All Forum Posts by: Dion DePaoli

If the lenders are arm's length from you then yes, refinancing both liens would fall under rate and term and not cash out.

I grew up in Lake County, Crown Point to be exact (go Bulldogs! @Roger Heiser - Pirate rivalry) essentially just down the road. A couple little known facts of NWI. It is a booming area right now, Saint John and Crown Point are up within the top five areas in Chicago MSA. There is a migration from Illinois and they are landing in NWI. The local economy stayed afloat from a large British Petroleum refinery project, staying off some of the deeper affects of the crash. Indiana became a right to work state recently and many new business are also landing there. Not a bad place to invest, IMO.

In any of these cities you can find pockets of less than desirable properties. Just like any other city. I would suggest not relying on the value from wholesalers who are out to get your asset at a discount as 'Fair' Market Value. Get on the phone and call up some local agents or appraisers or have some reports (CMA, BPO or Appraisals) done to get you value nailed down.

Mary, what you describe is not really what happens at all. A bank can not legally sell your house, they are not the owner. Foreclosure is the remedy banks have to collect on what is due under the note when a default occurs. After the property is foreclosed, the mortgage is extinguished and title the property is either given to the bidder from auction or the bank in consideration for the debt owed. There is no more note at that point either, the title to the property or the proceeds from the sale are the Mortgagee's consideration. Once the bank has title, the property is otherwise known as REO (OREO), they can do whatever they want with the property, it’s theirs. There is really no ramped up fees, all totals due under the note are due under the note per the note. They will charge for everything that is allowable under the note but I would imply they are inflated, they can not do that and in the process the amounts due under the note do come under scrutiny.

A Mortgagee may seek a deficiency post foreclosure, which is the difference between the balance due and either the proceeds from foreclosure sale or REO sale but not all states allow deficiencies nor do all deficiencies get pursued by a Mortgagee. It is not really an event that is anchored in the old promissory note, which no longer means anything after foreclosure.

A bank can make money on a vacant property since it is real property and it can be sold in the open market. Properties that are not occupied are actually easier to sell in the open market than those that are occupied. Potential buyers can enter the property and look around and Mortgagees can clean up properties or make repairs easier when they are vacant. A primary residence buyer more often than not will avoid homes with occupants since they don't want to be bother with having to run an eviction for the most part.

The whole 3 to 6 month idea you explained seems to ignore earlier in the story when the security instrument was foreclosed so it does not exist any longer therefore no further delinquency or default can occur.

It is unlawful for a mortgagee to not accept payment in full for the balance due during or through foreclosure or the end of the redemption period, the Mortgagee MUST take the monies and cancel the process. No legal representation is required for such an act, simply the money. Once foreclosure is over and the redemption period is over, the borrower looses their capacity to redeem or pay in full to keep the property.

Technically an owner can sell their property when and to whomever they want. As a function of that sale the Buyer will want clear and marketable title. As such, the mortgage or deed of trust must be satisfied. The funds to accomplish this can come entirely from the proceeds of sale or the borrower/owner can contribute to pay off the lien at closing of the sale. The only time you need permission from a Mortgagee is when you plan to short the balance due and yes, they must approve the shortage and have a right to refuse the short. That is what a "short sale" is, the sale of real property 'shorting' the mortgagee. Another transaction like this is a "short refinance" the 'short' is paying less than what is due to the mortgagee anytime the word is present.

There are some logical reasons why this would occur, those would not be the more common sales in the market place though. The question begged to ask is to make sure the data you are using and reviewing is correct such as the FMV that you are coming up with and the title abstract you are looking at is thorough. Also, where are you pulling the amount due from that is not always public knowledge? Not saying you are interpreting the data wrong or have the wrong data, but if these types of same patterns seem to occur often to you, then I would be more inclined to think you may have bad data or understand it incorrectly.

Check some of the recent assets you reviewed like this and see if they sold at auction. If they sold to a third party, then you may be correct. If more often the home did not sell to a third party, something is not right in your data or interpretation. Investors will not miss too many 50% of value opportunities.

