All Forum Posts by: Dion DePaoli

A note fund's return is going to be affected by the notes held within portfolio, the yield that the notes were acquired to deliver and the performance of the assets.  There is not enough detail about the fund to really dig deeper into the potential results.  A fund with a 36 month investment horizon does not really sound like a portfolio designed for cash flowing assets per se, more like a non-performing portfolio.  If we assume that the maturity of most notes in the marketplace are 30 years and perhaps these loans are aged somewhat, generally we would expect to see a fund that targets a 5 year horizon or more.  Otherwise from a portfolio standpoint there is going to be some pressure to exit the loans by month 36 which could cost the return some performance return.  So I would look into the types of notes they are buying and understand that a fund targeting a high yield may very well be taking high risk which adds pressure and can cut performance.  I would guess they are buying non and sub-performing loans to achieve the higher yields.  Again, to some extent this is speculation in absence of a better understanding of the funds target assets.  

The market rates for newly originated loans will not have a huge impact on a fund that is not purchasing newly originated loans.  Again, with limited detail on the target asset, I would assume you are not looking into a fund that is targeting newly originated notes as that will mean a return at or below 5% in general.  So, even if market rates increase from the 3.5% to 4% range to say 5% to 6% that activity will not immediately translate into the fund's performance.  I would guess that the fund is targeting distressed notes of some kind and therefore is discounting the principal of the notes it targets as investments to deliver back a higher return than market interest.  That discount as well as the vintage of the loans insulates the fund, in a sense, from fluctuation in market rates rising and falling.

There is a correlation to investor desired returns and prevailing market interest rates and returns however in general the closer you are to market returns via market interest the more sensitive the investment would be to rate movement.   Adversely, a fund that is targeting 8% has a little bit of a buffer as rates rise and fall due to the discount they would have to apply in order to achieve the return.  In addition, as market rates rise newer loans are closer to the target return thus reducing a need to discount to achieve the desired results which can translate into perhaps less risky assets.  

In general, while we might expect interest rates to rise say 2% over the coming years that doesn't mean we expect investor returns for these types of investors to also rise 2%.  Perhaps after some period of time with rates rising to and past the 2% market return expectations will indeed rise but that will be more of a lagging characteristic and not immediately impacted by the rate increase event when it happens.  All this again, to some degree is speculative on what the funds most likely target assets are and the lack of that detail in the post.  Hope that helps.  Good luck.

The assessed value, which is what you are seeing on the assessor's website, may not reflect the needed repairs to the property if it has been vacant for a while.   It wasn't clear where you see the $350k number.

The building is subject to zoning codes which may or may not allow for residential use.  Just because you want to turn it into residential units doesn't mean it is allowed.  Check with the zoning office in the city where the property is located to ensure that is possible.  Further, the density to which residential units are allowed may also not work with your plan.  The zoning office should be able to inform you of that as well.  It could be, in example, they restrict the building to no more than 5 units based on their density restrictions.  Similarly with the mixed use idea.   

If the property is foreclosed for unpaid taxes you could approach them to see if they want to sell once they, if they, become owners or if the owner of the tax obligation is known you could approach them and buy their tax certificate and foreclose it yourself.  Depends on where the property is for those details to some extent.  Tax foreclosure and certificates are not the same in all states and jurisdictions.  

Otherwise you might be able to find the owner and see if they will sell you the property and then simply redeem the unpaid taxes.  

Sue,

On the boards it is best to share the full set of note information so as to reduce speculation or lessen the amount of variables those trying to help have to solve to get you what you are looking for.

To recap the loan you are discussing:
Original Loan Amount = $30,000
Interest Rate = 10.00%
Amortization Term = 240 Months
Principal & Interest Payment = $289.51

After 4 periods:
Total Sum of Payments = $1,158.04
Total Sum of Interest Paid = $998.03
Total Sum of Principal Paid = $160.01

Balance Remaining after 4 Periods = $29,839.99

To calculate the balance by hand:
1. Find the period (monthly) interest (Loan Amount x Interest / 12) = (3,000/12 = 250)
2.  Subtract period interest from monthly P&I payment to give first month principal (289.51-250 = 39.51)
3.  Subtract period principal from loan balance = (30,000-39.51=29,960.17)
4.  To find amounts later in the amortization repeat steps 1 through 3 using the loan balance reduced by the principal from the prior period.

