All Forum Posts by: Dion DePaoli

The issue you have which was touched on but I will highlight more is you are a single member LLC. As far as the IRS is concerned you are a disregarded entity and are treated like a sole proprietorship. As noted above, some states do not allow the formation of a single member LLC at all. A simple remedy is to add your spouse or relative into the LLC which then forces it to qualify as a partnership.

As far as liability protection, the LLC affords you the same protection as other incorporated entities including asset protection of personal assets and charging orders on the assets of the company.

If/when the concept is ever challenged due to some legal complaint or civil compliant then the examination of each LLC will take place. If each LLC functions as a stand alone operation which not only includes bank accounts, but also meeting minutes and proper resolution documentation like operating agreements and alike then they will be viewed and treated as separate entities and the only charging orders could apply.

If you fail to keep those books and records then the court may knock you back down to a sole proprietorship and reject granting you the limitation of liability of your personal assets and those of the companies.

The use of single-member LLC to hold title to individual real estate assets (as opposed to multiple properties being titled in the name of one entity or individual) is used to limit liability risk, creating "bankruptcy-remote" special purpose entity standards, and also to facilitate tax-deferred, like-kind exchanges under Section 1031 of the Internal Revenue Code.

How you structure the ownership of the asset LLC and management LLC is sort of up to you. The asset LLC could be owned by the manager LLC as a subsidiary, which functions as a compartmentalization of the liability of the asset. It is possible to setup a partial interest from the manager LLC and the rest to you as the natural person, who we will refer to as the investor. The investor can be a natural person or multiple natural people or other LLC. Putting the manager LLC gives authority to the manager over the assets or you will have to document out the relationship just like you would with stand alone manager. For each asset LLC.

And there in lies a little bit of a trap. If your asset LLC rolls up into your manager LLC and pays you as the investor you will have a little less administration over all of the business activity. Since the manager, who manages, has an interest in every LLC the manager could make capital expenditures as an owner of each LLC. If the manager is not, then you have to debit and credit the manager just like a third party. That little concept can pierce the veil if not followed.

If the manager makes a capital advance and you do not properly credit and debit each LLC, then you have co-mingled funds. You are now one entity. Ok, well it's not that black and white but you get the idea. If life get's in the way and you don't treat each and every unrelated entity as an unrelated entity, you can loose the unrelated concept and they might be able to pierce the shell.

As Will pointed out, using the manager LLC to collect and be the public brand is fine. He also added, you must remit to the actual asset LLC. The asset LLC must then remit to you the owner.

So, to summarize my winded ten cents. When you form single member LLC, that is a bit of loophole. What you are saying to the world is that LLC is separate from me and my personal assets. So then, once you make that statement, you must live up to it. The entity must be different than you and any other entity you own. It must act like it does not know you and treat you as any third party business would in the market place. No co-mingle funds, separate bank accounts, separate operating agreements, etc, etc.

In my suggestion, with the manager as an interest in the LLC. You remove a little bit of administrative red tape. The manager is an owner in the asset LLC, can go in its bank account, can get paid and can advance capital as an owner. Fundamentally the manager could be treated as an asset manager and capital manager. Where it manages your money, the investor money, in the assets held in each asset LLC.

What do you have going on that is exciting?

We are selling off a pool of 36 loans in a cherry pick fashion. Some of the loans are sub-performing and re-performing. We own all of these loans. This is first come first serve.

Loan characteristics (WA = Weighted Average):

WA UPB 71,869
WA BPO 58,404
WA LTV 1.45 (145%)
WA RATE 10.44%

1 loan is a Mobile home, the rest are SFR.

State UPB ($) BPO ($) Ave Rate (%)
CO 1 33,071 41,000 11.00
GA 1 110,353 41,000 10.00
IA 1 69,730 39,000 11.00
IL 1 128,754 39,000 10.00
MO 2 98,228 70,000 10.50
OH 1 42,008 34,600 11.00
OK 1 39,547 35,000 11.00
TX 28 1,611,195 1,486,885 10.55

The table above is the state concentration. First column, state, second column is the number of loans we have in that state. Third number is the UPB (Unpaid Balance) as of 12.1.12. The fourth column is the BPO (Broker Price Opinion) value as of 12.15.12. The fifth column is the average rate. (I don't know how to make this table look better, sorry)

Prior to issuing the pool we must have an Non-Disclosure Agreement on file from you, the potential buyer. Further vetting may be required on a case by case basis at our discretion.

