Major Problem With Note I Hold! (Long) - Posted by Jack-NY

Real Estate Investing
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Posted by Michael Morrongiello on April 11, 2000 at 19:05:36:

Jack:
You now understand why simply “passing the potato” to a note funder can be RISKY to the note funder as well. This plays into the reasoning for a disount along with the time value of money concepts.

It sounds like you have a disgruntled payor who obviously is experiencing buyers remorse. Many note funders including ourselves typically require a written estoppel be sent out to a payor on a note to ascertain whether there are any disputes, defenses, or offsets to the called for payments on the note obligation. This is done to uncover a payor like you have. I suspect the underlying 1st lien may be in default and would suggest you contact them ASAP.

As for your options:

  1. Intitate a Foreclosure on your 2nd lien
  2. Abandon the collateral and sue only on the note
  3. Work out a solution with the payor so that he is happy.

With the money involved here I am not sure a soluton can be reached. Depending on the size of your 2nd lien you might forgive payments for awhile, reduce the interest rate, re-amortize out the note to lower the payments, etc. all as “olive branch” techniques to get this payor back on track with you.

I wish you well my friend.

Michael Morrongiello

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Major Problem With Note I Hold! (Long) - Posted by Jack-NY

Posted by Jack-NY on April 11, 2000 at 15:39:58:

It was last October 99 I bought and resold a single family house to buyers of D- credit. The buyers were aware of my purchase price of this home, I had the home appraised and sold it at the appraised vaule.

The buyers were asked if they wanted to have a lawyer, and a home inspection, they said no that they really didn’t need one. We closed the deal through the local title company.
I sold the first mortgage and now hold a small second mortgage. Things were great in the begining and then two months into the payments they started to become late on the payments.

I phoned the owner and he said that he was in the hospital sick and overlooked the payment, I said that this can’t be happening all the time, ok no problem.

Well this month no payment again and it’s the 11th of April, so I give the owner a call and ask about the payment. Man he was mad as h*ll he said that when I get over to fix the flashing on the eve that he said he would send out payment and not until.

He also stated that appearntly there is structural damage to the house and it’s going to cost 20k to have fixed. He said that the appraiser should have known this, and that someone is going to pay for this, and he has contacted his lawyer.

What should I do about him not making my payments? Also I have not contacted the first mortgage holder to see if they are receiving payments. Who could he really sue?

He was warned about getting a home inspection, and having an attorney represent him, and he said he didn’t need one. This is my first problem that I have ever had with all the homes we finance, what a bummer!

Thanks for all suggestions, and no I have not sent any letters out yet.

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Re: Major Problem With Note I Hold! (Long) - Posted by John Behle

Posted by John Behle on April 11, 2000 at 19:50:51:

Mike covered your options and situation pretty well. Another one that comes to mind or can be used in conjunction with the others would be to offer to subordinate your loan to a new second to do the repairs. That may not be an option as they are in foreclosure and have involved “legalman”.

I would suggest you send a stern notice and start a foreclosure almost immediately. If the first has filed a notice of default (not likely - you would have been notified) then I wouldn’t give them much time. If the first hasn’t filed, then I would be a little more cautious as once you file many of their lending and financing options are shot.

At the same time, discuss the situation with an attorney as far as the documents infolved and the state laws. Laws as to any implied warranties vary from state to state and depending on the forms and procedures you used. It’s unlikely you have any liability for the dmage, but there may be clauses in the forms you used that sway that one way or another.