All Forum Posts by: Dion DePaoli

@Angie Williams

The answer above came from me not Wayne.  Wayne pinged me for a response so he can have some credit.  Not a huge deal but just wanted to make sure you understood who you were getting advice from.

A couple new ideas in your last post surfaced.  The borrowers have NOT been sending in payments?

That is a horrible idea.  In the original post or two it sounded like they were paying and those payments were going into suspense.  Now you mention they are not paying at all.  They need to send in their accumulated payments as soon as possible.  Like now.  

NEVER stop paying.  

It is a violation for a any mortgage servicer to suggest borrowers stop paying their monthly payments in order to better qualify or be approved for a modification.   Payment relief is not dependant on a borrower being in serious default.  Relief can be requested at any time.  Once relief is requested the servicer must send the hardship packet.  Once the packet is received they must respond to the request for relief within 30 days.

Secondly, it is unfortunate that the servicing contact seems rude and uncaring.  Understand that often times these folks are nowhere close to those who make decisions on the loan.  They tend to merely be front line workers and have to deal with lots of borrowers and their problems.  I am not making an excuse for them but being cheerful and happy everyday in a job were you do nothing but screen people's problems and excuses isn't going to be all flowers, rainbows and ponies, if you know what I mean.  

The main point to that is, regardless of the nature of interaction with the servicing personnel, the borrower needs to be proactive in their efforts to deliver all the modification document requests and to receive a response on the matter.  Unfortunately, all too often borrowers get into a situation where they become very passive in the situation and that does not do them any good.  Now getting aggressive doesn't mean throwing stones at the servicing company but rather be responsible and organized in their actions and follow up.  

If they believed they sent everything in the first go around.  Get on the phone and talk to someone and find out what was missing.  Then send it in.  Don't wait 3 months.  Inquire when they can expect a response.  Follow up the day after if no response was delivered.  Pick up the phone and call in.  Treat the situation like it is, important, a matter of keeping their home or losing it.  Stay on top of it.  Try and drive it forward.  Don't let months go by.  

To some degree the idea of lawyering up or calling CFPB promotes this reaction of lackadaisical follow through.  Time is the borrower's enemy.  Just because there are rules that servicers shouldn't violate doesn't mean they don't.  Just because they shouldn't be foreclosed doesn't mean they won't be.  The regulations and rules do allow for foreclosures to be overturned or practices to be deemed improper but those battles take time.   A borrower needs to fight for their own preservation in the here and now.  

If the borrowers start getting aggressive they can start to keep a log on who they speak with, what the topic was and a summary of the conversation.  Keep a file on the matter until it is resolved.  Track payments sent and received.  Track payments applied and not.  Keep paperwork sent.  Demand dates be set.  Follow up on items sent it.  Make sure the servicer is not erroring.  Overly communicate.  This is as much on them as it is the servicer.  

NOBODY IS GOING TO CARE MORE ABOUT THEIR PROPERTY THAN THEM.

If they get on top of the matter they will see it start to resolve itself more quickly.  They have the CFPB on their side and they can get a lawyer as needed but they need to stop being victimized by their situation and actually take control of it to work it out.  It is their house and their future.  To that extent, they need to act like it.  Harsh words, I know, but the point needed to be driven in.  

@Wayne Brooks pinged me.  I can add some clarity on this.

What is being described sounds common.  The borrowers fell on hard times and inquired about relief from the servicer.  The servicer agreed to forebear the loan and to consider the borrowers for a modification.  

So two separate things are happening.  The forbearance and the modification request.  

The forbearance would mean the payments being sent in on the loan are less than what is due.  So these payments are going into suspense in an unapplied account until a decision is made on how to apply the payments.  The payments will stay in an unapplied account until the payments are applied to principal, interest and escrow.  How those payments are applied will be up to the servicer and loan investor to determine with the general idea to capitalize the least amount of the loan as possible.  From the post it is not clear what the term of the forbearance is/was.  In the event the borrowers have misunderstood the term limit of forbearance then late payments might be being applied to the suspense/unapplied since the payment they are making, believing they are being forbear, are insufficient for the account.  (Not full PI&TI)  Insufficient payments made on an account also go into a unapplied or suspense account until applied to interest, principal and escrow.  I mention that because typically forbearance is not indefinite.  It starts and ends regardless of the borrower's inquiry into additional account relief through modification or their success or lack thereof with delivering the hardship packet back.

