Presentation on theme: "Be the Bank: 12 Keys to Nonperforming Second Loans Sándor Lau, Chief Inspiration Officer StewardshipCapital.com."— Presentation transcript:
Be the Bank: 12 Keys to Nonperforming Second Loans Sándor Lau, Chief Inspiration Officer StewardshipCapital.com
Imagine Real estate investment: Single family home, down payment like FHA 3.5%. No application, no credit, you don’t live there. Occupants completely committed to your housing product. 10 years no vacancy. You can enjoy monthly payment stream, appreciation, or cash payout, sometimes all three. If it goes south, all you’re into it for is down payment.
Case Study: Mile Wide Never Should Have Worked: House upside down Borrowers bankrupt Hadn’t paid second mortgage since 2011 But…paying first mortgage
Case Study: Mile Wide BORROWERS: Married couple with kids, KC suburbs. $11k/mo. Borrowed against house to start business 2007. Previous chapter 7 bankruptcy. Living month to month but paying first mtg.
Mile Wide Numbers: Value: $360,000 1 st Mortgage: $400,000 Payment on 1st: $2,000/mo 2 nd Mortgage: $55,000 Arrearages: $30,000 Our Cost: $6,000+$2,500 lawyers (2.4% of property value) PAYMENT PLAN: $350/mo, $4,200/yr, 10-year balloon, Sándor’s insurance RETURN: 50% (improves at balloon). Resolved in 6 months. Never should have worked. Works all the time. Example photo only, not borrower’s house
1) Emotional Equity Trumps $ Equity House=Asset (IRS) House=Doodad (Robert Kiyosaki) House=Investment (real estate investor) House=Home where kids and pets live (homeowner)
Please Raise Your Hand if You Have Previously Invested in Notes?
Money is Debt US currency is a promise to pay.
Shift Your Paradigm “If you want small changes, work on your behavior; if you want quantum-leap changes, work on your paradigms.”
2) Stack the Cards in in Your Favor We buy discounted nonperforming second mortgages behind performing firsts on residential properties. I have income I want to keep my home
Online Underwriting: Credit Report To get a good mortgage, you need great credit To get an awesome mortgage, you need horrible credit.
Title Card: First lien, modified, paid off, foreclosed? Other liens (contractor, business, third, private)
3) People Do Not Grow Tired of Living Indoors Real estate appreciating for the past 10,000 years. Not everyone needs car insurance, pet reiki, iphone or psychotherapy. Everyone needs a place to live.
Case Study: Fields of Green BORROWER: Milwaukee area, Greenfield, WI. Single dad raising two kids in house they were born in. Dramatic income loss, divorce in recession. Living month to month. Previous chapter 7 bankruptcy.
Fields of Green Numbers: Value: $165,000 1 st Mortgage: $170,000 Payment on 1st: $1,000/mo 2 nd Mortgage: $25,000 (reduced from $40k) Arrearages: $5,000 Our Cost: $3,500+$1,000 lawyers PAYOFF: $12,000 RETURN: 266%. Resolved in 10 months. Intoxicating asset. Example photo only, not borrower’s house
Case Study: Cement Mix Midwest fourplex, $80,000 $500/mo. mortgage $2,000/mo. rent What could possibly go wrong? Mortgage due no matter what happens Not example: Real House
4) Be the Bank, Not the Landlord No tenants, no toilets no termites.
5) You Make Your Money When You Buy Discounted real estate=exceptional Discounted notes =standard 2 nd s most discounted Sweet spot: under 20 cents on dollar UPB
Case Study: Home on the Range 1982: 18% interest No loan: paid cash Furnished from garage sales How to know real estate garage sale?
Bank Paper vs. Seller Carry Loans Needle in haystack Haystack made of needles
Banks are the World’s Most Motivated Sellers BANKS: Large institutions Strict rules Move slowly All or nothing US: Small and specialized Win-win creative solutions Fast decisions What can you afford?
6) Seconds Come First 2 nd s pull the strings 2 nd s can FORECLOSE like 1 st s Lower price point (smaller loans, bigger discounts).
Firsts Come Second 1 st can foreclose—if we let them. We can own property subject to 1 st loan. Not in our name, not on our credit.
7) Diversify Buy pool of notes, $4k to $20kish each. Spread risk. Strike Outs Singles/Doubles Home runs
Case Study: Chicago House of Blues BORROWER: Underwater $30k or more on first mortgage Health issues Struggling to pay $1,000/month first with $1,250 social security income.
Chicago House of Blues Numbers: Value: $150,000??? 1 st Mortgage: $180,000 2 nd Mortgage: $55,000 Arrearages: $15,000 Our Cost: $9,000 Settled for $3,000 Example photo only, not borrower’s house
8) Pray for BK — Bankruptcy Bankruptcy gives relief from debt, not entitlement to house. We are secured creditors. Chapter 7: liquidation Chapter 13: restructuring Read cards at: www.pacer.govwww.pacer.gov
Chapter 13 Bankruptcy House<1 st mortgage balance, court can strip 2 nd lien. House value<(1 st and 2 nd loans), court can cram down 2 nd to lower debt. All payments come through trustee. Payment plan 3-5 years. Only 1/3 complete plan. No completion=no strip.
Case Study: Georgia Peach BORROWER: 20 years in house with two children Middle-class income ($5,500/mo) but poor money management skills. No savings. Defaulted on payment plan, filed BK 13, now payments through court.
