In todays email:

• 💬 State of the market: Rents staying high. House prices ease.

• 👀 Featured Video: Early payoff = big returns!

• 🤑 Show me the money: Making money at foreclosure auction.

• 🥶 Cool Tools: Document management services.

State of Real Estate

Health Of The Real Estate Market

• Interest rates are holding steady and now at 6.43% and have been in a range from 6-7% since Sept 15, 2022.

• The Median home sales price has dropped about $30,000 since Q4 2022 ($479,500) and are now at $436,800 but remain relatively high.

• The homeowner vacancy rate is at historical lows and now 0.8%. This measures the proportion of the homeowner inventory that is vacant for sale.

• The rental vacancy rate is the proportion of the rental inventory that is vacant for rent and now at 5.8%. You can see it continues the downward trend and the reason why rents continue to stay high.

Featured Video 

How Mortgage Note Payoffs Affect Returns

Michigan Mortgage Note Example 1:

• Note Purchase Price: $39,250

• Note Status: Semi-Performing 1st Position Mortgage Note

• UPB at purchase: $79,096

• Homeowner refinances and pays off loan (2 years later)

• Payments during these 2 year hold: $30,370

• Payoff Amount: $78,697

• Total Profit: $30,370 + $78,697 - $39,250 = $69,817

• ROI = $69,817/$39,250 = 177% in 2 years

Michigan Mortgage Note Example 2:

• Note Purchase Price: $15,000

• Note Status: Non-Performing 2nd Mortgage Note

• UPB at purchase: $34,265

• Homeowner payoff (4.5 months later)

• Payments during 4.5 month hold: $0 (no payments)

• Payoff Amount: $60,023

• Attorney fees: $1863

• Total Profit: $0 + $60,023 - $15,000 - $1,863 = $43,160

• ROI = $43,160/$15,000 = 287% in 0.375 years

North Carolina Mortgage Note Example 3:

Early in my note career, I bought a few re-performing second liens in my Roth IRA and was just going to keep for cash flow. I did not really look into whether it was truly a second lien since my mortgage loan sale agreement had reps and warrants that stated that this was a second lien and if I discovered otherwise the sell would buy back the note less any payments received. So I was content. NEVER BE CONTENT OR COMPLACENT…always check and verify lien position.

A few months later I was asked by the borrowers refinance company to subordinate my position for them to get a new loan with lower interest rate, lower payment, etc. Of course I said yes since this would allow the borrower more money to pay my loan since the underlying first payment was going to be smaller. However, it was during this process is when I discovered that what I thought was a second mortgage was really a third mortgage. I was somewhat upset initially but remembered I had the right to sell it back to the company that sold me the note....so I was not too worried... just a hassle.

However, I started to think about it and whether I should really sell it back. It was paying on time in full each month and had several months track record and when looking at my equity position above the 3rd it was pretty substantial. Yes being in second position would be better but the actual second was not a large amount and I still had equity of about 15% above my third position note. So I decided to keep that note for the following reasons:

1. The person was paying on the first, second and third all on time in full each month.

2. There was equity above my position to protect me if things went south.

3. The homeowner had emotional equity in the house and had been there awhile.

4. The homeowner was spending time and energy on refinancing in order to reduce her payments which would in turn leave more money for her to pay me each month.

Well that turned out to be a great decision since a few years later she paid off the note in full which I had bought at a significant discount.

ROI 142% in 4.75 years or about 30%/year!

I can't claim to be a genius on this one since you never know when someone will payoff but I did review the facts which pointed me in the right direction instead of a knee jerk reaction to sell the note back.

Show Me The Money 

Making Money At Foreclosure Auction Part2

In the last newsletter, I mentioned that we had several mortgage notes on properties (see pic above) in different stages of the foreclosure process. These were reverse mortgage notes and the borrowers were deceased and payments were over 12 months in arrears.

