BLOG 4 of 5 – Non Performing Notes - TIME (Due diligence and Closing)

TIME the process of Due Diligence and Close on a list of Non-Performing Notes:

This is Blog 4 of the FACTS system that I created for Non-Performing Notes. This Blog clarifies the T part to “Time the process” of due diligence and closing:

You have 45 days to complete the following checklist for the due diligence work you must perform before purchasing the Notes:

a)      Get a copy of the actual loan and note terms documents executed by the parties to review it

b)     Verify the original loan amount versus the balance and actual repayment terms of the note

c)   Check the value of the property based on comps and send a broker to get you a BPO  (Broker price opinion)

d)      Check with the Bank (Assignor of the note) to see how many payments were made and  when the default started and finally when the next payment is due

e)        Verify that the First Lien position you are buying is insurable.

f)           Get a copy of the existing mortgagee/lenders title insurance policy that was issued  probably when the loan was originated. 


g)      Verify the property tax status and if there are any impound escrow funds for tax and fire hazard insurance premiums that will be transferred to you

h)       Check on the credit and background of the Borrower in default to assess the possibility of a loan work out.

i)     Talk to the Bank and find out if they are flexible on the price based on your assessment of value.

This process could be performed by an office of qualified attorneys, but you must know and verify for yourself the above key points or you could easily overpay for a note and/or get into trouble trying to make profit using non-performing mortgage notes.

Wishing you great investing

Cherif Medawar

www.CMREI.com

BLOG 3 of 5 – Non-Performing Notes - CONTROL

This is Blog 3 of the FACTS system that I created for Non-Performing Notes. This Blog clarifies the C part to “CONTROL the process” of selecting and negotiating the contract to Buy the list from the bank:

The bank usually follows specific steps to sell the non-performing mortgage notes that they have.

Here is a checklist to follow and control the process of buying non-performing mortgage notes: (Analyzing non-performing notes is a separate blog)

1.          Show proof of funds for a specific gross amount that you will buy at a discount (Could be as low as 20 to 30 cents on the dollar- it depends on amount purchased- volume of notes and bank relationship)

2.          Bank usually gives you the list of non-performing notes with a UPB column (the UPB is the unpaid balance amount) that you need to confirm

3.          If you are buying in bulk, the bank usually gives you approx. 45 days to do a due diligence (see blog about Timing the due diligence)

4.          If you are satisfied with the due diligence, get the actual mortgage (or trust deed) security instrument assigned over to you or your entity.

5.          The assignment, once executed and recorded, will transfer all rights, title, and interest in the instrument to you; the assignee. (If bank had started the process of foreclosure, it may work to your advantage in saving you time and money as well as creating a sense of urgency and better response from the defaulted Borrower)

6.          Make sure you have physical possession of the original promissory note instrument and it is endorsed over to you or your entity. (This is the negotiable instrument you are purchasing and whose rights you will be able to enforce for non-payment of the debt).

7.          Make certain that the assignment of the security instrument and the endorsement of the note matches one another. (The endorsement can take place right on the actual original promissory note instrument).

8.          You may want to obtain an estoppel affidavit from the Bank/Assignor. They will affirm for you the actual balance and terms of the note and this might be useful in a later dispute with the debtor.

9.          Send notification letters to the defaulted borrower and the fire hazard insurance agent to notify them of the transfer of the note account. (These are often referred to as so called "goodbye," "welcome," and change of loss payee letters).

Now you are in CONTROL on the Non-Performing Note and the collateral real estate asset backing it up.  Start by offering the bank 20 cents on the dollar. I paid as much as 50 cents on the dollar for good Non-Performing Notes and as high as 85 cents on the dollar for Performing Notes. The goal is to get the Non Performing notes less than 30 cents on the dollar (The “dollar” being current value).  It is all based on UPB vs market value.

In the next blogs we will discuss how you can Time the process of final due diligence then close. And Strategize by following the state rules for collection, foreclosure and/or negotiation with the defaulted Borrower.

Always use a qualified attorney familiar with non-performing notes to verify the control process describe in this blog.

