Note Date 20170317
I love this game of notes, but sometimes the people I deal with can create some frustrating events. Last month I received a tape from a broker. I like Ohio, so I found a nice little asset in Cleveland where I happen to have a great realtor who partners with me from time to time. The value of the property on the tape was $85k. Delinquent taxes were $3k. So my realtor drove over to the house and while sitting in her car in front of the house, she asked me if she could partner with me on this one. It's worth $120k. Score! It's always great to find an asset that the seller has under valued. I'm going to make some money on this one.
I put my bid in. It was high for $85k, but I'm buying a $120k asset. I get the exciting news that I'm the highest bidder, but the seller is countering. What? The seller is telling me the property is worth at least $110k and he wants $62k. And I have to pay the brokerage fees of $1k. Geez. If you knew it was worth $110k, why did you say it was worth 85k. I'm already feeling a dirty. Now it's not a great deal, but it's still a doable deal. Fine. Accepted. Time to do my Due Diligence.
And so I started paying people to find out things for me. My realtor has contacts with the city and there weren't any outstanding fines or citations. Check. She was in charge of the BPO. Check. Taxes were verified and still delinquent. Check. I ordered my O&E and it came back with at least a dozen liens. Most from the IRS or the Department of Taxation of Ohio. No problem. They'll go away after foreclosure. But before I purchase any note, I have my favorite attorney Franco Barile, of Sottile and Barile Attorneys At Law (Ohio), review the files and O&E.
"Hey Adam, this isn't in first position", Franco tells me. "What? What do you mean?" I didn't see it on the O&E, but one of those many State liens was dated 2000. The note was originated in 2007. So that lien was in first position. It was only $530, but I'd have to take care of it and it has 17 years of interest. Both Franco and I attempted to get the total from the State, but the clerks required forms to be filled and filed and then we would get an answer in 2-3 weeks. Geez. Thank you bureaucracy. We sat and tried to figure out some estimates on what it might cost and we figured that on the high end it would cost about $4,000 to pay off. So I asked for a fade. Denied. Not even a budge. WTH? That's it. I'm done with this guy. I'm already paying a premium for this asset and now this guy is selling me a First that isn't a First and he won't fade some on the amount to sort out that lien? UGH!
So we dropped the deal and moved on, but it just irked me to no end. Anyways, time heals all wounds and grudges, right? Today, a month later, I see the same note on a different tape. Now the value is $128k. That's some awesome appreciation in that hood. It went from $85k in February to $110k in middle February to $128k in middle March. I need to be buying more there. And it's still being sold as a first. Something tells me they haven't sorted out that lien. They'll find some sucker who doesn't go through the proper due diligence. There are plenty of buyers out there that don't do enough due diligence, and I know some personally. That's the way it is though.
And just in case anyone knows who I am talking about, I am not judging the broker on this one. I think he's a swell guy. It's the seller that is moving junk.
Just another day in this life of notes. Today I've got three rehabs starting, so I'm in a good mood. One will be listed to sell and the others will become rentals. Capital gains and cash flow. A nice mix of the two. Until next time.
Franco Barile - www.sottileandbarile.com - for all your needs in OH, IN, MI and KY