All Forum Posts by: Dion DePaoli

@Court Cardinal

Lying about a Servicing Transfer is not something that should be entertained in the slightest bit. Regulation X governs the notice a borrower gets when servicing or the mortgagee changes. Reg X is overseen by HUD. Proper disclosure and information delivered to a Borrower is a bit of a hot button for them.

The boarding of a loan to a servicer does not call for an assignment of the deed of trust nor an endorsement of the note. So technically the OP's name will still be on it.

@Bill Gulley , I hear you and I understand what you are saying. I am familiar with the definitions of investors, no need to go there. Not interested in hijacking the thread on this topic. If you want to open a thread under your points, happy to contribute to that one.

The two references you made seemed to be shaded with a derogatory tone for some reason which I didn't really understand so I fired back. Perhaps they were not meant that way but the second one enforced the idea. I just didn't think that tone was properly placed.

@Bill Gulley

By now I am certainly aware of your stance on the matter. We do not see eye to eye on the matter. I won't throw stones at you on the matter and I sort of expect the same. You know, a little more professional conduct. Express your concern so that any reader can understand the risks they face according to you and your experience, that is fine, and I will do the same, but let's not have these pseudo personal attacks when these questions come up. It's not becoming of either of us.

Thanks

DD

@Bryce Y.

You can add them to the title of the property and then get a loan, that is no problem. They may be required to sign off recognizing the senior interests granted to the lender and may not be required to be on the loan. So they sign title but not the note however they acknowledge the mortgage. Not uncommon.

You would want to add them to title before you refinance conventionally otherwise post refinance you are tripping over due on sale, conveying interest in the property subject to the mortgage. Some lenders will not worry too much about adding someone to title as it may be perceived as adding someone else to help make sure the debt service occurs. If you remove yourself in the process, the view will be different. If this ever pops up, no harm in asking the mortgagee.

You kicking in $7.5 does not change anything. If you pull more than 2% from the property with a lien then they likely will call it cash out when you refinance, you simply cashed out before getting the loan.

Different lenders will have slightly different rules so it is worth chatting up some about the situation. Explain what you are trying to accomplish and see if they give you some guidance.

The idea implied is not completely true. Lenders want to recover the money that is or was lent out. They want to recover as much as possible and reduce their loss as much as possible. There is no mandate to take a loss by selling the note at a discount. Just because foreclosure is imminent does not mean a note trade will follow since in certain situations the loss can be minimized or completely avoided through foreclosure with no note sale. Not to mention foreclosure alternatives.

In the idea here in this thread, on an asset with equity, not too many mortgagees would sell that note for any type of a discount since there seems to be enough equity to collect the entire balance due, along with interest, fees and advances through the foreclosure.

Yes, a mortgagee can sell their asset to a counter-party of their choosing and the borrower has no say in the matter. However, certain restrictions actually do apply related to servicing guaranteed and insured loans (FHA & VA as examples). Additionally, a large commercial bank such as BOA will look to what counter-party risk they may have which may be a barrier as well. BOA selling you a note which you improperly try and collect on may result in BOA getting sued since they have bigger pockets than you.

I am pretty good with the facts.

@Albert Bui curious if you can clear up an idea here.

If the borrower is purchasing a NOO property with no other real estate owned. Typically that is actually underwritten like a primary residence and the full burden of debt service is to be used with no offsetting rents. That is in accordance to Fannie/Freddie guidelines from what I remember.

Perhaps your program is a portfolio loan then?

Sorry, missed the note insurance idea.

There is ownership endorsements you can get from a title insurance company which insures your chain of ownership. That doesn't deal with defects.

There can be provisions in the purchase and sale agreement you use which help safe guard against some types of defects. But again, the defect to some degree is innate in distressed loans sold at a discount. The PSA will call for the buyer to purchase based on their own due diligence and assume the risks for many defects.

Going too far down this specific topic would be a whole new thread.

@Nick B.

Let's review:

• A newbie should not buy a non-performing note as the risks greatly outweigh rewards: the note may be fake, the borrower may sue after FC, etc.

I would not expressly say this is the conclusion. Risk is personal and some investors are comfortable with the risks for NPN's and some are not. Unfortunately we live in a world governed by Caveat Emptor ("Buyer Beware"), so due diligence is always required. Due diligence is your first line of defense against loosing money for various reasons. Just like any other asset class.

Any asset that is purchased correctly, based on the proper due diligence, a sound investment strategy and sound disposition strategy which then is managed properly will result in a higher likeliness of profitability. Certainly unforeseen expenses can occur which erode the profits. Predictability of events is knowledge gain from experience and advisory sources. Again, just like any other asset class.

A borrower can sue you and so can your neighbor. Don't do things improperly which create and increase this risk. This asset class is not different than normal life. Certainly, knowing what you don't know at this point helps to keep you away from risky situations which can cause harm.

