Judicial timeline is eating the entire discount on a 180k UPB first

Question

Running a bid on a first lien and I can't make the math survive the calendar.

UPB 180k, last payment 31 months ago, borrower still in the house and not responding to the current servicer's letters. Interior BPO 150k, exterior only, condition graded fair. Judicial state, and the two attorneys I called both said 18 to 24 months from filing to sale on a contested file, longer if the borrower shows up to mediation. Seller wants 95k.

Advances I'd be taking over: 11k delinquent property taxes, 3k in prior servicer advances. Ongoing, taxes run about 3,200 a year, force-placed hazard quoted around 1,600 a year, servicing at 95 a month plus default fees, attorney and costs quoted 4,500 uncontested and closer to 9k if it's fought.

So at 20 months I'm into it for something like 95 + 14 + 6 + 8 = 123k, before any rehab, before selling costs, against a 150k BPO that assumes the house isn't wrecked. That's a 27k gross spread on 20 months of capital and legal risk.

Either everyone bidding these is assuming a modification or a DPO instead of foreclosure, or I'm underwriting the timeline more honestly than the market is. Which one is it, and how are you pricing time-to-resolution rather than just discount to value?

Rena Expert · Accepted Answer

Your arithmetic is basically right and the conclusion follows. Add selling costs and rehab and the trade closes to nothing: 123k all-in, 20k of deferred maintenance on a house nobody's spent money on since the last payment, 150k sale at 8 percent transaction cost nets about 138k. That's roughly break-even for two years of capital and legal exposure, and that's the good version where the timeline holds and the BPO holds.

The number carrying the whole model is the exterior BPO. Fair from the street on a 31-month delinquency is a guess, and the loss distribution on that guess is one-sided, because condition surprises are always worse than the drive-by. Get an interior if you can get access, or price as if you can't and mark the value down accordingly. Second is your 20 months. Keystone is right that a borrower with no equity has no reason to cooperate, so treat contested as the base case, not the upside, which means 9k of legal and the longer end of the range.

On how to price it: bid off net recovery discounted for time, not off a percentage of value. Take your realistic net proceeds at exit, subtract every advance and carry month by month, then discount to a return you'd accept for illiquid distressed paper. On these numbers that math lands well under 95k, which tells you the seller is underwriting a workout that isn't there.

Windlass raised the right tail risk. Bankruptcy is the common one, and several judicial states also require loss-mitigation mediation before you can move, which adds months regardless of borrower cooperation. Those requirements vary by state and by county, so confirm them with your foreclosure counsel in that specific venue before you commit capital, because they change your carry model, not just your paperwork.

Walking on this file is a normal outcome. Most tapes exist because someone else already decided the price was too thin.

samantha_ruiz · Answer

You're underwriting foreclosure as the base case and the seller priced it as the downside case. That's the whole gap.

On a file where the borrower is still living there and 31 months down, the resolution that pays is usually a reinstatement or a DPO, because the borrower has equity to protect. 180k owed against 150k value means they don't. Nobody's paying 180k plus arrears to keep a 150k house, and there's your problem: the exit everyone else is banking on isn't available on this one. You're stuck taking the property.

luis_carrera · Answer

Your 20 month figure is what the attorneys said uncontested-to-contested. Ask them what percentage of their files get pushed past 24 by a bankruptcy filing, because a chapter 13 on the eve of sale resets you and you're funding a plan you didn't underwrite. That's the tail that kills the 27k.

brandonlee36 · Answer

Two things missing from your cost stack. HOA, if any, keeps accruing the whole time and in some states a portion of that assessment lien sits ahead of your mortgage, which changes what you net at sale. And your 3,200 tax figure is the current bill, not the reassessed bill after the county picks up a sale.

Also, 11k delinquent taxes at 31 months down means the county is already partway toward its own remedy. Find out exactly where that stands. A tax sale clock running behind your foreclosure clock is not a fun surprise.

nataliehsu · Answer

Who's handling the property while the case runs? A preservation vendor to inspect monthly, winterize and cut grass on a vacant one was quoted to me around $65 to $110 per visit plus the winterization. It's not huge next to your other numbers but it's another line, and it's 20 months long.

ehernandez74 · Answer

The 95k number matters less to me than what's behind it. Ask the seller what they paid and when they bought it. If they've held it three years and are trying to exit at their basis plus advances, there's room. If they bought last quarter at 88k, there isn't, and you should walk instead of grinding.

The part I'd sit on longest is the exterior BPO on an occupied house that hasn't seen a mortgage payment in almost three years. Fair condition from the curb has been very wrong for people.

mitchell_ray4 · Answer

On a house that's been unmaintained that long, the stuff you can't see from outside is the expensive stuff. Water heater, HVAC, a slow leak under a bathroom that's been going a year. I'd carry 25k of rehab in that model, not zero, and I'd carry more if it's got a basement.

mikeoconnell7 · Answer

Is there any version where you keep the borrower in it? If they're 30k underwater, a modification that writes principal down toward value and restarts payments could pencil better than a two-year court fight, because your basis is 95k and not 180k. You'd need the borrower to actually have income, which the non-response so far argues against...

Judicial timeline is eating the entire discount on a 180k UPB first

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