While the loan is being forebear the borrowers were delivered a hardship packet which needs to be filled out and compiled and turned in.  The point of this exercise is to determine what level of relief is needed on the loan for the borrowers to maintain the account.  As the borrower sends in the material requested additional hardship packet letters will likely go out which do not live-update the items missing or needed, so they can look like the entire list in a repeating fashion.  That may seem absurd but in large servicer operations it is not practical for the mailing lists to be updated with items sent and not received.  The take away from the letter is something on the list has not been received or is not proper.  The borrower's should make contact with the servicer and inquire about what item(s) have not been received or turned in incorrectly.  They should then take steps to correct any defective items turned in or turn in any missing items requested.

This too is not uncommon.  Borrowers think they sent in "everything" but some of the items sent are not proper or can not satisfy the item requested.  Examples could be bank statements missing pages, such as the back page was not copied even though no material bank information exists on it only disclaimers and fine print.  Another example is paystubs which do not properly show year to date earnings or tax deductions.  The final example for the sake of this post could be failing to send in an award letter for SSI or other government entitlement benefits.  There are numerous items which can be messed up or improperly sent in.  They key for them is to call and ask to get a detailed response and fix it.  

Only AFTER all items are properly sent and received must a mortgagee respond to the request for relief.  So no actual payment plan need be mentioned until that point.  The mortgagee can issue the hardship packet requirements and give the borrower a grace period to deliver said items and upon the grace period expiring along with the failed delivery of items they can deny relief.  

These matters can be confusing and aggravating for borrowers.  It doesn't help when the public banter responds with ideas of incentives for a mortgagee to seize a property.  In the state of Pennsylvania foreclosure is judicial and can favor the borrower.  A mortgagee can never simply seize a property.  The process of foreclosure is a formal one.  A mortgagee is only due the amounts under the note and nothing more.  Payments sent in by a borrower held in suspense or unapplied would have to be applied to the account prior to any approval of amounts due from court ordering the sale.

Again, the steps toward remedy here are:  (1) Contact loss mitigation person and inquire about missing or inadequate items sent; (2) Send in those items (3) Await relief response

Once all items are sent in properly a mortgagee must respond with a plan or denial of relief within 30 days.  Again, as I mentioned only after all requested items are received and proper.  If the borrower wants to track that moment and count off the days and they feel the relief response is being withheld unreasonably then they can contract the Consumer Financial Protection Bureau ("CFPB") for free.  

The CFPB is the consumer watchdog organization and they will open an investigation with the servicer and a decision will come shortly after that.  The CFPB has authority over mortgage servicing companies and their practices and can audit files upon request.  The borrowers can certainly seek out an attorney if they so wish but like I said the CFPB is free.  If the borrowers feel they have been damaged by the mortgagee or mortgage servicer the pursuit of recovering those damages would require an attorney.  While the latter does happen from time to time, it is not the norm.

Hope that helps.

A deed is valid once it is signed and accepted.  Perfection of a deed, which is the recording in public record, is not the conveyance event.  

So, a QCD signed and held in escrow has already conveyed the title since both conditions are met as agreeing to hold in escrow is a form of acceptance.

Most states prevent QCDs from being the deed used to convey in a contract for deed or land contract.  Sellers are typically required by law to warrant title.

These condions are onto deeds of all properties and there is no difference for commercial or residential.

States vary to some degree on when a buyer in an installment contract has a right of remption.  Some are immdiate and some go out 36 months.

@Bac Nguyen

So you had a loan boarded with FCI that you worked on modifying but ended up foreclosing from second position which reverted to you from auction and then sold legal title to a buyer?  

