South Florida Nonperforming Note with Equity Case Study

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Foreign what is going on? Note Nation. Scott Carson here again for you with another episode of the Note Closure Show. And we've got another interesting note case study. This one is down in God's Lady Room, Florida in Opa Loca, Florida. Opa Loca. Opaque. Opaque. Opaque. I like saying that word. If you don't know where Opelaca is, it is actually about midway between Miami and Fort Lauderdale, Florida. It's a Little inland by Hialeah and this is a non performing. It's on the same list of stuff that we've been looking at the last couple days of stuff and it's a good looking property. Now I had a little bit of difficulty finding a decent photo of the property because when you go to Google Maps it actually pulls up. It's one of those houses where the borrowers have blurred out their photo. They've gotten Google Maps to blur out the photo. So I found a different photo of it. It's a good looking little property. I think this is a picture of it from when it was being finished off because it looks like the contractors in the driveway with his ladder and stuff and they got windows with stickers on and stuff like that. But it's a pretty decent looking house. Four bedroom, three bath, 1800 square foot house. Fair market value is somewhere around just above 500,000. So I mean that's kind of normal for that size of house in that area of Florida. The unpaid balance of this one is 370. So there's quite a bit of equity. Payoff is 385. So the borrower's got $115,000 in equity or you know, that's not bad. They're currently eight months behind. All right, Legal has not really been started on this. That's the big kicker. Their monthly payment is 2177amonth. That's PI, just p and I payment, no taxes and insurance on that one. This is what kind of concerns me on that one is that it's eight months behind. Legal's not really been started and it takes, it's going to take you a good year to foreclose in Florida. But the sellers of this non performing note, they're looking for 290. All right, so potentially there's about 90k between what you'd buy the note for and the payoff. Right. They want 60% of fair market value conservatively, might be a little bit more than that, 77% of the payoff which is not too bad. But here's the thing is it's just in the first legal aspect of things in Florida is a judicial state. So it takes a longer process than something in Texas or Georgia to foreclose on. Now that 90, potentially 90k in profit if you, what would you do? You'd go to foreclose, right? Foreclose. You're probably going to spend around oh 10k or more in foreclosure costs, at least in attorney fees. Hopefully they don't file Bankruptcy. But that type of equity, they're probably going to file bankruptcy. Or you could maybe negotiate a cash for keys. Here's the thing. Whenever I see a proper being blurred out, I know that those borrowers are a little bit more savvy than everybody else out there. So they probably got attorneys, they probably got people that could deal stuff and drag stuff out. So while it could be 90k or more, because the longer it goes, the more in default it's going to be. If they did come to the table and start making up payments because they're eight months behind. Okay, that's $17,000 in back payments roughly, give or take a little bit, right? 15, 16, 17,000. If they reinstate and start making payments, it's only a 15% ROI if they reinstate here for the first year. After that it drops down below that. Now it's okay if you take this. Let's just figure this a quick, quick math here. 2177 times 12. Divide that by the 290 sales price for the note. It's a 9% cash and cash return. This would be ideal if you're using your own money. You've got to 300,000 on the sidetrack. Yes. Could you make a great payoff on this deal? Either foreclosing and selling the auction, which is what you're probably gonna end up happening. If not, you'd end up taking it back and making more money if it didn't sell at the auction. Because then you could sell it for 500 or roughly, give or take that. You don't know interior condition. But interior condition is probably going to be pretty good because it is owner occupied. Are they going to refinance you out? Probably not. Interest rates would be higher. So you have the opportunity to do a dealing. Cash or keys. You could do some other fun stuff with that as well. You could do some other fun stuff with it as well. Sorry about that, my headphone fell off. You know, foreclosing is great. I don't think you're gonna be able to modify this. Bars don't use like the modified and higher interest rates. They probably want to do like a forbearance agreement. I wouldn't do a forbearance agreement because that's you're starting, then you're looking at a 9% ROI or less because now you're 90 days in or 120 days. And even if they file for bankruptcy and now they want to do a payment plan, well, now you're even four. You know, you're not eight months behind, you're over a year behind. And you know, Florida's got this weird thing where they're requiring you to do arbitration with the borrowers and then that's an extended say of 60 to 90 days. They file bankruptcy and they'll come back with a BK plan. Makes sense. That's