All Forum Posts by: Maureen Hannan

Marc Faulkner I should have mentioned also that the monthly payment is $1751.

Hi Marc Faulkner,

The big question--about how much equity the borrower has--I'm happy to answer here. (Other particulars may be better for PM?) It's an interesting one in this case. The borrower's wife had owned the home as an investment property--purchasing it for $515K in 2004. Not sure how much she put down on the house when she bought it, but in any event, by December 2009, the remaining loan amount was $420K and the appraised value of the home was between $540K (comp approach) and $550K (income approach).

When the couple separated in '07, a tenant had just moved out of one of the properties. They agreed that the best way to do the separation would be for him to move into the newly vacated rental property and pay her a market rent. Which he faithfully did (and subletting the downstairs apartment helped him to pay that rent).

He was transitioning from stay-at-home parent to freelance business owner (photographer), and he set up his photography studio in the home. Their 8-year-old daughter was able to go back and forth easily between the two houses. Things went along all right that way for two years, but then the two became involved in a custody battle. She asked him to move out and began making plans to sell the house. He knew I loved his daughter and cared very much for their family--and so he asked me if I'd consider the loan arrangement (allowing him to purchase the house from his ex-wife), so that he could continue to grow his photography business and be a fully involved father.

He had applied with different lenders for a mortgage and been turned down. 2009 was a particularly difficult time for getting a mortgage of course--and for a stay-at-home parent who was building a freelance business and income, it was impossible.

I'm a mom of four (which is where some of the emotion came in), I had the means to do it (though of course it represented a sacrifice), the appraisal gave me confidence in the home itself, and his perfect track record of paying $2200/month rent to his ex-wife gave me further confidence. The tenant downstairs was paying $1K a month and wanted to stay there long-term, so that helped also. (And I was advised by a couple of realtors that that downstairs apartment would likely always be easy to rent to a professional single person wanting proximity to the metro.)

At the time of maturity, he said, since the daughter would be 18, he would plan to sell the house, pay off the loan, and move. He's not particularly attached to the house as far as I can see--it is a way to keep his business going while also keeping things stable for his daughter.

The house is in good condition--I was last there a year ago. It's one of those small 1950s ramblers (3BR and also the studio apartment downstairs) that sits on a surprisingly large lot. It's an appealing site, backs to woods and parkland, is adjacent to a major area bike trail, and is walkable to the downtown area of Falls Church.

I am thinking all of this over. Once I have a better handle on whether I'm screwed by a poorly set-up note, I'll figure out how I want to proceed. Despite the borrower's strange reaction to my credit check request (and desire to fill me in on his dramas every month), we HAVE had a generally friendly, upbeat sort of relationship.

Hope that brings a little more clarity and context to this unusual situation.

Thanks so much,
Maureen

Brandon Turner That IS a convoluted tale. Well, if it's been all that much trouble there must be some gold waiting at the end of that rainbow. (At least, that's how the movie version would go. :-) I hope it works out for you. I think I'm going to go ahead and pursue getting my license. I've heard a lot of people say it's not actually the practical education they thought it was going to be--but it does seem to be a valuable thing for an investor to possess.

Jose Garcia Thank you for the warm welcome! I wish you the best as well.

Maureen

Marc Faulkner Ugh. Okay--I will do some more homework. I'm actually out of the country right now, and it's hard to check on all of the important questions you raise. I suspect the answers aren't going to be good. I'll try and reason through this and find out all of the answers once I'm back home next week.

Rents in that neighborhood are about $2400 - $2600/month, and the proximity to the metro station is one plus. And there is an apartment in the basement with private entry, so it's equipped to house two renters.

I do hope the scenarios you're describing don't happen. But I guess I should understand what the worst case would be--and figure out a plan.

Joel Owens Good reality check--and yes, I need to try and get out in front of this thing now.

Hard lesson to learn about not trying to save the world. I've benefitted so many times from the extraordinary generosity of others that I have lived by the rule of "pay it forward"...but this was one of my less enlightened decisions. Live and learn. I'll just do my best to be a squeaky wheel each month and figure out the plan for 6.5 years from now.

I think the toughest thing I've discovered about mixing business and friendship is that for many people getting help leads to presumption and a sense of entitlement. It may not start out that way--but if it's an ongoing relationship like landlord-tenant or borrower-lender, it tends to go into entitlement territory within about 18 months. Just my experience--I'm sure there are wonderful, happy stories of mutual respect out there as well.

Thanks, Brandon Turner I'll certainly check out those resources. While I'm not technically new, I did things a little bit backward the first time. Not entirely a bad idea to just jump in, diversify, and learn as you go...but there is much I need to get a better handle on.

One of the big things I'm curious about is whether most of the folks here end up getting their real estate licenses for the state they're in. What about you, Brandon? Do you hold a real estate license?

Joel Owens What a great suggestion. I'll do that. Thanks--I never heard of BPOs before.

Marc Faulkner it was an unusual situation. I actually did not sell the house to the borrower. I came to the assistance of a friend of the family at a time of real need--and at the time I hoped like crazy I was not making a stupid decision. Although emotion played into my decision, I did get an attorney to help me with the due diligence part of things. It was the borrower's choice to set up an interest-only loan--and based on what I knew and understood at the time, it seemed to be a solution that would fit his budget and also give me an exit strategy 10 years out. More and more, I am striving now to separate personal friendships from all of my financial decisions. In this case, I found myself dealing on a monthly basis with tales of woe and clients who didn't work out and dissatisfaction with life in general--all related to why the check is going to arrive a few days late. Since there was a longstanding friendship, the borrower has presumed quite a bit on my patience with hearing all of that in relation to payment details.

It's not a bad situation, all things considered. But it's an uncomfortable one. And in hindsight, it's certainly one I should have avoided.

Thank you for your insights. It's helped me a long to trace out the options and decide what's best for me in the long run.

Joel Owens Thanks for helping lay out the pros and cons. Everything you're saying makes perfect sense. This one it'll be best to hold on to. I do still plan to get a look at his credit and do a fresh appraisal on the house...Seems like a good idea to get current on all of that.

Many thanks,
Maureen

Tom Goans Thank you for your reply earlier. I do plan to have a fuller conversation with my financial advisor, once I know exactly what my options are. The topic came up because of a talk I had with him earlier this month. And yes, there are the tax implications to make certain of as well. I do think I'll relax, hold onto the note, and think of it kind of like a CD with a long maturity period.

Best,
Maureen