Equity vs. Non-Equity Loans & Note Pricing Strategy | Real Estate Notes Show

I figured Henry I just I just wanted to throw out there if somebody was thinking of a question maybe something we could talk about like equity versus non equity loans and maybe some yeah just common practices with pricing them or or what you're looking at what the different exit strategies might be team you want me to comment on the pricing there yeah I think it would help yeah it's definitely comes up quite often because we do have quite a few loaves have equity so generally the way we're determining whether or not to them has equity or not is payoff full payoff value full loan payout versus property value so the LTV are on our tapes is actually principle value divided by property value a lot of times there's a big spread between payoff value so the TV's aren't accurate way to determine whether or not there's units who actually utilizes payoff cuz that's what you're going to receive if you take it all the way to foreclosure sale as your photo so pricing on underwater loans there's equity depending on the asset value between say on the low end 35 or 40% in value to as high as mid-60s even as high as 70 percent' well in the chat Peggy actually had a question of regarding is additional charts add to the price of those single purchase loan no no you won't pay brokers fees or summer season so regarding loans that have equity we're going look equity loans where is the fear from us a bias point of view of equity loans versus a non equity loan why is the bar fearful and why is it a benefit to buy it equity loan assume that a buyers fearful that it's going to be litigated more the challenge because borrower has more incentive soon that's one of the reasons investors are note investors would maybe want the loan financially as equity conversely the reason that you would want to buy alone as equity is you've got a borrower that has some incentives to stay say that could turn out to be a really good performing loan and if they don't if it doesn't work out there's an ax modification or a chance which we perform then you have basically a really great well much lower risk profile that you will get your full pay off because there's extra value in the property there that adds it adds a cushion that makes sense yeah so the risk profile in my mind is significantly less on loans that have equity on again because you do have an equity coverage and you're sure to get a payoff so as a result price those you know in the range of say sixty five percent of pay off to as high as it's old loans as high as 95% pay off loans that were month away from the foreclosure sale and it was guaranteed to be a full payoff so I'm okay Peggy if you can meet your phone just real quick Thanks so well if we're look I'm looking in the chat window well Ron asked him a question of how do you be how are you so good at evaluating BPO assessing value when value is so critical of all their yeah that's a good question Ron definitely a lot of practice but you know when I'm looking through BPOs I'm really looking for things that that don't make sense versus things that do seeing consistency in areas looking at what your subject property is versus the Compton area either Lister's or solds and making a determination on whether their actual comps or just a random grouping of properties that even for sale or sold in the area that the agent threw together it really has to make sense and if if you think about it from this point of view that if you had that amount of money that they that the agents as a property is worth and you look at the other options available for that price if you would you would either pick your property over those properties or any of those properties over your property then you can kind of tell whether or not the real value might be a little higher or a little lower than the BPO value so just a lot of practice and and look for things that either do make sense and trends or things that don't make sense and then ask questions okay I have a question about due diligence due diligence in this business appears to be very important where do I turn to for due diligence and what can I expect in the due diligence report little real key components for title there's a number of vendors use a company called pro title they're based in Philadelphia it no run and ownership and encumbrance or for you know for right around $100 I think it's between 85 and 100 depending on what will you choose they're gonna run you know title so you can see the chain of assignments so that you know that the person you're buying alone from is actually the owner of the loan and they also will run attack certification they'll confirm what the current property taxes are a few of the biggest mistakes we've made early on was when we missed in what love is and we didn't realize there were tax liens it this was a situation where it should the current property taxes were current but there was a prior tax lien from two years four and a different vendor didn't catch that pro title catches that stuff but a different vendor we used it missed some of that stuff so you know we want to loan that 30,000 that taxes that we thought had no math tax and so that's that's the the title is that that's the key part of it on the evaluation I mean there's a ton of companies that do brokers price opinions first valuation inside valuation so yeah there there's there's there's tons of companies that you Berbers price opinions we consider it it's describing the BPO is one piece of it but it's taking the BPO and also doing your own verification calling an agent looking online it really just triangle eating the data to put the best best guess on value you know fortunately you know there's a built-in discount that you're buying these loans at so um you're not always going to be perfect but you know the key is to avoid the disaster is amiss if you think balance is worth eating it's only worth seventy but you bought it at a discount you're still gonna be okay if you think thousand worth eighty that's really worth 30 those are the types of catastrophic mistakes that you uh you know that you need to avoid and and it's not do that anyone has any background in real estate already you spend a few hours just looking in a new area it's usually not hard to it's hard to miss by $50,000 in general you might miss by five or ten a door the house may be beat up inside a little more than you'd expect it but that's why you're able to buy these off these boats are just count to current value Jack when you buying drinks again in Vegas when are we gonna have another database as soon as I get out there again I don't know if I'm gonna make paper stores this year just with so much going on I'm getting married in over Memorial Day so [Music] we mr.

