The most expensive real estate education is ignorance. We offer the antidote.
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Do you have a Quality Control plan? Does your servicer? At Main Street, our Servicing Quality Plan insures the following areas of our loan servicing/loan administration efforts are reviewed on a regular basis. Analyzing the items below assist Main Street in reaching our goal of protecting our investors and their investments, as well as providing quality customer service to each and every borrower.
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Ignorance is not a defense. For that reason, as note investors, there is a critical need to be aware of the ever-changing laws in every state we do business. Because most of the statutory changes are mere “tune-ups” of existing rules and procedures (and we already know those, right?), most regulatory changes have little impact on day-to-day operations. Occasionally, however, a law (or set of laws) is passed that does change how the note business is conducted within a state. A newly enacted set of statutory amendments here in Nevada did just that. While certain portions of SB 490 are minor amendments, the seven significant points discussed below should be noted. So, if you own loans in Nevada, here’s what you (or your Servicer) need to know about the state’s now-permanent Foreclosure Mediation Program.
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The recent decision in Hart v. Credit Control, LLC, confirmed that a voicemail is a communication under the FDCPA. 2017 U.S. App. LEXIS 18375 (11th Cir. Sept 22, 2017). You may be thinking “well, of course… a communication is a communication is a communication.” But the fact was, until this decision, that some, in fact many, courts deemed simple voicemails NOT communications because they did not disclose any more information than would be gained from a hangup. See, e.g., Zortman v, J.C. Christensen & Assocs., Inc. 870 F. Supp. 2d 694 (D. Minn. 2012).
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I don't know about you, but I go to a lot of events. Some of these are large conferences others are small gatherings of like-minded note investors. The wonderful thing about each one of these events is that attendees get to follow the seventh principle of the seven habits of highly effective people espoused by Stephen Covey. The seventh principle, as a reminder, is to "sharpen the saw".
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In our last issue we discussed the problems with balloon payments both from a lender’s or note seller’s perspective ( complying with the Dodd-Frank legislation) and from a note buyer’s perspective (valuing a note that includes a balloon payment). In this issue I would like to introduce you the mathematics of step payments.
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Many investors today are providing private money lending. What this means is they will make available the funds to a buyer to purchase a property. To secure payment and their asset it is standard practice to have the borrower execute a Mortgage Note and Deed of Trust. The biggest challenge with this can be investors utilizing a note and deed that they either have been written by their attorney or that they find online. We would like to provide some additional things to remember when you are reviewing the documents to make sure you are protecting yourself and the asset.
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It’s a big bad foreclosure world out there. But as note investors, we need to be prepared to brave the elements. You've taken all the right steps, but the time has come to take it to auction. How is an Asset Manager to navigate the quagmire?
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Lately we have received a number of seller financed notes to evaluate for purchase and a large share of these notes have balloon payments attached. In our opinion the balloon creates problems for both the seller and the buyer. We’ll cover a possible solution later. Let me first cover the problems a seller may encounter...
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When speaking with note investors at trade shows and other note events I am often asked, is there anything I should be doing to maximize the value of my note and keep it safe. This is a pretty general question and usually does not have anything to do with the Miracle Math we use to enhance value. No, it is more to do with the physical loan itself and there are things you must do to ensure the value stays high.
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One of the most frustrating things to deal with as a note investor is working with bankruptcies. Sometimes people get way in over their head and even a minor change in fortunes can send their financial world into a complete tailspin. Sometimes the only way out of it is through bankruptcy protection. You, as an investor, need to be able to deal with that situation to find an amenable solution for all parties.
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Because these are very potential actions in financial services, including mortgage servicing, and because abuse has been so widespread and so, well, abusive, the federal government stepped in to help protect consumers against lenders and bill collectors who may take it to the extreme. Here, I will list and explain some of the more egregious infractions of the Fair Debt Collections Practices Act.
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Sheer will doesn’t work that well in the note business. So, I’ve had to set some rigid parameters and limits on our investment strategies and I suggest you do the same. My experience in the business has taught me that the risk of notes is variable and difficult to assess, but an attempt must be made if you want staying power.
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Servicers have been fined in the past for not following the below requirements that have been issued by the Consumer Federal Protection Bureau and are both Regulation X and Z requirements. When receiving a periodic payment it must be applied the day of receipt. Periodic payments consist of the amount necessary to cover principal, interest and escrow (if applicable).
