Today, I want to focus on non-performing notes. The pandemic that began in 2020 brought financial chaos as many people lost their jobs or income for a season or for some time. In some cases, landlords were not able to pay their mortgages because their rental tenants could not pay their rent. Below please find a list of several things to consider if you find yourself in possession of a non-performing note now or in the future. They are as follows:
COMMUNICATE, COMMUNICATE, COMMUNICATE- try to discover what is going on with the borrower; Are they experiencing sickness, loss of job, divorce, etc.?
USE YOUR LOAN SERVICER – they will know the ropes of making sure that you do not do anything that will have you on the evening news; They also will make sure that everything is kept compliant to government regulations; Their fees to you as the lender might increase if loan becomes non-performing
THERE MIGHT BE A DIFFERENCE IN THE UNPAID PRINCIPAL BALANCE AND LEGAL BALANCE ON THE LOAN- late fees, taxes, forced place insurance can add to the amount the borrower owes if they are not paying; loan servicer can keep us with this
YOU MIGHT NEED LEGAL COUNSEL- legal counsel is important if the loan goes to foreclosure; attorney needs to be licensed in the state of the property, not where you live; Most loan servicers have legal counsel they can recommend
90 DAYS OF NON PAYMENT- send notice of default by attorney
PROPERTY INSPECTION- check to see if property is vacant or occupied; check exterior and/or interior condition of the property; if persons are still in property, perhaps they want to stay; if property is vacant, it is easier to get foreclosure moving along
OPTIONS WITH A NON-PERFORMING NOTE OR LOAN
- FORBEARANCE- allow borrower a period where they do not make payment
- DEED IN LIEU OF FORECLOSURE- borrower signs papers where they basically give the house back to you as the lender
- CASH FOR KEYS- similar to deed in lieu of foreclosure; you give borrower monies for a “new start” and to move out in exchange for them giving back the property
- LOAN MODIFICATION- give the borrower a reduction of principal, payment, interest rate, etc; As the bank you can decide to forgive some of the debt or move the principal to the back of the loan; best if there is a trial period
- FORECLOSURE- This is the most expensive option and for me is the last option; foreclosure laws vary by state; GET LEGAL COUNSEL; when the time comes for the foreclosure sale, you as the lender will need to decide the “strike price” at the sale; what will be the price?
- GET THE PROPERTY BACK- you have choice to rehab the property and rent or to rehab the property and sell or to keep the property for personal residence
Buying a foreclosure can be a good experience or a bad experience. It can be a strategy to acquire properties to rehab and rent, or to rehab and sell. Best wishes in all your real estate pursuits.- R.L. Wall