How to make Money and Help People at the Same Time
Contrary to popular belief, helping people and making money are NOT mutually exclusive. I’m going to show one way we, at Oakwood Investments, do just that nearly every single day.
As you know, when someone purchases a home with a loan from a bank, they promise to pay back the loan with monthly Mortgage Payments. From time to time borrowers will default on that promise for one reason or another. Perhaps they lost their job or had a medical emergency which caused them to incur insurmountable medical bills. Perhaps the breadwinner of the household died unexpectedly. Whatever the reason, when a borrower fails to pay the Note as promised, the Note goes into “Default”
When a Mortgage Note goes into default, the bank basically has two options. They can foreclose and take the house back or sell the "Non-Performing" Note at a discount. When the bank forecloses and takes the property from the borrower, they then own the property. However, large banking institutions are not in the business of owning property. They are in the business of lending money and making money. They are like well-oiled machines that produce loans and service checking and savings accounts. They are NOT real estate agents or fix and flippers, or landlords. Furthermore, banks are regulated by governmental agencies and cannot afford to have these Non-Performing Notes also considered “Toxic Assets” on their books. Therefore, they are willing to sell these notes, at a large discount to remove them from their portfolio.
That’s where we come in. Here at Oakwood Investments, we purchase these Non-Performing Notes at a huge discount. We then contact the homeowners and discuss their situation. We listen to each borrower’s situation and assure them, we are here to help. For most of these defaulted borrowers, this may be the first time they have spoken to someone who is willing AND ABLE to help. Remember, now that we own the Note, we ARE the bank.
We have found that most defaulted borrowers are good people who have just run into a situation that they cannot handle. Most of them, have been trying to contact the large banking institutions that own their Mortgage Note to no avail. Most of them have been run around and told "NO" more times than you can count. Have you ever tried to speak to an actual person at a large bank? It is very difficult, if not impossible. When they do reach a live person, that person does not have the authority to make changes to their Note. The next time the borrower calls they end up dealing with an entirely new person and must begin telling their story all over again, just to hear NO or I cannot help you.
At Oakwood Investments, we can exercise one of several strategies to assist the borrower and still make great returns, depending on their situation. If they are back on their feet and able to resume payments we will reinstate their Note. If they qualify and the numbers make sense, we will modify the Note by lowering the payments and extending the life of the Note, thereby maintaining our profits. If they are underwater, do not want to stay, and do not have the money to make up the difference between the sales price and what they owe, we can forgive the difference and still see great returns. If they do not qualify for a Note Modification and cannot afford to have the debt of a foreclosure on their record, they can offer us the Deed in Lieu of foreclosure.
I’m sure you’re thinking that not all borrowers who default on their Mortgage Notes are just waiting to for us to call and tell them where to send their payments. You’re right. We end up foreclosing on approximately 60% of the Notes we purchase. However, of that 60%, more than half of them really do want to stay in the house and try to do so. In the end, they realize it is better to walk away and have the debt forgiven, rather than fight us on the foreclosure and end up paying taxes on the Deficiency Balance.
Let’s run through a typical scenario using numbers to show just how easy it is to make money AND help others at the same time. This is a scenario we see all too often. We have changed the names for discretion. Joe borrower purchased a home for $155,000 in April of 2012 with a loan from ABC Bank. He put 10% ($15,500) down on a 30-year fixed rate Mortgage Note for $139,500 at 6.55% interest. His monthly payment wass $886.33. In December of 2016, he defaulted on his Mortgage Note. At that time, the unpaid balance of his Note was $131,513 and the house was worth roughly $150,000 in as-is condition.
In June of 2017, we purchased Joe’s Note from ABC bank for $41,750. That is .32 cents in the dollar. Why would a bank sell at such a discount you ask? Because the banks sell blocks of many defaulted notes at a time. Remember, they need to get those notes off their books, so they can look better in the eyes of the banking regulators and get back to what they do best, lend money. When Joe was contacted by the servicing company in July 2017, he told them he lost his job in September of 2016 and was unable to pay his Mortgage Note. He tried to call ABC Bank many times to no avail. Furthermore, he got a new job in May of 2017. He is making less money but there are opportunities for advancement and more pay in several months. He stated that ABC Bank was forcing him to pay all the back payments owed plus late fees and interest which totaled over $6,000 that he did not have.
Oakwood Investments was able to modify Joe’s Note and place him on a Trial Payment Plan in which he immediately began making payments of $835.58 per month. If Joe makes 6 months of payments on time, his Note will be permanently modified as follows. The new payment is $835.58 for 30 years at 6.55% interest. This is a win-win for both Joe Borrower, Oakwood Investments, and our partners. Joe gets to stay in his house and keep his family safe. Oakwood Investments and our partners get to split a 24% return on our money. That’s 12% each. Not a bad return when you see the look on Joe’s face when we told him he could stay in his house and didn’t have to move his family.
That is just one of the many strategies we exercise daily to help people and make money at the same time. I hope you now have a better understanding of Note investing. Visit our website at OakwoodNotes.com for more information or feel free to contact us with questions at Info@OakwoodNotes.com