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A HOPES Homeowner/Lender Equity Share Update

Home Forums General EHTrust/EHT Topics and Creative Real Estate Financing A HOPES Homeowner/Lender Equity Share Update

This topic contains 13 replies, has 0 voices, and was last updated by Avatar of dave salcido dave salcido 10 years, 5 months ago.

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  • #6642
    Avatar of dave salcido
    dave salcido
    Member

    (Anyone that anticipates or is considering making a HOPES equity share offer to a lender can request the HOPES transaction flow packet by emailing me at davesalcido@gmail.com )

    I recently received a reply from a lender regarding my Home Ownership Preservation Equity Share proposal that was offered. The lender responded by saying that they received the HOPES equity share offer and are in the process of review and will answer within the next 60 days. What does this mean? It means the answer for now is “MAYBE” and not “NO”. I see this as a positive for the moment.

    Hopefully, the lender will contact me for further information, which I have available to them. Questions will follow and I fully expect an equity share agreement to be the final outcome. I will keep you informed on the progress of this and all HOPES offers that have been submitted for consideration. If I get a “YES”, good things could happen in short order!

    #33438
    Avatar of corkhorner
    corkhorner
    Participant

    it wuld be nice to be so busy it takes me 60 days to take action. Such as the lender.

    c h

    #33439
    Avatar of buzzbox
    buzzbox
    Participant

    Under the HOPES idea how does one arrive at the Equity Share percentage that would be allocated to the lender’s participation?

    For instance, if the loan balance is reduced by 30% by the lender does that mean that the lender will participate in 30% of the trust asset appreciation upon future settlement? From what figure would the appreciation be measured, the new reduced loan balance, MAV, current market, or?

    Should the lender become a beneficiary of the trust? That seems a bit odd to me. Rather, shared appreciation mortgages have been around for a while and could easily be adapted to suit the circumstances so that the lender need not become a beneficiary.

    Then how do we deal with the SB/RB’s equity sharing. If they are underwater at the outset then MAV seems the logical reference, assuming that MAV relates to market value. Any spread between the new loan balance and a greater number, such as market or MAV would produce instant paper equity. How is that allocated?

    Setting the future settlement date will probably be influenced by the lenders involvement. It does seem to require that everyone must wait patiently for the future economic recovery and attendant appreciation resulting from inflation.

    It is a very intriguing concept and one a besieged homeowner and lender might pray for but how do we get paid near term?

    Thoughts anyone?

    #33440
    Avatar of dave salcido
    dave salcido
    Member

    @Buzzbox wrote:

    Under the HOPES idea how does one arrive at the Equity Share percentage that would be allocated to the lender’s participation?

    A- My HOPES offer will always begins with a beneficiary interest of 51% to the homeowner and 49% to me.

    For instance, if the loan balance is reduced by 30% by the lender does that mean that the lender will participate in 30% of the trust asset appreciation upon future settlement? From what figure would the appreciation be measured, the new reduced loan balance, MAV, current market, or?

    A- What makes HOPES unique is that the lender will not necessarily be required to reduce the principal balance. The homeowner is merely negotiating an affordable monthly payment.

    Should the lender become a beneficiary of the trust?

    A-Yes

    That seems a bit odd to me.

    A- Not to the lender.

    Rather, shared appreciation mortgages have been around for a while and could easily be adapted to suit the circumstances so that the lender need not become a beneficiary.

    A- Equity sharing has been around longer. Additionally, a mortgage really isn’t even needed. Mortgage default turns to a messy foreclosure. Default in a trust agreement requires a simple eviction process. What would you rather do?

    Then how do we deal with the SB/RB’s equity sharing. If they are underwater at the outset then MAV seems the logical reference, assuming that MAV relates to market value. Any spread between the new loan balance and a greater number, such as market or MAV would produce instant paper equity. How is that allocated?

    A- The RealTrust Calculated Share Assignment is the answer. But don’t get too wrapped up about overencumbrances. The market crash has pretty much destroyed property values for the homeowner and the lender. The real salvation will be a return to a performing asset status. This will take time. Everyone has one thing in common; time. Keep the house occupied and in good shape. Keep monthly payments coming in on time. Wait for values to return. If you can’t sell, don’t sell. Just keep the investment performing. It’s that simple.