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Probably just about everyone reading this knows about the high yield opportunities available from investing in mortgages and trust deeds. However, a couple of recent events gave me some new insights into this business that I would like to share. First, we are not naïve. We realize there are some investors who buy these notes in the hope and anticipation that the homeowner will fail to make payments and the home can be foreclosed thereby providing the investor with a windfall profit. I was, however a little shocked at how far some will go to make that profit.
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If you come to any event that I speak at, you’ll likely hear me say, “Every home has a heartbeat!” This is true. I also have a business to run and the only way I make the profit to feed myself and all the other people that depend on what I do for a living is to be business oriented. So how do I, and by extension, you, determine when to take a house away from a person or not?
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Last month, I wrote about the October 11 decision in PHH Corporation v. Consumer Financial Protection Bureau (No. 15-1177). To recap the case, the D.C. Circuit of the U.S. Court of Appeals determined that the lack of oversight of the Consumer Finance Protection Bureau (“CFPB”) was unconstitutional insofar as the vesting of the authority in the CFPC’s appointed director violated the separation of powers set forth by the Constitution.
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These Promissory Notes when written properly can be bought and sold as simply as the notes from the institutions. However, the buyer must be aware of certain caveats when purchasing. When a note is purchased from a lender one can feel a bit safe that all the ts were crossed and the is dotted. Not so with Seller Financed. In most cases a seller does a seller finance one time and depending on who helped with the transaction the note. Because of this, safety is a large factor when considering the purchase of a seller financed note.
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There is an increasing volume of Transfers of Servicing mortgages between Servicers. There are also heightened regulatory expectations governing such transfers. It is imperative in the face of increased volume and regulatory expectations that borrowers are not negatively impacted and its mortgage loans are properly serviced. Therefore it is important to ensure a transparent and effective Transfer of Servicing processes
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You are working on a loan and the debtor isn’t responding to anything! You’ve sent letters and nothing. You make phone calls and they’re ignored. You even sent a “Razzle Dazzle” package—more commonly known as “Shock & Awe,” but I like the rhyming, guys—and the borrower may as well have been on Mars for all the response you got from them.
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Since its inception, the Consumer Financial Protection Bureau (CFPB) has guided major changes in the world of mortgage lending, servicing, and collecting. This is no surprise as this was its intended purpose. However, many in the industry felt that the CFPB wielded too much power – power that was nearly absolute – at the expense of the lender. A recent DC Appeals Court ruling, appears to have attempted to curtail that power, the real life effects, however, are yet to be seen.
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I’ve got one thing to say: “Stop looking at the interest rate on your mods and let's focus on the return of your investment.” Ok, fine, so it’s not the end, per se, but I do want you to realize precisely what you really need to pay attention to. It is the ROI, not the interest rate that really matters when it comes to investing in anything, and especially when it comes to real estate investments.
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Have you ever had a loan that you tried to reach out and talk to the homeowner only to get less than a stellar response? No? Well, you haven’t worked too many loans have you? I am often asked what appropriate responses are to a borrower that refuses to listen. So I always say, “You got three options. Choose any one and we’ll talk in a week.
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The Consumer Financial Protection Bureau (CFPB) issued final rules for Mortgage servicing that will be required to be in place by the early summer or late fall of 2017. This rules were finalized on August 4, 2016. The full requirements are listed on the CFPB website but I have provided a quick synopsis of the changes here.
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There is simply no question about it. The bursting of the real estate market in 2007 and 2008 has led to unequaled opportunity for profit from the distressed assets left after the sub-prime banking debacle. And, perhaps the biggest opportunity of all has resulted in the ability of the new owner of this distressed debt to work with the borrower/homeowner to keep them in their home. In most cases, the banks were unwilling or unable to offer the kind of incentives or opportunity that the debt buyer can offer, i.e. forgiveness of arrears, lower interest rates etc.
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In recent months it seems that more and more former fix and flip real estate investors have entered the note space. A few years ago when foreclosures were rampant these investors could buy at the courthouse steps, rehab the property and sell it for a handsome profit.
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As in any other transaction, taking a property back at sale comes with rights for both parties, and responsibilities for each party. Just because you have resumed complete ownership of the property, you don’t automatically have a right to secure a home, which includes throwing out and/or preventing the tenant from residing in the home.