Wishing you best investing results,

Cherif Medawar

www.CMREI.com

BLOG 2 of 5 - Non-Performing Notes - ANALYZE

How to ANALYZE the Non Performing mortgage Notes you want to buy.

This is Blog 2 of the FACTS system that I created for Non-Performing Notes. This Blog clarifies the A part to “ANALYZE the list of Notes” to select the ones that are safe and profitable within a short period of time and effort.

When you approach a bank and offer to buy a portfolio of non-performing mortgage notes the bank usually gives you 45 days to perform your own due diligence.

The five key elements you want to verify:

1) The property value:  It must be high enough to make profit (based on comps- location- condition and potential)

2) The loan documents:  Must have been drafted properly (First Lien) for ease of foreclosure in case that’s the chosen route

3) The property liens: No pending liens or other issues such as tax obligations, code enforcement, utilities unpaid etc.

4) The Borrower financial status: Borrower preferably should have a good credit history except for recent and sudden problems causing him/her to default

5) The Bank discount:  Must be low enough to leave room for risk reduction and profit potential

6) The Process the bank uses to sell the list to bidders so you can follow up and close on the transaction, and not waste your time and then they sell the list to another bidder.

In the next blogs we will discuss how to control that list to negotiate the best price and terms.

Sincerely,

Cherif Medawar

www.CMREI.com

BLOG 1 of 5 – Non-Performing Notes - FIND

I am writing a series of 5 blogs to explain the steps any investor would need to follow to profit from NON-Performing Mortgage Notes.

The business model I created is called the FACTS system:

F for Finding the Non- Performing Notes

A for Analyzing the list of Notes

C for Controlling the list to negotiate price

T for Timing the due diligence and closing

S for Strategizing to make the most profit

This is Blog 1 of the FACTS system that I created for the Non-Performing Notes business. This Blog clarifies the F part to “FIND the list of Banks that would sell Notes”.

Obviously, you can pay a lot less for a NON- Performing Note than you would for a Performing one. And if you know what you are doing as I will explain in this series of Blogs, you could make a lot of money in a very short period of time with a high level of safety since the Non-Performing Note is always secured by a real estate property.

So how do you find a bank that is interested, willing and able to sell you some of the Notes they may have?

The answer is: Find a failed local community first and contact them to get to the key executive in charge of selling Mortgage Notes.

Google: “Failed Community Banks” and you will get a list of banks. Search for the phone number of a local branch in your city and call.

Ask for the Manager or the executive in charge of loan work outs, modifications, or foreclosures.

Once you get to an executive, tell him/her the following: “I am not sure if you are the right person I am looking for but I need to talk to the executive handling the sale of Performing and Non- Performing Mortgage Notes”. 

Once you get to the right party ask them:

1)        Do you sell Performing and Non- Performing Notes?

2)        Do you have any local Notes?

3)        Would you sell individual Notes?

4)        If it is a list, is it divided by type of property, such residential or commercial?

5)        Can I get access to a list of Notes to review and assess if I want to make an offer?

6)        What kind of action do I need to take to receive a list? (ie proof of funds)

7)        How long will I have to do my due diligence? (Usually 30-45 days)

8)        How often do you sell/assign Notes?

9)        Do you use an in-house attorney or an outside firm to foreclose?

10)  What steps do I need to follow to start the process with your bank?

 In the next few Blogs, I will clarify what you are looking for and the steps you will need to follow to Analyze, Control, Time and Strategize for a huge profit in this untapped and limited business opportunity.

Wishing you much success,

Cherif Medawar

www.CMREI.com

      

What to do when a business contract goes bad?

Every business relationship should be spelled out in writing and every agreement must have a clear outline between the parties to clarify who does what, when, how and why.

But no matter how good the attorneys that are drafting these contracts are, they often cannot anticipate all the various scenarios and possible consequences. So in my opinion the true outcome of an endeavor depends more on the individuals coming together to sign the agreement and shake hands.

You see most of these agreements are written when a business is in the start up phase. When everything theoretically and on paper looks like a dream or maybe even a fantasy.

This is stage one of the business between two partners.

