Posted by Kay on June 09, 2006 at 09:52:35:
Is a buyer authorization needed on these transactions?
?buying defaulted mortgages - Posted by jrcrespo
Posted by jrcrespo on May 27, 2006 at 18:02:27:
When working with a homeowner in foreclosure, If i want to buy the defaulted mortgage at a discount. Do i contact the loss mitigation department or another department? Will the bank be willing to negotiate with me as an individual on that one note or will they not work with me if i am not buying a few at a time?
Re: ?buying defaulted mortgages - Posted by JT-IN
Posted by JT-IN on May 28, 2006 at 11:54:41:
jrc:
I am by no means a guru on this cash board, but I do occasionally purchase defaulted mtgs. The Lenders that are willing to sell the Note & Mtg, versus consider a short sale, are rare. You will have difficulty making a living living off of defaulted paper on foreclosure cases that run across, as most lenders just aren’t going to cut loose of the security instrument, period, let alone at a discount. Yes, this sounds ridiculous, especially on those deals where the Lender is going down in flames for sure, but get used to hearing that response.
There are occasionally things outside the realm of what you see in the deal, such as the lender having private mtg insurance, which covers the top 10 or 20% of the lenders exposure. Working directly with PMI can be more fruitful, if you can assimilate all the date in order to contact them. However unless the primary lender supplies this info, you aren’t likely to stumble across it yourself. These are private contracts between the Lender and the PMI company, and you won’t know who they are unless the lender divulges the info. I will usually ask them if the they have PMI on the loan, and if so, I actually suggest that they or I contact PMI to see if they have interest in cutting a deal prior to actual foreclosure and loss. Again, this has worked in a few cases, but not that many.
You will also find somewhat of a difference in dealing with a 1st lien, as opposed to 2nd, less secured and more vulnerable liens of being totally shut out. More 2nd positions are likely to negotiate than 1sts. The other factor here is that many 1sts are sold off to the secondary market and you may be talking to the servicer, who really has only a small % at stake in the deal, due to them selling the loan long ago.
With all that said… I just finished purchasing, via assignment, a valid 1st mtg and note on a property. (Just stumbled across it). Bought for about 52% of the asset value. The property owner had filed CH 7, the loan originator had cashed in with the PMI company, and no one at PMI wanted to deal with releif of stay from BK, and then pursue a foreclosure. So for some reason they were more motivated than normal…
End result is this. I had my Atty file on behalf of my company as Secured Creditor, by Assingment, asking Bk Trustee to abandon the asset. Also had to get relief of stay. The property was fully mtg’d, or 95% so anyway. At the same time, I had a locator / birddog who does work for me, track down the owner; (had alreadyvacated the proeprty and nowhere to be found). In a total of 5 weeks, obtained abandonment from Trustee of asset, Relief of Stay by Bk Judge, so the Bk was behind us and free to either foreclose or obtain DIL. Birddog found the owner one state away, and he was releived to think that the house issue could be handled w/o foreclosure. He signed a QC Deed, didn’t really want anything, but I insited that we paid him $ 500.00 consideration. Also obtained affidavit from Seller that they would co-operate in resigning any paperwork in the event that we needed something to obtain clear title… (the real reason for the affidavit, and payment).
Anyway, 5 weeks later, clear title and now owner of proeprty, in fee simple. For sale now, doing a little clean up and will sell for about a 35K-40K payday, unless I wholesale the property.
Don’t get stars in your eyes, as I can see you reading this now… It will probably be about this time 2 or 3 years from now, before I get another one like this where the moon and the stars line up like this one did. Highly unusual, but it is possible to do just as you outline. Just had to stretch the grocery money from these deals, over several years…
Just the way that I view things…
JT-IN
Re: ?buying defaulted mortgages - Posted by jrcrespo
Posted by jrcrespo on May 28, 2006 at 13:55:50:
Thanks for your response and putting things in perspective. The few times that it has worked out for you did you follow the same process as a shortsale? Or was it much simpler? Did you contact loss mitigation or another department? Even if it does not work out most of the time, i would like to ask the banks if they are willing before I attempt a shortsale. If i get lucky and anyone says yes, I would like to know what process to follow without looking like i dont know what i am doing. Can you help me with this issue?
Re: buying defaulted mortgages? - Posted by JT-IN
Posted by JT-IN on May 28, 2006 at 14:25:46:
jrc:
Well, you ask some very good questions, for not knowing what you are doing in the paper arena. It shows that you are thinking through the process correctly thus far.
Yes, with most Lenders you will be dealing directly with Loss Mit… They may shift you off to someone who specializes in their dept, in selling paper, as opposed to doing a short sale, but it has always started with Loss Mit. Another thing is this… Just because one person in Loss Mit may tell you something, doesn’t make it so… It will pay to be persistent with calling, and re-asking the same question of multiple reps… It is analygous to calling the IRS service center, and asking a detailed tax question… Make 6 calls and you will get 6 different answers.
Honestly, I have done a fair amount of buying paper, usually either 2nd mtgs or on commercial properties. With comm’l note and mtgs, you don’t deal with the secondary market as much, and most of these loans are protfolio loans, meaning that the bank owns them, services them and is “at-risk of loss” in a default. So it is easier to get their attention, and usually in comm’l you are dealing with “special assets” or “asset recovery” within the Bank / Lender.
