All Forum Posts by: Patrick Roberts

What is your plan if the underlying mortgage is accelerated?

I see this mistake a lot. You need to reframe your thinking. The principal and interest mix/percentages of a payment are based on only three variables - the interest rate, the outstanding balance, and the amount of the monthly payment. When a 30yr amortizing mortgage loan is made, the minimum payment is set at an amount will cause the loan to be paid off in 360 months using the above formula. There is no preset determination that payment number Z will be a X%/Y% mix of interest and principal. It is entirely dependent on the variables above for each and every month

The amount of interest paid in each payment is: the interest rate of the loan multiplied by the outstanding balance at the beginning of the period, and then divided by 12. It has nothing to do with which payment number in the schedule is being made. The amount of the payment that goes toward principal is Total Monthly Payment - Interest from the figure above. If you make the minimum payment each month for the life of the loan, then the original amortization schedule will align with the real life principal and interest splits. If anything changes, then the original amortization schedule is no longer accurate. 

If you refinance when you are ten or twelve or fifteen years into a mortgage, what will happen is the bulk of the new monthly payment will go toward interest because the total monthly payment will be dramatically less than what it was before the refinance. If you want more to go toward principal, simply pay more each month to accomplish this. The excess payment will go to principal and will change the interest/principal percentages.

For instance, if you refinance at year 15 and get a new loan with a lower rate and a 30yr amortization, then the new monthly payment will be significantly less than the original payment. However, if you continue to pay the original payment amount each month, not only will you save on total interest across the life of the loan, but you will also pay off the new loan sooner than what the original loan payoff should have been. This is because you are paying the same amount as before, but even more of this payment is going toward principal each month than in the original amortization schedule because even less of the payment is going to interest since the total interest charge is lower.

There is no breakeven point or calculation using your thinking above because there is no additional cost - your premises are wrong. The breakeven point on a refinance is the total cost of the refinance divided by the monthly interest savings. It sounds like your question should actually be about the opportunity cost of paying extra on the loan each month vs deploying that extra money eslewhere. 

I know this is hard to explain and understand with writing. I recommend trying to find something on youtube with visual elements if this doesnt make sense. 

Start with the goal and work backwards. What are you trying to achieve, when, and how much work do you want to put into it? How much risk are you willing or able to take? How much time to you have to spend on investing?

There are a million different ways to "invest in real estate." All depends on what you want to accomplish. Once you answer the questions above, you should be able to niche down into a strategy and specific tactics that are likely to achieve your goals. 

I would start with self-education. Also, in-person networking events are a great place to talk shop and get ideas and guidance. Charleston has a few meetups each month. 

I would not count on getting an extension on a loan with a balloon or bullet. You need to be able to refi out of it or pay it off. 

That was exactly the problem I ran into that led me to pay for attorney guidance. It's very ambiguous. The attorney I spoke with basically said that if you give someone a "business purpose" loan secured by their home with a 12%-18% APR (like most hard money loans) and they default and may lose their home because of it, you're going to have a very hard time justifying and enforcing this in a foreclosure.

I'm going off of memory here, but I believe there are still compliance items that have to be followed because the collateral is the owner's primary residence. It can be done (the SBA collateralizes borrower primary homes all the time), but it has to be done compliant with specific consumer finance laws (I think TILA and HOEPA were some of my attorney's concerns with this). There are also state level laws regarding this. For instance, in SC, any loan that is secured by a primary residence is deemed a "mortgage loan" which triggers specific consumer protections and regulation by BFI.

The advice I have received is that it's a kinda gray area and that if the collateral for the loan is the borrower's primary residence, then at least some consumer finance protections will likely apply and best practice is to be compliant with Dodd Frank at a minimum. I paid for guidance from an attorney that knows his stuff on this to figure out where to draw my boundaries because I was finding a lot of conflicting info when I researched this about 2 years ago.

If the house is sold, any and all liens on it would need to be satisfied prior to the seller get a single cent, unless you agreed to purchase the house subject to the existing liens (which you absolutely should not do). The seller may be able still sell the property as long as the transaction proceeds would cover the full payment of the liens; otherwise, this would be a short-sale and one or all of the lienholders would have to agree to a short payoff. There is also a possibility that the IRS is preventing the transfer/liquidation of any assets, similarly to a BK proceeding. I would consult with a real estate attorney on this question. I recommend either Ashley Donald at Legacy Title or Scott Sternberg at Sternberg Naccari and White. 

My guess is that the seller is electing not to sell the property because they wont receive anything from the sale due to the liens. As far as whether they would actually owe the 10% liquidated damages in this case for defaulting on the contract, that would likely be determined by the language and contingencies in the contract. Even if you are owed this money, actually collecting it will be another matter entirely. It will probably take a lawsuit to do so and even then, it sounds like the IRS is ahead of you in line to get paid. I would consult with an attorney on this as well. 

Anything specific that you're looking for?

 Might just be time to build a new forum and migrate. This feels like when a local small business grows into a corporate franchise - it permanently evolves into something different

 @James Hamling I like the idea of a barrier to entry, but I have never been a fan of that barrier being money. Unless the cost is unreasonably high, I think most of the people here exclusively for self-promotion will likely pay the fee regardless, which will incentivize BP to bring in more of them. I also know that I anytime I look at joining a community, meetup group, forum, etc, and see a required monthly fee or subscription fee, I usually decline. There are so many gurus and shamans trying to monetize this stuff through paid mentorships/groups/communities etc that I instantly assume that a required fee = get-rich-quick marketing scheme from some guru preying on people who have a mindset of "I want passive income so I can retire this afternoon."

I would prefer to see some kind of verification option that gives a visible marker on an account, such as a badge, that shows that the account holder has been vetted to not be a bot or a clown. The process for this could be an interview via either a video chat or in-person with one of the forum moderators/managers to determine whether the interviewee is A) here for the right reasons, and B) whether they will agree to the rules, with one such rule being a pledge not to use AI to generate posts or responses. If they are found to have violated the pledge, then they are unethical and should be shunned or marked as such with a different type of badge, like "Interact with Caution".

I see major changes coming soon to a lot of social media and communication modalities because of this kind of stuff. I get blown up every day with AI/bot cold calls, cold texts, and cold emails, and I'm religious about reporting these as junk to the various carriers and email providers. I cant stand being cold-called, texted, etc by people trying to sell me trash, which is anything I havent asked for. Im in a business where I have to answer my phone, and if you immediately start pitching me as soon as I say Hi, youre getting cussed out. It's out of control.