In todays email:

• 💬 State of the market: Rates, house prices, vacancy and inventory.

• 🙈 Featured Video: Why passive income is so important.

• 💥 Show me the money: Oklahoma note nets $74,707 in 9 months.

• 🥶 Cool Tools: Best way to search bankruptcy records with ease.

State of the Real Estate

• Interest rates have come down but we believe will remain elevated in 2023 and stay well above 5%.

• Home prices have leveled off but remain stubbornly high.

• Single family housing vacancy rates remain low below 6% keeping the rents high for the immediate future.

• The housing inventory (days on market) has come up to the historical lows of around 60 days. Currently 67 days as of January 13, 2023.

Featured Video 

Most people trade time for money. Almost every job is built on this premise. This is called ACTIVE INCOME. As long as you work you make money and when you stop working you stop making money.

No one thinks that one day something might happen to them to prevent them from going to work. Most people think it will not happen to them. Most people are in their comfort zone and don’t really think about the “what ifs” in life. What if I get into a car accident or lose my job?

QUESTION: If you stopped working right now how long could you live the same lifestyle you are enjoying right now? A week, a month or maybe a year? Most people would starve if they stopped going to work for even a day much less a lifetime. This is why it is so important to think about….

Show Me The Money 

BACKGROUND: The house was in Oklahoma near Tulsa. The homeowner took out a Home Equity Conversion Mortgage (reverse mortgage - see pic below) in 2011 and when the borrower died the loan went into default. The children had no interest in the property. The property was vacant, in fair condition but needed updating (1980's style) and had a ton of trash in the house.

ACQUISTION: We purchased this note for $93,000 with an UPB (Unpaid Principle Balance) of $168.362 (full payoff of around $171,000). The property value was around $160,000 at the time of purchase and the market was going up in that area.

LIGHT REHAB: The house looked like a throw back to the 1980's and needed to be updated. The entire house was stripped of all the wallpaper and walls and trim repainted. The kitchen had minor updates and we installed new appliances (we did not change out the countertops or replace the cabinets). The lighting was updated in all rooms. The carpet floors where replaced with high end LVP (luxury vinyl plank) and we replaced the entire roof. In the bathrooms, we simply replaced the flooring, painted the walls and reglazed the old tiles.

DISPOSITION: We sold the property outright for $210,000 and net profit was $74,707 after all costs were paid. The ROI was 80%! These costs include the initial price of the note, attorney fees, court costs, publication fees, property insurance, property taxes, rehab labor, rehab materials, real estate commissions, initial property trash out, final cleaning after rehab completed and so on.

SUMMARY: First, this was a great return but we cannot expect this in all markets at all times. Second, we don't do big renovations projects (like full gut of bathrooms and kitchens, etc) since it takes too much time. The market at the time of sale (2021) was going up and we had a pricing tailwind. Today the market values are flat to slightly down and so the note purchase amount has to reflect that fact.

Cool Tools

PACER is the cool tool of the week. What is PACER?

PACER stands for "Public Access To Court Electronic Records" (https://pacer.uscourts.gov/). The service provides electronic public access to federal bankruptcy court records. PACER provides the public with instantaneous access to more than 1 billion documents filed at all federal courts.

You can sign up for a "PACER – Case Search Only" account for free. You are charged 10 cents a page when you view a document based on the number of pages generated in the search. It will show you the number of pages in the search so you know how much it will cost ahead of time.

WHY USE PACER? Part of the due diligence process when buying mortgage notes or deeds of trust, is to find out if the borrower is in bankruptcy. If the borrower is in bankruptcy then in most cases you are not allowed to talk to the borrower and there may be an automatic stay on the property which means you cannot foreclose.

WHAT I USE PACER FOR?

• Find out whether the borrower is in Chapter 7 or Chapter 13.

• See the initial voluntary petition and what is included in the bankruptcy.

• Get contact information on the borrowers attorney and trustee.

• Get the case summary.

• Get list of creditors.

• Get the case history and documents.

• Download critical documents.

• Research the other creditors in the bankruptcy (called Claims Register).

• Get the deadlines and bankruptcy schedules.

• Get information on any prior POC (Proof of Claims) or TOC (Transfer Of Claims).

• Find out information on what owe to others, payment amounts, etc.

PACER is a wealth of information that can even help you determine a better understanding of the financial situation of the borrower and how you can work out a solution. Some notes you buy will already be in bankruptcy when you buy them and some will go into bankruptcy after purchase. You will have to file certain documents like a TOC (Transfer of Claim) or POC (Proof of Claim) to state your claim as creditor.

How Chapter 7 Affects A Mortgage: To understand how Chapter 7 bankruptcy impacts a home mortgage, you must first understand the difference between a loan and a lien.

When someone gets a mortgage, the mortgage company gives them a loan. The lender lets them borrow money in order to buy a property. When the mortgage company does this, it places a lien on the property. A lien is a right or interest in the property that the lender has until the debt (or loan) is paid in full.

When someone files Chapter 7, they are no longer legally obligated to repay the loan. “Legally obligated” is the key phrase here because Chapter 7 doesn’t get rid of the lien on the property. The lender still has a right to the property if the debt isn’t paid. So basically, the borrower doesn't have to pay their mortgage, but if they don’t, they will lose their property because the lender will likely enforce the lien.

How Chapter 13 Affects A Mortgage: With a chapter 13 bankruptcy, you won’t lose your property. You’ll include details in your repayment plan on how you plan on paying your mortgage. In most cases, an automatic stay is issued once Chapter 13 is filed. An automatic stay means that creditors must stop collection efforts.

The stay was designed to temporarily halt foreclosure and stop repossession of homes regardless of what stage the foreclosure proceedings are in. You must stay current on any mortgage payments that are due after the filing. If you’re behind on your payments, you can include missed payments in your Chapter 13 plan, but you have to make sure you pay all these debts back by the end of your plan timeline.

Pop Quiz: How many days from the debtors initial filing for bankruptcy does the creditor have to file a Proof Of Claim?

A. 90 days

B. 70 days

C. 120 days

Check out next weeks newsletter for the complete answer.

We would love to get your feedback and your thoughts! Let us know which topics are of interest or where you need more clarity. Just respond to this email directly 😌 or email [email protected].