the land. Another 90 days. And one thing we're not talking about this is taxes and insurance. And I'm waiting to find out if there's fourth place insurance on this or if the borrowers are still paying insurance. Taxes are paid up to date on this deal, but insurance in Florida has gotten expensive. It's gotten very harder to get. Every time I've reached out to our insurance company and asking them about hey, can you cover a property in Florida? They're like, no, we can do it with a blanket policy. If you've got five or more properties with only one being in Florida, then we could squeeze into that. But individually gets expensive. And I have to worry about Florida because with the likes of companies like State Farm pulling on California, what's to stop them from pulling out of Florida before too long because of all the hurricanes and stuff that's going on there? So careful about this deal. You know, yes, the $90,000 difference between what I'm paying for what I pay for the note and what's owed is attractive initially, but when you look at probably a year to foreclose, legal costs, insurance costs, is it worth that? At that point would you end up with somewhere around 60 grand? Yeah, it could be worth it. You also got to worry about your money costs along the way. You're going to have to have an investor who's if it does turn into a reprofar, they do reinstate the loan. Same thing. Hey, buy me out of the deal or be just let's hang around till they pay you off. Well, they're probably not going to pay you off anytime soon. That's why the idea of foreclosing on this deal and you got to really do the research. That's why I'm waiting for a response back on the seller on the call sets where that what's going on with the deal and doing a little more research and social sleuthing on the borrowers to find out what's going on. But this is a deal, hey, it could be decent. It could also be very blah. So it's not necessarily a dud. It's got some opportunities, it's leaning towards a deal. But you just got to be careful. Get a couple questions answered on this that's what I'm saying is looking for servicing notes is one of the things you should always ask for the legal notes always ask these things from your seller. So you get a bit of a, bit of an insight especially on the you're not going to get have much as far as servicing notes on a performing note. That's going to be all on pay history. But looking at the servicing notes, what's been the interaction between the borrowers and the existing lenders or the servicing company? If you're dealing and looking at buying a non performing note from a non serviced loan, I mean where the borrower, the note holder is service self servicing, that should be a, you should get a bigger discount because you don't know necessarily what they're telling you the truth. You want to be able to see whether there's notes and dates and interactions and inbound phone calls or outbound phone calls. Those things are all very, very important to take a look at and then see if there's any type of response actually ask to speak to the attorney. Have you received any type of insight what's going on and is there anything that would stop you from foreclosing on this asset? And that's the important thing to look at. So this is another little deal because Opalaka, Opalaka sounds like the entrance interest song to Guardians of the Galaxy on this deal. But this is a deal like I said, Hey, 90k is nothing to blow your nose at. I mean if you end up with 45k it's a decent deal. But what type of return is that going to be to an investor? Well if it takes a year and you borrow 300 and you split it, you know, two ways, 45 divided by $300,000 investment, that's still a fifth. Wait a second. I mean I typed it on 45 divided by 300 still 15 cash and cash return. So that's not so bad. I, I would just get somebody, hey, let's go splits these on this deal, it's 290. Let's start an LLC, have you fund the deal, I'll own 51, you own 49. This LLC owns the property or it owns the note. And if we end up owning the property and taking it back, guess what, boom, it turns into an reo. We'll slap a lien on the property first. Lien protect your investment for the 290 or 308 road. Well let's get this thing sold after eviction. But you want to prep your investor on this that hey, you may need to go back to them for money to repair, more money for foreclosure costs, attorney fees, taxes, and some other things as well for you. So keep that in mind. But this Opal lock A deal might be a deal, it might be a dud. We just need a little bit more answers on it. But these are the kind of things to take a look at. Don't get too excited about just the equity. Look at the numbers and understand the timing is going to be different in each state as far as foreclosures, evictions, and what's going on with the borrowers too. So hopefully it was helpful. Want to learn more about how we do these types of deals? Guys always feel free to check out our website. We close notes.com we do have an upcoming class, a three day class live in person here in Austin, Texas for you to learn from. Check it out at note buying for dummies.com Otherwise guys, go and have a great day and thank you for listening and subscribe to the podcast and we'll see at the top. Bye.