In order for a sale to take place the borrower still needs to be involved. So in instances where the borrower passed away and there are no heirs this type of event could occur. Certainly from time to time borrowers skip out once they get served notice of foreclosure and avoid all contact with the Mortgagee so they never fully realize their options. That said, this far past the crash, that is not too common and most folks just don't walk away from $100k.

Other reasons why a borrower may not want to be involved could also be concepts like a straw borrower or fictitious borrower. Unfortunately there could also be wrongful foreclosures occurring. There is other reasons but all of these are likely less than 1 in 100 or more and I am more inclined to think you are seeing these more like 1 in 10 or less which means data issues.

A Mortgagee is only entitled to the balance due based on the mortgage/deed of trust and note. When the mortgagee sends the asset to auction they will set a minimum bid, which some county guidelines for the same to abide by, that minimum may be less than the balance due. If a third party bids equal to or over the amount the property will sell, if no one bids over the number the property will revert back to the mortgagee. The minimal bid will be used in the recording the sale when the deed is issued. This may be where you are getting confused too, I suppose. But in your example, we are talking about $180k in equity, that is not all that commonly missed by an investor.

Perhaps you can use an older example that has already been through sale so we can help see what you are seeing.

There is no distinction, those are the same thing.

1. Primary Residence
2. Second Home / Vacation Home
3. Non Owner Occupied / Investment Property

The underwriting gets 'tougher' as the numbers above get larger. So easiest for PR then 2nd and then NOO is the hardest. Many times folks try to make a NOO a 2nd home designation but when it is too close in geography, like on the same street and does not possess any significant attributes to make it believable, the home will be considered NOO for underwriting.

@Peter Lambert

As mentioned, it is a slippery slope. The underlying point now that you are involved is be aware of the slope and how slippery it actually is. To some degree presentation to the borrower matters in terms of how things may be used against you as a mortgagee. Frequency and median will play into that. We are all friends until we are not friends.

As to it being confusing, certainly not meaning to confuse you. I don't think I really contradicted myself. I mentioned you can not make the number and I warned about exaggerated time frames do to higher than market listing prices. That doesn't change, you can have a conversation with a borrower that is mature in regards to paying the obligations on the property and extended times where the Mortgagee is paying for such things or the Mortgagee's interest may be infringed upon can certainly be talked about. The longer the home does not sell, the closer the Mortgagee is to having to issue another tax advance. That is mature and frankly an advance would reduce the borrower's payoff since the mortgagee funds.

As a borrower digs themselves out of a less than desirable situation with a mortgagee you need to be mindful of being overbearing and the risk is as I mentioned. The latest update from you is the borrower is caught up in payment but not taxes. So the next logical consideration is be aware that you can go too far with suggesting he should sell the property now that he is caught up. You can be considered to be stepping over you contractual boundaries. That is all, not really confusing when you think about it. I didn't not infer a single conversation brings this conclusion but rather repeated conversations or suggestions may.

If he is still behind on taxes, move the discussion to catching those up. It is good @Steve Babiak posted the HUD link, I have always remembered the rule as 'no more than 3' and that is not meant to be in contrast to what is plainly stated. Use 2 months, pretty simple, I was incorrect.

In terms of what your role is as you move forward without beating the drum for servicing over and over again. Your role is you are the Mortgagee. The relationship between you and the borrower is contractual through the paperwork and in the general sense business and professional before friends and buddies. The borrower is obligated to make the schedule payments and maintain the additional obligations outlined within the mortgage and note. To that degree, that is all he is obligated to do in relationship to you on this matter. You are obligated to act in good faith and abide by the law. As a matter of protecting yourself be aware there are lines that get blurry and their are borrowers (and lenders) with attorneys at their side that will draw blood if they can and if things go down a path that brings the idea to the forefront, they likely will. This is simply the nature of the environment now a days.

