All Forum Posts by: Dion DePaoli

Word of caution. Georgia is a very tough state in regards to license requirements. There is a bit of controversy over the the SAFE ACT language. Georgia requires the investor making the loan who will hold the note to have a license. The state of Georgia has contacted several different servicers, including FCI and fined unlicensed investors. This is on top of having serious issues with security instrument enforcement, in other words, you may not be able to enforce a foreclosure action.

This creates a second concept to be concerned about, one having proper licensed origination and the second having a license to hold the note and security instrument. I am not commenting on your particular situation in either manner but I do recommend making sure that your attorney fully briefs you on the situation and potential risks. As I understand there is conversation around the language of the law being pretty poorly written as to clear understanding and as such there are a couple points one can argue.

Because of this situation (investor needs lender license to hold), we no longer purchase whole loans in this state as is the case of several of the folks we know in the same our same note investing arena. Good luck.

Dave Van Horn has a firm that trade second liens with a good reputation.

There are some details missing to properly evaluate your desire. That said, you can possibly realize an increase in property value by submitting the improvements to the appraiser at the time of inspection. Whether the improvements you made actually increased the property value will be determined by the market the home is in.

The repairs you list do not strike me as promoting your property value up 20%. Putting a new roof on does not necessarily cause a property value increase nor do gutters. In a four-plex you only replaced one kitchen, so it is not all the units. These are items that will prevent value loss in the market place but not value increase.

Property values are a related range of similar properties. So you would really have to dig in and see what the value of similarly improved homes have. (remember your property is a 4 unit so only compare to other 4 units if possible)

Statistically roofs and gutters do not ad value as they are more of a maintenance item. However, if the roof had a leak or condition issue, then you might have realized an additional discount when you purchased it to cover the cost of repair. Whether that is a 20% discount has to do with the your purchase price and the value of the home at the point of sale.

Sometimes folks make the mistake of assuming there is no ceiling to market values and that is dangerous. REI purchase at discounts to FMV to avoid this issue. The opposite of doing that is presupposing the value will increase beyond the market and that does not happen that often at all. In layman terms, if you buy $100k home and put $20k in repairs, it does not mean your home is now $120k. More often it will mean you have an updated $100k home which the benefits are realized in the marketing time to sell the property and the diminishing of accepting any discounts for additional updating. In other words, you stand a better chance to capture a value at the top of the range of values opposed to the middle or bottom.

It is good to hear you have some progress. Recording the DOT will cloud the current owner. This may create an event in which their title company pays you off. I would record the court judgement awarding you the lien as well. That way it is clear why you showed up out of now where with a DOT against the subject property. It also makes the document public record which has the date of the award which pre-dates the properties previous DOT and FCL sale. Essentially pointing out all of the important details in public record.

You are not going to be able to use your DOT for any collateral. You do not have the full set of rights for the property. Also, you have no promissory note attached to the DOT so how and when you will be paid in order to satisfy your DOT is unknown. I would not assign the DOT to any party at all, leave it in the name of who it was originally executed for which hopefully also ties back into the court judgement. While the DOT gives you a fractured interest in the property its value is fleeting. What ever the face value of the DOT is written for the market value will be far less as there are costs to enforce the instrument and it is a defective instrument in the sense that it was not fully recorded properly at the time of the court order. Thus all of the problems you currently have.

I can not imagine any title company will offer you insurance now. Way too much of a mess to get into. If they did offer you insurance they would likely carve out most of the events you want insurance for as exemptions to the policy, not worth the money, IMO. But it never hurts to ask another company. The type of insurance would be a lender's policy not a owner's policy. You are not an owner of the property you are a lien holder on the property. Either way, I give the chance of insurance a 2 on a 10 point scale.

I think as the DOT beneficiary you might also want to find a new trustee and transfer the DOT accordingly. One that you are familiar with instead of the folks from the past. Get the DOT fully setup like it is supposed to be recorded and with a trustee. This will also help speed up the process of finding you if they come looking.

It might be smart to talk to a real estate attorney about the situation. You might be able to trigger the current owner's title insurance to pay out if you re-setup the DOT properly and serve a foreclosure notice to the current borrowers and their trustee and the previous owner, etc. I would explore some concept like that opposed to waiting around for the current owner to "find it" which can be years from now.

I would not approach the defendant without an attorney. From my layman side of the world it seems you have some damages and some remedies you can seek. You really would not want to erode any strength in your position right now by contacting the defendant and the defendant pays you partial and you loose all the good footing you have now.

While it is a little human nature to want to seek revenge and cause him some form of suffering do not let that cloud your better judgement. There is an undertone in your posts where you want to bring him to justice. Report him to this agency and that agency, etc. Write one letter and send it in to a couple agencies and be done with it. What you really want is the award the court ordered. Pursue that as the court already decided that is what you deserve for his dealings. Don't get lost chasing the wrong thing.

