Thread: Anyone here deal with foreclosures in Cali. or know about the market?

Originally Posted by dirago

Yes I have a number of contacts in asset management - pm me your email so we can discuss further.

PM sent.. look forward to working with you.

Dirago, I also wanted to get into "brokering" cash flow notes here in birmingham, AL, and I ordered Russ Dalbey's course..it was only like 38 bucks, and it actaully had a lot of good info. They wanted me to sign on to their special coaching program for like 3 grand, and I said no, lol, but anyway I have somw questions:

1. Is brokering a note between a buyer and seller illegal without a license? If so I wasted 38 bucks.

2. Russ Dalbey sells...im sure thousands of these systems a day...what are my chances of being sucsessful in a market where everyone and their mother is doing it??

3. Without a RE license, am I or anyone else for that matter just blowing smoke?

Thanks

Originally Posted by ChumpChange

dirago: You service your own notes or use the same company I use out of Anaheim? Seems many use them and just set up a note exchange business.

Any chance of meeting up next Monday? I have a meeting downtown from 2-4.

How's your experience been with FCI? Their back end technology is wonderful but i was turned off on their loan files/collector ratio for non-performers.

Originally Posted by dirago

We're usually in and out of a note within 3 months so no servicing needed just an end buyer. Yes, PM me your number let's get a coffee somewhere downtown.


I'll provide a couple of exit scenarios for distressed note investing;

Wells Fargo Note - unpaid balance, $200,000
Collateral Value (asset at Fair Market Value), $150,000
I buy the note at $100,000 or 50 cents on the dollar

exit 1: foreclose and sell at fair market value, make $50,000
pro: fairly certain of the upside
con: damage to homeowner, potential BK filing

exit 2: price the opening bid to $110,000 knowing there's equity let bidders at foreclosure auction drive price up - you get cashed out for $10,000 if one person bids the minimum

exit 3: I sell to a secondary note buyer keeping enough meat on the deal for them, make a small premium ($10-$20k)
pro: I can do this in a couple of days
con: Smaller profit margin

*exit 4: Buy the note, rewrite the paper to $100,000 and give the borrower an affordable monthly rate
pro: Huge yield (see example below)
pro 2: Once the borrower establishes solid payment history at the new, affordable monthly payment, I can sell the note in the secondary market as performing or hold for long term investment
con: Money is tied up until loan is satisfied

example with the above scenario

(bought a $200,000 note for a 50% discount, rewrote it to $100,000)
Let's say the borrower can afford 6% interest only for the time being so $900/mo ($10,800 annual)

$100,000 / $10,800 = 9.26 % ROI

Day traders would have a hard time achieving 9% return in the stock market but here you can do a few of these deals each month and still hold a 1st lien position on real property.

Chris,

FYI, licensing is becoming more and more important, and if you aren't using a fully licensed servicer in the state of the borrower, you could be setting yourself up for big liability and potentiality a licensing/FDCPA lawsuit. Look what happened to the big K in Georgia last year. It doesn't matter if you own the note for 1 day or until maturity. Just my 2 cents...

Regarding the exits listed.... let me play devil's advocate

#1- $50k gross gain but you have to factor in expenses. 6% REO brokerage costs plus 1-3% in seller paid closing costs. Foreclosure costs of $1-8k depending on the state. Monthly servicing fees, Forced placed insurance, collateral maintenance, eviction/cash for keys expense, repair/rehab expenses....

Buying at 66% of LTV would be a super skinny deal for me, especially considering the risk involved.

#2- This is a solid exit strategy but again, you have to factor in expenses listed above such as fcl fees, insurance, collateral preservation, etc..

#3- More power to you if you can retrade and make a spread at 66% of value but its not happening in the market i'm in.

#4- If you rewrite the note to $100k, you are shooting yourself in the foot. You've now paid PAR for a scratch and dent, junk loan with a 6% rate. No potential gain on upb, and if you plan to resell, no one will pay PAR for reperforming paper, so you'll lose a ton of principal on the deal. You've capped yourself at a 6% yield either holding to maturity or waiting for a refi/payoff.

Re-performing paper is an art, but the last thing you want to do is forgive principal on a MOD or repayment plan. Drop the rate, extend the maturity, do a temp payment reduction, do an A/B note split but if you forgive principal, its gone.... especially principal that has collateral coverage (ie, reducing upb below the current value of the house).

Also, your example numbers don't add up. 6% I/O is $500/mo. 6% 30yr is $599. $900 would be a 10.8% I/O payment. If your basis is the same as UPB, your yield is equal to the face note rate since you no longer have a discounted note.

Again, just playing a friendly devil's advocate here. There are TONS of risks in this distressed paper game, and I've seen way too many people lose their ass on deals. It's defintely not for the faint of heart.

Learned alot here. Thanks.

I'm glad I found this thread. I'm currently in the process of getting my RE Brokers license and I'm looking into perhaps entering the RE market (either investing or working). Some good info in here.

Hey Dirago, what you do with notes seems interesting. What part of LA are you guys based out of? I would love to learn more about this.

Originally Posted by Amongst Kings

I work with foreclosures (REOs), short sales, trustee sales, and probate sales out here.

Basically, I flip houses. We come in all cash, rehab/rennovate, re-list and sell the property.

In terms of the foreclosure laws out here, it's really a case by case basis.

Short Sales are often the most lengthy process as both the homeowners and the banks have to approve the offer. Furthermore, banks often hire short sale negotiators who also have their say in the matter which further complicates matters. I've made offers on a short sale listed properties that I eventually forget about, only to get a response 2-3 months later from the banks.

REO's are tricky. Sometimes the bank will list it at a ridiculously high price because they feel like they have nothing to lose at this point. Other times, they'll mark it at a stupid low price so that they generate a ton of offers and will eventually get way over asking. For example, I saw a property listed in Encino CA for $296,000. I went there to check it out and within my 15 mins of being there I must have seen at least 10 other groups come through doing the same. It ended up being sold for $350,000+. Other times, it's priced fair and the banks take the first fair offer and move forward. What really complicates the investor market right now is the conventional home owners. By this I am refering to non-investors who want to occupy and live in the home full time. While investors seek a certain profit margin or rate on return, these people just want a good deal so while I am calculating purchase price + rehab + closing costs + etc versus what I can re-list it for, they are simply happy to be getting a home for $20K-$30 below actual value.

Hope this helps, I can go on for days in you need some more info.

Hey guys thanks for the informative responses, I currently waiting to take my CA real estate test and then afterwards start buying and selling.

Amongst Kings, this is exactly what I plan to be doing(expect just in the San Diego area). I'll definitely be pming you to get some more info if you don't mind.

Oh, and for the note game sounds very interesting I'll definitely take a look into that.

Anyone playing in this market on the selling side, please shoot me a PM. I'm looking for a SFH in the near future for a investment/rental around SoCal.

Lets work the numbers and close it!