So what happens when the property goes to the foreclosure auction sale? Either the property reverts back to the lender as an REO (Real Estate Owned) or a 3rd party investor buys the property for the opening bid or higher.

April 21, 2023 auction in Mississippi - got the house back as REO as I mentioned in the last newsletter. We are now in the process of light rehab and reviewing possible exit strategies.

Exit 1: Sell outright - return 20-35%

Exit 2: Owner finance - return 12-20%

Exit 3: Lease Option - return 10-15%

April 25, 2023 auction in Iowa - sold property to 3rd party at foreclosure auction. I priced the property around 75% of the fair market value and the property sold to an investor at the auction. The investor is getting a good deal since they can do a value add (rehab) and sell for premium price and we are happy getting a quick return. Here is how the numbers break down:

• Note price: $64,000

• Expenses: $3,000

• Winning bid: $88,000

• Profit: $21,000

• How long: 9 months to completion

RETURN: 32.8% ROI, 43.8% IRR

The returns vary, but I am typically looking for 25%+. Also these 3rd party auction sales help me to recapitalize and reinvestment into new deals. Also the 3rd party auction sales are much less work compared to getting the house back. I have notes in several states and long distance rehab can have it challenges and not the easiest😬.

Check out the next newsletter for the foreclosure sale coming up in mid-May which has been priced to sell at auction 🤞 and this property is in Oklahoma. I will discuss how I come up with the opening bid.

Cool Tools

Document Management Service is the cool tool of the week.

Richmond Monroe and Metasource are examples of two document management service companies that can help you maintain and control your due diligence documents like mortgages, notes, assignments, allonges, title policies, etc. They also provide help with document preparation, recording, retrieval, lender/signer tracing, file review, custodial file ordering, imaging and vault storage for document safekeeping.

Remember it is super important to keep the collateral documents in a safe place and especially the original note (we keep ours in a fire proof and water tight safe).

Collateral File Review

These companies also offer a complete scrub down of your loan file and/or images to ensure they are clean and exception free. All documents will be verified to ensure they meet recording jurisdiction requirements. Missing and incorrect documents will be provided on the exception report with a solution to fix the issues found. They review things like…

• Pre-Purchase file review

• Physical file review

• Data capture

• Review from Images

• Image/Indexing

• Customizable exception reports

• Exception tracking and curing

• Physical file vault storage

Document Creation Examples

Sometimes you are missing docs and need help retrieving them or recreating them for signatures, etc. Sometimes there are “gaps” in the documentation and you need to get that corrected. All the items listed below can be handled by this service.

• Assignment of Mortgage

• Corrective Assignments

• Recissions/Erroneous

• Gap Assignments

• Assignment of Leases and Rents

• Assignments of Assignment of Leases and Rents

• Lost Assignment Affidavits

Services For Mortgage Professionals Summarized Below.

🖐️ IF YOU HAVE A QUESTION, PLEASE RAISE YOUR HAND AND ASK BY SIMPLY REPLYING TO THIS EMAIL.

Last weeks POP QUIZ was…What information is typically included in a mortgage note and is the note recorded?

ANSWER: The note is a binding agreement between the borrower and the lender, and it contains important information about the loan, such as:

1. Loan amount: The amount of money borrowed by the borrower.

2. Interest rate: The rate at which interest will be charged on the loan.

3. Payment schedule: The schedule for making monthly payments, including the due date and the amount of each payment.

4. Term: The length of time the borrower has to repay the loan.

5. Late payment fees: The amount of fees that will be charged if a payment is not made on time.

6. Prepayment penalty: The amount of penalty that will be charged if the borrower pays off the loan early.

7. Default: The circumstances under which the loan will be considered in default.

The mortgage note is a legally binding document that must be signed by both the borrower and the lender but is typically not recorded in public record.

This weeks POP QUIZ: What does statutes of limitations mean?

Check out next weeks newsletter for the complete answer.

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