All Forum Posts by: Dion DePaoli

Originally posted by Dyrol Harding:

@Dion DePaoli thanks. We have tried that bit the servicer is being difficult, giving the run around and saying the investors don't want to sell. The public records don't show the AOM. Still working on it though, hoping to get lucky. Thanks.

If there is no AOM of record, then revert to the lender in the security instrument. Also, be aware, the servicer may be telling you the truth, the owner does not wish to sell the note. Good luck.

Joseph, let's amend some of the phrasing you used and address your questions a little bit:

1. You are not buying a property with "Cash" if you are getting a loan. You are getting a loan, so you are financing the property with debt. Albeit, you have some equity, which is normal, the debt is present which usually becomes the descriptor when talking about how you purchased the property. Perhaps you mean there is no financing contingency which is simply a function of purchasing the property. You are still financing the property with debt in the end.

2. The Lender (Mortgagee) in the deal is who will produce the paperwork. A Borrower (Mortgagor) gives a mortgage to a Lender for the money being lent. Where "gives" is more figurative. A Mortgagee will not be a Mortgagee if they don't take a mortgage or deed of trust, they would be an unsecured creditor, more like a credit card. The borrower does not usually have much choice in the matter, the Lender only gives the money to the borrower (on behalf of the borrower, really) provided they get an appropriate deed of trust or mortgage on real property sufficient to cover the money they are lending. So, moral of the story, you don't really have a decision to make here, if you decide to not give the Mortgagee a proper lien, you are likely not getting the loan. Collecting on an unsecured debt is not easy and losses can incur, as such, most debt related to real property is secured by the appropriate security instrument (mortgage/dot) and that debt is evidenced by the Promissory Note which serves as a sort of I.O.U. for what was borrowed and how it get's paid back.

3. The Federal Tax lien is a major issue. In many cases, lenders will disqualify you for this lien as this type of lien can become superior to their interests in the subject property depending on some details around the tax lien. While a Mortgagee can work around tax liens, they are not easy nor pleasant to work with. In most cases, if not all, a Mortgagee will require any outstanding tax lien to be paid prior to the closing of the loan so it does not have any ability to attach to the subject property, not to mention the option to garnish wages and income, which may affect the borrower's ability to repay the debt from the loan.

4. The borrower doesn't lien the property, the lender does that. The borrower grants the lien. Having said lien on the subject property is quite normal and the secured interest ensures the lender can get their money back or pursue legal remedies pursuant to the mortgage and note. So while the title will be encumbered while the mortgage is present, a function of selling said property, let's say, will force you to payoff the mortgagee in order to give clear title. As long as you purchase clear title and give clear title, to some degree clouded title by way of mortgage/dot during your ownership is pretty normal.

5. You telling the Lender what the terms of the loan will be is not all that normal. Usually the lender will propose terms which a borrower either will accept or not. Certainly, some relationships between lender and borrower have the capacity to be a bit more negotiated. If the lender is "in the business" or constantly acts a lender in the market place, they will more than likely issue you proposed terms not the other way around. If the Lender is your buddy, then the initial terms may fall on your plate, but that is more due to being associated with each other and is not a typical lender relationship.

Hope that helps.

What do you mean "broker friendly"?

Your first line of contact is with the servicer Caliber. I would try them. You can pull the public record on the property and look for the last Mortgage Assignment of record and that will give you a second line contact. If there is no AOM then you have the lender on the note. That may be a little more difficult as many times loans are held in a trust or LLC which carries a name different than the investor's operation company. If the loan is held in trust, most likely the servicer has the capacity to direct the asset. If the loan is held in LLC, then you will have to see if you can figure out who the owners of the LLC are and call them.

In all cases, the servicer has access to the investor but servicer's are not really setup to deal with offers to purchase and sell loans for the investors so you may get a little bit of a run around.

Reverse inquires are not usually easy nor are they usually successful. Good Luck.

*Sorry Roy, realized I didn't look up at the OP Chris and named you incorrectly.

Assignments of rents are common in commercial loans and residential investment loans.

The point to the post was Roy didn't like the paragraph or rider and feels like the mortgagee can simply take the rents when they deem fit. While I suppose they could, that doesn't make it legal.

A mortgagee can't simply take rents and strip tenants, borrower and property of income even if the loan is in default or breach of contract and leave the property without capital to operate. There is a burden (operating the property) that comes with rents that also must be assumed which is why to some legal extent, possession must be granted either full or constructive. Full possession would be the mortgagee taking back a deed to the property or having a favorable judgement granting possession. Constructive would be if a receiver is placed in property which then operates the property and remits debt service to the mortgagee.

