All Forum Posts by: Doug Smith

@nate

@Nate Crump regarding a license, you need one is some States, in others you don't. Like @Account Closed , we buy quite a few notes, and some States we avoid due to licensing issues. For instance, Georgia requires a license if you are buying or selling a note on a homestead. Like @Tom Goans said, make sure you listen to your lawyer, but I've found that lawyers often struggle with the note business. Couple your own due diligence with advice from your lawyer. People on BP can be helpful, but often they give bad advice, particularly in the note game. I've worked with loans for over 20 years and I learn every day, but often I read a post that sends me off to do research. Good luck!

Underwriters are actually employees of the bank or lender who is actually funding the loan. The underwriter is simply the decision maker on the loan. Mortgage Brokers have to submit the loan application to the lender's underwriting department. Since brokers don't fund, the actual lender is the one that employs the underwriting team. Banks have their own underwriting departments internally. To ensure that the loan can be sold, it must conform to the GSE's guidelines, but the decision belongs to the bank or lender. In a nutshell, a broker is reliant on someone else's decision maker. Banks or Lenders make the decision. If their loan isn't conforming, it is still a valid loan, it just may not be backed by the GSE and might not be marketable. If you are dealing with a Bank or Lender, they may use the words "the underwriter won't sign off", but the underwriter actual does work for the bank/lender. Hope that helps.

The guys above are right. It's a question we face every day when we are buying for our portfolios. There are many, many factors that enter into the pricing of a NPN. Seldom do two experienced professionals come to the same conclusion.

Keep in mind that the time value of money is going to come into play heavily on your decision with NPNs. In my home State of Florida, a foreclosure can take up to two years, where in a Deed Theory State, such as NC, MO, or VA, the process can be 60 to 90 days.

Borrower intent also plays a big role. Is there evidence in the file that the borrower might be willing to do a deed in lieu of foreclosure, such as a listing agreement with a realtor and a request to consider a short sale, or is the evidence that the borrower wishes to fight you in the process.

What about the title work and back taxes? If there are several judgements and liens against the property, you may have to foreclose or spend more money settling out all of those items even with a helpful borrower. Back taxes can actually enter into your favor as you can typically discount out your offer price to compensate, but you'll often be able to wait to pay them until you sell the property later on pushing your cash on cash yield higher.

The bottom line is that one can't simply use a catch-all math formula to come to a price. Start with your quick-sale value (one that you think it the quick-sale...don't take what the BPO says as gospel), back off realtor commissions on the sale, legal costs for the foreclosure, taxes, the time value of money, liens/judgments, maintenance costs (lawn mowing, etc) and, if you are going to swing a hammer and rehab, calculate all of that in too. Remember to factor in your required profit.

I've been seeing an uptick on the asking prices for NPNs over the last several weeks. Stick with your model, don't deviate, and don't overpay for the NPN. If it isn't a deal that makes sense, walk. You'll do well. Let me know if you have any questions or you want to bounce ideas off of me. I'm always happy to help.

I'm hoping I can get some great recommendations for real estate agents with strong REO backgrounds in a few areas where we have REO but no established relationships. We are a private equity firm that manages 4 funds, all of which buy distressed real estate notes, work through the issues, and, if we get the REO back, we sell the REO off. For the most part, we have strong relationships in most areas, but I have current or upcoming REO in some areas that I can use some introductions. The areas are Milwaukee, WI; Wabash, IN; Mansfield, OH; South Bend, IN; and Schenectady, NY. You can e-mail me privately or openly post. I can certainly use recommendations of good, quality agents to help dispose of REO for us. Thanks for the help.

Hello Justin,

I would certainly put in a balloon feature of no more than 5 years on the note...particularly if you are fixing the interest rate. I spent 20 years of my career lending for banks, and interest rate risk is something that you, just like to banks, should consider. Look back 10, 15, or even 20 years and see how interest rates have changed over that time. We are in a very low interest rate environment, so 8% might sound great today, but if interest rates rise, you might be kicking yourself 10 years down the road. You can always refinance in 5 years if you wish at a new interest rate, but you won't be able to if you offer a long term fixed rate. FNMA mortgages derive funding from different sources that can get away with long terms on long amoritizations. You, like commercial banks, don't have that luxury.

Another thing to think of is the rate you charge. 8% is pretty reasonable, but don't go to low when you seller finance. In your model, you want them to refinance as quickly as possible to push your yield skyward. Consider adding a ".9" to the end, like the grocery stores do. I've found that 8% and 8.9% seem the same to a borrower. If you can charge a point or two up front on the note, that would also juice the yields. Just make sure to stay within local usury laws and have the note's professionally prepared.

Let me know if you ever need to bounce ideas off of me. I'm always happy to help.

Doug

Andy, Thanks so much for your service. I think I speak for most of us when we say we appreciate all you've sacrificed for us.

We only buy real estate notes, not direct real estate, but we've been really pleased with what we've gotten in the KC market. The available notes have been on properties in a "sweet spot" for investment purposes ($40k to $80K in value) and the foreclosure laws in MO have been easy to navigate. I think you will like doing RE investment there! Good luck in the market and thanks again for your service!

The other folks are right, doing a quit claim doesn't stop the process. A lot of the larger foreclosure mills often decide to stop foreclosure for one reason or another. Perhaps they feel the property value vs the cost of taking the property back (maintenance, back taxes, etc) isn't worth it. Other times its just because they are overwhelmed with deals to work through. We often see lenders file a lis pendens to start the foreclosure process only to abandon it at some point. It's actually more common that you might think. IL is a tough State to foreclose in. Although I grew up downstate and still have most of my family there, the foreclosure laws make it cost-prohibitive for it to be a focus. That being said, a quit claim itself shouldn't really stop the process.

Good luck with the new venture. I found that my career didn't really take off until I was open to let mentors give me advice. I came into the non-performing note world with a 20 year background in lending. My base-knowledge was great, but I needed the advice from experts that helped me avoid pitfalls. It didn't happen over night. It took time and expensive lessons. I ended up partnering with a guy with a strong private equity/real estate background that owned a National title company that helped me with areas of weakness...and conversely I helped him. Together we were able to do things that we could have never done separately. If I could give you any advice, find the right mentor(s) to help you along the journey. It seems you have a unique background and skill-set that you can bring to the table. Take your time to find out what you are really great at in the business, surround yourself with the right mentors/partners, and don't be afraid to ask for help. Be open to the advice you get while making sure you do the best thing for you. Good luck and let me know if you ever want to chat. I always enjoy learning from others while they learn from me.

I wish we did business in TX. We love having "pocket investors" that look for our REO. One challenge that we find as a holder of non-performing notes is it is difficult to find good, reliable, real buyers for REO. We would much prefer having several investors on hand that we know can actually buy when REO hits the portfolio. I would reach out to some of the sub-servicers and let them know what you are looking for. We do our foreclosure work in house, but most note holders use subservicers. It is a topic that can go on for days. If you would like to reach out I would be happy to schedule a call and let you pick my brain a bit.

To say that someone is "overly dramatic" on here is bad form. The poster was asking a question about a transaction in which he would breach a contract...in this case the note and mortgage. I think I answered this members question quite factually. The minute we discover that someone has assumed one of our notes without our permission, we'll call the note based on the due on sale clause. Virginia is a State that we do business in and it is a quick foreclosure State. It takes about 90 days to foreclose and it has no right of redemption. I'll also make sure to go after attorney fees. Some servicers may not be efficient, but the premise is still the same. There is a huge risk in assuming a loan without lender permission.