Week 5: The 5 Exits
The 8 – Week Roadmap to Launching into Notes
1

Agenda
Following the Roadmap Step by Step:
Step-by-Step:
• The 5 Exits – what they are
• Reperform
• Refinance
R fi
• Discounted payoff (e.g. Short Sale)
• Foreclosure (2 outcomes from this: TPS / REO)
• Sell note
• Examples to illustrate a few of these
2

A Quick Review
• We ve
We’ve closed on a note
• RESPA
• Servicer
• Borrower contact
• Workouts
• We’re “working the note out”
• To make dollars and cents!
3

Using an example
DEAL 1
• FMV $120,000
• UPB on 1st $64,276.05
• UPB on 2nd $19,000.00
• U
UPB tota
total $83, 6 05
$83,276.05
• “Equity” $36,723.95
You buy 2nd:
• $2,000.00
$2 000 00
4

Deal #1 – cont
cont.
The 2nd originated in 1997, $25,000.00 @ 13.250%
•
for 20 years
• The monthly payment was $297.00, but due to
arrears, bank was asking $353.00
g
• It’s non-performing – borrower couldn’t pay the $353
• What are your exit strategy options?
5

This Deal Looks Like …
• Home worth ~$120K
• So inv’t-to-value of 55%
“Equity”
of $54K
2nd of $19K • Bought 2nd for $2K
• Total o $66 “into
o a of $66K o
the deal”
1st of $64K
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The Exit Strategies Again …
• The 5 Exits – what they are:
• Reperform
• Refinance
R fi
• Discounted payoff (e.g. Short Sale)
• Foreclosure (2 outcomes from this: TPS / REO)
• Sell note
7

Selected strategy…
strategy
• Reperform (loan mod t l
R f (l d to lower payments b k d
t back down
to $297)
• Received 2 payments of $297
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Whoops … wrinkle in the strategy
Y find out the 1st i suddenly f
• You fi d t th is dd l foreclosing!
li!
• So what do you do now?
First, what explains this? She’s paying the 2nd!
•
• The 5 Exits – what they are:
• Reperform
• Refinance
• Discounted payoff (e.g. Short Sale)
• Foreclosure (2 outcomes from this: TPS / REO)
• Sell note
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Options
• Reinstate th 1 t
R i t t the 1st
• See if borrower pays on the full amount due on the
2nd, if not, start foreclosure yourself
• Talk to the borrower – reperform both?!
p
• Can she really afford both loans? If not, help her with
a sale of the property
l f th t
Let the 1st go to sale – bid at sale
•
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Letting the 1st go to sale … what this looks like
$120K –
home value
Above this, you
make money
k
A bid of 66% of
2nd of $19K the home’s value
$66K
= $79K
You would make
1st of $64K
$
$13K over y
your
$2K investment
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Example #2 – “Safe”
Safe
• Home worth ~$750K
• So inv’t-to-value of 53%
(assuming paying full UPB) –
“Equity”
oh, it’ a performing note
h it’s f i t
of $350K
• Bank wants to sell
2nd
No the 1st for $350K
• Note “matures” on Jan 31,
1st of $396K
2009 – can call the entire
loan due
12

Investigating … what’s going on?
• 20 questions
ti
• Understand as much as you can
• In order to determine if you do (or do not) want to buy
a loan
13

Federal Heights, Salt Lake City
Heights
14

What you would have found out
• Property is listed for $
py $1.25M – tony area in Salt Lake
y
City suburbs
• Realtor was never able to show the home in 6
months (borrower was “sick”)
• Bank wanted to sell loan because this was a
“sensitive” loan
• Bank said very little about borrower
• When pressed, bank admitted “business relationship”
p , p
between borrower and bank
• When pressed, realtor admitted borrower was
p ,
“extremely well connected”
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So … now what?
• What’s
Wh t’ your E it St t
Exit Strategy going t be?
i to b ?
• The 5 Exits – what they are:
• Reperform
• Refinance
• Discounted payoff (e.g. Short Sale)
Di td ff ( Sh t S l )
• Foreclosure (2 outcomes from this: TPS / REO)
• Sell note
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Next – Week 6 – Servicing & REOs
January 21: 5pm PT, 8pm ET
Week 6 of the Roadmap – How to Manage REO’s and
REO s
what it means to “service” your notes
Watch for our January Guest Tele-Seminar:
y
“Newbie” investor who just bought his first 8 notes – tales
of experience … and success
success.
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