Period 2 Principal payment = 39.83
Period 3 Principal payment = 40.17
Period 4 Principal payment = 40.50 - Balance Remaining $29,839.99

For the sake of being complete if you so wish to find the P&I Payment for the loan that formula is:
= P [ R (1 + R ) ^ N) / (1 + R) ^ N – 1)]
Where: P=Principal; R=Rate; N=Periods

As a matter of mentioning, loans in the real world can and do have payments which are not applied to loan balances in time and accept principal payments less than what is due.  These situations can obviously make it hard to reconcile a balance.  If you are analysing a loan for purchase the seller of the loan and/or their mortgage servicing company should be able to provide you with a detailed accounting of payments and how they are or are not being applied to a borrower's account.  

Sue,

The desire to learn is admirable.  Careful not to get ahead of yourself though.  

A Security Instrument is a term used generically to refer to specifically a mortgage, deed of trust, or security deed which grants certain rights from a property owner to a creditor to secure a debt.  

So to be clear, what you asked for, what is a security instrument - is often dependant upon the state in which the subject property resides and local custom where states which operate in title theory will often use a deed of trust but a mortgage may also be used from time to time. A lien theory state uses a mortgage and does not provide for use of a deed of trust. Those two separate security instruments operate differently but achieve similar results - ergo the security of a debt.

A Warranty Deed is not a security instrument as it does not grant interest to a creditor it transfers interest in real property from a Grantor to a Grantee.  AKA Seller to Buyer.  

You do not want to make a habit of trying to make what you see bend to your idea of what you think you know as you will mislead yourself while trying to learn.  Warranty Deeds, Special Warranty Deeds, Quit Claim Deeds and Bargain and Sale Deeds have granting clauses and habendum clauses which create the conveyance and identify restrictions and covenants of that which is being transferred among the parties.  The language while somewhat common is not uniform so details do matter.

The brief recital above is out of context to the rest of the text but does not resemble a conveying clause which would typically contain words such as "convery, grant, sell, warrant...etc".  So we cannot judge by your post what you are actually looking at.  In general it would be of concern for a deed to carve out a conveyance subject to a deed of trust.  While not fully improper, the interests being granted are by way of the language of the text limiting a fee simple interest from being given. 

Without more information it is not possible to give you information which you do not know that you don't know about what you are or are not looking at.  Under that idea, it is often better to play nice on the boards so those who do know more can be of better assistance.  

@Tim S.

The sample QCD text with the names changed looks like mom made a trust for the kids and their spouses, seemingly daughters but could siblings from different fathers and thus different last names. No great way to understand family relationship, nor does it overly matter. So to be clear using the example, the Grantor is Georgina Smith and that should be the original borrower listed on the note and mortgage. David Jones is now the trustee of Georgina's assets which includes the subject property and those assets, or at least this asset, is being held in trust for the set of kids and spouses as named in the title of the trust. Since Georgina Smith should be the original owner and she transferred into her trust which benefits her named list of folks that would not be a violation of DOS.

Now, none of that means I care for your Seller's response.  Sort of a lame answer and sort of illustrates they don't seem to know much about the file.  I already pointed out above why there is more to being concerned about title transfers than simply whether the loan is being paid or not.  As to the previous owner of the loan, while that owner may be shady, that may not affect the actual loan itself.  Moral of the story, that is sort of due diligence you do prior to purchase, which includes obtaining an abstract of title to see who owns the property and what liens are present along with their priority and the historical ownership of the loan as recorded.  

Now in the follow up post you mention the QCD is in 2008 and there is a modification in 2010.  Who signed the Modification?  Was it the Trustee?  (David Jones)  As of 2008 the trust owns the property on behalf of the borrower for the benefit of the list of kin (as we assume).  You would like to think this conveyance would have been caught during the modification but some of these things fall through cracks.  Clearly.  

At glance none of this is cause for alarm as like I said, based on the example data it looks like it is family planning.  Albeit, family planning and paperwork defects.  Those defects do not jeopardize your priority or interest in the property but I would be concerned about the implications to a small degree regarding who actually signed the MOD.  Just as precaution I might venture to clean that up with proper trust acknowledgements from good ole David as needed.