A receiver is appointed through the courts, so a judge has to get involved. If a receiver is put into the property, they do not 'work' for or represent the mortgagee. The receiver can act autonomously with the blessing of the court giving him/her power to take temporary control of the property and manage it accordingly. To that regard, if the receiver does not believe the property can support the debt service, the mortgagee will not be paid.

So while the clause reads offensively, it is really not as easy to enforce.

Originally posted by Bill Gulley:

@Dion DePaoli I also had similar structure ideas of separate entities as employed by the MH guys. Ken Rishel (can' @ him) spoke to a clearing house I believe.

Regional origination operations? Note purchase-repurchase arrangements? Put the thinking cap on!

Bill I didn't follow what structure you referred to on this. Can you elabroate?

It is not solely for defaulted payments. Any breach of contract can trigger the mortgagee seeking to enforce the terms.

Standard agreement language. It includes an option to receive which not only comes from non-payment but also from poor property management or other property and operational violations. A mortgagee can't enforce that without a court involvement. A judge will look to what is equitable in any decision, so there has to be cause. Not much you can do if you want the loan. I have often enforced that provision. In addition, if you read most conventional security instruments (mortgage, DOT) similar language is included. It becomes a rider when the subject property is for investment purposes. Most don't catch it or care when it's a primary residence loan.

This is constructive but I am not entirely sure I follow. I will just comment on your numbers.

1. A more standardized list of particulars would help educate the public and could help curtail less, to some degree, abuses. However, can a simple list be created or does it instantly turn into a 100 page underwriting book?

Some of this could be counterbalanced with a standard set of documents. Then of course the documents to collect can simply be included. Perhaps with standardized definitions and utilities. As a for instance of the need and the low level of competency, many private loans I have reviewed fail to clear the borrower's identity. What documents can a private person use to do such a thing and are those documents then required to be held in file? It's possible but it needs to remain 'skinny' but adequate.

2. The balloon problem, while I understand it, seems to be more of a political response to mortgage problems rather than a solution. Let's not forget our neighbor to the north uses a 5 year balloon as a part of their promissory notes on a regular basis. They suffered seemingly less than us in the mortgage crisis. Certainly it is easier for them since they have a system which deals with it, everyone does 5 year balloons as a standard. I think balloons have a practical place in lending, which includes short term balloons. I suppose there is not much need for anything less than a 3 year balloon. I would also presume a 5 year would be the more prefered term. Opening these back up, would require having more active participation from private lender/sellers. They can mandate 15 year or 30 amortization, remove any interest only feature. If the market has some folks willing to extend this, then the borrower will not be left in the cold for a refinance, which I think is more of what they were trying to deal with.

3. This is a No Brainer. They need to standardise the documents across all the states. This will give them greater regulatory control I think as well since it will eliminate poorly written documents and or predatory documents. A full standard loan packet, just like conventional lenders use. Free to download and easy to use.

4. No Comment

5. This really needs to be mandated and minimal standards of servicing for this type of requirement should be looked at. For instance, I know of some servicers which offer services but the services are so limited that a private lender really stands a higher chance of breaking a collection law than not. I hate to say it, but FCI comes to mind. Anyone can board a loan, they are willing to take the loan on and as a function trying to keep the cost low, they are pretty hands off. This really leaves the private guy to fend for himself in terms of the creation of borrower correspondence and enforcement of remedies. That then turns into violations pretty quickly. The market needs small servicers for small lenders. The small servicers need some help covering the services gap between being a small servicer and being a large full service servicer. Perhaps require the servicer to provide template documents which the private person downloads from their website or similar. Education maybe?

In addition, they need to clean up who is the direct line of contact. The public needs a better understanding of the difference between the investor and the servicer. I think this becomes confusing for folks. To some degree the public may want a more private lender opposed to being put into a securitized trust. The investor needs to be able to correspond and make decisions but through the servicer so the loan gets back that personal touch. I am sure the servicers who accommodate the little guys don't want to see their burdens increased but this is a growing problem. Folks use a servicer like FCI and then FCI doesn't really help them service, it is more like renting their license.

This likely needs more in depth review and a series of proposed solutions.

6. This too is an issue. Borrower servicing history is obtained from the current servicer but there is no mandate to hold that servicing history from previous servicers and owners as a permanent part of the file. Honestly, I think this is pretty dumb and creates issues in the secondary market and primary market. If I buy Bill's loan and Bill bought it from someone else, usually he doesn't have the old servicing file and payment history. So we are constantly starting over on each file. This can be used to hide factors of the borrower's history to create a sort of dupe on me the new investor. It also eliminates the ability for a new mortgagee to relate to past events in the borrowers file which may be relevant such as hardships. The entire servicing history and payment history needs to be completely portable from investor to investor and servicer to servicer. This actually will help deal with the idea that many private loans and small servicers do not report to any credit agency. So then, this history can also be used for such underwriting situations, perhaps a small fee for the report if you are a credit extender to offset the administrative costs.