You didn't really clarify what that actual complaint says.  Does it allege you were dual tracking?  (Negotiating a modification while continuing with foreclosure)  It isn't generalized in the complaint, it will be pretty specific in saying what was done that the borrower believes gives them grounds to raise the complaint against you and FCI.  Granted, you don't have to share that detail if you don't want.  

If the borrower turned to their 401k and withdrew money and still was foreclosed they suffered a pretty severe financial outcome.  The costs for withdraw.  The costs to payback.  The cost of losing their home.  

I am not sure what sort of hardship letter you needed to draft for a borrower's 401k.  Might not have been all that great of an idea.  (Which is why they don't have one)  Their default is clearly defined by their monthly statement, demand letter, forbearance agreement or modification agreement.  It is the borrower's responsibility to obtain funds needed to reinstate or redeem.  Mortgagees should generally get overly involved in those matters.  

I don't want to over speculate but if that is the gist of the story, FCI certainly can freeze your accounts to get a handle on what the actual incident involved and to investigate the other loan accounts for similar acts that might have legal implications on to them.  

I guess the point of the matter is this thread is attempting to substantiate that FCI is doing something wrong.  Did they have just cause seeking indemnity from you or not?  From the outside looking in from this thread I don't see that as of yet.  Your attorney can get a copy of the response filed by FCI obviously.  I would be a tad concerned that FCI's response on the matter leaves any collection malpractice on your shoulders.  If your actions are at the heart of the complaint and FCI is only a basic collector for you, not in charge of your loss mitigation, or if your independent actions caused a violation of servicing regulations you are going to have a little bit of a mess to deal with.  

There are indemnity clauses in FCI's servicing contracts, as there are in all servicing contracts.  I can understand your frustration and my suggestion is dig into the complaint which is the center of attention and understand what is alleged and if it has merit to understand what is going happen there.  From that point, you can deal with FCI asking for your accounts to be unsuspended.

That stinks.  There isn't really enough information in the post to develop a non-legal opinion on the matter.  Sounds like FCI was served first and as a response they have suspended your accounts.  It is not clear what the actual complaint is for or about from the foreclosed borrower.  Additionally, it is not clear what type of servicing contract you had with FCI.  We can't really jump to conclusions on what is right or wrong without knowing what structure of the relationship is and what the complaint is about.  

It does sound like you have some justification to be a little disappointed in their response to the matter.  You certainly need to get a copy of the complaint and if they are not willing to provide a defense for you, obtain counsel to protect yourself.  

This is indeed a great problem to have.  Details matter and without them we are discussing in theory.  Prepayment effect does diminish as the amount of prepayment increases.   In other words, $100 extra a month will generally shave 7 years of a balance however $200 will not shave 14 years off.  

It typically takes about 23 years for the amount of principal reduction from a standard payment in a 30 year loan to equal the amount of interest.  So where the loan is in its amortization schedule also affects the effect of prepayment.  

Without the details it is tough to say with confidence what would be perceived as better.  With the details you can do a cost benefit analysis.  $X dollars per month will earn $Y amount of equity annually and over the remaining life of the loan.  Without the details we aren't really doing any math to see what indeed would be different or how how it would impact the game plan and thus its tough to say which one might be preferred.

Jonathan,

Let's back you up to the starting line first.  A property owner gives a mortgage to a lender as collateral to secure the sums loaned.  The mortgage does not entitle the mortgagee to the property but rather to the sums due under the note.  

The first step to creating an analysis is understanding what you are analysing and how it delivers money back to you.  At origination the note is setup with a loan amount, interest rate and number of payment periods spread over time.  So the most basic of analysis is an amortization table based on those note terms.  A borrower who does what they are obligated to do pays each period and the loan is treated as described in the note.  

If you buy a loan at par you will pay whatever the balance of the loan is at the time of purchase.  The yield back to the investor is the actual note rate.  If you pay a premium for the loan, you will pay more than par and the yield back to the investor will be less than the note rate.  If you purchase the loan for less than par the yield will be greater than the note rate.  Most folks here are buying distressed loans so some level of discount is present.  