Bill Gulley, can you expand on the term of the lease being a violation of DOS?

Yes Hung, the conundrum or too little and too much. Too little payments from the borrower and they approach default. Too much payment and the borrower looses return as the capital is returned faster thus accruing less interest.

I didn't completely follow your question about notes having rates like bonds. There is a relationship, depending on what bonds you are talking about. MBS and RMBS bonds are made from mortgages so yes they look similar. The spread between US Government bonds and 30 year mortgage rates is thinning. On a historical basis, the US bonds have returned around 3.0% and today's rates are darn close to that.

The mortgage secondary market is broad and wide. The market involves institutional grade loans and sellers as well as private loans and sellers. Is it structured? Unfortunately, not really. By and large the secondary market is not a normalized homogeneous market. A dilemma that many new investors discover as they gain exposure. Not all loans are the same, not all investors and sellers are the same, not all data is the same. Not all trades take place in the same manner. The list goes on.

The last question is more of a theoretical question. A "fair price" by who's standards? There is more money chasing loans for acquisition in the distressed loan world than there are loans to purchase. So there is upward pressure on pricing. Most new originations are trading at the same par and premium levels they did in the past, the investors are just different in their market share. As with real estate, to some degree, finding a competent and capable trading counter-party for a transaction is a function of market exposure. The market in the past has been a bit more of a boys club. Although today, we see more and more private investor participants than in the recent past. I personally think the market will take a bit more time to find its equilibrium between institutional and private buyers and sellers. Nobody wants to be the next big headline in bad mortgage news, so the process is slow.

Hung, regardless of the performance of the borrower, so for all notes, your investment is secured by the real property pledged as collateral. In the event the borrower defaults, having some equity in your investment position allows you a chance to recoup the investment and costs of pursuing your remedies.

In the case of default there are essentially two paths, one is where the borrower causes you to be paid in full through a refinance or the sale of the property. The other path is foreclosure.

There being equity in the real property allows for the borrower to cover the costs of the real estate sale such as real estate agents, title and closing fees, etc and still pay you off. If there is additional equity, the borrower can walk away with a couple bucks.

In your foreclosure, you will have a chance to set a minimum bid level which you would derive from the sum of the fees, interest and principal owed on the loan. If the property sells at auction, you are paid off. If the property reverts back to you, you will need some additional equity to cover the costs of the real estate sale transaction.

Since in both paths, the most costly scenario is the real property selling in the open market. If we just round out a percent to be close to those costs, say 10%, then we understand our net recovery from the real property sale event is 90%. So every additional percent down from 90% is equity you would need to recoup your investment and costs in the case of default.

When you are making an offer on a performing loan you are evaluating the borrower's risk of default and prepayment. You will want enough equity to pursue the remedies afforded to you in the note and security instrument in the event a default occurs. So as the risk of default increases, your discount increases in tandem. When default risk is low, the discount will be small and vice versa. Loans trade for Premium (More than UPB), Par (100% UPB) and Discount (Less than UPB).

I agree with what Dave said, it is a function of the investor's comfort in regards to how much of a discount is sought. However, the driving force is default risk not just investor comfort. It is not practical to assume that loans with low default risk will trade for a steep discount regardless of the investor's desire. Remember too, the borrower's performance will earn equity in the property as they make their payments, provided the payments pay down the principal balance over time. (opposed to interest only)

Different investors have different risk tolerances. The investor's return comes from the borrower's payments and or the recovery value from the real property. As we saw above, having equity insulation as an investor is not the same as generating large returns. It is difficult in the open market to have both low risk of default and an opportunity to have a large gain in the case of default. We saw this above with the 10% UPB loan. It is more practical to view the purchase of a performing loan that defaults as more of a break even event opposed to a gain event. This is because other investors will take that risk, gambling on the borrower's repayment of the loan as the foundation of their return.

Chris Martin, this is not the same situation. This is a Regulation D investment, a securities sale exempt from registration. An investor whose purchase was exempt from registration cannot resell his or her interest without establishing an independent basis of exemption.

Purchasers in a private placement must acquire the securities for investment and not for the purpose of further distribution. If the purchaser acts in such a manner so as to participate in distribution of the securities to the public, either directly or indirectly as a link between the issuer and the public, he or she will be deemed to be an underwriter and the selling broker-dealer and other participants in the distribution, including the issuer, will be in violation of Section 5 of the 1933 Act.