Georgia Peach Numbers: Value: $150,000 1 st Mortgage: $80,000 Payment on 1st: $500/mo 2 nd Mortgage: $45,000 Arrearages: $10,000 Our Cost: $7,000+$2,000 lawyers+$5,000 to reinstate first mortgage=$14,000 PAYMENT PLAN: Borrowers signed agreement for $500/mo to us, but stopped paying us and first mortgage. We paid $5,000 to bring first current. RESULT: Borrowers now pay $700 through court garnished wages. $8,400/yr. Example photo only, not borrower’s house
Chapter 7 Bankruptcy Wipes out unsecured debts, leaving more to pay mortgage. No lien stripping, no cram downs. Except FL, GA, AL. Except FL, GA, AL Bankruptcy relieves personal debt obligation, does not provide shelter.
Case Study: Arizona Rattler BORROWER Single borrower with steady job and no dependents. Built house 2002. Filed Chapter 7 after we contacted. Bankruptcy discharged and soon proceeding with foreclosure.
Arizona Rattler: Numbers Value: $160,000 1 st Mortgage: $135,000 Payment: $800/mo 2 nd Mortgage: $36,000 Arrearages: $10,000 Our Cost: $6,000 After discharge of Ch. 7, monthly debts are only 1 st & 2 nd mortgage. AZ state assistance program. Example photo only, not borrower’s house
9) Your Nearest Exit May be Behind You A property has two ways to make money: Rent Sell
2 nd Notes Give You Multiple Exit Strategies BORROWER WANTS TO KEEP PROPERTY: Payment plan based on what borrower can afford Pay off at a discount (higher returns on fast turn of money)
If Borrowers Can’t or Won’t Pay BORROWER READY TO MOVE ON: Deed property to lender Short sale (we can decide in a few days) BORROWER REFUSES TO COMMUNICATE Foreclose Wait for appreciation
Property Exit Strategies ONCE WE OWN PROPERTY: Keep as a rental property (subject to 1st) Keep as rental property. We don’t pay the mortgage and first forecloses. Sell for cash or regular loan Lease option
10) Get the Right People in the Right Seats Highest and best use of our time is finding and fixing broken notes Required attributes: Logical data crunching Intestinal fortitude Relationship building Team: Mentors Servicing company Accountant Lawyers Investors Bill Syrios, Real Estate Reverend
Get Help from Your Uncle 18 states in federal Hardest Hit Loan Assistance Fund Other states have own programs Reinstatement funds, temporary payments or payoffs
Case Study: The Ostrich BORROWER: San Bernardino County, CA, bread and butter 4/3 Borrower shouts, “Leave me alone!” then hangs up. Facebook shows some interior pictures of house Modified first for low monthly payment CA program will pay off 40% of 2 nd loan if lender forgives 60%. Now, highly motivated.
The Ostrich Numbers Value: $160,000 1 st Mortgage: $204,000 (sweet modification) 1 st Mortgage pmt. $600/mo (mkt. rent $1,200/mo) Market appreciating 15% 2 nd Mortgage: $50,000 SCHL cost: $9,000 CA state program will pay out 40% on successful application We can also foreclose and rent Example photo only, not borrower’s house
11) Good Things Come to Those Who Wait Stanford Marshmallow Experiment Notes take a long time to receive Due process takes time We wait for the second marshmallow.
Case Study: Rancho Kowabunga BORROWER Home bought at market peak 2007 Rancho Cucamonga, CA. Lived in beautiful large house over 8 years Discharged BK7 Pays first mortgage like clockwork Appreciating real estate market Modified first mortgage forgives $87,000/year for 3 years if borrowers continue paying first on time. Example photo only, not borrower’s house
Rancho Kowabunga Numbers Value: $460,000 1 st Mortgage now: $472,000 1 st Mortgage in 1 year: $385,000 Value in 1 year: $500,000 1 st Mortgage pmt. $2,100/mo, Market rent $2,200/mo 2 nd Mortgage: $57,000+lates and arrearages SCHL cost: $25,000 (bought from friend, not traditional hedge fund route) Waiting for appreciation (6%ish) and equity Example photo only, not borrower’s house
12) If You Think Education is Expensive, Try Ignorance
Resources: BOOKS (available PapersourceOnline.com Or Amazon.com): Performance Anxiety by Gordon Moss Performance Anxiety Fast Cash by Lorelei Stevens Fast Cash Lorelei’s Legal Lessons by Lorelei Stevens Lorelei’s Legal Lessons Invest in Debt by Jimmy Napier Invest in Debt COURSES: Gordon Moss, Quixote Ventures www.RealEstateAndNoteInvesting.comwww.RealEstateAndNoteInvesting.com Partners for Payment Relief www.PPRNoteco.comwww.PPRNoteco.com NoteConference www.NoteConference.comwww.NoteConference.com National Note Group www.NationalNoteGroup.comwww.NationalNoteGroup.com Keyhole Academy www.KeyholeAcademy.comwww.KeyholeAcademy.com LEGAL: Memorize the Fair Debt Collection Practices ActFair Debt Collection Practices Act
Bonus Key: All Work and No Play Makes You a Dull Investor Join us for an easy sunset hike in Red Rock Canyon, Sat. 11-22. Meet 2:15pm Tuscany lobby. Details at: StewardshipCapital.com StewardshipCapital.com
Questions? Sándor Lau, Chief Inspiration Officer sandor@TheGoodStewards.comsandor@TheGoodStewards.com 541-343-6000 Email for copy of slides www.StewardshipCapital.com