Week 5: The 5 ExitsThe 8 – Week Roadmap to Launching into Notes

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AgendaAgenda

Following the Roadmap Step by Step:

• The 5 Exits – what they are

Following the Roadmap Step-by-Step:

The 5 Exits what they are

R fi• Reperform• Refinance• Discounted payoff (e.g. Short Sale)• Foreclosure (2 outcomes from this: TPS / REO)• Sell note

• Examples to illustrate a few of these

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A Quick ReviewA Quick Review

• We’ve closed on a note• We ve closed on a note

• RESPA

• Servicer

• Borrower contactBorrower contact

• Workouts

We’re “working the note out”• We’re “working the note out”• To make dollars and cents!

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Using an exampleUsing an example

DEAL 1DEAL 1

• FMV $120,000

• UPB on 1st $64,276.05

• UPB on 2nd $19,000.00

• UPB total $83,276.05U tota $83, 6 05

• “Equity” $36,723.95

• You buy 2nd: $2 000 00

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• You buy 2 : $2,000.00

Deal #1 contDeal #1 – cont.

• The 2nd originated in 1997, $25,000.00 @ 13.250% for 20 years

• The monthly payment was $297.00, but due to arrears, bank was asking $353.00g

• It’s non-performing – borrower couldn’t pay the $353

• What are your exit strategy options?

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This Deal Looks LikeThis Deal Looks Like …

• Home worth ~$120K• So inv’t-to-value of 55%

“Equity” of $54K

2nd of $19K • Bought 2nd for $2K

• Total of $66K “into

1st of $64K

o a o $66 othe deal”

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The Exit Strategies AgainThe Exit Strategies Again …

• The 5 Exits – what they are:The 5 Exits what they are:

R fi• Reperform• Refinance• Discounted payoff (e.g. Short Sale)• Foreclosure (2 outcomes from this: TPS / REO)• Sell note

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Selected strategySelected strategy…

R f (l d t l t b k d• Reperform (loan mod to lower payments back down to $297)

• Received 2 payments of $297

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Whoops wrinkle in the strategyWhoops … wrinkle in the strategy

Y fi d t th 1st i dd l f l i !• You find out the 1st is suddenly foreclosing!

• So what do you do now?

• First, what explains this? She’s paying the 2nd!

• The 5 Exits – what they are:

• Refinance• Reperform

• Discounted payoff (e.g. Short Sale)• Foreclosure (2 outcomes from this: TPS / REO)

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Foreclosure (2 outcomes from this: TPS / REO)• Sell note

OptionsOptions

R i t t th 1 t• Reinstate the 1st

• See if borrower pays on the full amount due on the 2nd, if not, start foreclosure yourself

• Talk to the borrower – reperform both?!

• Can she really afford both loans? If not, help her with l f th t

p

a sale of the property

• Let the 1st go to sale – bid at sale

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Letting the 1st go to sale what this looks likeLetting the 1st go to sale … what this looks like

$120K$120K –home valueAbove this, you

kmake money

A bid of 66% of$66K2nd of $19K

A bid of 66% of the home’s value = $79K

1st of $64K You would make $13K over your

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$ y$2K investment

Example #2 – “Safe”Example #2 – Safe

• Home worth ~$750K• So inv’t-to-value of 53%

(assuming paying full UPB) –h it’ f i t

“Equity”

• Bank wants to sell

oh, it’s a performing noteof $350K

No 2nd• Bank wants to sell

the 1st for $350K

1st of $396K • Note “matures” on Jan 31, 2009 – can call the entire

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2009 can call the entire loan due

Investigating what’s going on?Investigating … what’s going on?

20 ti• 20 questions

• Understand as much as you can• Understand as much as you can

• In order to determine if you do (or do not) want to buy a loan

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Federal Heights Salt Lake CityFederal Heights, Salt Lake City

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What you would have found outWhat you would have found out

• Property is listed for $1.25M – tony area in Salt Lake p y $ yCity suburbs

• Realtor was never able to show the home in 6• Realtor was never able to show the home in 6 months (borrower was “sick”)Bank wanted to sell loan because this was a• Bank wanted to sell loan because this was a “sensitive” loan

• Bank said very little about borrower• Bank said very little about borrower

• When pressed, bank admitted “business relationship” p , pbetween borrower and bank

• When pressed, realtor admitted borrower was

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p ,“extremely well connected”

So now what?So … now what?

Wh t’ E it St t i t b ?• What’s your Exit Strategy going to be?

• The 5 Exits – what they are:

• Reperform• Refinance

Di t d ff ( Sh t S l )

• Reperform

• Discounted payoff (e.g. Short Sale)• Foreclosure (2 outcomes from this: TPS / REO)• Sell note

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Next Week 6 Servicing & REOsNext – Week 6 – Servicing & REOs

January 21: 5pm PT, 8pm ET

Week 6 of the Roadmap – How to Manage REO’s andWeek 6 of the Roadmap How to Manage REO s and what it means to “service” your notes

Watch for our January Guest Tele-Seminar:y

“Newbie” investor who just bought his first 8 notes – tales of experience and successof experience … and success.

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