It is truly rare these days to be able to purchase a single, defaulted 1st mtg and note, due to the secondary market and these mortgages having been sold in a pool. The risk pool takes the hit and goes on. It may dink their overal yield a few basis points, and that is about it… yawn, as they say… From our seat that is real money going down the drain. From theirs, it is a fractional mathematical adjustment.
The other question you asked, I almost forgot to answer. It is much simpler to purchase a Note & Mtg, than doing a short sale; much, much, much simpler. You can make a call to Loss Mit, and in a phone call come to an agreement to purchase the paper. Usually they will write up some skeletal form letter signed by a Loss Mit Rep, that commits them to selling you the paper at XXX price, with 7 days for purchaser to complete due diligence concenring validity of mtg, and other title issues. As soon thereafter as you have the title work completed, the funds can be forwarded (usually wire ordered) to the Mtg holder, and the same agreement also states that they will then forward to purchaser original loan docs, amortization schedules, etc., within 24 hrs of receipt of funds. If not a national company, then I would use an escrow agent for the handling of docs and funds, for immediate exchange, like a RE closing.
Hope that we covered everything for you here. Good luck.
Just the way that I view things…
JT-IN
Re: buying defaulted mortgages? - Posted by Bob Smith
Posted by Bob Smith on May 28, 2006 at 16:22:16:
>As soon thereafter as you have the title work completed,
>the funds can be forwarded (usually wire ordered) to the
>Mtg holder, and the same agreement also states that they
>will then forward to purchaser original loan docs,
>amortization schedules, etc., within 24 hrs of receipt of funds.
Why would anybody be crazy enough to send money without docs in hand? Banks or mortgage companies don’t usually run scams, but it’s still a prime opportunity to get ripped off, be sent “substitute” docs because they can’t find the real ones, find out the docs they have don’t match the recorded ones, or other such problems. A bank would never let you take loan funds and tell them “don’t worry about an escrow, I’ll forward the note & mortgage 24 hours after I receive your cash”.
Re: buying defaulted mortgages? - Posted by JT-IN
Posted by JT-IN on May 28, 2006 at 17:59:28:
Why would a Bank or Mtg Co forward the original docs w/o the funds…? If I am assigning the Mtg, I surely don’t cut loose with anything until I have wire ordered funds; won’t even accept Cashiers check unless it is local and can verify the check is good.
Are you telling me that an out of town Bank, Mtg Co, etc. simply sends you the docs because you say that you are GOING to forward the funds as soon as you obtain original docs…? What if you decide to forego the deal, and simply don’t send the docs back to them. They are up the creek if that happens… or at best, seriously inconvenienced.
Clear this up for me Bob… Do you normally receive orignal docs before sending funds…? Why would they do so…? Would you send off your original docs to anyone when assigning a position, without funding…?
JT-IN
Re: buying defaulted mortgages? - Posted by Bob Smith
Posted by Bob Smith on May 28, 2006 at 21:31:40:
>Why would a Bank or Mtg Co forward the original docs w/o the funds…?
Because the funds will be sitting in an escrow account waiting to be disbursed, and because they’re not sending the docs to me, they’re sending them to a reputable escrow company. No different than a bank wiring funds a day or two before closing for a regular loan, when the mortgage securing those funds hasn’t been signed yet. The bank knows that the funds won’t be released until the mortgage is signed and the title binder issued. Same thing here; the bank knows I don’t get to keep the docs or have the mortgage assignment recorded unless they’re getting the money. Yes, I always demand original docs, and the right to inspect them, before releasing funds (or approving their release from escrow). As far as I’m concerned, anybody who wants my money without permitting inspection of the original documentation isn’t serious, is looking to rip me off, or both.
A guy I know recently dealt with a bank that tried this stunt. He had negotiated a discounted payoff on a second mortgage, stuck behind a defaulted first. Not only did the bank want its cash up front, they told him they’d get around to sending the docs in a couple of weeks, along with a substitute promissory note. That’s some real chutzpah. Needless to say, he didn’t complete that deal. Now imagine they took his cash and didn’t send the docs as promised. What’s his recourse, and how much money, time, and aggravation is it going to cost him?
Re: buying defaulted mortgages? - Posted by JT-IN
Posted by JT-IN on May 29, 2006 at 12:57:39:
Bob:
You very well have a good point here. While I have said, I am not really a guru in the paper end of things, but I have done 15-20 paper deals… Maybe I have just been lucky… or others that you know of who have had problems have been the opposite. I do see the risk in this approach.
Most of the companies that I have dealt with have been local, so there was a face to face meeting, and ultimately an exchange of certified funds for original docs, simultaniously. In the case of one out of town large company, they will not perform any other way; they receive the funds, wire ordered, then they forward the docs. In each case I have inspected a photocopy of what is purported to be of an “original document”, their statement in the agreement that they have original Note & Mtg documents, and will forward those immediately upon receipt of funds. This has worked without a hitch in a half dozen cases.
In the same post that you originally responded to, where I had written about forwarding the funds, then receipt of docs… the next sentence was this:
“If not a national company, then I would use an escrow agent for the handling of docs and funds, for immediate exchange, like a RE closing.”
So maybe with future deal, with any company other than the one who absolutely won’t do things other than “their way or the highway”, (wired funds, then sending of docs), I will insist on your suggested method of escrow.
Thanks for the input.
JT-IN