taxi because our vendor or a prior vendor which we fired missed it what happened is that they just reported the current taxes and the one buys a tax lien they actually have the right to pay the taxes for the following year so when the taxes if you know if the taxes occurring and your prior to actually you need to ask the taxing authority who paid the taxes did the actual homeowner pay or did the tax lien pay the taxes which is going to increase the cost of their tax lien so um you know things happen vendors can miss things but you know from title does a very good job they have not any noting the two years we in a few years and five thousand plus loans we've I do not get a commission from propanol I frankly should but deed can provide their their contact info I'm sure either either in the chat or damn sure gave me everyone Alex's info and for as idle Jack everyone the question for you is Rob Napolitano by the way looking for the drinks I mean you guys are modifying loans to you guys are just you know doing the brokering of deals are you doing some loan mods and house you know I'm inherently lazy and like really it's it's nice I wouldn't love to clip coupons and not have to the clock checks every month so um you know we if someone requests a modification not get our servicer sends it out our our servicer is actively trying to make contact with borrowers and not everyone can be helped but there's still a lot of people who had a job you know job lost a few years ago they just have the means to resume their payments but don't have a large reinstatement so those types of situations where it makes financial sense it's a win-win be we are very very open to modifying modifying loans and in situations with a ball we're just can't afford just can't afford a venue anyway we prefer to do a deed in lieu of foreclosure or cash for keys but sometimes you just have to foreclose if there's no other options okay leads me to my real question then and you may or may not be able to answer this because I I get I get two different answers running as a questions I'm curious your position on them as well from a tax ID who's modifying alone are there tax implications I've been told that there's tax on the kids because you bite at a certain basis you modify and that alone as we performing again but that's a recognized gain because you've got it to Reaper form again even though they get any additional money in I'm being told that could be a recognizable gain as well people some that I should be buying stuff after they're Reaper forming so that I'm buying them at a different price not to get that tax hit I don't know if you've you know that's any input on that at all but I know you know the CPI sorry disclose it sorry I don't think anyone on this call it really is gonna be a major issue that is I if I were talking to my accountant I would say just fizzle we performed a one-month doesn't mean it's worth any more money it's okay so so if your CPA is asking you well if this if your CPA is is worried about for reporting things mean come I think my answer my accountant would be it's you know until the loan is performing 12 months it's probably not worth that much more like the day I modify it over time it may be but for small small buyers that are not institutional I just don't I think it's overkill to uh it's not it's not like a stock where it has a net asset value every single day it's not a liquid market and I think most people I talk to it's even though that that rule is out there I think most accountants have said that unless you're stretching your small investor it's just not liquid enough market to expect you not pay tax on immediately not only would that answer excellent but you look good on camera - this morning I appeared at one of our bankruptcy cases were challenging cases I actually so do you want to quickly go over yes the question is for bankruptcy what worries or scares you know Benghazi the scary words a lot of people why don't some other questions Banga see what happened there's two different types of bankruptcy there's chapter 13 and chapter 7 chapter 13 is generally a restructure where the ball were has the ability to take all of their all of their past two payments and pay them back over five years in addition to continuing to pay their ongoing monthly mortgage payment the chapter 7 is more of a liquidation on generally they're surrendering their property and it's just a complete liquidation um so there are times when someone's filing bankruptcy for good reasons because they want to stay and they want to pay they want to restructure their debt there's also times someone may file bankruptcy one day before the foreclosure sale to just stall the foreclosure process so um we like about bankruptcy is it gives you someone to talk to they have an attorney and I find you half the battle is getting a hold of them all so when they're in bankruptcy at least we can call their attorney we have someone to talk to you to try to make a deal if it's bad faith and the whole purpose is to stall it generally only adds a few months of process if they file bankruptcy a day before foreclosure you can file the motion for relief and within a few months usually within 30 days your motion for relief will be heard and you could at that point it exit basically that pushes that asset outside of the bankruptcy so you can continue your foreclosure so you know good our select situations where the bankruptcy is a new sensitive needs to stall but forever one of those cases there's also time where they use the bankruptcy