Two unrecorded modifications in the file, priced at 66, sold at 80 eleven months later
The seller's tape said 5.0% fixed on an $88,300 balance. The original note said 6.875%. That's how I found the mods.
There were two of them, one from 2016 and one from 2020, both signed by the borrower and the then-servicer, neither one recorded anywhere. The payment history matched the modified payment of $472 all the way through, 41 payments, no lates. So the borrower had been performing on terms that existed only in a file drawer.
I had a local attorney look at it before I priced. His read, and this depends on state law and the specific facts, was that the mods bound the parties fine but that an unrecorded change to the payment terms creates an argument with any intervening lienholder, and there was a small judgment lien on the property from 2018. That's what I priced. Not the borrower.
Bought at 66 of UPB, $58,280. Payment stream against that basis is about 8.4% to maturity on 288 remaining months. Collateral was a 1970s ranch in a stable inner suburb, BPO $141,000, so ITV under 63%.
Then I spent $2,400 and about four months getting both mods recorded with the borrower's cooperation and getting the judgment lien released (it had been satisfied in 2019, the release just never got filed). The borrower signed everything without complaint because the mods were the reason her payment was affordable.
Sold at month 11 to a buyer at 80 of the then-balance of $86,900, so $69,520. Net of the $2,400 and about $600 of closing, plus 9 months of payments at $445 net, I'm up roughly $12,800 on $58,280 over 11 months.
The part that nearly broke it: the 2016 mod was missing the notary page. It took the old servicer six weeks to find it, and I'd already funded.