Posted by James Strange on November 27, 2002 at 12:43:44:
If they can not make the current payments why would they pay you?
But here is another thing to look at. Can you buy the second at a discount? Are part of the arrears for the second? If you can buy the second at a discount, loan them the money, they pay the arrears to you that would increase your rate and put you in a much better position in the event of non payment.
note @ 18% - Posted by Vince
Posted by Vince on November 27, 2002 at 09:39:41:
I have a person with junk credit that is in arrears on his house to the tune of about 5 grand. He doesn’t want to sell or move because he could never afford to buy in our market again. He used a down payment program to buy the house which has a 2nd on the house. He asked me to loan him $7K to cure the arrears. I am considering it but I do not like the idea of being 3rd, even though the CLTV would be less than 60%. If I do loan him the money, I want it to be at 18%, interest only, 2 year note with a prepay penalty and 3 points to me. Anyone see any holes in this? It would be the first note I have done where I actually had to come up with the cash.
Re: note @ 18% - Posted by David Butler
Posted by David Butler on December 18, 2002 at 13:44:59:
Hello Vince,
There’s been some very good suggestions offered here… but two more considerations you definitely will need to look into, include: investigating the lending law requirements of your state, both with regard to consumer protection disclosures, and possibly licensing requirements that could come into play… as well as state usury restrictions.
You do this kind of deal in California, you can be in for some real nasty penalties if the Payor decides not to pay, and brings in a half-way knowledgable attorney to throw legal defenses at you with regard to the issues mentioned above. Chances are high that you’ll find yourself paying him, rather than the otherway around… and dearly!
So be sure to get yourself covered up with some sound legal advice before moving any further in this endeavor, IF you intend to actually “loan” real dollars to this Payor.
David P. Butler
Re: note @ 18% - Posted by rich
Posted by rich on November 30, 2002 at 09:55:23:
Not only can he file bankruptcy once, he can do it over and over again. I’ve seen people wait until the day before the sale, file bankruptcy, never go to court so it gets thrown out of bankruptcy court, wait again until the the day before the sale and file bankruptcy again. (see the cycle)? They can do this 4 or so times before the judge says, “enough”. however, by this time, it’s 2 years later, you haven’t seen any money, and the first mortgage and second mortgages are owing much more because of interest penalties etc… Now a home you had equity in has none, and you get the old shaft. Be careful I see a lot of 2nd’s and 3rd’s lose out because of this little trick.
Anytime I do a bailout, I make the homeowner sign a warranty or quit claim deed to me, and then they rent the home from me. I will then give them an option to purchase the home back from me in a year or two. If they don’t pay me by the 10th of the month, instead of foreclosing and taking a bunch of time, losing money etc…, I simply evict them, and either sell the home outright, or do a lease option with somebody else. I got this idea years ago from a free William McCorcle seminar he held in my city. I’ve done it ever since, and made great money doing it. Good luck!
Re: note @ 18% - Posted by TKP, Houston
Posted by TKP, Houston on November 28, 2002 at 21:39:45:
Vince, You should not do this unless you are in a position to buy out the 1. and 2. for cash at the foreclosure auction, if it should come to that.
As long as you are able to that this might be a very good deal for you down the road, but you need to plan on this one going bad. If the borrower is a friend the friendship might go sour in the process.
Good luck. TKP, Houston
Re: note @ 18% - Posted by John Behle
Posted by John Behle on November 27, 2002 at 12:50:47:
Two big potential problems. First, people don’t change their habits and circumstances overnight. This guy will VERY likely be in foreclosure again very soon. If your LTV is ok, then that isn’t totally bad, but he also has the makings of someone that would use whatever means to delay foreclosure and then pull a bankruptcy at the last minute - which stops the foreclosure. Some use all kinds of tricks to delay the bankruptcy and it can go a long time.
You could end up with:
1 - No payments on your note
2 - Legal fees for foreclosure
3 - Legal fees to deal with and fight the bankruptcy
4 - Having to pay back payments on the other two loans to protect yourself.
It could be a long roller coaster ride. Some people like that and with the proper finances and resources, it could possibly be worth the ride in the end. For others, it can be a dizzying, nauseating experience.
You’re not buying into an 18% note - you’re buying a property with a problem tenant (the owner) and two other loans and a truckload of legal fees. Far from simple and not the recommended approach for a first note deal.