How Do You Calculate Legal Balance

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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.

Good morning, good afternoon, good evening everybody. Welcome this episode of the Note Closure Show. Hope you're doing well. Today's episode comes directly from a question I got from one of our students. He's like hey Scott, I'm looking at this tape and there's no legal balance on it. How do I calculate legal balance when it's not provided? Now what is legal balance? First and foremost, it's about as close you call legal balance, especially in the non performing notes base, basically the payoff. Now with the legal balance this includes just so you bit of an idea. It includes the unpaid principal balance plus late payments, plus usually a 5% penalty on top of those late payments for late fees and then usually any thing that's been advanced by the lender, force, place insurance, taxes, winterization, you know you can't do triple of force place insurance. It's usually just what the cost is. But those legal costs have been incorporated. Now it's not you can't add legal fees from your training to foreclose, but anything that you advance to protect the asset, winterization, things like that, that protects your investment. Like I said, fourth place insurance, any taxes paid, stuff like that, that's in your legal balance. But how the heck do you calculate the rearages if they're not showed already? Well, it's really, really kind of simple actually what I like to do is I'll look there should be a column. If there's not a column you need to go back to the seller and ask for it. But there should be a comma shows last paid date and usually the last pay date or the next due date are going to be very close. Like they may have made a payment. If they're six months behind, they may have made a payment this month. But if it's last paid due or next due it may still so six months earlier. So like if they made a payment, let's just say December 1, 2022, but they were six months behind, it would show next to not being June, it would be July of 2022, six months in the race. So you have to keep that. It often throws people up when people make a payment and it gets applied to the latest payment that's how it works out. So you could take six months and just insert a column, which is what I like to do. Go find how much the P and I payment is and multiply the principal and interest payment times the amount of months past due and that'll give you a rough of back payments. And then you could add 5%. So take that amount multiplied times 1.05 to figure out the late payments plus the late fees, and then add that number to the upb. Now, there's also lender advanced or force place or any other negative escrow. You could add that in there as well. Now, what if you don't have a last paid date? Maybe you just have a number of days past due. Like we have this on a tape. And I'm like this, this coming Saturday, January 7th, if you're listening to this, in the future, I'm going to be going through 430 some odd assets and there's not a legal balance. So I'm really going to show people how we calculate the legal balance on this. Because one great thing is often you can run a formula of taking the last paid date or the next due date and subtracting that from your current date, and that'll give you the number of days past due. Now, how do you figure out how many months? Well, you just take the number of days and divide it by 30. It's one of the easiest ways to do. So if you're looking at tape and some of these borrowers haven't made a payment in 10 years, some of it's two years. So it's anywhere from multiplying that P and I payment times 24 months or 120 months, you know, or 12 years. There's one that's 144 payments, 12 months times 12 years. So that's an easy. If they show number of days past two, divide that number by 30, that'll give you a number of months. Number of months times the P9 payment times 5%. Is that how you calculate legal balance on that stuff? Now, why is this going to be important? Well, it's important specifically when you look at values of, you know, on the tape. Now, sellers provided values. It may be a Zillow value, maybe a bpo. You may never know. They may just pulled it out of their ass. Who knows, right? But the value is higher than what? The unpaid principal balance, not the payoff. There's some equity. So you got to figure out what that equity number is. So if a house is worth, let's say, 150,000 on Zillow. Truly your quick online values. But they only owe 85. Well, it looks like they've got $65,000 in value, right? 150 minus 85. Well, if you see that their monthly payment's like 500amonth, then you go back to see the next due, the next dues 10 years ago, that's 5, 500 bucks. What's number 500 times 12 years, times 12 months, that's times 144. That means there's another 72,000 in rear ridge. 72,000 times 1.05 for the 5% late fee. Usually that's another 75,600. So now if they owed, if the unpaid principal balance is 85 and you add 75,6 to it, it's not any equity. They're upside down. The payoff on that would be, what is that number? 75, 85, 160, you know, 160,600. So they're upside down by about, you know, 10 grand. My number five or 10 grand. So that's a negative equity then. It's an easier way to calculate based off the value. You would based your value. I mean you're bid off the value because the value is less than the payoff amount. Probably. If it's a Zillow value, it's probably off anyway. But on the front end side, you always want to double check and get a bit of idea if there's any equity. Now you also have to be careful when you look at some of these spreadsheets that you get tapes that come in and understand how statute of limitations works and what you can actually collect on and what you can and cannot collect on. Okay? And each state's a little bit different. You have to really talk with an attorney when it comes to what you can collect in a lot of cases. So like a lot of states often will have, usually it's a four years. Like here in Texas. The state statute of limitations of debt in Texas is for four years. Okay? So that means with it being January 2023 right now to record this, if they hadn't paid in 10 years, I can only demand now to collect on the last four from 19. I mean 20, 19 and beyond. I can't go back the last full 10 years. Now there are some exceptions that will reset that statute of limitations. If your borrower makes one payment, it restarts the statute of limitations. Now that payment only needs to be a dollar. Okay? So one thing to keep in mind is we can