Do I Have to Modify My Borrower If They Request It?

Foreign.

This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property. For panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close Nodes, Scott Carson.

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Foreign Good afternoon, Good evening everybody. Welcome this episode of the Note Closure Show. As always, Scott Clarkson, excited to be here with you today. Today's episode comes directly from one of our WCN crew members, Ryan. And Ryan shot me a text message and he's like hey Scott, I got a question for you because I have a note for my servicing company and they took a call from one of my borrowers who's a homeowner who wants to get an extra $10,000 off of their mortgage balance and refinance to a lower interest rate. She is disabled. He was on say her request is kind of not good for me. Of course. Should I even talk to her or have the servicing company talk to her? Let me know. I'm not interested in refinancing the loan. Thoughts? Appreciated and thanks for your answer. So here's the thing. Do you have to automatically modify your borrowers if they ask for it? No, you do not. If they're behind and delinquent, no, you don't have to modify. Now, in this situation, the borrower is disabled and obviously probably behind. So you have a choice to make a. Do you reduce the payment to something that makes sense, they can afford it, and do you reduce what they owe? Here's what I think of when I see this number. I, I would ask to speak to the borrower. Your servicing company. Yes, they're going to talk to the borrower. They're going get some information, but they're not really. Their biggest goal is the servicing costs. And if they end up modifying the loan, they're going to get an a la carte fee for modifying the loan, whether it's good for you or bad for you. I know many servicing companies that they're calling bars. They're often to modify, modify, modified. And I'm like, no, don't need a modify. We can do a forbearance plan or a payment plan before we modify the loan. If the bar is behind, you do not need to modify that. Bar's got to get caught back up on track. Well, in this case, it doesn't sound like she's gonna be able to get on track. Now, I don't know what Ryan paid for the loan. I'd be willing to bet it's probably a contract for D to be said to lower the rates. It's probably at 9.9% interest and I don't know what the value of the property is. Here's what I told Ryan. I said, listen, Ryan, here's what you I would do. I'd say, no, don't modify the loan. What I would do is if the bar, I mean bar wants to get a lower interest rate, well, you know, see if they can qualify. If they can't qualify from a bank, another bank to refinance you out of the picture, then don't go adjusting the interest rate. You need to then be talking about potentially a deed in lieu or selling the property. I get that they're disabled, obviously, you don't want to kick disabled people other houses. That's not what we're saying to do. What I'd be willing to say is like, listen, let's work something out here as an exit strategy because if she can't afford and spawn behind already, reducing what she owes on the house isn't going to help anything anyway. And the minute you write off that 10k, it's gone. Now the only way I would write off 10k is if she were to a go get a loan or selling the property and needed to get a bit of a short sale or reduction in what she was owed so that it can qualify with a loan. You know, maybe she needs a loan at 80% and based on what she owes it, like 85%. Well, then I might give forgive 5% so she falls under that 80% barrier. You as the investor have to make the final determination on what you're going to modify. Is going to modify payment, interest rates, what's owed. I'm glad to modify if it makes sense. If I'm buying the loan so cheap and what she, he or she owes is way above what the property is worth, I'm probably never going to collect that. Even if I foreclose. I'm only getting the value of the property because that's the highest amount. The payoff is way above what's, oh, there's no reason I'm going to collect it. Then I would forgive some debt if, and this is the big thing, the borrower's got to come to the table and make payments on time for six or 12 months straight. If they can't make payments on time, there's no reason to modify because they're just going to fall behind. And if they're on a fixed income, then it's, you know, what's going on. Have they been making payments along the way? What's recently happened that's caused them to fall on hard times? I don't run a charity. I donate to charities, but my business is not a charity. And that's what you have to realize. I get a lot of people. I've had this question several times from other folks too. Come and say, oh, Scott, I want to get in the no business because I want to help people. You know, the first person you need to help is yourself. You got to help yourself before you go out and help others. I a lady in my class coming to, oh, I'm so excited about doing this to help people. I'm like, that's great to help people. But if you can't pay your bills. It, it ain't helpful going and modifying people if they're not paying you. You got to get paid first. You're the bank. If you don't get paid. There's no reason to modify a bar if they can't bring some money on the table. Yes, you are offering an opportunity if you're buying non performing or distressed stuff to let them get back on track through some sort of payment plan. But I don't modify here. Here's another stipulation. If you modify a loan, the IRS wants you to be immediately taxed that year for whatever the amount of the loan is. So let's say borrows 120 houses worth 100. You paid say 50 grand for that note. You bought it at 50% of fair market value and 40% of UPB or payoff. Well, if you modify it, the IRS wants you to be now accountable for a hundred thousand dollars based on a face amount of loan, which is not accurate. You haven't received