All Forum Posts by: Jeff V.

Insurance would be a good start.

They should know if the borrower has filed a claim. They should be able to direct you on how to go about being paid off.

Hopefully they had the correct policy in place.

Jeff V

@Alyssa S.

You may have some contractors come and see how long it would take to repair the damages, or how long to repair the safety issues and get a better idea of what it will take to fix.

If its something they can do in a week or two, you may just offer to put them up in a hotel until the major safety issues are addressed.  

If your insurance covers loss of rental income that may be another source for capital during that time and may offset the cost of the hotel.

If its going to take longer than a few weeks, you may offer to have them stay in another rental property if you have one available until the repairs are made.

If none of the above options are available, then you may have to look at evicting because the house is not habitable and is too much of a liability.

I would definitely exhaust all options to keep the tenants if they have been good tenants.  Sounds like they are understanding that sometimes things happen beyond our control and are willing to work with you.

While I don't have a definite answer for you, I hope this helps.

Jeff V

@Laila Farally

Definitely check the lease.

For commercial, the lease can be structures so that the landlord is responsible for any improvements to the building, OR it can be structured so that the tenant is responsible for improvements.  All depends on how the deal was put together.

Jeff V

@Neerav Patel

I'll break it down from my perspective given the facts presented.

There was an issue with the mechanical system, but you addressed it quickly and resolved the issue.  Nothing more to do there except maybe look for root cause or water source so that it doesn't happen again.

Next issue is the damage of their personal items.  Do the tenants have renters insurance?  If so, I would refer them to their insurance provider to replace their personal items.

I don't see how its your responsibility to replace their personal items if the lease requires them to have renters insurance.  The insurance should cover those things and they shouldn't be out much if any on the replacement of those items.

However, if you like the tenants and they have been good payers and low drama, it may not hurt to let them know to contact their insurance for repair/replacement of their personal items, but offer them a discount for the trouble of having to handle that.

You may give them a sense of entitlement in the process where they feel like they deserve a discount every time something minor happens.  

If you decide not to give them a break, they may hold that against you and may make future relations more tense.

Personally, I would stick to what is in the lease unless the tenant goes over and above and went down there and figured out the problem and offered to fix it then I would give them a break definitely because they were looking out for my best interest.

Sounds like they are just trying to get a freebie.

On the other hand, if you don't have a "Renters Insurance" clause in your lease, it may be a good idea to revisit your lease and add that policy to cover yourself from liability for the renters personal items in the future.

Hope this helps.

Jeff V

@Raj G.

First thing, did you get a copy of the insurance binder that shows you as "loss payee"?

If you did, then I would include the missed interest payment in the figure that you provide for payoff.

If you did not get binder, then your "friend" could theoretically collect the insurance money and not pay you a dime, then you would be forced to foreclose on the burnt building to try and recover the capital.  Being the value is obviously diminished on the collateral, you would have to go after a deficiency judgement to collect the remainder owed.

Note to self....  always get the insurance binder to protect yourself from loss.

That's what I would expect from this scenario, but I'm still fairly new to the lending/note space.  Interested in hearing from more seasoned lenders as well to be sure I'm on point.

Hope this helps, 

Jeff V

@Steve Vaughan

Is this a typical business service for a bank to offer?  I've never heard of that, but I've never been looking for it either.

How did you find out about their "Contract servicing dept"?

Interesting.

Jeff V

Dan,

Welcome to BP.

I would recommend reading The Millionaire Real Estate Investor by Gary Keller.

Also feel free to reach out if you have questions as you go through your list of tasks.

Also were trying to get together a few of us in the Ft Polk area for networking. There is a Meetup group on meetup.com as well as a large active group in Lake Charles.

Jeff V

Lauren,

@DJ Savoy fits the description off the top of my head.  He's doing great things in the Lake Charles market.

Jeff V

@Shiloh Lundahl

Sounds like this was your first seller finance deal. What did your screening process look like when lining up your buyer? Did you do the standard Criminal Background Check, Credit Check, Eviction Report for all 50 states along with monthly salary 3x PITI?

Curious if proper screening could have avoided this one or if screening was done, but this happened to be that small percent chance where the stars lined up and disaster struck.

Having this happen, have you since implemented any new screening measures from red flags you saw after the fact that may prevent this from occurring again?  

Or a more generic question is do you have any lessons learned from this that may help going forward?

One lesson that I see is that a larger down payment is required for a seller finance deal if you are on the seller end due to the extra expense of foreclosure.  Lower down payment is a better candidate for Lease Options.

That being said...  Typically you want to do longer lease options if your the buyer and shorter 1 yr lease options if your the seller.  You mentioned doing a 4 yr lease Option...  Curious why a 4 yr on the exit?

I was thinking...  lets say you need 20% down for a seller finance deal but your buyer isn't there yet.  You could take 5% Option Consideration down and then have them renew annually with an additional 1-5% until they have the 20% required.  Then they execute their option to buy using the Option consideration as their down payment and you seller finance the remainder.

This gives you multiple years up front of rental income, proof of their ability to pay, easier to come up with down payment, increases your spread from the underlying loan and makes the deal more solid and profitable over the long run.

Just an idea, interested in hearing your thoughts on it.

Jeff V

@Daniel Harnsberger  

You may reach out to @Bob Green to see if he can help with  your situation.  I believe a few of his products may fit what your looking for.

If not, he can likely provide some insight as to what issues you need to address to be bankable.

Jeff V