process to actually restructure and perform perform on their loans we buy a lot of bankruptcies as to this one it's one of the focuses is one of the expertise yeah the just through our platform our parent company has been buying bankruptcy since the 80s actually early 90s so we like that asset class and you know a lot of the loans we sell without a past bankruptcy in some cases it's early we may have already done the motion for relief and got it out of bankruptcy in other cases you may have to do that as a as a buyer generally those cost five to six hundred dollars to to get a motion for relief so it's not a significant cost foreclosure costs all the other positive is is many of these loans that are not informing we very starting to foreclosure and in some cases when you get out of bankruptcy in some cases you might her to be at final judgment and not starting the foreclosure from the beginning because the closure was started prior to the bankruptcy so you know may cost you a few hundred dollars to people looking for relief you may you may save $3,000 because we already paid for the upfront legal work on the foreclosure or a year ago for a chapter 13 restructure how does it and if they do restructure how does it hit your margins there's an effective margins at all on marry residents there they're not crabbing or lowering they cannot force a modification on you generally it helps the margins but if they pay they're paying their original payment and they're paying their past new payments which is split over 60 months so generally you end up getting like one and a half or 1.25 month's mortgage payment every single month so you in some cases you may decide it's better to modify the ball or it's better for the pay it not pay but you can't be can't just have a modification to forced on you on a private residence there's select loopholes on chapter 11 there's always the random case where on an investment property they may be able to to do what's called the cramdown where it lowers the balance to what the current value of the house is but most of the modifications we're willing to do that anyway someone is very upside down will wander forgive some some of their underwater balance anyway if they perform on time so there's no major vouches with with the bankruptcies these four that this pertains to your question okay I have one more question there seems to be some dodd-frank regulation related to this business does it affect the small investor servicer self-service Shantae from Madison was on the call before you know there's a lot of good third-party loan servicers that will handle the compliance part of it to keep you in line and and it's not even running afoul of anything like more regulatory issue so you know there's a fair amount going on I'm not you know I'm not an attorneys I don't spend every day worrying about every every regulation I know there's a fair amount of buzz about contract for deeds which is a alternative to mortgage which tends to happen on lower balance assets so some sellers say they're selling a mortgage but it's technically a contract for need there's some you know I've seen some headlines about you know potential regulation in that space but it nothing as owners and nothing can stop that so stop me from doing deals and your servicer will be older ahead and keep you out of trouble Kirk one of the questions in the zoom chat was from Peggy about using a forbearance agreement to determine if a borrow can make on-time payments before granting them odds if so to make the part make the P I statements or just P I I'm starting to with appreciating how it helps the borrower to ask them test them for P I when they failed after you mod them increase that pains by two or out I guess the question is basically saying would you do a modification when someone that increases their payment a month when you're saying for failure will do either trial modification or forbearance before we do a permanent modification so yes there's usually either three or six months trial so that if they do fail then you don't have to start the foreclosure from the beginning um as far as the how much the payment increases it depends on the situation you certainly don't want to do a deal where the ball working on a four net we want rather they actually can pay consistently for 12 or 24 months so that we could sell that loan as a clean performing loan so we're certainly going to be careful not to set the bar up for failure but sometimes they can't afford it there's situations where the you know maybe a homeowner was out of work for a year but now they have a decent paying job and they can afford to pay an extra two or three hundred dollars would love to catch up so um there are times it makes sense there there are there are times we've done what's called a caps modification where we take all of the arrears and it's the end to the end of the loan and sometimes we'll also extend the amortization you know they might be out of thirty-year mortgage we may make a 40-year mortgage so that their payment doesn't go up as much there's a million different ways you can you know work the numbers to make sure it's it's feasible for the ball or it works for you as an investor and our we rely heavily on our servicer to handle that service our handles all the paper ball compliance they can move on scenarios ourselves but the servicer can also run so if you're if you're a beginner your servicer can make recommendations and you know handles setting up the loan properly with the proper amortization schedule so that