Default Scenarios
May 7, 2009 Investment Strategy
Investors often ask if I’ve ever had to foreclose on notes that I’ve created. It is their biggest fear. It is fear of the unknown, so to speak. It is fear from what they’ve heard about. It is fear from those lingering horror stories about foreclosing on the guy who gives you a hard time and makes you wish that you were dead. Most of all, it is fear from losing money. Those who know me find me the same way, indirectly. They understand that if I play cards all night and lose, I want to die. I hate feeling like a loser. It’s weird. When I spend $5,500 at Disney World, it’s OK. When I lose $20 at cards, it’s not. Some things, like this, are beyond me. However, my perception of notes are altogether different. Notes are a business. Until now, all of my notes have been a winning proposition. In other words, I have yet to lose money on my notes. Granted, I have taken less than what I had expected in some cases, but I have yet to lose money on any of them. Notice the buzz words “Until now.” What exactly does that mean? It means that I have a foreclosure in progress at this time. My attorney filed in December ‘95 or January ‘96. We’ll address this issue momentarily, but first allow me to address “I have yet to lose money” first. If you buy a home for $100,000 and put $20,000 down, you would have real money in the property. Furthermore, if you paid down on the loan for a number of years, you used real money as well. Let’s say that you now owe $70,000 and you want to move. If you financed the property for a nothing down buyer, you would in essence be loaning them $30,000 of your money. If he defaults and tears your house up, you would be in despair. And so would I. It would be understandable. You have 30 grand in the property. It would be a bad situation. Consider if he were obstinate as well. He would not move unless and until the bailiff set him out. You needed to hire an attorney and go through the entire foreclosure process and lose money at the same time. This is totally contrary to what FAST-FLIP is all about. FAST-FLIP is not carrying a note on your home. Furthermore, it is not about losing money. For the most part, my flipping is done with investing less than $4,000 and getting it all back at closing. I leave the closing with a note as profit, instead of cash. Do you see the difference in the example above and me? I have no money in my project. I have no nightmare. Now, let’s address and analyze my until now situation. I created a note for approximately $13,500 payable monthly for about $119. He will not make any further payments and is considering bankruptcy. Is this a nightmare? You still need more information? Allow me to provide further details. When I sold it was to two men, partners in a corporation. Not only was the corporation liable, but the two men personally as well. (Is it looking better yet?) One partner wanted out so the other released him. Does this release his liability to me? No, because I did not sign anything to that affect, nor would I. It is both men and their corporation who are the current owners as far as I am concerned. Where’s the nightmare? Where’s the problem? I see none. I feel none. I have no money, real money that is, in the project. Will I lose money? No!
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