All Forum Posts by: Daniel E.

As-is value of property is $100k based on a 2018 BPO ( Zillow @ $105k - this is a real value, no low value sales in area).

Borrower is unresponsive and the asset has been abandoned in by the Chapter 7 bankruptcy. They have no foreclosure defense. Foreclosure started with anticipated sale date of April 2019. 

Total UPB: $54,000

Total Payoff: $101,000

Will sell the note for $45,000.

Also will put the asset under contract and sell with clean title after the foreclosure for $65,000 (approximately April 2019).

Please message for address. 

I see this question come up quite often: How do I actually price / value a non-performing note? How much should I pay for "x" NPN?

Usually, people respond and ask for more details because of the various potential outcomes based on (among other items) collateral value, outstanding balance, and historical performance.

My expertise in is valuing non-performing notes, where I have acquired (either directly or through a Fund) $900MM+ in NPN's secured by everything from small SFR's to $100MM commercial real estate assets.

For my own portfolio acquisitions I have developed a model that, with a few simple inputs, shows you the main scenarios and your anticipated profits (given a purchase price). It is flexible enough to manage your deal post-acquisition to understand where you are operating at all times. It analyzes the various outcomes (borrower files chapter 7, chapter 13, accepts a DIL, short sale, foreclosure, re-performs and others) and focuses on assessing downside risk. 

It can be used to purchase 1 loan or 1,000 loans, however, at this point, is only suited for:

1) small-balance loans

2) LTV 85%+

3) Non-performing for min 6 months

For those in the seminar business:

How big is the market for something like this?

What is a fair price to charge for access to and training for use of the model? 

It is worth pursuing to make it available to the public?

I will point out that with NPN's, what you model pre-purchase and what actually happens tends to be quite different. You can only do what you can before a purchase. But with the right methodology, you can at least understand where you might be in the various scenarios -- and buy right.

https://www.atgf.com/tools-publications/pubs/deeds...

This article basically states what I am thinking, including the key to not merge interests. 

A lender should also hesitate before accepting a lieu deed where there are outstanding subordinate liens or judgments against the property. In such a situation, the lender will have to foreclose its mortgage, with the attendant expense and time involved to obtain clear title. Even if the debtor promises to remove subordinate liens and encumbrances prior to transfer of the property, he/she may not be able to do so, especially where there are numerous liens or judgments outstanding. Such matters are often outside the lender's control, and title matters must be cleared quickly in order to close the transaction expeditiously. 

The lender must also be careful in this situation that the lieu deed is structured in a manner that will not result in merging the mortgage lien with title to the property upon consummation of the transaction, thereby preventing the lender from foreclosing subordinate liens. 

Very confused here.

You can use a deed in lieu to just transfer the owners interest. You release them from the note and they cannot bring up any argument in the foreclosure. They have only given you the deed, not satisfied the mortgage. 

Just like a relinquishment in a chapter 7 bankruptcy, the note is foregiven but you still retain all rights to the mortgage. 

So you still have a valid mortgage and still foreclose for clear title.

I am not a lawyer but you can foreclosure after a DIL and receive clear tile. 

@Dan Deppen

UPB is ~$55k, legal balance with interest, etc. is ~$90k.

Have a small property with a $95k ARV. Purchased the note for $15k. There are approximately $10k in delinquent taxes. Property will need ~$15k in work to achieve the ARV.

Owner really wants to stay and can (with a BIG maybe) afford a small payment ($500/mo). Unfortunately, the taxes are so delinquent (10 years) that almost all of the payment would go to any payment plant They also cannot afford insurance, so the net would be a very small amount.

Are there any creative strategies out there to workout a small SFR like this? If it wasn't for the taxes, this could be a good re-performing deal.

Any thoughts are appreciated!

Deleted

@Andy Mirza

@Bob Malecki

Agreed- you cannot 1031 short sale proceeds, discounted payoff, etc.

However, after the foreclosure sale and the property is now owned free and clear, isn't it considered real property?

Ag

Appreciate all of the responses. As the foreclosing lender, can you 1031 your profits to purchase another note?

I liekly just need to find a good CPA.

Any recommendations for a CPA that understands an individual investor's note/non-performing business? 

I imagine there are some very specific tax strategies for non-performing note investors. 

For example, if you purchase a $500k legal balance (unpaid principal + accrued interest/fees) for $200k, then rehab and sell the property for $300k, can you write off the uncollected $200k (the $500k - $300k difference i.e. not pay taxes on your profits, as on paper as the lender, it is a "loss")?

What strategies exist? Thank you in advance!