KNOWING WHERE YOU STAND WITH YOUR HOMEOWNERS: Foreclosure and Arrears.

        This is a business! Once you have acknowledged that note buying is indeed a business you can then proceed to a well written plan of action and then successfully cash flowing. If you cannot grasp that concept, your cash flow will suffer, to say the least. “Admiring the shiny objects is not going to get you anywhere,” says Bob Paulus, Director of Borrower Management at PPR.

       If you want to keep your money moving, you have to stay focused on the real objectives and goals. As a note buyer it is your job to help homeowners find a solution to their financial mortgage crisis, yet the buyer shouldn’t forget to help themselves as well. Can the homeowner afford to pay? Who says they can only pay that much? You won’t be sure unless you do a financial statement. Every note buyer should create a plan, communicate, request documentation from homeowners, come to a mutual agreement on the financial plan, and send the plan to management for approval. Documentation from the homeowners should include (2) pay stubs, (2) checking account statements, tax returns, and some savings account statements.

Sometimes it might feel as if it’s hard to tell what a homeowner’s affordability really is. However, in such cases, one must take the time to step back, analyze things, and undergo essential preparation such as thoroughly reviewing financial statements, documents, and etc.

       It is normal to want to give the homeowner the benefit of the doubt, but it should be within reason. In the second mortgage space, a note buyer should always check the senior lien status on both performing and nonperforming notes. Never ever take the borrower’s word that they are current; in this business you must trust and verify. Now, what if the note holder is ignored after continuous attempts at making contact by telephone and sending notices via mail? This will then lead to legal letters and a demand letter initiating a foreclosure. Of course, the goal is not to foreclose. However, when the homeowner is not responding one should call the attorney and start the foreclosure process. By initiating foreclosure, one is reinforcing to the homeowner that the lien is binding and enforceable. Do not think that just because you took that step the property will get foreclosed on. Less than 10% of deals actually go through the entire process, although foreclosure is initiated on over half. This means that oftentimes, after coming to the realization that the note holder is enforcing the lien, the homeowner will pull through and the property won’t actually foreclose.

       Therefore, make sure to know where you, as the note buyer, stands. Know the homeowner’s income versus their expenses. Ever heard of arrears? Arrears is a legal term for the part of a debt that is overdue because of failure to meet payments in addition to late fees. One can only foreclose on a property if the payment due is in arrears. As the note buyer you will want to say “you still owe me 9,000” for example, in order for the loan to be considered in delinquency. When you agree to put the arrears payment on the end of the loan, you can not foreclose because effectively the homeowner is still current. And at this point there is nothing you can do. The only way to begin the legal process is if the homeowner defaults and stops making monthly payments.

       Hopefully this will help note buyers comprehend the role of the foreclosure process as part of the note business.

For more information, visit NNG at https://www.facebook.com/pages/National-Note-Group/529259247086369 or http://www.nationalnotegroup.com/.