When it comes to borrowers making payments there is really only one of two options applicable.  They paid or they did not pay.  Partial payments from a borrower do not pass through to an investor and do not count toward advancing the payment due date for the loan.  This is important because we need not bother with analysis of payments made on the loan for less than what is owed under the note.  

The next idea is the consistency of those payments.  Loans can be current, delinquent and defaulted. A loan in any of those states can actually be considered performing.  However, only a loan in default is considered non-performing.  Generally for a defaulted loan to be considered performing there are payments coming in currently but the loan is past due by 90 days or more.  

Loans made to a consumer for primary or second home property have to be 120 days past due before demand can be made on the note.  A borrower who is in default long enough for demand to be made is entitled to reinstate the loan from default status by making the past due payments.  So, just because the loan fell into default doesn't mean foreclosure is imminent.  

Further, just because demand is made and foreclosure filed doesn't preclude the borrower from redeeming the property from the loan.  All interested parties have a right or equity of redemption.  That is, a loan in default, where demand has been made, automatically gives parties with an equitable interest a right to protect that interest in the real property by paying what is due under the note.  Foreclosure is the process by which the right or equity of redemption is terminated.

The point to all this is to expose you to the concepts that are involved in the analytics of note investing.  This is no way an exhaustive list.  What a newbie shouldn't do is jump in without some level of understanding of these ideas in hopes of acquiring the real property.  Additionally, understanding these basic ideas is paramount to being able to begin to financially evaluate a loan.  First we must understand what is due under the note, then we must understand how the borrower or other interested parties can redeem before we jump into throwing a bunch of numbers around.

The math involved in loans is not overly complicated.  The modeling of the loan is.  The newbie hangup tends to be not understanding how and where a loan can be reinstated or paid back.  There are some other threads here which dig into into some of these ideas.   I suggest poking around to become more familiar the mechanics of a loan before leaping into the math.  Good luck.

@Curt Smith

To some extent, I am not sure you read what I wrote.  There is no mystery here in what ATR is or does or how to define "new credit".  If you look at what I stated, I said new credit is defined by Regulation Z.  It includes:  (1) New Money; (2) New Obligor; (3) New Disclosure.  

For further clarity, here is what Regulation Z Subpart C §1026.20 says relative to our discussion:

The following shall not be treated as a refinancing:

1.  A renewal of a single payment obligation with no change in the original terms.
2.  A reduction in the annual percentage rate with a corresponding change in the payment schedule.
3.  A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in § 1026.4(d).

So, some modifications do need to be treated like new credit and some do not.  It depends on what is being modified.  If the balance is increased we are adding new money to the credit.  If the payment goes up, new disclosure is required.  

It is good you are attempting to think in line with the intent of the regulation, but we must remove the mysticism and actually look at the regulation to see what it says before we overly interpret what we think it says. 

@Curt Smith

It is true, willy-nilly modifications practices are certainly not a good idea.  That said, we don't need to imagine that any of the requirements are infact insurmountable or exhaustive.  As an additional thought, we are probably at a point in real time where we can stop referring to Dodd Frank as some stand alone rule, it is not and never was.  Dodd Frank amended and added onto already in place regulations.  That is important to understand because the rest of the body of those regulations should be known just as much as what was changed or added on by DF.  In other words, DF is nothing more than a reference to a much larger piece of regulation and when we cite it as regulation I think many folks are illustrating they don't fully understand the bigger and broader set of rules.  It is akin to suggesting the seat belt law is the only regulation involved in driving.

The rules we should be discussing are Regulation X (RESPA) and Regulation Z (TILA).  DF is the act which modified those regulations.  DF is not the regulation.  Ability to Repay and Qualified Mortgages are a part of Regulation Z (TILA).  Regulation Z deals with issuing credit.  There is more to Reg Z than ATR and therefore looking to ATR alone can create blinders to the rest of the governance of the actual regulation.

A modification is defined as new credit according to Reg Z.  In general a new obligor, new money or an event requiring TILA disclosure is considered new credit.  In example, a increase in rate is new credit but a decrease in rate is not.  