But once the business gets going and the challenges start coming from all directions they enter stage two and that is what I call the nightmare stage.

This is when there is a massive amount of problems and unanticipated changes that require time, energy and complete focus along with a high level of emotional maturity between the partners.

I do not mean they should be distant and cold when I refer to emotional maturity. I mean they must be able to listen to each other’s frustrations and exchange support for each other. It is natural and normal for the partners to blow up at each other, or place blame, argue and get into conflict. But if they have emotional maturity they will work through that stage and find the point of agreement that will lead them to the third stage and eventually out of this problem.

Many partners do not make it past the nightmare stage because they either become too cold, distant and inflexible or they get too angry, enraged and shut down.

So how could they find agreement when faced with so many problems? Well, agreement will come between them if they agree on the reality they are facing together.

This is the third stage that I call the reality stage.

Once they have agreement on the problems, it will strengthen their affinity towards each other and they could get started on following the steps to find resolution.

This third stage works well if the parties sit together and spell out the potential of their endeavor once more in a more realistic fashion. After all this is the reason they began the endeavor in the first place. This will keep them focused on the end goal.

Once they see the potential again, they must then write down all the obstacles they are encountering.

Then they should brainstorm all the possible solutions.

After that they must prioritize the actions they should take based on what will bring them the most money first. I learned that from studying many business startups and I found out that 80% of the early stage business obstacles are related to financial challenges.

If they can clarify and assign to each other the right duties and responsibilities and follow up with each other periodically they will pull through.

In my experience, most of the start-up projects start with a dream or fantasy, then they encounter a nightmare, if they can face that reality together, they will grow stronger and if not they will end up wasting more time, money and energy till they breakup. In the final stage they will reach a settlement that could be a great success or a compromise of some sort.

With these four stages in mind, I enter into strategic relationship with others knowing fully we will face obstacles soon because no matter the dream, business is always work in progress. I expect hurdles, changes and obstacles.

I prefer to encounter these early on and I may exaggerate my reactions to see how my so called: “partner” or associate or other party in the transaction will react.

If he/she is intelligent, energetic and ethical we will connect more and grow (even if we have to go through that conflict stage of nightmare) but if he/she is stubborn, inflexible and selfish, I quickly find an exit so we can minimize the damage and optimize our peace of mind.

An experienced person may avoid a lot of problems, but what he/she may never avoid them all.

It is inevitable that we will all face business obstacles. How we turn them into opportunities makes all the difference between success and failure.

I learned long ago, that my strategic partner or associate, or whoever is sharing the journey with me, must be someone willing, able and capable to add value. He/She cannot become harder or more distant when we face the nightmare.

If I ignore the fact that my partner is not open and respectful, and is not focused with me on coming up with possible solutions through brainstorming and flexibility, then I will get is a delayed magnified problem that will cause the inevitable demise of the enterprise.

There is a point in the relationship where you will conclude that it is better to take action now and severe the relationship than to keep searching, to no avail, for agreement on the reality you are both facing.

If you get to that point, rest assured it is better to cut your losses and more on to new opportunities, with better, more understanding and more flexible partners than it is to waste more time, money or energy.

Wishing you peace of mind in your business relationships.

Sincerely,

Cherif Medawar

www.CMREI.com 

Freedom

The end goal of all activities is to attain freedom and simplicity. People want to be free to be, to do and to have.

If you learn to simplify your life you will see the power and clarity of your purpose.
Verify each activity you are about to embark on and check if it is setting you free or creating more commitments of time, money, effort and mental anguish.

Check each relationship you create and find out if it is tying you up or setting you free.

In my training events I share the formulas and principles I developed to be able to grow in many businesses and investments simultaneously and in different parts of the world while keeping good control and providing the opportunities for my students to grow with me without complicating their lives.

A student told the class in one of my Puerto Rico wealth retreat events that what she enjoyed most about my teaching style is that I was able to simplify complicated business and life concepts and break them down into clear, easy to follow formulas.

That was a great feedback for my years of observation and analysis.

I am on a mission to help more people gain the power of freedom and simplicity.

Best as ever,
Cherif Medawar