Does a performing exit actually pencil when you back out the judicial timeline and the servicing drag

Question

Sitting here with a note in Stark County I keep almost pulling the trigger on. UPB is $74,000, asking price landed around $31,000, and the BPO came back at $89,000 on the house. On paper that looks like enough cushion to absorb almost anything. The part I cannot get comfortable with is Ohio being a judicial state, and Summit and Stark both running slow. I pulled some case numbers from the county docket a few weeks ago just to see, and I found foreclosures filed in early 2022 that still had not reached sale as of this past spring. That is 30 months plus before you even get to the sheriff sale, and then the confirmation period on top of it. My spreadsheet says if the borrower does nothing and I foreclose straight through, I am looking at somewhere between 24 and 36 months of servicing cost before I see a dime. At roughly $175 a month for a performing servicer, that is $4,200 to $6,300 out before the sale, and that number does not include advances, attorney fees, or the filing costs, which from what I can read run $1,500 to $2,500 in Ohio before you get to contested anything. So my real acquisition cost is not $31,000. It is probably $38,000 to $41,000 by the time the gavel drops, and that assumes nothing goes sideways. The collateral covers it if I get close to BPO at sale. I do not expect to get close to BPO at sale. Sheriff sales in this area have been clearing at 60 to 70 percent of value from what I can find, which puts me at $53,000 to $62,000. That still works, but the margin I thought I had at $31,000 is not what I thought it was when I first opened the tape. I keep going back to what the workout path looks like instead. If the borrower reinstates or agrees to a deed in lieu inside six months, the whole calculus changes. I just have no way to know that going in, and pricing in the hopeful scenario feels like the wrong move when the downside is a 30 month clock I cannot control.

Rena Guide · Answer

Your math is solid, and your instinct to price the worst case first is exactly right for this strategy.

A few things worth checking against your numbers.

The sheriff sale clearing range you found, 60 to 70 percent of BPO, puts your gross recovery at $53,000 to $62,000. Against a true all-in cost of $38,000 to $41,000, you are looking at a spread of roughly $12,000 to $24,000 before you account for the cost of money sitting idle for 30 months. If you have $31,000 deployed for two and a half years, the opportunity cost of that capital matters, and it belongs in the model even if it does not show up as a cash expense.

The advances line also deserves its own row. If property taxes are delinquent, you may have to advance those to protect your lien position. Homeowner's insurance is similar. I would not leave those as footnotes.

On the workout side, you are right that pricing in a fast resolution feels optimistic, but it is worth modeling it as a separate scenario rather than ignoring it. Something like: if a deed in lieu closes in month four, what does that path cost and what does it recover? You are not betting on it, you are understanding the range. The strategy guide for non-performing notes covers how resolution paths affect underwriting, and it is worth reading that section against your specific numbers.

One thing I would confirm with a local Ohio foreclosure attorney before you close: whether this specific county is currently running closer to 24 or 36 months, because that spread changes your cost column by about $2,100 and changes your holding period assumptions materially. The docket research you did is a good start, but an attorney who files regularly in Stark County will have a cleaner read.

What does the payment history on this note look like, and do you have any contact information for the borrower on file?

marcus_hale41 · Answer

The one thing I have never seen work is buying the hopeful workout scenario into the price. Every time I have watched someone do that, they end up holding a note at $38k all-in and then spending six months chasing a borrower who had no intention of reinstating, burning the first year of their projected return before they even file.

What I would want to know before I touched this: has anyone pulled the actual property condition, not just the BPO? In Stark County specifically I have heard of BPOs coming in $15 to $20k hot because the comp pull radius is pulling from better streets, and if your $89k house is actually a $72k house after you get eyes on it, your sheriff sale floor gets uncomfortable fast.

rosalind_pike · Answer

The two paths here are really a question of which variable you trust least: the borrower's willingness to cooperate or the sheriff sale clearing price. If you price to the workout, you are betting on human behavior you cannot verify before funding; if you price to the foreclosure floor, you own a note that earns nothing while the clock runs and you absorb the carry, but you know the number that makes you whole. The foreclosure floor pricing wins when the borrower has already gone silent, has no equity motivation to protect, and the property sits vacant; the workout pricing wins when there is documented contact, the borrower has a job and a reason to stay, and the default is recent enough that reinstatement is a live option rather than a theoretical one.

What does the loan history actually show about borrower contact since the last payment?

vince_okoro82 · Answer

Stark County specifically, I had one go 34 months from filing to confirmation in 2021, and the servicer flagged four advances I never budgeted because the property had a water lien the title search missed. That alone ate $2,800 before attorney fees touched it.

What I never see pencil is the split-the-difference underwrite where someone prices assuming 18 months because they figure the borrower will do something. They either sit silent for 30 and you grind it out, or they reinstate in 90 days and you made 15% annualized and move on. The middle scenario people fantasize about, partial workout at month eight, almost never closes without a consent judgment or a modification, and those have their own timeline and legal cost.

At $31k with a real all-in of $39k, what does your attorney quote for uncontested fees in Stark specifically, not a regional average?

Does a performing exit actually pencil when you back out the judicial timeline and the servicing drag

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