Compliance with the guidance under the ATR portion is probably going to be met inadvertently when a borrower makes modification application.  Income, asset and other liabilities are collected and reviewed in order to consider the qualification of a modification and as guidance for modification terms.  Perhaps those investors who choose not to use properly licensed mortgage servicers are less likely to comply but those who do work a modification through their servicer will usually be in compliance.  

There is no "3 max rule" for property or loans.  I think you are trying to reference a misunderstood idea of seller financing.  Seller finance licensure exemption is on a state by state basis and there is no such universally accepted exemption in all 50 states.  Some states have 0 exemption from licensure and others have 6 transactions in 12 months.  There is no correlation between that idea, no matter what the exemption is, and of loan modifications.   Certainly no correlation to being a fully licensed savings and loan institution.  

The point here is, yes, we must be vigilant in our understanding of the industry, however a trend from the era of Dodd Frank is throwing that term out as a catch all of something to know while not fully understanding what it actually is or does.  By and large we are past confusion and questions on much of what DF amended and changed.  I think that is important to say as DF when brought up on these boards sparks whirlwinds of confusion and speculation for some.  Like I said, the industry is pretty much past all that, its time to get caught up.

Some additional thoughts to overlay.

How long has each of the 4 properties been owned?  Has there been repair progress on the other 3 and he ran out of money?  - Concerning he bit off more than he could chew.  I would grant him a benefit of doubt if he purchased all 3 simultaneously for some reason.  However, there is a little concern for me he is not planning and budgeting well.  

What are the use of funds?  - From the post he is planning to refinance the subject and use those funds to repair 3 other properties.  In order to get a good lien you will have to pay off the taxes and liens.  So he is really only netting around $60k.  In theory it probably works at $20k each unit but you should understand the full repairs needed and planned for each unit.

Redirecting funds from subject to B,C & D makes me inclined to want to cross collateralize the other 3 as well.  The proposal of payoff implies the repair and sale of those units so I would want an interest in those to protect my funds and to create a little more security for my loan.  As Bill mentioned, setting up partial releases will mitigate your risk and give you a little better control over the deal.  

Depending on the scope of repairs, it may be wiser to set up loan draws as opposed to a fully funded loan.  The backdrop here is the guy ran out and over spent - buying 3 properties he can't capitalize repairs on.  Perhaps money in his pocket makes him want to buy more property instead of finish the projects he started.  There is a story in the ownership history of those other units.  I would dig into that.  Right to inspect will ensure he is not trying to do repairs he is not qualified to do and no future defects occur by him attempt to shortcut to save money. This can be costed into the loan.

As we start to discuss crossing of the other units it begs the additional question, are there liens on the other 3?  What does title look like on all those 3?  Is there already a mortgagee?  Do they have lien issues?  The plan is he repairs those and sells to pay you off.  If he takes 1/3 of your capital and dumps into property B and loses it to tax sale or alike he will create a burden onto himself trying to make his money back and pay you off.  This could prolong the sale or it could make him throw his hands up and just walk.  

The key here I think is, he is making it about 4 properties not just the subject. As such, you need to expand your due diligence accordingly. He is showing he is not a great capital manager so you need to not give him freedom to make silly decisions. Draw schedules allocated to each property with inspection rights. The only superior interest on those properties he would be allowed to have would be a senior mortgage. Find out the terms of those if they exist. In addition, look into each ARV. Is he really going to make money on the sale after everybody you can see gets paid? Current taxes, insurance on all properties.

He may have borrowed unsecured money to buy them all or some.  Sometimes folks do not make the proper decision to sell at a loss when needed because they are in first loss or may have to come out of pocket for other parties.  Again, expand the diligence into all properties that are affected by your capital.  

The notion that he needs to be an LLC in order for the loan to be investment in nature is not true. Some states forbid single member LLCs. Sole property is business. Use of funds and the presence of a primary residence outside of these 4 properties negates any defense this is a primary loan. Your attorney can include language in the loan documents to the same.

Have your own attorney prepare loan documents.   Not him.