Funded a note on a rented house. The foreclosure timeline ate the return.

This was a private first position loan on a tenant-occupied three bedroom in a mid-size southern metro, funded through a friend who has done twenty of these. $96k against a house that appraised at $148k, 24 months interest only at 11 percent, one point at close, my money in as a participation.

I read the note, the deed of trust, the personal guaranty, and the lease. What I did not price was how long it takes to get the house back in that particular state. Borrower paid nine months, then stopped. The house was occupied the whole time by a paying tenant whose rent went to the borrower, not to me, because nobody had an assignment of rents recorded that we could actually act on quickly. Foreclosure practice and timelines are set state by state, and this was a judicial state, so we were in court, not posting a notice on the courthouse door.

Fourteen months from first missed payment to sale. Over that stretch the loan servicer advanced $4,100 in property taxes and $2,300 in forced-place insurance to protect the lien position, legal ran $9,600, and my share of that came out of recovery. Principal came back whole. The yield went from 11 percent to something closer to 3 percent on the money, and it was tied up for two years instead of one.

What I would do differently: underwrite the remedy, not just the collateral. Ask what the median days to complete a foreclosure is in that county, get the assignment of rents recorded and confirm with a local attorney that it is enforceable there, and require a tax and insurance escrow rather than trusting the borrower to pay both.