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As you may have heard, Dodd-Frank and the CFPB dealt a heavy blow to the traditional seller-carry notes. A seller who performs more than a couple seller-carried transactions, must comply with most, if not all, of the lending requirements of institutional lenders – evaluating credit risk, the ability to repay, the prohibitions on balloon payments, etc. – for this reason, this model is less used.
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Stricter standards and increased scrutiny mean financial institutions now have the same responsibilities for in-house and out-of-house...
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When you choose someone to do business with, you need to know who they are, how they treat the borrower, how full of integrity they are...
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Right now I am more enthused about our industry than any time during the past year. My peek at the short term picture for the note niche...
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When it comes to investing in notes, buying bigger often results in better prices as well as better allocation of risk...
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No question, the most often asked question we get from investors in the NPL niche is “How long is this opportunity going to last”...
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The cost of business is often what allows you to do business. Without these costs, profit is not realized. Could you imagine trying to...
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When mortgages are transferred from one servicer to another, borrowers who had applied to the prior servicer for loss mitigation...
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In the event of a foreclosure, you may be forced to evict the current occupant, a process which itself requires an understanding of the...
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As an investor you may not know everything about the asset class you choose to invest in. The most important part is finding someone who...
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Over the last couple of years we have had a growing concern about the expectations novice note investors, and even sophisticated investors just entering the NPL arena, have about the business. We have also counseled a number of investors concerning the status of their portfolios. Why our concern? First, we are dedicated to this business. As investors ourselves, we know the industry’s profit potential first hand. Second, we believe there are some huge misunderstandings surrounding these investments. I wanted to see if those misunderstandings and perceptions still existed. Unfortunately they do.
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Sometimes a lienholder will use an attorney’s letterhead to try and get the point across to their debtors that they are serious about collections. This is a HUGE no-no. Indeed, it can be prosecuted into the very highest of courts as evidenced by a recent decision of the Supreme Court of the United States. In the case, the use of attorney letterhead in a state’s contracted-out debt-collection was argued.
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Here are two violation trends that could be very costly to you if you are not abiding by CFPB’s guidelines. Not only the CFPB but the Office of the Controller of the Currency (OCC) and the Federal Reserve Board require the strengthening of processes and procedures for the loss mitigation and foreclosure practices supported by the major mortgage servicers. However the below items are violated often. Make sure your servicers know what they need to do to reduce the risk on your collateral.
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As an attorney involved in mortgages and deeds of trust, there are two things that I would value over nearly anything else: consistency and clarity. Since the real estate meltdown, there has been no shortage of law regarding borrowers and creditors rights – some of it legislative, some of it judicial. Examples would be the Dodd-Frank reforms, recent Supreme Court decisions regarding bankruptcy, and the plethora of state appellate decisions that offer some guidance on how these assets should be treated. The concern with these statutes and cases, however, is that from state to state and decision to decision, they are inconsistent at best.
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There are many reasons for participation in the delinquent mortgage niche, profit potential, benevolence to home owners in distress, and large availability of product being just three. However, for me, the most attractive feature is the huge potential for creativity. I have been a business owner for over forty years and believe one of the keys to remaining an entrepreneur is the satisfaction of building a business based on utilizing one’s creative ability. And no business I’ve found offers more opportunity for that than the delinquent mortgage note business.
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If you are transferring the servicing of your loans, there are a number of things that must be done to remain compliant during the transfer.
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Imagine this scenario: Apparently, the Jones, from whom you are attempting to collect a debt, are suing you.
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It seems that every industry has its own esoteric language and if you are going to participate you need to understand that language...
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After considering the priority of the lien at its origination (and identifying any liens that could potentially jump ahead because of...
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It's come to my attention that we really need to talk about something. There's an elephant in this room of investors. That “elephant” is...
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A loan modification is a document used to modify the original terms of a loan. In a modification a lender can agree to reduce the...
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When buying delinquent assets, we have a lot of room to come up with a plan where everybody wins.
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One of the most common mistakes we see new note investors make is identifying a price that others dictate as proper. We often speak with...
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Anti-deficiency. That hyphenated word strikes fear into the minds of many note investors. And, for good reason, it should be respected.
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Occasionally, we're asked what makes a good mortgage investor or partner in a mortgage investment.
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In 1991 a law was enacted to protect consumers from businesses. Too often, businesses were soliciting for customers at their dinner tables..
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We're receiving more and more questions about joint ventures with each passing week. In the past questions seemed to be “ how do I get...
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