How to buy Mortgage Notes Real Estate Notes Defaulted Mortgages - Servicing Your Loans & Managin REOs

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Information about How to buy Mortgage Notes Real Estate Notes Defaulted Mortgages -...
Real Estate

Published on January 22, 2009

Author: notebuyi689

Source: slideshare.net

Description

http://www.NoteBuyingProfits.com No-nonsense Note Buying Information. Up-to-date! Hours of FREE Note Buying Training Videos, Free 1-on-1 Coaching Session! Click or Call 718-783-7605

Week 6: Servicing, REOs and Bankruptcy The 8 – Week Roadmap to Launching into Notes 1

Agenda Following the Roadmap Step by Step: Step-by-Step: • REOs – what happens if I take a property back? • Servicing – what is it & what does it mean? • A Note on Servicing – transparency & fundraising 2

REO – “Taking it Back” • Real-Estate Owned (bank – owned) Real Estate • Choice of last resort BUT • Can be its own strategy • Borrower isn’t as “efficient” as you • Existing equity • Capture improvement value • Juniors • Key: plan ahead & be flexible 3

REO After a Foreclosure (CA Example) Delinquent NOD NTS Sale 3rd Party y REO 30+ 90+ 3 months 1 month 30-day Notice The Sale (ab 1137) 4

REO after Deed-in-Lieu (CA Example) Deed in Lieu Delinquent NOD NTS Sale 3rd Party y REO 30+ 90+ 3 months 1 month The Sale “Deed-in-Lieu” (DIL) 5

REO as a Strategy – Example • Can be its own strategy Borrower isn’t as “efficient” as you • Motivation • Speed • Action 6

1994 Indianapolis SFH 7

REO #1 – Indianapolis, IN • Property: 4/2, 2,937 sq ft, 1994 • BPO - $263 000 $263,000 • 1st - $177,800 • Bought - $72,500 - ~50% of UPB • No Ju o s o Juniors • Taxes – County=$0. Federal=$43,584+ • Liens - $12,877+ 8

The Situation • Listed @ $$375,000 • “Finished basement” • “Larger than comps” • “Comps too low” • Not selling – and we just own the note • Because of IRS lien, we foreclosed lien • Listed at $274,900, after spending $2,000 in rehab g costs • Just dropped p pp price to $ $259,000 after 30-days of not , y selling 9

REOs – a word on valuations 1sts Ttl BPO Value @ Purchase $5,914,800 Ttl PT Value @ Purchase $5,203,900 PT V l as % of BPO Value f 88% My estimation of value is just below that of a BPO 10

Back to our example • Currently listed at $259,000 $259 000 BPO was • 88% of BPO value = $263K $231,000 • Will probably go into contract at that price 11

A N t on V l i Today’s Market Note Value in T d ’ M k t Let’s assume you’re buying – at roughly 50% of “value” Loan Purchased @ Significant Discount $150,000 $180,000 $75,000 (Current House (Loan Value) (Loan Purchase) Value) 12

Home Value Declines & Their Impact Home Price Appreciation (HPA) declines do not automatically put an investment at risk $160,000 7% Monthly Decline $150,000 = 55% annual $140,000 decline $130,000 $130 000 $120,000 $150,000 $110,000 (House Value @ Acquisition) $100,000 $75,000 $90,000 (Loan Purchase @ $80,000 Acquisition) q ) $70,000 $60,000 1 2 3 4 5 6 7 8 9 10 11 12 House value needs to drop by 7%/month for 12 straight months from today in order to put principal investment at risk by month 12 13

Market Forecasts (HPA) The Case-Shiller Index is commonly used as a predictor of HPA 19% decline from peak 30% total decline predicted – GS just predicted 40% total Source: MarketOracle Case-Shiller predicts a 13.6% further drop from mid-’08. Goldman Sachs predicts another 26% drop. Neither expects a 55% drop 14

Foreclosure – REO: Aurora, CO Aurora Aurora, Colorado – 1st Lien

Foreclosure – REO: Aurora, CO Aurora City, State Zip Aurora, CO 80113 Loan Position 1st Loan Rate 6.50% Loan Balance @ Purchase $257,150 Loan Cost $116,625 $116 625 Property Value @ Purchase $221,000 Cost-to-Property Value py 53% Expenses $3,445 Due Diligence $89 Foreclosure F l $2,366 $2 366 Other $990 Income / Resale $204,500

