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The note seller called the borrower on speaker while I sat there saying nothing

I've held land for eleven years and I've never had a tenant, so paper was always going to be the next thing I tried. Same shape as what I already do. Wait a long time, collect something small on a schedule.

A guy I met through a land auction had carried paper on four houses he'd sold off over the years. One of them was a small three bedroom in a mill town, borrower nineteen months in, never a late payment. He wanted out because his wife was sick and he wanted the money in one piece instead of over eighteen more years.

We're at his kitchen table and he says hold on. Calls the borrower. Puts it on speaker. "Ray, I've got a fellow here thinking about buying your loan, tell him what you told me about the roof." And Ray does. Four minutes on the metal roof he put on himself in August, and how his hours at the plant went back up in the spring. Then he says, "you're not selling to somebody who's going to mess with me, are you," and the seller says no, looking at me while he says it.

I didn't ask for that call. I wouldn't have set it up. Half of me thought it was better diligence than any tape I'd ever get and half of me thought I'd just picked up an obligation that isn't written anywhere in the file. Paid 81 on a balance around 62k, servicer had it in three weeks, payment has hit on the tenth every month since.

Ray still sends the old seller a Christmas card. The old seller forwards it to me. I have no idea what to do with that.

16 replies

I have five guys on payroll and I can tell you the moment somebody says "you're not going to mess with me" out loud, they've already decided you might. Doesn't mean he's wrong about you.

Dumb question that I actually want answered. Does Ray have any say in it? Like can a borrower object to their loan getting sold to a stranger?

I've done a few deals and hit a wall on my own capacity, and honestly I'd trade a lot of spreadsheets for one four minute phone call with the guy who's paying me.

Works at one note. I've got a small rental portfolio and everything that felt personal at three units became a process at nine. You can't speakerphone your way through twenty loans.

The servicer part is what I keep circling. Somebody's job is to be the voice Ray hears now instead of the old seller. That's a whole business and nobody talks about it.

@orchard what came with it on paper? Original note, the allonge endorsement, a recorded assignment of mortgage, and the pay history from wherever he was tracking it? A guy carrying four loans off his kitchen table is exactly where files go thin.

The seller wasn't protecting Ray, and after five years running a service business that's the thing I noticed. He was protecting his own story about himself. Still counts.

81 on 62k is about 50k out. Whether that's a good buy depends entirely on the rate and remaining term, which you didn't say. On a 9 percent note with eighteen years left that discount pushes the yield up meaningfully. On a 5 percent note with six years left it barely moves. The other assumption doing work is the collateral value. If that mill town three bedroom is worth 95k you're at roughly 53 percent of value and you have room to be wrong about Ray. If it's worth 70k you don't. @orchard, do you have anything on value besides the seller's opinion?

I'm deep in tenant screening reading right now and the parallel is uncomfortable. Nineteen months of on-time payments is the strongest signal you can get, and it tells you nothing about the plant closing.

@sextant asked the right thing. I'm looking at the lending side rather than owning and the number I want first is always balance against value, then payment against whatever the borrower earns. The Christmas card is nice. It doesn't cure a 90 percent loan to value.

Mill town, 62k balance, metal roof on himself. That's my whole market. The thing people miss is that at those prices a foreclosure eats years of interest, so you really are betting on Ray and not on the house.