Posted by Mitch on November 17, 1998 at 11:57:32:
See my new posting for questions under Nasty Note.
Thanks
A Nasty Note - Posted by Mitch
Posted by Mitch on November 13, 1998 at 16:05:36:
The Note in default is the 2nd, but not in foreclosure, yet.
The First is in some trouble, but I need to confirm that it will not move into foreclosure.
The Numbers:
FMV of Home - $187,000
1st - $131,000
2nd - $23,400
Equity left - $32,600 ~17% of FMV
The arrears for the second note: $5,693
The Story:
A mortgage broker I know told me about the situation and ask if the owner could be helped out. I contacted the owner and found out the home is located in a neighborhood of $220,000+ homes. Why was he in default? He has a company that automatically locates people who can be refinanced and sends these prospects to a lender the company is working with. His company’s commission is ~$2,000 per loan. The mortgage broker I know, will be starting to close on the Refi’s they are doing in about 1mo. They told me his system will generate more loans than they will be able to handle. The company is in it’s infancy and has 2 lenders they were working with that didn’t think they needed to pay their commissions to him. This has set him back $50,000! Needless to say there is a lawsuit that is filed and as we know this takes time to produce. The good part of the suit is the lawyer took it on a contingency basis.
The owner does not want to give up his home and would like to be helped out of this short term jam. The company is working with other lenders and will start producing more cash flow within 2-3 months when the new refi’s start closing.
The second mortgage lender gave him the loan stating he could pay him when he could and thought the 2nd note would have paid off by now because of the commission money owed to the company. The 2nd note holder is seriously thinking about foreclosure but is becoming motivated just to get out from the 2nd note.
Let’s say that we want to get this guy out of the jam he is in because we know the benefits in the end could outweigh the risk in the beginning.
Questions???
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Buy the 2nd note at discount from the motivated lender?
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Restructure 2nd if bought for discount?
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Get the 2nd paid up and create a 3rd note for my investment?
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Have him sign over the Deed for my risk then I assign back after risk is satisfied?
What’s in it for me???
2nd note at discount with a balloon in 6mo.
If arrears of $5,600 is paid, create a 3rd note for $11,200 paid within 6mo.
Have the Deed signed over to me.
My Gut say’s yes but my logic say’s it may be to risky.
Any Comment’s, direction, or ideas?
Excellent input, but more questions?? - Posted by Mitch
Posted by Mitch on November 17, 1998 at 11:39:23:
He said he might sign over the Deed, but that’s not in writing yet.
If he does sign it over and he pays off the debt, how to structure the deal??
Should I pursue buying the 2nd note?
I didn’t get to talk to the 2nd note holder directly just his attorney.
Details on the 2nd note:
Principal $15,654 @15%
Interest behind $3,621 I am assuming the owner was to be paying interest only.
Haven’t seen the actual note yet.
The 2nd note holder is motivated to get ride of it. Should I make an offer?
If so what discount? 50%?
Wrap?
I assume your talking about wrapping both the 1st and 2nd?
If I set this up won’t it trigger the Due on Sale on the 1st note?
Should I disclose with the 1st on this?
Sorry about all the questions, but nothing is better than experienced advice.
Thanks for all the help, even if the deal fall’s through this is a good experience.
Are you willing to own the property? - Posted by John Behle
Posted by John Behle on November 16, 1998 at 14:14:36:
Your gut says “yes”. Why? Your logic says it’s too risky. Why? There really aren’t the kind of details I would need to assess the risk or profit in this scenario, so let’s look at some general principles.
To paraphrase Winston Churchill “Never, Never Never Give In” to the temptation to overlook the collateral and “worst case scenario”.
Would you buy this property today under the same price and terms? Remember, that price has to include back payments, future back payments on all loans, foreclosure costs, legalman and potential fix up of the property? Willing to handle that? If so, do it. If not run away.
Some of the criteria mentioned above also is personal to you. Things like whether you can do without the cash flow or come up with the cash needed to solve the problems are relevent to the individual buyer. What might be a deal for you or I might be dangerous for someone else.
My guess is that you haven’t really weighed these costs, which is why your brain is screaming “NO”. Weigh the costs and calm your brain with the numbers it demands.
Usually the brain says yes and the gut feeling says no. Since I’m guessing at what’s between the lines, I also think there isn’t so much of a gut feeling here as an emotional influence. The payor is behind in payments. Supposedly he’s a mortgage broker and just been scammed. If he truly knew his business, he could have solved his own problem. Also - he wouldn’t have been scammed. This is a little deep - but true - he attracted the people and let them do it. That’s a “personality pattern” - he’ll be scammed again soon.
Re: A Nasty Note - Posted by Bud Branstetter
Posted by Bud Branstetter on November 16, 1998 at 11:03:15:
When you spend money on a preforeclosure(thats what this is) you want to protect yourself. That means getting the deed if you can. It also means determining what income the guy is to have and what he can pay on the first and the second. The person may be the best intentioned individual around but if the income doesn’t come in how long are you going to carry him? It is best to agree upfront with him that he will need to move at a certain point if the income does not materialize. It’s mainly for your piece of mind. You can have him move,lease it to someone to get some income and option it back to him if he does start making money. Don’t get emotionally involved with his situation and get everything recorded.
A Nasty Note - Posted by Lee
Posted by Lee on November 15, 1998 at 11:49:28:
The first thought that comes to mind is…
Would the “transfur of deed” (in lou of risk)
and the “third note” (in lou of catching up the arrears)
be concidered “USURY”
USURY= Intrest in excess of a legal rate chargeg to a
borrower for the use of money.
Go for the Deed - Posted by John Behle
Posted by John Behle on November 16, 1998 at 15:27:10:
Great advice from Bud. I always look for as much control as possible. In a pre-foreclosure or when a payor stops paying me, I go for the deed.
When the payor has already proved they have troubles, why trust them again? Many times when someone falls behind in payments, we have the deed quicker than most people would even have begun a foreclosure. If they want the property, we sell it back. If they want to walk, we give them walking money.
Get the deed then sell back on a wrap - IF you decide to do the deal.
Usury - Posted by John Behle
Posted by John Behle on November 16, 1998 at 14:18:21:
Buying a note at a discount to equal a certain yield does not violate usury. When lending money, usury can be construed when you create a note and then advance less than the face amount. Depending how this deal were done, it could possibly violate usury.
Remember, “Usury” laws vary from state to state and like most real estate, mortgage and financing laws are not universal.