How nineteen months from last payment to sale turned a 10.5 percent loan into about 1 percent

Take a $95,000 first lien funded through a loan broker on a single family rental in a slow secondary market, borrower buying to hold and refinance out. Appraisal came in at $146,000, so 65 percent LTV, 10.5 percent interest only, 2 points, 12 month term, with 1,900 collected at close. Payments came in for four months, 831.25 each, 3,325 total, then stopped. A judicial foreclosure state turns a missed payment into a long calendar rather than a short one, and that gap between knowing the word and knowing the months is where lenders get hurt. After a demand, an unused cure period, and a filing in month 9, sale came in month 24, nineteen months after the last dollar received. What accrues while waiting: attorney and court costs around 9,400, delinquent property taxes advanced to protect the lien around 2,760, force-placed insurance after the borrower's policy lapsed around 1,850, trashout and cleanup once the property was recovered around 4,300, utilities and lawn care around 900, and resale commission and closing costs around 7,100. Sale price was 121,500. Against 95,000 of principal plus roughly 26,310 of advances and costs, call it 121,310 in, 121,500 came back, plus the 3,325 of payments and 1,900 of points collected up front. Total return works out to roughly 5,400 on 95,000 tied up for 26 months, close to 1 percent a year against a loan underwritten at 10.5. The lessons: underwrite what the house sells for as-is, vacant, sold quickly, not the appraised value, since that gap can turn a stated 65 percent LTV into a real advance rate closer to 78 percent against liquidation value. Ask any broker for default and recovery history in writing and assume it understates the risk. Escrow taxes and insurance rather than fund both out of pocket at the worst moment. And check the county's actual foreclosure timeline before funding, since it varies enormously by state and changes what a given LTV actually means.