everything everything is counted for properly all right so obviously you've been doing this for a while but I'm just along the way what other mistakes you remember making missing attacks you miss valuing the property under estimating foreclosure costs in certain states you know fortunately we haven't had too many major disasters I mean I know horror stories from I've seen from other group other people that bought assets and missed attack sale when they owned that they own the mortgage and they forgot to pay their property taxes and you know they lost the property because the tax yeah the local town you know basically what they what their tax foreclosure so monitoring taxes is key a good servicer will track the taxes and monitor make sure you're losing your taxes it's the business isn't really not rocket science and it's really not a ton of gotchas as long as you're being diligent you're focusing on your value your title of board and you know the network of vendors we've certainly had to find vendors over over our years and then uh you know that's probably yeah I don't have one giant mistake or regret fortunately things those things have went well since the crash yeah question one of the questions was that useful non Drasil States and IRS wings how would that affect our play here IRS leads to me are basically irrelevant it's a foreclosure you send a letter and within 120 days the IRS lien those are those are not issues you know as long as it's after your mortgage if it was before your mortgage and there's not a title insurance policy then you know that could be an issue but that that's that's really rare so IRS needs to be our no big deal what was the second part of the question if the proposed your non-digital foreclosure states how's that dipper sure I mean generally judicial states can take a little longer and cost a little more than non-judicial but there's really two different types of judicial states there's all of the judicial and there's New York New Jersey and Massachusetts that are you know really what I call the blue state judicial states versus red state judicial states you know Oklahoma is judicial and it still doesn't take that long before close there's a number of other states and that North Carolina doesn't take that load before closing its judicial so I think there's a price for every loan there are some people who love New York and New Jersey because they want to be near their backyard we've always bought nationwide and I'm not in love with New York New Jersey but we'll certainly buy loans there if the price is right as you know values in you know it takes four years to foreclose in Brooklyn but values are going through the roof so every year hold it you're making 50 grand in property appreciation so yeah I think it's important just keep an open mind and really just live each deal as as it comes and figure out if there's on a price that works for it in New Jersey when you're doing a judicial foreclosure and there's a federal lien on it I thought it had to go to a sheriff sale to be an arm's length transaction and a federal lien is always before a mortgage loan IRS everything comes before them now I pretty confident I'm not a lawyer but we've had a number of situations over the last couple you know it's basically gives them the right to redeem it's not it doesn't give them the right to take your property from you but they haven't they have 120 days to repeat but you would actually have to get a full payoff so the IRS lien I'm confident about it there was there's always the random situation so you know if there's a tricky case it's the type of thing you'd call out in Freedman or one of our foreclosure attorneys and have it look at it and it's the kind of thing if you're buying a loan from us and something funny is on the ownership and encumbrance report you know I'm not gonna just try to talk you into it I'm gonna say hey here's Adam Freeman or here's Mark knuckles call an attorney and let them give you an opinion because you know we'll we're very transparent like that and we want to expert to give you a real a billion the only situation that's mostly what you're describing that I can think of is one where a guy was literally busted for drugs but he had a federal lien we actually decided not to buy the loan it was it was something we were looking at diligence and we weren't sure but we had the opportunity just to keep the laundromat reading so we did Oh question they're not ahead of you and they're not of us but but the judicial process will not foreclose from my understanding because they want an armed lens transaction so in other words if you're taking a mortgage sure you're in first position but the happen is the judge wants to make sure that there's an arm's length transaction so somebody doesn't go and cut out the federal tax lien intentional or I'm sorry the student the federal lien intentionally yes we're gonna plan to go through the foreclosure or so so yes and we actually wanted to go at that point because there's a chance that it's been a third party and someone shows up at the courthouse steps and just pays us off a lot of our Florida deals and in recent years have sold at the auction where we we're netting in some cases ninety ninety five percent of what we thought our BPO value was by a cash fire at the courthouse steps we don't have a real estate commission and we just get paid off so we actually don't mind going to auction and in that scenario with an eye we've been through this all the time what happens is it goes through a standard foreclosure