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




                                  ...
Agenda

Following the Roadmap Step by Step:
                      Step-by-Step:

•   REOs – what happens if I take a prope...
REO – “Taking it Back”
• Real-Estate Owned (bank – owned)
  Real Estate
• Choice of last resort BUT
• Can be its own strat...
REO After a Foreclosure (CA Example)


  Delinquent     NOD           NTS Sale
                                           ...
REO after Deed-in-Lieu (CA Example)
          Deed in Lieu


  Delinquent     NOD            NTS Sale
                    ...
REO as a Strategy – Example
•   Can be its own strategy
    Borrower isn’t as “efficient” as you
       • Motivation
     ...
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...
The Situation

• Listed @ $$375,000
   • “Finished basement”
   • “Larger than comps”
   • “Comps too low”
   • Not sellin...
REOs – a word on valuations



                                                1sts
  Ttl BPO Value @ Purchase            ...
Back to our example



                  •   Currently listed at
                      $259,000
                      $259...
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”




...
Home Value Declines & Their Impact
     Home Price Appreciation (HPA) declines do not automatically put an
     investment...
Market Forecasts (HPA)
  The Case-Shiller Index is commonly used as a predictor of HPA



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


 City, State Zip             Aurora, CO 80113
 Loan Position    ...
Foreclosure – REO: Aurora, CO
                   Aurora

DEAL SUMMARY
    Exit Strategy                 Loan Sold to FC Au...
A Quick Review

•   We ve
    We’ve closed on a note
    •   RESPA
    •   Servicer
    •   Borrower contact

•   We’re no...
Servicing

Licensing – both Servicing and Purchasing

Purchasing:
         g
  •   Difference between 1sts and 2nds
  •   ...
A Note on Servicing Guidelines

•   California, for example, requires a Mortgage Lenders’
              ,          p, q   ...
A Note on Servicing Guidelines

•   First 10 of 12 Exceptions:
    •   Banks, trust co’s, insurance companies & industrial...
A Note on Servicing Guidelines


 Final 2 Exceptions for California Servicing:
 •   Licensed California real estate broker...
Choosing a Servicer


•   Ask where they’re licensed
•   And what t ey e licensed for
      d   at they’re ce sed o
•   To...
Choosing a Servicer (cont.)
                    (cont )


 • Generic / large: Wells Fargo, Option One, SPS, SLS

 • Marix,...
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 k...
Customized Loan Management




                    Comprehensive loan
                    C       h    il
                ...
Customized Loan Management




                Easy click access
                 to key research
                      y
...
Key Financial Data Easily Laid Out




                                      P&L accessible
                              ...
Key Financial Data Easily Laid Out




                                     Balance Sheet &
                              ...
Integration between Systems (Under Development)
      QB Online                     Salesforce




             We have ou...
What We Covered


•   REOs – the “final exit”

•   Purchasing and Servicing guidelines
•   Servicing & Investors – options...
Next – Tele seminar with an Investor
       Tele-seminar

January 28: 6pm PT 9pm ET
                PT,
“Newbie” investor ...
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How to buy Mortgage Notes Real Estate Notes Defaulted Mortgages - Servicing Your Loans & Managin REOs

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  • This is one of the best time in history to buy mortgage notes because many people had to accept them in order to sell their homes but need to get rid of them now for cash. If you have the available cash, you can be in a great position to take advantage of it. You can learn more by visiting http://www.mortgagefortlauderdale.net or our offices at Mortgage Fort Lauderdale, 314 S.E. 2nd Street, Fort Lauderdale, FL 33301.

    Before buying notes, make sure to have a clear understanding of the credit of the person making payments on the note as this is one of the most important factors in being successful with it.
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How to buy Mortgage Notes Real Estate Notes Defaulted Mortgages - Servicing Your Loans & Managin REOs

  1. 1. Week 6: Servicing, REOs and Bankruptcy The 8 – Week Roadmap to Launching into Notes 1
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. REO as a Strategy – Example • Can be its own strategy Borrower isn’t as “efficient” as you • Motivation • Speed • Action 6
  7. 7. 1994 Indianapolis SFH 7
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. Foreclosure – REO: Aurora, CO Aurora Aurora, Colorado – 1st Lien
  16. 16. 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
  17. 17. 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.
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. Choosing a Servicer (cont.) (cont ) • Generic / large: Wells Fargo, Option One, SPS, SLS • Marix, BSI, Prodovis, FCI • Key: specialty (or default) servicing 24
  25. 25. Data availability is key (FCI) 25
  26. 26. Data availability is key (FCI) 26
  27. 27. 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
  28. 28. Customized Loan Management Comprehensive loan C h il data for all loan servicing data 28
  29. 29. Customized Loan Management Easy click access to key research y Easy-to-see “summary” data on the deal 29
  30. 30. Key Financial Data Easily Laid Out P&L accessible to your investors 24/7 30
  31. 31. Key Financial Data Easily Laid Out Balance Sheet & P&L templates p specifically for Note Investors 31
  32. 32. Integration between Systems (Under Development) QB Online Salesforce We have our customized loan “portal” for purchase 32
  33. 33. What We Covered • REOs – the “final exit” • Purchasing and Servicing guidelines • Servicing & Investors – options in using technology to raise money 33
  34. 34. 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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