The servicer should be required to give an annual report. That too is a no brainer. This will help keep borrowers on top of their accounts to some degree and will give them a better chance to actively manage their loans as a consumer.
7. I don't know if I am on board with this idea. We have to be cautious of turning private folks into institutional folks. Did private lender/sellers crash the market? Certainly some bad apples are out there but the central idea I support is a push back to localized lending not lending with intent to distribute. If I want to sell my house and I am willing to offer financing to do so, it is impractical to expect me to decide such a thing and then go to a class in order to do one transaction. I would think this can be normalized better in a different way. To that regard, we want less of an obstacle/burden to the private person to lend not more. Frankly, the banks need some good private competition. If my tax dollars already act like a backstop for banks and GSE's, it seems like I am already "in the business".

The standardization of documents and perhaps procedures can offset this educational need since the professionals used in the transaction would have that education.

8. Don't like this idea.

9. I don't like the limitation here either. This number needs to increase not decrease. If they properly counterbalanced private folks in the marketplace with standard documents, standard procedures and standard professional services to use to close these transactions then who cares how many a person does? They will pay taxes on their gains and interest. Why do we want to limit credit to the public. This idea of pushing out the private guy creates a gaping hole which can only be filled by institutional lenders who frankly have not proven they can write a better loan than private folks.

Looking at it from a different angle, let's be honest, doing 12 of these deals a year doesn't make you an institutional lender. Perhaps I am unaware of the harm these transactions have done to the public over the years but again, to me, more harm has come from the institutional folks rather than the private folks. These types of restrictions just create market place ruled by the same class of titans.

10. 100%. A standard can be set and implemented. This is wise and offsets the lack of underwriting skill a private person would have. However, caution here, as too high of a barrier and it just pushes the private guy out again.

In general, I have am a huge fan or private loan creation and ownership. In the past I put together some presentations around this idea and used scenes and ideas from "It's A Wonderful Life". Sounds corny, but if you think about (or rewatch, tis the season) George Bailey comes to find toward the end of the movie the greater good he serves to the community opposed to Mr. Potter. As a nation, we want local credit extensions. A more hands on approach to credit in a local market only serves to help the community not hurt it. The large institutional lenders have no need nor duty to really serve the public, they serve their shareholders. The fact that we actually have discussions about how broken mortgage servicing is a clear sign to this. If they wanted to fix it, they could, they don't.

Much of our national response to the mortgage crisis has not or will not solve the problem. Institutional originations are made with an intent to distribute the risk and those originators really only set out to earn fees. Creating a platform for more private folks to get involved will allow for more active participation in the loans being held by those folks. It can bring in more compassionate and responsive reactions to hardship and common sense approaches to credit extension. I don't have the numbers but would love to see them, which has more delinquencies and defaults, institutional loans or private loans? I am guessing, institutional by a fairly large percent. Since we don't have a system in place to monitor that, it is tough to quantify but that too speaks, to some degree, about the need and the direction we are pointing ourselves in. Gearing more toward institutional, where institutional actually caused the spike and the problems.

An interesting tangent that sits on the fringes of many of our conversations here. There is a market place here, around the idea. Where underwriters could earn a living underwriting private loans. I am all for a person getting a license for such and then offering that service to the public for private originations. Same thing with Mortgage Brokers. The mortgage brokers trying to take advantage of this space, in my opinion, seem to be trying to be predatory. For instance Bill, the guy who wanted to charge 4.0% in a recent thread. A cap on that fee to private folks and a clearly defined service role would be beneficial and I would think, fairly easy.

There is also a poor understanding of the professionals that a private lender/seller should use. So clearing that up will help as well. Often times, I see folks turn to title companies as the service provider, they are not my idea of qualified for such matters. In contrast, attorneys are not always either.

The general approach I have always walked away from with regard to regulation on these matters is protect the public by making a 'gatekeeper' who is properly licensed. This can be done by using Mortgage Brokers and Underwriters setup to help serve the private folks. License them but the let the private folks have more market autonomy, we want and need their capital in the market not to mention their prudence. I will care more about a $50k loan if I only have $60k to invest than Bank of America which has billions. If I put my money in BOA, they use my money to make the loan anyway, so why should they get the monopoly of being able to use my money? It ends up in the same place, a loan to a borrower. Only they care less and I care more.

OK, that is enough for now. Not sure if that is what you are looking for or not.