Perseverance Pays Off with Notes – Real Deal #247

Have you ever had a note deal that felt like as soon as you took one step forward, you took three steps back? And you just felt like you were playing whack-a-mole the whole time?

Yeah – us too!

We recently worked on a mortgage note purchase that we just had to share as a lesson in never giving up and keeping the ball rolling. There was so much going on that when we sat down to write this article to share, we had to start a list to ensure we got everything. Some of the highlights include a lost note, deaths in the family, a lapse in insurance, and a tense payor/holder relationship.

Let’s dive in and take a visit to Okeechobee, Florida.

About the Deal

On the surface, this deal had some great things going for it. It had years of seasoning with strong equity and looked like a well-maintained property from the Google Street View. The terms were:

• Property Type: Double-wide Mobile Home Built in 1983 with 2 Car Garage and Land
• Sales Date: September 2008
• Sales Price: $95,000
• Original Balance: $70,000
• Term: 360 Months
• Payments Made: 180
• Interest Rate: 6%
• Monthly Payment: $419.69
• Unpaid Principal Balance (UPB): $49,732.78
• Number of Payments Remaining: 180

We worked our options and provided them to the Seller, who wanted the full purchase. We had spoken to her before quoting the deal, but this conversation is when we started to learn more about the story behind this deal.

Hiccups in Note Deals – What Can Go Wrong?

Deaths in the Family

We first had to figure out where this note came from and how the Seller ended up with it in their possession.

Our Seller inherited the note from her brother after his passing, who inherited it from their parents upon their passing. All of the paperwork showing these estate transfers was there, but there was some breakdown in the paperwork trail for the mortgage and original promissory note.

That breakdown was that the original mortgage and note were lost somewhere along the way. I’ll discuss this further later.

Piecing Together a Payment History

Now came the fun part of piecing together a payment history. There was no third party servicing company. The Seller was collecting payments directly via check. They didn’t always immediately deposit upon receipt. They would deposit them randomly down the road, which led to quite the puzzle to put together to get the whole picture.

Additionally, we learned that the payments were coming from the Note Payor’s mother. It turned out the Seller didn’t have a great relationship with the Payor and preferred communicating with their mother—something that comes into play – in our favor – down the road.

Owed Taxes

Surely, that was it, right? Wrong. Something we learned early on, thanks to our preliminary due diligence, was that there were unpaid property taxes.

This left us with a few options: 1) the Payor would have to bring them current before closing, or 2) the Seller could use proceeds from the sale of their note to pay those off. Our Seller opted for Option 2 and agreed to cover the back taxes at closing.

Luckily, before that came to pass, the taxes were brought current which means the Seller didn’t have to minimize their payout.

Title and Insurance

While we had information on the company that initially handled the closing, they were no longer in business, so tracking down title and insurance took a lot of work. In the end, a new commitment for a lender’s title policy was ordered to verify the estate transfers were insurable. Title came back clean, and at this point, we discovered…

….there was a lapse in the property’s insurance.

Not only that but needed repairs had to be made before the property could be insured. All at the Payor’s expense, who had no real incentive to drop the money to make the repairs (outside of keeping the home in good condition and having insurance).

Bridging the Relationship Gap

We were lucky to work with a great group of investors who stayed in the trenches with us on this deal. While we stayed in touch and close with the Seller, they stayed in touch with the Payor.

We were able to be problem solvers, providing solutions to both parties. As it turns out, no love was lost on the Payor’s end, and they were happy to have a new group to work with. This relationship is perhaps what saved our insurance issues, as the Payor agreed to make the needed repairs to obtain insurance.

Dealing with the Lost Promissory Note

And remember that lost note?

We worked with the Payor to sign a replacement note based on a signed copy without any wrinkles — the best-case outcome for a worst-case scenario. (Maybe now is a good time to check on the location of any notes you currently hold – just to make sure). The note seller also signed a lost note affidavit.

Getting this Note Deal Closed

When it rains, it pours. Despite so much going wrong, a few key items helped us close this deal.

First, we formed good relationships. On our end, we continued to stay in touch with the Seller and spent a good amount of time reaching out to them to keep this deal moving forward. They trusted us to handle everything, and we always followed through and provided updates to keep that confidence high. On the investor’s end, they were able to work closely with the Payor. While that isn’t necessarily typical to work so closely with a Payor, that relationship helped us get to the finish line.

Second, we had a motivated Seller. They didn’t sell the property or create the note originally, they inherited it. They were older and just wanted the payout now and not have to manage monthly payments.

Third, there was a GREAT payment history – 15 years. That seasoning combined with over 50% equity helped us find options for the Seller and helped them move past some of the hiccups.

So, what was the lesson here?

Sometimes, it takes putting your head down and pushing through. Only some deals will be a breeze; you should be prepared to handle some bumps. While we hope not every deal is this rocky, perseverance is a required skill for note investors and brokers.