All Forum Posts by: Mike Hartzog

I agree with Wayne and Bob.  You will not get a good price on the note with the delinquent tax balance.  A good performing note should be current in terms of payment schedule (paid current, with no back payments due) and taxes should be paid current.  Ideally, a tax escrow payment has already been established on the account to help ensure taxes remain current going forward.

Bob's approach will work if the borrower agrees to the large escrow payment.  The up side is that you are not cash out of pocket with the approach.  The down side is that it will take some time to get the tax balance paid off. It is a good way to go if you are simply holding the note in your own portfolio.

In a situation like this where a marketable note is the end goal, I will typically look to advance the taxes and mod the loan to include the advance and any other arrears that may be on the account.  As part of the mod I will insist on a tax escrow.  This solution will produce a marketable loan more quickly.  Another approach is to pay the taxes and forebear the advance.  The end result is not as clean but overall it is better for resale purposes than selling with a delinquent tax balance.

@Tiger M.

Hi Tiger,

Sure I would be happy to.  Can you PM me with the contact info?  Looks like it was removed from your post.

I will be there...

Hi Bob,

You may find this article helpful.  There may be some specific language around this in the Deed of Trust.  The rule of thumb I use is that if vacancy status can be established, we as lenders we have the right to protect our vested interest by taking actions to secure and preserve the collateral.  So, the property can be rekeyed and boarded, the grounds maintained, property winterized, repairs required to properly weatherproof can also be done, etc.  IMO opinion this would extend to resolving code violations as well, as these if left unaddressed could get the property condemned and demolished by the governing municipality.  I think any repairs or improvements which cannot be construed as collateral preservation should be avoided, i.e., kitchen remodels probably don't qualify  :-)   Hope that helps.

If you are purchasing and selling through conventional retail channels, the seller is generally responsible for bringing taxes current prior to or at closing.  Most counties bill taxes twice per year.  The county tax collector site should provide the due dates.  You could conceivably avoid paying taxes if the timing is right and you do the repairs and sell quickly.  Best to plan for paying at least 1/2 year of taxes.

Norma,

Developing these relationships takes some time. I think you would be well served to identify a number of regional and especially community banks and contact as many as you can. Try to develop contacts at each that you can check back with over time, perhaps on a monthly basis. Generally banks are going to want to sell a pool of assets and, unlike REO sales, these types of transactions generally don't happen that often. Community banks who are doing portfolio lending will be your best bet if you don't have millions to fund purchase of a large pool.

@Brian Adams

Thanks for sharing your experience with the community.  Very inspiring.  Do you have any tips on how to best document the a deal for investors and lenders?  In other words, are there any standard formats for this that could be used as a starting point?

@Bill Gulley Nailed it.  I avoid getting into low P&I payment notes for this very reason.  When I do modifications, I usually like to set up a tax escrow as part of it, but the additional servicing cost and the borrowers past performance in paying taxes without escrow has to be considered.  It's a cost of doing business but the impact of the cost to investment yield can be mitigated by selecting the right notes. 

I have one in the portfolio now which was recently purchased as part of a pool and is nearing it's maturity date. It was a small loan to begin with and the interest portion of the payment at this point is around $20.  Subtract the 15 servicing fee and we are getting a whopping $5/month for this one.  I would not have purchased this loan if it had not come as part of the pool due to the ratio of servicing cost to interest payment. 

@Mark Gallagher

If you have ever listened to BP podcasts, they always ask the guest the question at the end of the podcast: "What do you think sets apart successful investors from those who fail, give up, or never get started?"  I think that the effort you were willing to put into your first deal to make it a success is an example of what sets these two groups apart.  Congrats on your success!

@Treven Jennice

Welcome to BP!  There is a ton of information on the site which, in my opinion anyway, is better than you will find in most books.  I would suggest starting out in the Learn section of the site with the How To Guides.  The BP Podcasts are also an excellent source of information.  The investing style you are thinking of doing is referred to as  "House Hacking", at least here on BP.  Type that into the search box and you will see lots of results, including a couple of podcasts.