In regards to occupancy, my guess is mom may not reside in the property any longer.  That said, occupancy is not a breach of the original loan.  The occupancy stated in the modification, if at all, may have been incorrect depending on when or if mom vacated the property.  The difference there is you might give a PR more relief than an investment property.  Not cause for concern at this stage since what is done is done.  

To address @Jay Hinrichs question - the modification was done in 2010 and depending on the month and terms change would be subject to Dodd Frank, specifically Ability to Repay and non-deceptive practices.  Unless Tim modifies the loan he isn't offering credit, the credit already exists.  Any violation from back then could be a defense raised by a borrower in the future.  

The mailing address on an AOM is typically just the return mailing address for the company who prepared the AOM.  That may or may not be the current owner of the loan.  The current owner of the loan is the last AOM recorded Assignee.  The Assignee is listed in the body of the AOM under the Assignor.  

@Tim S.

Yes Tim that does change some ideas.  So the grantee is a trust and the grantor and grantee share the same address in a different state.  Is it a residential address?

Is the borrower the trustor of the trust?

When you say the transaction was a gift, how are you deducing this idea?  Because the consideration in the QCD is $10?  
What state is the subject property located in and does that state have a transfer tax and where the transfer taxes paid and if so for what amount?  - essentially trying to see if we can understand if it was indeed a gift or a sale.  

Just because the grantee is a trust doesn't automatically make the deal exempt from DOS. Some subject to buyers are savvy and attempt to disguise sales in trust. The grantee needs to be a trust for the benefit of family specifically spouse and/or children of the trustor.

Just for the record what is the full title of the trust document?  Bear in mind these items are held in public record so you are not violating privacy by disclosing information found in public record on BP posts - it is already private.  
Do you understand who is occupying the property?  Is the property being used as an investment property?

An exempt trust transfer would look like this:

GRANTOR: Billy Borrower, a single man

HEREBY GRANTS TO:

GRANTEE: John Jones, Trustee of The Billy Borrower 2016 Trust

You can still issue a notice and ask for clarity to understand who the parties are in the transfer and if the original borrower still has a form of ownership interest in the real property.

Not having a payment history is not the same as not having a valid account history with prior servicers.  It is in fact mandatory by regulation.  

Paul and Bob are right, you should seek evidence through the servicers.  Particularly the prior servicer for the Seller.   How did your servicer come to the $75k number?  Something they received is giving them an indication of balance, I would inquire with them and then reconcile that with information from the prior servicer.  

I am not sure going back further than that really helps you.  That likely depends on how long the seller held the loan.  If no payments were made during the seller's ownership than obviously the balance would be the same as it was upon their purchase which should at the least have been documented in their contract.  Perhaps inquire with the seller who the outbound servicer was that transferred the loan into the seller's servicer.  Though, it sounds like this was being self-serviced by your seller.  

The whole 5 years of delinquency, which I am reading as default is an additional concern.  Many states have laws that protect consumers from stale collection efforts after 4 years.  The account not having a proper accounting further increases the concern that time may have run on this loan.  In addition, you have, by the sounds of it, alerted the borrower to the issue of not having proper accounting of the loan which can assist the borrower in affirming defenses against your collection efforts and any potential foreclosure actions if it comes to that.  

Tim, the grantor is the one giving title to the grantee.  The deed is a part of the chain of title.  It if was unclear it wouldn't be a valid deed.  

As Pari rightfully pointed out a transfer into a family trust does not alienate the mortgagee and thus is not grounds for triggering due on sale. As you stated Tim, the grantee is not a trust but rather a natural person who does not bear the same family name as the original borrower so this sounds like a violation of the DOS. The address situation is not a definitive indicator of family relationship and it is not fully clear to us without seeing what you are looking at - I am inclined to think the address is in fact the subject property.

The due on sale clause resides within the security instrument (mortgage or deed of trust) and note.  The security instrument and note is signed by the borrower at origination and that clause remains in effect until the instrument is released from the property.  There is no additional execution of the clause by grantee or grantor that is relevant to the world.  Sometimes a grantor may sell the property subject to the existing mortgage and in doing so draw up paperwork which obligates the grantee to be responsible for the loan.  That paperwork, if created and executed, does not bind the mortgagee in any fashion, it would merely be an agreement between the grantor and grantee.  The mortgagee can agree to allow for the assumption of the loan by the grantee but that would require a written amendment to the note whereby releasing the original borrower (grantor) and obligating the new borrower (grantee).  The mortgagee is not obligated to agree to any assumption.  