To that same idea, the other recent post with caution about enforcement really fall under the same idea. The easy outcome is the borrower continues to pay to zero with no issues or he sells his house and you get paid in full. The opposite of that is things get messy again which could be simple or complex. If they get complex and he tries to defend himself the issues pointed to here will likely be some that are brought forward. That is sort of how the game works. This is also insight into the ebb and flow of a loan investors mind. Everybody loves their good bank until their bank is no good. Then the bank is the most evil thing on the planet that takes all there stuff and makes them do unimaginable things like pay back what they borrowed as agreed. I don't know if I said it in this post or others but dispositioning loans is not some linear path of resolution. I think sometimes we want simply linear paths to completion, this is not that sort of asset class. This thread speaks to that with the actual events and the cautions brought forward. Disposition is a layering of causes and effects and it from time to time does look a little like a boxing match. Should you block or punch or both? Paulie always said, "Hit the one in the middle Rock!".

Creating a shelf corporation early to season the entity will not work for mortgage lending. The underwriter will look to income derrived from real estate as to starting the seasoning clock.

Oh man, this is the thread that just keeps giving. Peter, just to make sure we are all still on the same page. This is a spirited discussion in good taste with some mixed opinions on what to do. Cautionary ideas expressed in their nature have negative tones to them. Being the one who delivers said cautionary idea may give rise to being a bit of a pessimist. That is not my intent nor Bill's I believe. So, all smiles still and hopefully as the thread continues some other unknown concepts come to light meant to give you insight to what might have otherwise been unknowns.

Now, let's talk about interfering in the business of the borrower and slowly becoming an adviser to the borrower. Big 'No, No'. It is OK for a Mortgagee to speak to his borrower, even on a regular basis. If that practice starts to take on instructions from a Mortgagee you could be found as an adviser and interfering with the Borrower's affairs. Essentially saying, "Sell your house" too many times could fall into this situation. A borrower can simply respond to you with claims of duress or claims of interference.

Imagine you say sell your home 100 times. Even if your intentions were good an attorney could catch your friends ear and turn this all around on you pretty quickly. If the file ever came to proceeding with foreclosure and the borrower decides to try and defend themselves these ideas can be used in his defense. By suggesting too much which fundamentally is interfering they could try and extract some financial harm from the action. So for instance the home get's listed and you suggest to take the first offer that comes in but then 3 more offers come in that are higher but he is already locked in contract. The looser in gain is the borrower, you got paid in full but he missed out on potential from the higher offers, financial harm can be established from your interference in that case.

The point is, it is a slippery slope. We all know this is the type of social problems we have where sometimes good intentions result in bad consequences. Loans are no different.

I will bang the drum of get a servicer again. All the reasons that have been coming up in the thread. If they cause events like this, you have recourse with them adding a limited layer of protection to you. To address one more time the lack of suggesting a servicer. I am familiar with many, I have used many and I have my experienced and educated opinions about many and the services offered. Not all servicers are made the same. They will not deliver the same service for the same fee. Some may put investors into harm's way by allowing for too much self-servicing under their license. Not good IMO. Others will be more 'full service' type shops. Some investors may knowingly choose one or the other. Lot's of variables. The drum keeps getting beat because aside from actually owning the asset to collect from, the servicing is really the next most important idea to the asset. It is not like referring plumber or painter for a home. The impacts can be far more reaching. As such, it is my personal opinion not to give any recommendations and to tell you spend some time to figure out which one of the many out there will fit your needs. The good news, this thread has brought to lights concepts that hopefully will help you in making that personal decision.

You could also seek to find well seasoned foreclosure files so you don't have to wait so long.

I agree, finding is harder than it sounds. Sounds like they NY loan is only a year in, those files take some time. They provide a mandatory mediation which in early stage FCL can be a good way to get in and get out but that can also be a barrier to large returns.

Three years of taxes, insurance and other advances add up pretty quick. The classification of safe is subjective to the desired out come and investor. Geographic concentrations and exclusions impact can be limited, since faster process states will have higher purchase prices for the asset and vice versa. The sooner you can collect and the lesser required capital to do so the more valuable the asset and higher the price.

Pete, sorry you feel that way. Most of it is rooted in disagreeing with the ideas of the commentary as they seem fairly unsound and at times exaggerated or even simply not true. I suppose in the very nature of that disagreement it is a 'pissing contest'.