing attorney in that state what he or she recommends and then weigh the risk/rewards like you do everything else.

@Ben Lake Chris provided outstanding and thorough advice.

I don't have experience brokering seller financed notes from their originators. However, from my experience marketing directly to property owners back in the day, I learned the importance of dealing with motivated sellers. Your seller doesn't seem motivated or is just plain difficult, either of which can be a deal killer. Motivated sellers typically are easy to work with. Based on what you've stated, in my opinion, I would move on to the next deal. 

@Chris Seveney Haha! Not worried about the running & biking. Just have to put in the time to train.

Right now, I'm more afraid of drowning. I never learned how to swim long distance so I'm focusing on doing that first. Once I get can do 60 laps in the pool non stop, I can move to open water. After that, the ocean. I have until September, 2021 before I have to do 1500 m in the ocean. Then, would come the biking and running. Tiring, indeed!