The seller of the loan claiming it is not an issue may be answering that idea based on the service of the debt.  It's not an issue because some payments are being made is how I would read the response.  There certainly is truth to that idea in some sense.  The loan is being serviced and that is a good thing.  However, you as the mortgagee do not have a contractual obligation with the grantee.  This means the grantee should not have access to the borrower's account and should not be treated as a borrower since they are, in fact, not the actual borrower.  Unless of course you formally process an assumption for the grantee as mentioned above.  That is where the situation starts to get sticky, everything is "all good" while everything is being paid and taken care of.  In the event of delinquency or default the original borrower is the only party you can contact and is responsible for the loan.  

Further, the grantee is not under the obligations of the security instrument and note so property insurance technically is an issue in the event a claim ever needs to be processed.  The grantee is not obligated by the security instrument to name you, the mortgagee, as the loss payee.  Additionally, dispersing a claim to a party that is not the borrower who is contracted with the mortgagee opens you up for legal issues.  Not ideal in any manner.  

So as you can start to see, while things may be "all good" because the loan is being paid we shouldn't assume that everything is really "all good".  The underlying issue with a non-assuming grantee is they have less of an incentive than that of a contracted borrower.  Delinquent payments do not adversely affect their credit.  Default and foreclosure do not adversely affect their credit.  They are not bound by any of the features in the note or security instrument at all.  We have not even dove into issues arising in the event of a non-assuming grantee filing for bankruptcy.  (complicated x100)  While it may be nice they are making payments, it is problematic to brush off the non-assuming grantee as if there are not other ideas to consider.  There are numerous.

This is one of those examples of getting involved with things that a lack of experience can really back you into an uncomfortable corner.  The good news is you can certainly deal with the situation as the mortgagee.  Since the grantor is in violation of the DOS you can issue a notice to the property and last known contact information for the actual borrower/grantor.  Hopefully that prompts them to come to the table whereby you can address the transfer and consider processing an assumption for the grantee.  You are entitled to underwrite the grantee and you do not have to approve the assumption.  You will have some restrictions in regards to changing loan terms such as interest rate and maturity.  If the parties are uncooperative you can accelerate the loan and if they do not pay begin to foreclose.  While it is not always the case, many times grantee's have less than stellar credit and thereby didn't qualify for a loan in the market to actually buy the property outright.  However, there is a chance they might, in the event you have to accelerate and foreclose, they (grantor and grantee) can figure out among themselves how to pay you off.  Do not step out of your shoes as a mortgagee in your role.  Again, there agreement is by and between them and your agreement is by and between you and the borrower.  

Good luck.

You can simply ask your servicer to disclose the current owner of your loan.  There is a very high chance your loan is simply held in a security and the current servicer acts on behalf of that organization for all bond holders.  

Fannie Mae and Freddie Mac do not hold loans in and of themselves.  They pool the loans into a trust and sell the interests off as securities.  So, when you say "I was able to find on Fannie/Freddie who holds my mortgage." what exactly do you mean?   Who did you see as the owner and how did you come about see it?  Those are two separate institutions and chances are the entity which has legal ownership of your loan also holds the note which will not bear either Fannie or Freddie's name in whole or in part.  

If you look at the public record of your subject property you will see any assignments of the mortgage or deed of trust which will tell you the legal owner of the loan.  You can look at public record for free via the web if the county is on line or via a report as Mike referenced above.  There are certain circumstances which a note will be separated from its legal owner but I don't think that really is going to help you here if we provide details of how and why that happens.

If the note was assigned to MERs, as Cody mentions there are two levels to see in MERs as the borrower.  One will show you the servicer and one will show you who the note has been endorsed to while MERs has been acting as the agent of all those MERs members/owners.  

Which brings us to....what is the point of this?  As Wayne mentioned the defense of "produce the note" is ill founded advice.  If you are facing foreclosure do not rely on such ideas.  Your note is probably not lost and if was a Lost Note Affidavit can resolve that issue for the mortgagee with ease.  Further, in most jurisdictions nowadays, the court or trustee will check legal standing to bring about a foreclosure meaning they will check before moving to the next step in the process.