All Forum Posts by: Hal Thompson

@Thomas S. "The hardest hit in a downturn are those with large equity in a rental. Any reduction in value comes out of the equity. The more the equity in a property the greater the financial loss if there is a forced sale."

This statement makes no sense. The more equity you have in a property, the less financial leverage. Therefore, the value of the property can fall more without affecting the solvency of your position.

While rents aren't per se related to the amount of equity in a property, to the extent that property value usually bears a relationship to rental value, they are in most practical circumstances. Therefore, the higher your equity, the higher your likelihood to be able to service the debt in the event of a crash, because value/rents can fall more before affecting your ability to service the debt.

Low equity and high financial leverage are what kills in a crash.

I'd be interested to know if anyone has seen any deals fall apart because of Chinese capital controls. It is rumored that people are walking away from deposits, but I don't really trust what the news reports, so I'd be curious if anyone has actually seen it.

http://boingboing.net/2017/01/28/chinas-capital-controls-are.html

@Adrian Chu If you have any off-market SFR deals in the Seattle area, please PM me. I took a look at some of the deals you have done. Definitely interesting flipping non-core condo properties, but don't transaction costs grind you down? Much more tax efficient to wait at least 2 years and 1033 exchange...

@Hongda Zhao Seattle is in a bubble fueled by high paying tech salaries, foreign investors and cheap debt. In such an environment, fundamentals go out the window. While rent growth is strong, even it can't keep up with this kind of crazy property value growth. Unless you are Airbnbing a house for $400 a night (and keeping it relatively full), you can probably forget about anything other than a 3 cap. And most likely, you are talking about negative cap rates for most people investing in the market at this time (lose money in order to try and flip the property for a gain in two years). Outlying areas will be more sane, but they also aren't seeing the kind of property value growth as core Seattle.

@Jodi Gauthier
First, make sure an auction isn't already scheduled for this property. Check the property records for all liens, judgments and notice of trustee sale/mortgage foreclosure. If you don't know how to do this yourself, then pay a title company $100 for a title report. You need to know how close the bank is to taking back the property. If they haven't initiated the foreclosure process yet, you have more options. If they are close, some of the following steps will have to be rearranged or eliminated.

Second, try to find the previous homeowner. Facebook is good for this; I've had pretty good luck either contacting the person directly or through their friends on Facebook. I was able to get in contact with someone who was holed up in a condo unit and trying not to be found using this method. If you get creative, you'll find the previous owner. If you find them, offer them $500 for a signed and notarized authorization to discuss their loan with the bank, and tell them you may try to buy their note and write off their debt, thus helping them out.

Third, check bankruptcy records (pacer.gov) for the homeowner and see if he has been through bankruptcy. Sometimes, the bank has participated in the bankruptcy and obtained a release from stay from the court so they can foreclose. This will give you a contact (usually a law firm), that might be able to direct you to the department of the bank handling the debt for this property. This can be useful with major national lenders like Bank of America, which have many different offices that could potentially be dealing with this loan.

Fourth, contact the bank and attempt to purchase the note. It's possible they have already written down/off this loan, and are willing to sell it for a discount, especially if it's in a non-prime market in Texas. It will take persistence to find someone who has the authority to deal with you at the bank, but eventually you will get there if you keep trying. Document/log all interactions you have with bank employees and take notes of what was discussed, with whom it was discussed, and the date/time it was discussed.

Fifth, if at this point the bank has blown you off and is trying to foreclose, you can file an action in court to stop the foreclosure. It doesn't look like there is a statutory process for this in Texas, but you can just ask for a preliminary injunction. In most states, the lender has to give you a payoff for the loan if you are the record owner of the property, and even if this isn't by statute, you can make an equitable argument to the court that you should win. After all, you are the record owner trying to pay off the bank (although at this point, if you haven't been successful in negotiating the sale of the note at a discount, you will probably end up having to pay off the loan in full). Use all the evidence of your attempt to pay off the bank as ammo for why the sale should be enjoined and the bank needs to give you a payoff. The court isn't going to allow the bank to wipe out your equity if you are making an attempt to satisfy the debt.

Renting out the property isn't a bad idea to get back some of your money, but make sure you only do a month to month lease, since the renter may be able to sue you for damages if the bank forecloses and successfully invalidates the lease.

Looks like the Nevada Supreme Court has saved hoa lien investors again.

http://caseinfo.nvsupremecourt.us/document/view.do...

The court has ruled that the former NRS 116 did not violate due process.

This sets up a very interesting conflict between state and federal courts. Most law texts will tell you that decisions of state supreme courts are binding on federal courts interpreting state law under diversity jurisdiction. In addition, federal appeals court decisions are not binding on state courts. However, the decisions of federal appellate courts ARE binding on federal district courts. So this seems to create an odd conundrum in the federal district courts that are hearing these hoa foreclosure cases, since there are two conflicting sources of binding authority. It seems like the Nevada Supreme court's decision should win here, but it's not 100% clear.

This conflict greatly increases the likelihood of this issue receiving cert in the U.S. Supreme Court. Will be interesting to see what happens going forward. In any case, this investors just bought themselves another few years of rents at a minimum.

Interesting update on the whole Nevada super lien thing. The Nevada Supreme Court will issue its decision in Saticoy Bay 350 Durango 104 vs. Wells Fargo tomorrow. It is listed on the forthcoming opinions site for the Nevada Supreme Court today. It is likely the court will address the constitutionality of the former notice provisions in NRS 116 relating to condo foreclosures. This will have a major impact on what happens with Nevada hoa foreclosures going forward.

It is generally the case that property taxes have priority over all other liens. You always have to be wary of exceptions, and read that statute carefully to make sure there is compliance by the county, etc, but in general most tax liens are going to wipe out hoa dues. Most super priority HOA statutes put them in front of a first mortgage, but the condo declaration is still subsequent in time to the tax man.

@Account Closed Very nice remodel, congratulations!

I have a question about the returns. You say you are making $100/month per unit. Doesn't this seem pretty thin, even with only $60k remaining in personal capital? Since you are chaining your purchases under the BRRR model, do you worry that a downturn in the market would put your rentals in the red?

@Wayne Brooks Right, but the safe harbor doesn't do anything to speed up foreclosures. It allows the bank to sit on its laurels as long as it wants, and then only pay a de minimis amount when it does eventually decide to foreclose. It also penalizes third party buyers by forcing them to pay all hoa back dues, thus making the sale at auction less likely. The only explanation for the apparent hoa foreclosure madness in Florida is the incredibly slow foreclosure process that basically guarantees you can hold on to the unit for years before the bank comes along.