Each of the purchasers must intend to acquire for investment at the time the securities are purchased. Whether or not investment intent was present will be determined from all the circumstances surrounding the acquisition. Such circumstances would include the financial capability of the purchaser to hold the securities for the long term and whether the purchaser signed a letter of investment intent. The amount of time the securities have been held (the holding period) is one of the factors in a hindsight determination that an investment intent existed at the time of purchase. A two-year holding period is deemed to be the bare minimum.

Additionally, in all private placement offerings, the subscribers must be formally accepted by the issuer. So the Fund does not have to recognize any private sale that is/was conducted.

Predominantly, a sale feature is not offered in a Reg D investment however a Redemption is offered. You as a share owner can redeem your share/interest from the issuer not sell them.

Hung Nguyen and Will Barnard, Wayne Brooks is correct and it is actually good Hung asked. I would presume that is a knee jerk reaction many folks have. "Of course it is a good deal, look at all my equity....". As Wayne points out, when you foreclose you charge all of the advances, interest arrears and unpaid principal. That is all you can collect. A property with this much equity could be simply sold (more likely) by the owner and your lien would be paid off for the sum of due. In that sense, both paths yield the same money to the investor.

The question speaks to the exact point I made in the thread, one of the base lines without consideration to the other can be a very misleading story. In this case, 10% FMV must be a good deal. That is how Hung looked at it not realizing the deal is really 10% FMV and 100% UPB. In this deal, you shouldn't loose your principal investment but you may not make a bunch of money either.

William,

I agree with Bill, you are going to need a lawyer, more than likely in two different areas. From the outside looking in, you have issues with the DOT and its perfection (recording). A real estate attorney will be able to help you start to sort through this. The post does not afford some details but there is a chance that you still have a interest in the property from the unrecorded DOT.

You have a DOT that was executed by the Grantor believed to be foreclosed and it does not sound like your DOT or interests were acknowledged in the DOT. The DOT that was foreclosed would have required title insurance, so there is a chance you might be able to make a claim with that provider. This might be a Quite Title lawsuit, which might trigger the title insurance companies to step in.

Between the title company and your attorney, you expected for the instrument to be recorded (perfected). The instrument was not recorded. This may be a claim that can be made on one or both Error & Omissions policies.

The lawyer you had arguably did not complete all of his/her duties to protect your interest. That lawyer may have liability to the financial harm that has fallen on you due to the seeming negligence. I think I would start with the real estate side and checking into the DOT before jumping on this. The real estate side would provide more fuel for this fire. Going after an attorney is tough and like I said above it is a specialty by some lawyers.

In my own speculation, you have an unrecorded deed of trust but the court ordered judgement is in court record. Which I would think has to account for something. I suppose whether that is your responsibility to ensure the perfection or another involved party would have to be understood. You might be able to gain a little more insight if you read through the judgement. If the judgement is specific saying Defendant will grant a security instrument and it defines who has responsibility to perfect said judgement, then the court order was not followed. If the judgement just calls for the security interest but does not define whose duty it is to perfect, there will be more to this and it will get complicated. But the judgement in court is support of your claim and it passed through court, which is better than a DOT not ordered by a court. In that sense, the court order might be able to be used to establish a superior interest in the property. Again, not an attorney I am speculating but that is the angle I would talk to an attorney about.

I am not trying to tell any of this will work but I am giving you some topics of discussion to chat with attorney's about. There are many moving pieces and the potential strategies are different in their body of law and might require different specializing attorneys. I would start by interviewing a couple real estate attorneys. They would be able to talk about the DOT and claims on title. They also might be able to handle an O&E claim, depending on which of these is more viable.

I would then go interview a couple of attorneys who handle attorney lawsuits. Some of these folks might be able to handle everything from soup to nuts. That is why I would seek the RE attorney first to fill out your position and then carry that feedback into discussions with this type of an attorney.

After I was done collecting information from the attorney interviews and following any other tangent they suggest or comes up in conversation. I would choose one or two for the case. There might be a logical hierarchy to this as well so you might pursue one first and the next second. I would spend some time and a couple dollars to organize the file. Go to the court house and get any missing judgement paperwork from your case. I would also pay for a historical title report on the Subject Property and put it in the file. It might be you leave a copy of the file with one or two attorneys for them to briefly review and offer you a game plan. I would then choose the best plan and attorney(s).

I think if you have an understanding of the talking points here from a 50,000 foot overview you should be able to find help. The attorneys may have more to add or may not agree there is a viable path to all of the situations, but I have to think one of these is a road for you. The story is big with many moving pieces. It may not be desirable for some attorneys so I would say do not get discouraged interview a couple so you get a feel for their thoughts on the matter. From a RE attorney side, you will want attorneys with real estate litigation experience don't settle for an attorney who simply runs a title company or alike with no court room hours.

Good luck.