Foreclosure, Deed-in-Lieu, Charge-Offs, and When Should You Talk About Money

Hey, welcome to this. Week’s Monday, Q and a. I hope you like this format. We’ve got some great questions from some members this week, so let’s dive into it. 

I was hoping that I can get some direction on a commercial note that I’m Cobra occurring or attempting to. At what point do I forward a commission agreement to the note buyer?

In general. I like to get out  anything that we need to talk about in terms of money or how things are going to work. I want to put that out. Early in the process. What I don’t want to do is do a whole bunch of work and then find out that there’s some sort of opposition or disagreement  with the fee because then you’ve done it for nothing, or maybe you haven’t done it for nothing, but now expectations weren’t managed correctly now there’s, some bad feelings or whatever it is. So I would. Always put up front, have the hard discussion about what who’s getting paid, how much, and when upfront do that in advance, don’t do that on the backend.

Okay. Let’s go to the next one. 

Regarding foreclosures, say we purchase a note, but it eventually goes into foreclosure. Is there a possibility where we can buy it? 

I think what this question is asking is how do we get possession of the property? So, if you own the note, if you are say purchase note, okay, you’ve purchased a note and it goes into foreclosure.

It doesn’t just go into foreclosure. You have to foreclose on it as the investor, as you, you become the bank. So if it’s going to go to foreclosure, you own the note. That’s you deciding to take it to foreclosure. That’s how it works. And so then at that point, right? There’s if somebody is in default, they’re not paying according to terms or if it’s a commercial note, you may have some other clauses in there that would, allow or force a foreclosure or rather force  a technical default. But just to bring this back down and have it be more simple. If you own the note. They’re in default. And you need to remedy that.

Then you can either foreclose on that note, through the power of foreclosure, that is in the note that you have. And when you do that, what happens is as the lender you make, what’s called a credit bid. So everything that you’ve loaned to the person or that, the face value of the note, plus all the default interest or any other fees that are added on there.

As the lender, you can make a bid up to a hundred percent of that. Okay. And that, which includes all of your collection and recovery. Now, sometimes you do, and depending on where you are, the asset, lots of things, someone may still bid over that in which case, great. Then you get paid off and that’s fantastic.

Otherwise you make the credit bid and  foreclose on it. It gets passed back to you as the lender. Now you have clean title with a foreclosure title where you’ve made where you’ve made your credit bed, and now you own the property. The other way that you can take possession is through a deed in lieu sometimes also known as a friendly foreclosure, which is rather than going through all the foreclosure rigamarole, if they just acquiesced, they say, you know what? I’m not going to fight this. It’s yours and you take a deed in lieu of foreclosure. So that is how foreclosures work when you’re the note investor. 

After on bought non-performing loans say apartment, what can he do to take over ownership and secure the deed.

So I think this is the same question, which is if I’ve owned the note and it’s non-performing how do you take ownership of the property? 

First off it has to be, the loan has to be in default, right? If it wasn’t then what kind of world would we live in where lenders could just come around taking back any property that they want? No, that’s not how it works. So there’s a note. And in that note is the agreement about how it will work if the loan is in default and under what circumstances the lender can foreclose that, and also dictated by law and the way to take ownership of that is if they’re in default, you can foreclose or else there’s a deed in lieu of foreclosure where again, that’s the same friendly foreclosure. So these are pretty similar questions. 

When a bank charges off some non-performing assets. What happens to those assets? Are they for sale at any price? Can they be purchased by us at substantially discounted prices? 

So I do cover this in the training and definitely go back in there. It’s in the first course You may be familiar with the concept of charge offs in terms of a credit card that’s different than a charge off for real estate.

Now the the charging off is the same. Which is that a lender looks at the debt and they say, we’re not going to get paid on this debt. The difference is if we’re talking about an unsecured debt, like a credit card, they charge that off. They get it off their books and they sell that debt to somebody else they’re no longer going to pursue it. When we’re talking about real estate, if you’re going to take , you’re not going to charge off the whole thing. It’s even if you were down to even if the place burned to the ground and there’s no insurance, you still have a piece of land. There’s still value there. So you’re not gonna charge it all off and throw it away. You still have a loan on that property. You still have all of the rights and obligations as the lender. 