auction we take the property back as as Bank if no one else bids and the IRS has 120 days to redeem the property so if there's no equity there's no reason for the IRS redeeming I've never even heard of situation where they do but you know let's see it was like a two million dollar house and it wins a foreclosure your your first position was only a million five and you took it back that's the situation the IRS might redeem it give you the million five and then take the profit for property sell it and make the 500 back themselves to pay for their pay down their judgment any other questions at all curiosity's wondering anyone know if I see Peggy had one more question about period it depends in during the forbearance period as a borrower only paying principal and interest it depends on whether or not the loan was escrowed if they were already I screwed then it would be a piti payment if if the loan was not escrowed and their taxes are actually current already we'd like people to be asteroid but if they're not I screwed and sometimes some of these states in the South attacks and there's two Mueller's a year so it's not really always relevant and but yeah if they're not a spirit it might just be the hitting the principal interest in escrow to certainly both Jack what's up with Rob again yeah mention real quick it wasn't mentioned you know homeowners association liens and how they play a role for close so Florida for example you oh one year or one percent of the mortgage balance so they're gonna be a ball or n paid since 2009 and there's an 80 range we use but you'll know one year's worth of use when you're close you know other states New Jersey is six months so generally you're wiping out a majority of the homeowners association dues if you google homeowners association foreclosure and than any state usually the first night that comes up to go no low in Olo and it has each specific state on how they treat the homeowners association use lose any other specific questions at all and curiosities um since I've tried meats left to my free version this session I'm going to go ahead and let you guys let us know where we can connect with you guys any email addresses where I do a form I'm gonna send everyone to kind of get our capture all the information and then direct them to your NDA letters know how we can reach you guys and one we can set additional inventory coming out yeah right Dave so in the chat section there I put a link to ring you're registered as a buyer you can reach me via email at note sales at Gemini capital managers calm and I am gonna be putting out an offering with it's close to fifty loans and this Friday or early next week so if you aren't already registered make sure you do that if you want to see that tape great anything else guys have let's take a state of New Jersey is it better if you want you foreclose on these properties they put them in the open market or have a like houses if there's a dedicated investor who wants to buy every property that you guys foreclose on we can can that stuff like that be worked on or is it better just to keep it an open market and I said when it depends on the condition and you know what value bandit is if it's in a owner-occupied if it's an if it's an area if it's a good enough condition we can sell to an owner-occupant that's our ideal we really would prefer to and Tim is Tim manages smaller we have projects all the time if it's paint and carpet and we can actually sell retail we will other in other cases if the house is really distressed there's certain markets we have investor buyers and sometimes we'll cut our losses and sell something as is every situation is different all right so we don't gain lowball offers what kind of value you putting on it things that don't have equity are worth pricing nowadays on property right yeah absolutely good question so most like check the site area most of the loans that we have or the assets that we have a higher value so most of them are 50 up so pricing on loans that have a underlying property value of greater than 50 thousand but generally going to be in the 55 to 65 percent of value range those are loans that are underwater loans that have equity we again we price less as a percentage of K off that can be anywhere from 65% of the payoff while the way up to 95 percent of the payoff and every loan is different everyone has a different story so depending so variables that will dictate pricing are you know where we are in terms of the stage of foreclosure are we month away from a foreclosure sale or are we just getting motion for or are we just filing a motion for relief have we paid taxes how much have we advance and attorneys fees so there's there's a lot of different every loan is different right so that's just a general guideline but overall we have had quite a bit of success selling loans in the 55 to 65 percent of value range that's what the market Spain so again like one of the where the challenges for smaller investor is thinking maybe there's not enough money or meat in those deals and I would say that's what the market is paying so it's reduced your cost of capital and they'll be more meeting the deal for you you know so what's your question they've never met well I'm gonna let everyone ended here appreciate guys time and if they need additional questions we have your email address don't send it out to everyone a year as well as every when it was on the webinar thank you very much all right thanks to Jackie to them out here so well good all right guys enjoy all right you too.