Agree to Disagee: What Agreement Suits Both of You Best

NNG Explains Different Agreements

When it comes to the note buyer and the homeowner, the goal is to reach some sort of agreement. As the note holder, you want to get the homeowner to come to a decision and optimally one that signifies cash flow. However, sometimes it isn’t as easy as one, two, three. Every note buyer has encountered at least one homeowner who is struggling with payments either because they just don’t have the money or claim not to have it. Nonetheless, that shouldn’t discourage you. Overcoming obstacles with homeowners really just entails gaining their trust or confidence and finding a solution with which they can comply. Think bigger than the money! If you want to succeed, your best bet is working with the homeowner. How?

First things first – pick up the phone and contact the homeowner! You won’t really know what needs to be done until you know what has happened. You want to know why they stopped making payments and where they stand now. In order to obtain that information, start off by building rapport and just listen. It is usually best not to rush right into business. When the time is right you can ask the homeowner what most concerns you and find out what concerns them most (whether its arrears, interest rate, etc.). Try and read between the lines so you grasp the most important variables. Figuring that out is important because it will determine the direction of your exit strategy.

About 90% of the time note buyers are using workout agreements (discounted payoffs, reinstatement agreements, loan modifications, etc.) for these homeowners and the remaining percentage goes to forbearance and foreclosure. Workout agreements tend to give the buyer a sense of control and are an ideal approach. Why? In case the homeowner doesn’t stick to the new agreement, the original loan terms are still in place, which to revert back to. Remember to include this or similar language in the agreement!

For a homeowner to get a loan modification, they will have to address their arrears. The question becomes, “how willing are they to get this loan modification?,” With modifications homeowners can lock in previously variable rates through term changes (decrease in interest, longer terms). However, rates must comply with today’s rates. In the event of a homeowner’s failure to pay, the note holder will have the right to continue where they left off with foreclosure  but only if the agreement states no missed payments are permitted. As a general rule of thumb, apply payments to arrears first – these are made up of corporate fees, late fees, interest, and missed principle.

The way to figuring out what the homeowner is really capable of paying is through analyzing the homeowner’s financials which will give you a picture of their income and expenses. As part of the workout packet, make sure to have the homeowner include you in their property insurance policy (as additional insured), a homeowner authorization (so you can directly contact the senior lender), W9s, and a copy of their license.

What if the homeowner doesn’t like that agreement either and would rather go for forbearance? What is forbearance? Well, it entails taking what is owed today and pushing it to the end of the loan instead of keeping it in the beginning. So for example, a homeowner gives you 4000 dollars with the expectation that the other 4000 they owe be put on the back of the loan. At this point they are done, terms don’t change, and they become current.

These are just some examples of the different types of workout agreements. Learning how to choose the right agreement depends on the homeowner and on other important variables.