So instead, the way charge offs are used in  real estate is that let’s suppose you have a million dollar loan and it’s determined, internally the loan is criticized and it goes through committee and they decide that this property isn’t worth a million dollars. Let’s say it’s only worth $750,000. There’s a couple of things you could do. You could just take as a lender, you could just take the $250,000 charge off right now and get the value on your books down to the 750 from the million or you could charge off $50,000 this month this quarter 50,000 next quarter, and keep doing that to have a softer impact on your books. 

I really encourage you to go watch this video and of course unit one . When you see lenders taking charge offs in real estate, it means that they’re getting their books prepared for the actual value of the real estate for the market value of the real estate.

And “can we get great deals on it”? That’s not exactly the question to ask. Instead what I would think about that as is. “What do they have in their portfolio where they’ve been taking charge offs, such that now it is in a position where they can sell it without taking a hit?” 

So if they can get their balance sheet, in line with reality, then they’re more easily able to sell that. Hope that makes sense. Do check out the charge offs course unit in that first course. 

Does your bank prospector software show the ALLL, which is the allowance for loan and lease losses for banks and credit unions, or do we have to log into the FFIEC manually to get the info?

Yes, we do have that. If you’ll look when you log into a BankProspector or go to any individual bank record, scroll down to the note sale indicators, and then you’ll see. Both loan, loss, provisions, and allowance for loan and lease losses in there.

Can I produce it spreadsheet automatically from the investors list? 

So if you’re a BankProspector Premium Special member and you have access to the investors list this is a  great idea. But it’s not something that we offer right now. We will certainly take it under advisement. If we hear from other folks that they’d like that, then perhaps that’s something that we could do.

Just wanting to be clear from what I just learned. REO is the only strategy where I would be actually obtaining property. Is that correct?

No, the other one is a deed in lieu.  A bank makes a loan, right? And that loan has an interest in the property. It’s a debt interest in the property and as the owner of that loan of that note, you’re entitled to receive payments. And if you don’t get paid according to terms, then you have the right to collect by liquidating that collateral by foreclosing or by deed-in-lieu. And so I think this goes back to the same kind of questions we had before, which was, how do you take possession of a property and it’s through foreclosure or through deed-in-lieu.

I’m wondering, are there things I could and should be doing simultaneously as I go through the modules? Also, what time are the Q and a calls? Are they at the same time? Every Monday. And how do I gain access? 

If you’re watching this right now, then you’ve got access to the Q and a calls. There are distressedpro.com/qa/.

They’re not live. You submit your questions by end of business on Friday. And then I answer them as close as possible to Monday of the following week, which is what we’ve got going right here. So I hope that’s helpful. 

I was wondering how much information should I obtain for the foreclosure laws in the states I’m doing business.

If you’re talking about owning assets in states where you may foreclose, then I think you want to understand that I think you want to have a good handle on it. Now you don’t have to be an attorney. You don’t have to understand all the laws in all the places, but you should know you know, some of the basics for sure.

And you should have a an understanding of where you’re investing and what the local laws are. Again, don’t  need to be an attorney, but, you might want to have an understanding like is this a judicial or nonjudicial foreclosure state.

I actually do have something here for you. We just posted this, I believe let’s go see if we can find it. We recently published this nonjudicial foreclosures versus judicial foreclosures investors and this a lot of research went into this. We had our team go through and we actually went to every single government website that there is for foreclosures for every state to,  get exactly the law as it stands right now today and I think that this right here is going to be if you’re in this business, there’s gonna be a huge help for understanding what you can do and where. 

That’s it. I hope this is helpful for you. I love getting your questions. I hope to hear more about your deals. Soon. If you’ve got a deal that you’re working on, if you’ve got a lender that you’re trying to tap into in, do you want to hear more about that? Definitely ask us those questions here and we’ll make sure that we get an answer just like we did here today. Thank you so much for being a member and we’ll talk to you next week.