If you have interest feel free to contact me. If I am not familiar with you, please include a little background on yourself when you reach out. Please don't respond asking to show you the pool without a brief background that ties back to your capacity and competency in purchasing loans. We will work with all levels of investors.

I am happy to address any questions as needed.

You can always search BP or post specific questions related to the acquisition, management and disposition of notes.

There is also a couple of threads here on BP which has suggestions for books to read and other threads with specific questions.

That is a interesting point to ponder. Let's explore for a moment.

What is the view on installment contracts in that regard?

Correct me if I am wrong, the note is a unilateral contract. The performance of the borrower (agreement to make payments as described) is the borrower's consideration creating the binding contract. The performance of the Seller/Lender is granting the property or funds to the borrower.

As a Seller/Mortgagee, my performance is conveying the property to the borrower. Essentially, the borrower could come into contract with zero funds and it is still binding, correct?

Bill, what were you thinking when you made that remark (highlighted above)?

This is not stated well. It is unclear what you mean by "pre-foreclosure". The only way to purchase the owner's equity (borrower) is to purchase the house from the owner. A loan is purchased at a discount to the principal balance, which does have a relation to the value of the home. Buying a note is not buying an owner's equity, it is buying the amount owed by the borrower. The unpaid balance, interest arrears and advances all aggregate to reduce the owner's equity which is the gap between what is owed and the home's NET sale price.

There are plenty of deals where the home is worth less than what is owed. You certainly would not pay par for the asset as the discount is where your profit is.

This is not entirely true. There is forgiveness by the "mortgagee". I can say that with conviction as I do it all the time. I can also tell you banks do it too.

The effect on a persons credit score will vary from person to person and can not be quantified into 170 points. Credit simply does not work that way. Other credit will affect how much your score will drop. If you have long term good credit, the damage may be lower and if you have no other credit the drop can be large.

Xing Zhu, you are leaving the other most important party out of the blame.

The BORROWER.

When you "borrow" money, the point and plan is to pay it back. Generally speaking, paying it back is not subject to terms such as only if my real property value goes up or stays the same.

I am not a politician so I don't need to blame it on congress or banks. IMO, the real blame is the consumer. With no market for such an event, the event could not have taken place.

In most cases, defaulted borrower's grandparents are rolling over in their graves. They didn't tend to operate in that fashion.

Bill Gulley, it is hard for me to come to terms with a cure through modification. I see the violation event prior to the actual creation of the note and I am just not sure if through a mod the issue is resolved properly. That said, certainly a step in the right direction and you have more regulatory experience than I do on related matters and many other origination issues can be cured through the same method.

I think that the licensed party missing in the beginning, which negotiates terms between the Seller/Mortgagee and Buyer can be replaced later as the terms didn't get negotiated. So then, I guess the point/concept is, the loan needs to be negotiated as the licensee is expected to practice some form of fair practice. Hell, now that I say that, that is likely a whole other issue.

What happens when Seller/Mortgagee just align interests with an originator who might have Seller bias? Certainly a plausible event, look to home builders as an example. A seller in the business of Seller finance, finds a firm that stamps the loan, how will they judge the integrity of said originator?

I understand that typically, they are viewed as objective parties, more of a transaction agent than a party representative. However, doesn't that have a possibility of being a little skewed?

I would not purchase said note and then satisfy and re-originate, as you said that get's sticky with the equity. I meant have the original Seller/Mortgagee who wants to sell the note, sat and re-issue a proper loan.

If the loan traded to a third party and the third party was my seller, I would pass on the purchase.

I suppose though, to circumvent the issue you point out. The satisfaction of the non-complient note could be subject to a deed exchange (sale or form of DIL), which sends the equity for the balance back to the mortgagee who is trying to correct it and then essentially redo the whole darn conveyance and loan.

How do you like that theory of resolution, issues of borrower agreeing and making them feels safe while you briefly take possession back to cure aside. This can establish a par exchange and removing the look at the discount as a base for the mortgagee's true equitable interest. I don't think that would create a tax event for either party.

Certainly, for each his own.

IMO, whole loan investing is no more risky than real property investing. In most cases, it is possible to illustrate how it is less risky. This is also why banks do real estate loans opposed to being real estate investors.

Just because rules are in the market place doesn't mean the rules are bad. Every game has rules. You can't win unless you follow the rules.

It is common for insurance companies, such as the one owned by Warren to have mortgage exposure in their portfolio. More often, this is not a whole loan and is found in security form such as a bond or an interest in a securitized trust. Ginnie Mae securities, securities made from the whole loans that are insured by the US Government, are a pretty common hedge in insurance money and mutual market investment funds.