• Deep discount does not mean a good deal as it may be a sign that the seller just want to get out of a bad note and salvage whatever they could.

Yes. However, this could also be a niche mentality for investors to work on. Just like REI rehabbers have specialties. A rehab guy needs to know his stuff just like a note guy. In my analogy here both can be pretty profitable since they take the less desired asset and turn it around to make it a winner. When you deal with things that everyone wants or desires the room is crowded and prices go up, the opposite is also true.

To some degree, investing in NPN's in and of itself is dealing with problems. So you have to have a knack for the ability no matter what. Borrowers do not go into default by making payments and everything proceeding to plan according the note.

• Foreclosure is not as easy as some may suggest and should be generally avoided and only used as a measure of last resort.

Foreclosure can be complex or straight forward. Sort of is what it is. Not sure I would call it last resort since foreclosure is simply the remedy provided for in the documents. That said, the point of loaning money is to be paid back, not end up having to foreclose.

• Having deep pockets is a must when dealing with non-performing notes. Not sure about performing ones. Maybe not so deep pockets are OK there.

NPN's will cost more money than simply the purchase price. Sometimes unforeseen expenses and extended time can really drain capital. PN's do not have this same issue since the borrower is maintaining their obligation everything is being paid by them. Advances are not needed and legal maneuvers are not needed. As such, PN's will cost more and returns will be less as they are perceived as less risky investments than NPN's.

• Only buy notes from reputable brokers who have proper licensing.

You do not buy notes from brokers per se. Just like you do not buy property from a listing agent in REI. Only an owner of something can sell you that something. Never buy through a broker with no direct contact with a Seller. Reputable brokers will transact in a proper manner. Always look out for your own interests no matter who you deal with.

• Implementation of Dodd-Frank is a big unknown and it is better to wait and see.

Some ideas will mature. I would not refer to it as a big unknown since the rule is written and CFPB has commentary around it. Any loan investors needs to understand all regulations not just DF. Reg Z, Reg X. RESPA, list goes on. They are a part of the industry so you can't ignore them.

Well, I need to add one more idea to this too. Sometimes if the proceeds from the second lien are not from the original purchase they may simply consider it cash out to refinance the loan. Some lenders may relax the idea as long as the funds went into the subject property, which they will force you to prove it. If they did not go into the subject property for say rehab or an addition, then they will treat it as cash out. You simply cashed out prior to the refinance.

With the family member thing, they will likely want to make sure no funds from the refinance go back to the borrower. Like trying to use a portion of the proceeds as early disbursement of profits to everyone.

Some portfolio lender's may have different versions of this so you may still want to ask around. Since it is a family member in second and first, you may simply think of getting the loan and adding them to title with a side agreement of how they get paid back. There are several ways to convert their debt into equity if that is feasible for all of you and some things may be eaiser to go do.

Pre-Foreclosure?

The deed transfer will be subject to the mortgage unless the mortgagee allows you to assume (formal permission and approval required) the loan. Most loans are not assumable. 'Subject To' will mean your interests are inferior to the Mortgagee's interest (Lender). They can foreclose over top of you.

Taking the property Subject To and bring the account current or reinstating the borrower's account could stay the foreclosure. You may have to pay a large sum of money to do so if not the entire amount due under the note. The borrower can inquire with the Mortgagee to find out what it would take and could also ask about assumption.

You did not mention if the home has equity or not. If the home has equity, then simply purchase the home outright. Throwing money at the mortgagee may not serve you well. If the home does not have equity, meaning the borrower owes more than the home is worth then you will need permission from the mortgagee for them to take less than the total amount due in consideration for their debt. That is a short sale. You mention early on, the home is listed for a short sale, so it seems that is the case.

If you do a Subject To on a property with negative equity, you will have to more than likely wait a fair amount of time until your payments or appreciation earn equity again. A short sale would mean a short refinance, any short requires the lender's approval. Be careful not to get into a property with debt that you can not get out from under.

A title company can produce a title search for you usually for around $100 to $150. The property does have a lien right now that we know of, the mortgage. A title company could also help you with the preparation and execution of deeds to do the transfer so could a RE attorney. You still want a contract to purchase the property not just deeds.

You should go search on Due on Sale in BP forums as that idea will relate to your plan.

Refinancing may have it's barriers. The first is the amount of or lack of equity in the property. As mentioned, if the home is up for a short sale, it is upside down. You will not be able to refinance a home for more than it is worth. The current lender has to be paid in full or they get last word on whether they take less than the total due. So, in this case, it doesn't sound like you would be refinancing any time soon.

Additionally, lender's are wise to title seasoning (the amount of time you have been the titled owner). Conventional loans have restrictions on how short the time is. Needless to say, I would not call it quick. Private money or hard money may have more of a relaxed approach but you may have to put more money down.