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I Own Notes in My Retirement Account, What Do I Do Now?

March 31, 2020

There is no question that we are in unprecedented times. People have seen their stock values plummet, incomes drop or stop, and their businesses into an area of uncertainty. All of those unfortunate events will eventually start to affect all areas of real estate. In this article, I will focus on those of you who own performing real estate backed notes in your retirement portfolio.

If you own performing notes, let’s hope for the best but prepare for the worst-case scenario. The worst-case scenario is that some of your notes will go into default. The best approach to this logical conclusion is to be proactive, not reactive. Being proactive may prevent your portfolio from becoming delinquent and your borrowers from uncommunicative. Delinquency combined with uncommunicative borrowers often leads to default and then foreclosure. To be proactive in preventing this, you need to:

  • Review your portfolio,
  • Account for where you are financially in every deal,
  • Crunch some numbers to see what type of temporary “emergency” payment plan might work on each individual note,
  • Open a direct line of communication between you and your servicing company.

The goal here is to compose a plan of action that enables you to keep communication open with the borrower and have some payments, albeit reduced amounts, coming in rather than no communication and no payments coming in.

Once you have a plan and you are working with your servicing company, you should:

  • Prepare a letter explaining that you (your company) “understand that some people may be facing difficult times” etc.,
  • Instruct your servicing company to send that letter to any borrower who is more than 5 days late on a monthly payment,
  • Give your servicing company your guidelines for each note (your temporary emergency payment plan) so that they can negotiate with each borrower who becomes delinquent.

There can be a very narrow window in which to communicate with which a delinquent borrower will communicate before they withdraw and choose not to communicate, so time is of the essence. Having a prepared letter will save you a lot of time enabling you to reach them while the window is open.

Servicing companies work for you. Often, they await your instructions. In fact, I have had a few consulting calls years ago where investors have expressed their displeasure with a servicing company because they haven’t heard from them in 90 days after boarding a loan.

My response, which often surprises them is, “You mean to tell me that you have been paying them for 90-days and you haven’t bothered to pick up the phone? They are probably looking at your file, wondering what to do because they haven’t heard from you!” So, again, let them know, preferably in writing, what you want them to do.

By giving your servicing company guidelines to work within, they can negotiate on your behalf and even make agreements without you having to be actively involved. This shortens and streamlines a temporary loan modification.

After you have accomplished all the above, you may want to go online and visit the county websites for each county in which your collateral (the property) is located. On the websites:

  • See if the Recorders office (Registrar of Deeds) is open
  • Read about any foreclosure issues (they may have stopped foreclosure auctions)
  • If your notes are not being escrowed, check the counties property tax website (they may be allowing people to be delinquent without penalty or risk of foreclosure)

I truly hope that your portfolio is unaffected but as I always like to say, “hope for the best, but prepare for the worst.”

Kevin Shortle

#1 Best Selling Author

2019 Note Educator of the Year


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