Transcript Case Study - Stewardship Capital

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
•1st Mortgage: $400,000
•Payment on 1st: $2,000/mo
Example photo only, not borrower’s house
•2nd 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.
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.
More Cards:
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
•1st Mortgage: $170,000
•Payment on 1st: $1,000/mo
•2nd Mortgage: $25,000 (reduced from $40k)
•Arrearages: $5,000
Example photo only, not borrower’s house
•Our Cost: $3,500+$1,000 lawyers
PAYOFF: $12,000
RETURN: 266%. Resolved in 10 months. Intoxicating asset.
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
• 2nds 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:
US:
• Large
institutions
• Strict rules
• Move slowly
• All or nothing
• Small and specialized
• Win-win creative
solutions
• Fast decisions
• What can you afford?
6) Seconds Come First
•2nds pull the strings
•2nds can FORECLOSE
like 1sts
•Lower price point
(smaller loans, bigger
discounts).
Firsts Come Second
•1st can foreclose—if
we let them.
•We can own property
subject to 1st 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
Tape
=
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???
•1st Mortgage: $180,000
•2nd 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.gov
Bankruptcy cards
Chapter 13
Bankruptcy
•
•
•
•
House<1st mortgage balance, court can strip 2nd lien.
House value<(1st and 2nd loans), court can cram down
2nd 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
•1st Mortgage: $80,000
•Payment on 1st: $500/mo
•2nd Mortgage: $45,000
Example photo only, not borrower’s house
•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.
Chapter 7
Bankruptcy
• Wipes out unsecured debts, leaving
more to pay mortgage.
• No lien stripping, no cram downs.
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
•1st Mortgage: $135,000
•Payment: $800/mo
•2nd Mortgage: $36,000
Example photo only, not borrower’s house
•Arrearages: $10,000
•Our Cost: $6,000
•After discharge of Ch. 7, monthly debts are only 1st & 2nd mortgage.
•AZ state assistance program.
9) Your Nearest
Exit May be
Behind You
A property has two ways to make money:
•Rent
•Sell
nd
2
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
I Want You to
Invest in
2nd Mortgages!
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 2nd loan if lender forgives
60%. Now, highly motivated.
The Ostrich
Numbers
Example photo only, not borrower’s house
•Value: $160,000
•1st Mortgage: $204,000 (sweet modification)
•1st Mortgage pmt. $600/mo (mkt. rent $1,200/mo)
•Market appreciating 15%
•2nd Mortgage: $50,000
•SCHL cost: $9,000
•CA state program will pay out 40% on successful application
•We can also foreclose and rent
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
Example photo only, not borrower’s house
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.
Rancho Kowabunga
Numbers
•Value: $460,000
•1st Mortgage now: $472,000
•1st Mortgage in 1 year: $385,000
Example photo only, not borrower’s house
•Value in 1 year: $500,000
•1st Mortgage pmt. $2,100/mo, Market rent $2,200/mo
•2nd 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
12) If You Think
Education is Expensive,
Try Ignorance
Resources:
BOOKS (available PapersourceOnline.com
Or Amazon.com):
•Performance Anxiety by Gordon Moss
•Fast Cash by Lorelei Stevens
•Lorelei’s Legal Lessons by Lorelei Stevens
•Invest in Debt by Jimmy Napier
COURSES:
•Gordon Moss, Quixote Ventures www.RealEstateAndNoteInvesting.com
•Partners for Payment Relief www.PPRNoteco.com
•NoteConference www.NoteConference.com
•National Note Group www.NationalNoteGroup.com
•Keyhole Academy www.KeyholeAcademy.com
LEGAL:
•Memorize the Fair Debt Collection Practices Act
Notes & Servicing
2nd LOAN SELLERS:
•US Mortgage Resolution: www.USMResolution.com
•Trinity Financial Services: www.TrinityFS.com
•Partners for Payment Relief: www.PPRnoteco.com
•National Note Group: www.NationalNoteGroup.com
•Keyhole Financial: www.KeyholeFinancial.com
•NoteConference www.NoteConference.com
•FCI Exchange: www.FCIExchange.com
•Note Alliance: www.NoteAlliance.com
•LinkedIn groups: www.LinkedIn.com
SERVICERS:
•Allied Servicing: www.AllServicing.com
•FCI Lender Services: www.TrustFCI.com
•Madison Management: www.MadisonManagement.net
FORECLOSURE TRUSTEE:
Trustee Corps: www.TrusteeCorps.com
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
Questions?
Sándor Lau, Chief Inspiration Officer
[email protected] 541-343-6000
Email for copy of slides
www.StewardshipCapital.com