All Forum Posts by: Dion DePaoli

@Joshua Dorkin I promise I am not trying to have problems on the site today.

It seems as though all my posts since the previous issue are now losing any paragraph spacing I put into them. I type with paragraphs and when it posts, all the paragraphs get crammed together into one block of words.

I will test here too.

Paragraph 1 - testing 1, 2, 3

Paragraph 2 - testing 1,2,3

There is a line space between all of these.

Not a nice spot for you, sorry to hear.

Sounds like in an effort to circumvent the agency restriction, you executed documents which were not in the spirit of the loan you thought you were getting. While you avoided the restriction, it seems generically the remedies that may be available to you will place you in violation of the restriction moving forward.

So obtaining a second lien for the rehab funds or even modifying the loan documents to comply with the spirit of the loan you thought you were getting don't seem like viable options. If the sale get's unwinded, the Lender loses the cost of origination.

It is not clear how much equity you have in the subject property which will keep you in compliance with the restriction. Perhaps you can offer the same or new mortgagee a lien position in both properties and get the cash you need to finish the repairs. Where Subject property has the lesser increase in loan amount to stay under the restriction and the property two takes on the majority of the debt burden.

I guess the other alternative is go find an equity partner so you do not violate the restriction at all, but you will have to give up some of your profit at the end. Chalk it up to a learning experience and try and get out from under the issue with as little as a headache and issue as possible.

David,

Not trying to attack you. Sorry if it reads that way. I did, however, want to make the point, which seem to have been done.

I think sometimes newbies apply strategies, similar to what you are doing, without analysing the deal. Albeit, your further inquiries are certainly moving toward having an understanding of the deal and similar offshoots of a deal like this. Under that idea, I have a picture in my office which elegantly puts it into perspective, for me anyway..."Do Not Seek To Follow In The Footsteps Of The Wise. Seek What They Sought.”

When we can't see every deal, while similar to another, is a snowflake, we tend to miss out on opportunities.

To address your follow up questions, a "Short" in real estate finance is when a Mortgagee takes less than what is owed in total as satisfaction of the debt. A Short can occur via a Short Sale or a Short Pay, which is a refinance by the property owner.

There is no concrete rule that a loan must be delinquent or in default in order to pursue and accomplish a Short. In the evaluation of approving a Short, as a Mortgagee, the core of the contemplation stems from the ability to collect on the amount owed by the borrower. When a loan is performing, the payments will eventually pay the principal down to a level that allows for no short. So because of this, shorts on performing loans exist but are few in numbers and have roots in future default risk and recoverability.

So we tend to see shorts where, the Mortgagee will not be able to collect the amount they essentially forgive and that is why they forgive it. Understand, that the principal amount that is forgiven is some investor somewhere capital investment. So that investor, by not collecting that money loses money.

It is also important to understand, there is no duty to take less than what is owed on a debt by the Mortgagee regardless of negative equity or performance. The remedy that a Mortgagee has for default is foreclosure to recover their principal.

So, in a case where the loan has negative equity, there is still an opportunity to short the Mortgagee or better stated, a Mortgagee tends to listen more to a Short as a solution to the repayment of the debt, since in its nature, the debt exceeds the FMV of the home so they likely will not collect anyway. It really is not the concept that makes it difficult. It actually makes perfect sense, maximize your collection on what you can and move on with the least amount of further capital injection (such as foreclosure attorney fees, etc) into the asset.

The level which many folks seek the short is the issue. In that perspective, you the Wholesaler, are simply the wrong party for the Mortgagee to allow the borrower to strike a deal with. Why? Because in your nature, you need a discount deeper or greater than a retail buyer. In that mindset, the deeper the discount, the less likely the transaction gets approved. Why take a short at a 30% discount instead of forcing the borrower to find a retail buyer who may offer closer to 90% to 100% of FMV?

That is not to say, contemplation for proper situations does not occur. Say a home has a large amount of deferred maintenance. A Short may be a suitable alternative to pursuing foreclosure, likely getting back the REO and then having to fix it (which cost the Mortgagee more money than what was just lost in the principal Short) or allowing enough room in a short sale to a REI.

In the original example, with the home with equity, there does not seem to be any apparent condition which makes taking a short on the debt a solution that warrants consideration. Why lose money, as a Mortgagee, when you do not have to?

Often times, I see the level of discount so deep, like 30%, that essentially what you are saying is, you want a guarantee you will make a substantial profit. There is no skill involved in selling a property to make a profit with a 30% discount, anyone can do it. As a Wholesaler you are not developing nor exploiting a niche. You are not optimizing your work better than anyone else. In fact, it is almost the opposite by the discount level.

When I have contemplated shorts to a Wholesaler or fix and flip investor, I am aware of what I leave on the table in terms of potential profit. I don't hand easy returns to people. Why should I? I can do everything that you do. I can foreclose, take the property, fix the property and sell it for FMV +/- 10%.

Go back and look at this deal. Why should a Mortgagee take a short when there is equity in the property? Perhaps there is a reason and it is not in the post, but from the post, I don't see any reason to contemplate the deal. The discount you propose is completely one sided for you only. I fail to see how a Mortgagee here would stand to lose any money right now. There is $35k in net value above the balance of the loan and the net proceeds from a retail sale. That is over 14% and it pays the loan in full. Why do you need more than that? You have not made a case for a discount, except that you want 30% equity insulation.

It is, IMO, this type of critical thinking about the deal and your subsequent offer that is the most important lesson any RE Wholesaler or Investor should learn. If you can exploit the value you add to any deal, which likely means you must, as a wholesaler, be amenable to adjust your profit targets, greater for harder deals and less for easier deals, I think you will start to find deals that you can fit into more often.

Glad it helped.

Taking you up on the alternative pic idea Josh.

The problem seems to be intermittent, coming and going randomly. Other boxes on the page shrink on the right side of the page as well from time to time.

David Jonsson,

I am sure you have your own justification for what you are seeking. But looking the deal that seems to be slapping you in the face, I have to re-comment on what seems to be some blindness due to greed. Again, I don't know all the details of your deal but....

RE Value = $283,000
Loan Payoff = $219,000

Estimated RE Sale Net (@90%) = $254,700

Estimated Profit Potential = $35,700
Estimated ROI = 16.30%

If you took 12 months to dispose of this property, you still make a pretty darn good return. It is not clear if you even plan to capitalize this transaction, which if you do not, you have an infinite return with no cost basis.

From what I see and understand here, notably only a little, you might even be able to move this asset in 6 months or less. So essentially double the ROI to 35.26%.

Etherway, these are good returns.

It seems to me, you have a deal here if you work it right but you are seemingly being egregious and greedy seeking a unwarranted discount. Not trying to insult you by any means, but a good slap here might help you see the actual deal right in front of you that is pretty darn good and it seems has more 'winners' in the circle than losers with haircuts.

OK. Now it seems to be back to normal. False alarm. Sorry.

Joshua Dorkin,

The BP forum page, accessed by selecting the Forums drop down menu above, is not displaying properly today. Worked fine yesterday. Today, the column under Thread Name on the left is anchored to the left correctly but the right side is shrunk toward the left making the titles of the threads several lines and difficult to read.

Seems to only be that particular page, when I go into other forums, the display is proper.

Thanks.

More importantly, value is $283k. Your offer is $100k under value. Or 67% of value.

If that was my note, I would chuckle right before I reject it.

You essentially are asking the Mortgagee to take a haircut so YOU can make a killing.

Not realistic. At all.