Foreclosure – REO: Aurora, CO Aurora DEAL SUMMARY Exit Strategy Loan Sold to FC Auction Buyer Days Held 52 Date Bought 5/27/2008 Date Sold 7/18/2008 RETURNS Income $204,500 Total Expenses p $ $120,070 , Gross Profit $84,430 Cash - on - Cash Return 70.3% IRR 3890.3% 3890 3% Observations: Not all foreclosure plays lead to REO’s. Auctions can be used to find investor buyers quickly.

A Quick Review • We ve We’ve closed on a note • RESPA • Servicer • Borrower contact • We’re now “servicing” the loan • To make dollars and cents! 18

Servicing Licensing – both Servicing and Purchasing Purchasing: g • Difference between 1sts and 2nds • 15 of 51 states require license to buy 1sts • (California is not one of those) Servicing: • Refers to the act of “servicing”, or managing a loan Rf t th t f“ ii ” i l as a lender (sending out coupons, calculating payments, etc.) payments etc ) 19

A Note on Servicing Guidelines • California, for example, requires a Mortgage Lenders’ , p, q gg license in order to service a loan • California Residential Mortgage Lending Act (1994): • The California Residential Mortgage Lending Act (CRMLA) is contained in Division 20 of the California Financial Code, commencing with Section 50000. • The regulations are contained in Subchapter 11.5 of Chapter 3 of Title 10 of the California Code of Regulations, commencing with Section 1950.003 (10 C.C.R. §1950.003, et seq.). 20

A Note on Servicing Guidelines • First 10 of 12 Exceptions: • Banks, trust co’s, insurance companies & industrial loan co’s • Federally chartered S&Ls, FSBs, and FCUs S&Ls FSBs • S&Ls, savings banks, & CU’s authorized to conduct business in California • Persons engaged solely in business commercial or agr lending business, commercial, agr. • Wholly owned service corps of S&Ls or savings banks • Federal, state and municipal governments • Pension plans making residential mortgage l P i l ki id ti l t loans t participants to ti i t • Persons acting in a fiduciary capacity conferred by the authority of a court • California finance lenders • Trustees in a foreclosure proceeding 21

A Note on Servicing Guidelines Final 2 Exceptions for California Servicing: • Licensed California real estate brokers; • Persons making residential mortgage loans with their own funds, for their own investment, and without intent to resell more than eight residential loans i any one calendar year; l in ld 22

Choosing a Servicer • Ask where they’re licensed • And what t ey e licensed for d at they’re ce sed o • To look for: • Pricing: what’s in the service contract? (monthly, boarding / de-boarding) • Knowledge: do they know what they’re doing? • Is it easy to use & to track your loans? 23

Choosing a Servicer (cont.) (cont ) • Generic / large: Wells Fargo, Option One, SPS, SLS • Marix, BSI, Prodovis, FCI • Key: specialty (or default) servicing 24

Data availability is key (FCI) 25

Data availability is key (FCI) 26

On Servicing & Raising Money • If you’re raising funds for your own note buying, transparency to your investors is key • The ability to “show” your investors what you do, is very powerful and will help you raise money powerful, 27

Customized Loan Management Comprehensive loan C h il data for all loan servicing data 28

Customized Loan Management Easy click access to key research y Easy-to-see “summary” data on the deal 29

Key Financial Data Easily Laid Out P&L accessible to your investors 24/7 30

Key Financial Data Easily Laid Out Balance Sheet & P&L templates p specifically for Note Investors 31

Integration between Systems (Under Development) QB Online Salesforce We have our customized loan “portal” for purchase 32

What We Covered • REOs – the “final exit” • Purchasing and Servicing guidelines • Servicing & Investors – options in using technology to raise money 33

Next – Tele seminar with an Investor Tele-seminar January 28: 6pm PT 9pm ET PT, “Newbie” investor who just bought his first 8 notes – tales of experience … and success. February 4: Week 7 of the Roadmap – Finding Notes – The 4 Sources February 18:Week 8 of the Roadmap – Buying. Putting it all together! 34

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