Bought a note to get the house, got a 14 month bankruptcy plan instead

I'm reading this twice like everything else. So a non-performing note means you owned the loan, not the house? And the borrower filing bankruptcy freezes the foreclosure while you keep paying taxes on a property you don't own yet. That's the part I didn't have in my head at all.

Where did the note come from, harrow? A pool carve-out, a broker's tape, a bank? I'm trying to learn how this paper actually moves and I can't tell whether $37k on $69k was a normal ask or a hopeful one.

Did the file mention anything about a prior filing? I've been going through collateral files lately and half of what's in them is the payment history, which would have shown a period where payments stopped and restarted on a schedule that smells like a plan. Or maybe it wouldn't. I'm still mostly confused by these files, honestly.

The mechanism worth separating here is the resolution path from the collateral cushion. Your cushion was real. $37k against an as-is range of $78k to $85k is a wide margin, and it's why this ended as an $11k loss instead of a wipeout. What broke was the timeline assumption. You priced the note off the value of the house and the speed of taking it, and a filing removes your control over both for as long as the case is active.

When a borrower files, the automatic stay halts collection and foreclosure activity, and a secured claim on a primary residence is generally addressed through the plan rather than by writing down the loan. How arrears get cured, how long the plan runs, and what relief from stay requires all turn on the district and the specific plan, so a bankruptcy attorney licensed in that state is the only source for the version that applies to a given file.

The underwriting change that follows is arithmetic. Price two paths, not one. A deed in lieu or reinstatement inside six months, and a contested path with a filing that runs two to five years while you advance taxes, insurance, and legal. Your carry ran roughly $730 a month once the taxes and servicing are spread across 14 months. At that burn, a 30 month case costs about $22k in carry, which eats a third of your cushion before a single repair.

The assumption the whole trade rested on is that you would be the party who decides when it ends. On defaulted paper you usually aren't. Buy at a price that survives the borrower choosing the slow option.

I look at the lending side rather than owning, and what stands out is that you had no income while carrying costs. A performing loan at least pays you to wait. Defaulted paper charges you rent on your own patience. I'd have wanted the entry low enough that a two year hold with zero cash in still leaves a margin.

Long holds are my whole approach, so I don't flinch at 14 months. What I'd flinch at is a hold where the meter runs against you the entire time. Land sits still and costs me taxes. Your note sat still and cost you taxes plus attorneys plus servicing.

Honest disagreement: you held too long. At month four, once the plan was proposed and you could see the cure schedule, the note was worth what it was worth and it wasn't going to change. Selling then saves you most of the legal and probably half the taxes. Thin margins teach you to cut early.

Did you ever get inside? A roof and a kitchen from the curb can be a roof, a kitchen, and a failed septic once you're standing in it. Curious whether the $30k rehab number was ever tested.

I'm building a cost sheet for a first deal and yours is more useful than anything I've built. Taxes $2,300, legal $6,800, servicing $1,100. Was the servicing a flat monthly or per-event? And did the attorney bill hourly or flat per filing? Those two lines are where my own spreadsheet is currently just a guess.

I want income without a second job, and this reads like a second job with a negative salary. No offense meant, harrow, you wrote it clearly. It just moved notes down my list.

Basic question because everything here is new to me. When the borrower files, who pays your attorney? Do those fees get added to what the borrower owes you, or do they just come out of your pocket?

The servicing piece interests me. Somebody has to send the letters, take the trustee checks, and keep the escrow straight, and you paid $1,100 for that over 14 months on one loan. On a small note that's a real slice. Is there a floor below which a licensed servicer just isn't worth it, or do you have to use one regardless?

I'd push back on pike a little. The entry price was defensible. The gap was that you had no plan for holding paper you didn't want. I hit the same ceiling last year on a different asset class: I could buy fine and I had exactly one exit. When that exit closed I had nothing. Building a second buyer before you need one is the fix.

Adding "pull filing history" to my checklist. How do you screen a whole tape though? If I'm looking at 40 loans I can't run court searches on all of them before a bid deadline.

This thread is doing a lot for me on strategy fit. I like renovation work and I thought notes were a cheaper door into houses. What harrow describes is a legal process with a house attached, which is a different job than the one I want.

$30k for a kitchen and a roof on a 1960s three bed assumes the mechanicals are alive. Vacant or neglected, I'd carry another $8k to $12k for plumbing and panel work before I'd bid.

I've got one in a stay right now, month five, and reading this made my stomach drop a bit. Mine has a $58k balance, I'm in at $21k, taxes are current because the borrower kept paying those (of all things). Your carry math is the thing I'm going to go recalculate tonight.

The boring conclusion I'm taking: buy low enough that the slow version is survivable, and don't buy paper for a house you want. harrow, thanks for putting the whole number down instead of rounding it.