any payments. You've only paid 30. You didn't see a $70,000 profit. You've got to go then file a, what we call like a third party evaluation like from a company like me to say this house is only worth, or this Note's only worth 30,000 plus any payments you've received along the way and then submit it to the irs. So I don't do modifications. Now if you held onto the asset for longer than a year, then you can modify it and it's then treated as a long term capital gain. But if you do it immediately in less than 12 months, that's a short term capital gain and your prop, you know, your income taxes on that are through the roof compared to a long term. So keep that in mind. Like I said, I've had servicing companies, we've transferred stuff over like oh, I got the borrower on the phone, they're willing to modify. I'm like who brought up the modification side? Well, we did. I didn't ask you to do that. I've actually chewed out my servicing company said I did not ask you to modify. You are not, it's good, it's good to find out if what they can afford, what they can pay. But you offering to modify the loan is not what something that I want to do because that bar is behind. If I modify the loan now, it resets that statute of limitations. It resets the default period. Why am I going to, why am I going to get to my borrower and get out of jail card if they brought enough on the table, they're a year behind or two years behind every payments. They got to bring some skin the game before I even think about doing a payment plan or modification. If I just decide to modify immediately, then they're back on track. Now don't get me wrong, a lot of note investors or note companies, the hedge funds will buy portfolios of notes non performing. Get the bar, you know, bring the bar to the table. Try to get them making some payment plan. Or we're offering to modify. It's usually a stair step payment plan. Oh, hey. Will reduce your interest rate for the first year down to 1%. We saw this happen back in 2008 where it was like 2% interest rate for three years and went up to, you know, to three in year three, four in year three or four, year four, whatever. And would go back up to about 5% or they would do adjusted payments in a little bit. Those are different types of forbearance plans. Not like a true modification where you permanently adjusting the interest rate and the balance and payment plan. So do a payment plan. Find out what's going on with the borrower. Asked. Asked to talk to the actual your asset manager. Hey, who took the phone call. What do they find out? What can they afford? Has the borrower filled out any financials? What's. What's the story behind the story. And if it doesn't smell good, don't do it. You can always then go there. Like listen, if you can't afford to stay in the house, then we need to talk about moving to get you out of the house. You know, let's get it sold, let's get it. Let's do a deed. Lou. Let's give you some cash for keys. If you're in a spot to do that to give some money to move on, especially if there's some equity, you definitely want to give some cash for keys. But there's no equity or negative equity. You still may want to give us the cash for keys for what the foreclosure costs me to get them out of a bad situation. Because if you end up having to foreclose, that's gonna be a worse situation versus, you know, working with that bar to get in my track. I've had people that we've. We've bought notes on before. Yes. That we forgave the debt. We just gave them the house because it was just a small asset. Wasn't really worth it for me to foreclose and own a $16,000 house or a $20,000 house that need a lot of work. You know, based on what I paid for the note, it made more sense for me just to forgive it and write off that two grand, three grand or four grand I paid for them against my profits from other assets in the tape that we bought. So no, you do not have to modify your loan right off the bat. You need to make that decision, not your servicing company. It's good to get counsel from your servicing company what the borrower can afford, what they're looking for, but that doesn't mean you need to accept it. You have to look at the numbers, you know, we paid for the note. You know what your costs are going to be. Modifying the loan doesn't always make sense immediately right back the bars made payments for six or 12 months. Then it would make sense to modify the loan later on, but not right, not right out of the gate, especially if they're falling behind. Modify the loan just isn't going to make sense. Put them on a payment plan or forbearance agreement for a period of time and then go from there. Because if they can't follow through that payment plan, it doesn't stop you from the foreclosure process. But if you do modify it, like I said, it restarts that statute of limitations or that time period for being default. And then you got to wait another 90 days or 120 days, where if they can't make your adjusted payment or, you know, payment plan in month one, you're like, hey, this isn't going to work. You don't have to wait another 90 days. You can just go and start that foreclosure process. But if you modify it, then you're waiting another 90 days. And we know what that costs. That could be, you know, 25% different in your ROI at the end of the year if you've got a vacant asset or a vacant, I mean not a vacant note, but a, a note where the bar is not paying you. So keep that in mind. Feel free to shoot me a text message or reach out to me@talkwithscott carson.com and book a time on there to talk about any case studies or deals you're working with. Always glad to answer questions because if you've got a question, I guarantee others people have it and we haven't answered that. I'm always glad to answer questions for you. So Ryan, once again, thank you for sharing your question with me and I'm sure everybody else out there thanks you as well. So go out, take some action, everybody, and we'll see you all at the top. Bye, Sam.