get your borrower to make some sort of payment, something over the past 10 years, it restarts it over the last five, six years, it restarts that resets it to four years or off. Some states are like, Florida doesn't have a statute of limitations. You can actually collect on the full amount of debt owed in a lot of cases. Now you also got to be careful too. In some cases, if a bank is a previous lender has started the process to foreclose but never completed it, you've got to double check with the attorney to see, make sure that you still have the right to go back in and collect on that debt or take up the foreclosure process and finish it off or so you don't have to restart it all over again. So just touch base, check out what's going on in your state. You know, one of the great things if we look at, you know, let me pull this up here. So if you look at, if you do Google statute of limitations on debt collection by state. This is actually a chart that Forbes put out. Some states have up to six years, some are shorter than that. Let's see here. Let me pull this up here. Come on computer. Here we go. Alabama is 6, Alaska, Arizona. Well, let's go to written comp. Let's go to promissory notes. Just be the better thing. Alabama is 6, Alaska's 3. Arizona is 6 years. Arkansas is 5 years. California is 4, Colorado, 6, Connecticut, 6, Delaware's 3, DC's 3, Florida's 5, Georgia, 6. Hawaii, 6. Idaho is 5. Illinois is 10 years. Indiana's 10 years. Iowa's 5. Kansas is 5. Kentucky is 15 years. Louisiana is 10. Maine is 6. Maryland's somewhere around 6. Massachusetts is 6, Michigan is 6, Minnesota 6 years. Missouri's 10 years. Montana is 8, Nebraska's 5. Nevada is 3, New Hampshire's 6. Jersey 6, New Mexico 6. New York is 3. North Carolina is 5. North Dakota is 6. Ohio is 15 years. Oklahoma is 5, Oregon is 6. Pennsylvania is 4. Rhode island is 6. South Carolina is 3. South Dakota is 6. Tennessee is 6. Texas is 4 years. Utah is 6, Vermont is 5, Virginia is 6, Washington, 6, West Virginia 6. Wisconsin is 10 years. In Wyoming is 10 years. So that's something to keep in mind. Obviously you still want to talk to an attorney and have them verify that with you. But that's something to keep in mind when you're looking at buying debt. How long is a statute of limitations on debt? You know, it's different. It can actually be a lot shorter if it's just an oral most States it's going to be, I'd say probably. Oh probably half the states have a shorter time frame if it's an oral contract. Written contracts are six promissory notes. It was what I just quoted an open ended debts are usually three to four years in some cases it may be up to six years in about a third of the states. But just do that search and you'll find what it is when it comes down to that. But that's something to keep in mind. So let's say you're in a state like Texas, say borrower hasn't been paying on eight years. I can't go to full eight years. I have to take the most recent four years and, and literally that's my payoff. Now they, you have to be careful here because some of these sellers are going to be cheeky bastards. They're going to pull the full 12 years hoping that you don't pay attention. And knowing that oh wait a second. In Texas I can only have to four so I can't go after the the oldest six year. They're going with the most recent four. So my legal balance isn't going to be this huge amount. It's going to be really roughly half of what I thought it would be. So that's how you calculate. Take a look at the date of the last, the next due. Figure out how many months that is. If it gives you a number of days. Great. Then divide that number by 30 days to figure out the number of months. Number of months times P and I payment. Multiply that times 5% or 11 1.05 to figure out what that number is. Plus 5% late fees. Add that to your upb, your unpaid principal balance. That should give you a total legal balance. Compare that to the value it's up to or down. There's no equity. Great. If there is some equity, the seller's gonna want you to be a little bit more aggressive in your bidding process. But also look at the statute of limitations and take a look if you have to add or subtract or take away a big chunk that's not available. And you know this is important, if you have any questions, feel free to reach out to me. Now if you're looking at a column date and it says next do and it doesn't give you a date. It gives you like five numbers but it's not a date. You just need to click on that column and right click and hit format cells and change it from a number to a date. And because every date has a corresponding five digit number if it's just not formatted properly. This is a mistake I see new new investors make when they're not used to excel. Like what's this number mean under next do? It's a five digit number, it's not a date. You just got to format the cells properly to do that. So like I mentioned a little bit earlier, we're really excited. We're going to be doing a live stream going through a tape of 433 assets. It's a just a few in New York, New Jersey, most of these are in other states. Big chunk is on the east coast, kind of the southeast Conference, Big Ten, Big 12 Conference Area there for you. Some in Florida, some in Texas, big chunk in Indiana, Illinois and stuff like that. But some really great stuff, lower balance stuff, some decent values and some great opportunities for you guys to, you know, start making some offers. If you're interested really easy go to noteinvesting101.com that's noteinvesting101.com to get signed up for that zoom call. If you're listening to this after Saturday you can go to Weclose Notes TV and look at our presentations on YouTube and you should be able to find it there because we will live stream it to YouTube as well. So if you have any questions feel free to reach out to me@talkwithscottcarson.com that's talkwithscottcarson.com and if you're part of our WCN membership you are going to have you have access to these tapes and you start looking at it and you know you don't have to wait around till Saturday to start making some offers. So check that out@noteumbrella.com but want to wish you all a great day, go out, kick some ass and hopefully we'll see you this coming Saturday for these 400 plus non performing notes that we're going to walk through and we're going to be doing this like I said, at least once a month, if not almost every Saturday depending on how on what stuff's coming in, probably at least twice a month and a minimum is what my my focus is for 2023. So we'll see you guys later. Be safe. Happy New Year again. Be safe. Sam.