    Setting the future settlement date will probably be influenced by the lenders involvement. It does seem to require that everyone must wait patiently for the future economic recovery and attendant appreciation resulting from inflation.

    A- Yup

    It is a very intriguing concept and one a besieged homeowner and lender might pray for but how do we get paid near term?

    You tell me. How does HOPES stack up against a loan mod, short sale, foreclosure, bankruptcy or a portfolio of REO’s?

    Here’s the fun part. I have a 49% beneficiary interest in a land trust. This piece of paper has value. If the lender is to be the new beneficiary (they too recognize the value of a negotiable instrument- so does Wall Street), I will certainly sell my interest to the lender!

    Thoughts anyone?

    #33441
    Avatar of unclejim
    unclejim
    Participant

    There are; of course, some up front costs to get the trust set-up. Note: I have your drop box files.

    1) What are these up front costs and who pays them.

    2) If I need your help to get started – what are the costs and how do you get paid?

    3) Should I have (do I need to have) the real estate agent cancel the listing prior to paying him our agreed upon amount when the bank buys my beneficial interest?

    #33442
    Avatar of dave salcido
    dave salcido
    Member

    @unclejim wrote:

    There are; of course, some up front costs to get the trust set-up. Note: I have your drop box files.

    1) What are these up front costs and who pays them.

    2) If I need your help to get started – what are the costs and how do you get paid?

    3) Should I have (do I need to have) the real estate agent cancel the listing prior to paying him our agreed upon amount when the bank buys my beneficial interest?

    1. $499 for SIMPLE EHT set up. $144 for EHC trustee fee. (Recording fees, certified mailing fees and optional attorney and loan audit fees are extra of course). Trust fees are paid by the beneficiaries. In most cases, it has been paid by the homeowner but I have set up a trust where an “angel” beneficiary (relative) paid the fees as a contribution to the trust in exchange for an equitable interest that was twice the amount of the contribution.

    2. If you need help getting started, there are no additional costs but I would ask for a 24% co-beneficiary interest in the trust and I would manage the trust and negotiate with the lender for an equity share agreement. If successful, I would sell my interest to the lender for cash.

    3. I always offer the real estate agent the opportunity to receive a commission for their involvement in the equity share but unless they are full participants and know what they are doing, their commission may only be a point or less. If I train them in HOPES (for a training fee), they get can get a full commission or even a beneficiary interest in the trust, whichever they like best.

    If the agent becomes hostile or tries to defeat my purposes with the homeowner, they get nothing. This has never happened though because the homeowner generally likes my presentation and it usually makes more sense than the short sale that was suggested by the agent. I always make the agent my ally and they are OK with what I do because I make sure they are protected. The agent does not have to cancel the listing. I can merely mention in the beneficiary agreement that the agent will receive a predetermined amount if the equity share is successful.

    Remember, this is not a real estate transaction anyway, so in reality, the agent’s participation is not critical but their support is appreciated. If they are successful, they will promote HOPES all day long.

    #33443
    Avatar of piloto
    piloto
    Member

    Forgive me Dave… but I have to play devils advocate with this.

    You get a 24% interest which you sell for cash at inception of the transaction and you and the ‘angel investor’ are paid and gone.

    The homeowner gets a lower payment but is still on the hook for the overencumbering loan, probably at a longer term.

    The homeowner is now in a quick ‘no’ foreclosure, ‘quick’ eviction position to loosing his home if he misses a payment. When a loan mod was accepted before, the bank had to start over in the foreclosure process.

    The NARS member waits and ‘HOPES’ that the property value appreciates (most annalists don’t see the bottom for at least another year). Let’s not get into what the dollar will be worth if the market ever appreciates.

    How about splitting that upfront cash with the person who brought the deal?

    I understand that this could help the homeowner stay, but as you have stated in the past; (when we were pushing loan mods as the best thing since sliced bread) more people fail in a loan mod than not, and end up loosing their homes anyway. Yes and I do understand that it is ‘their decision.’

    What ever happened to the retoric that went something like; ‘those big bad banks’?

    Aren’t we positioning the bank just ahead of the homeowner with this?

    It seems the banks have succeeded in pushing back and we have given into them, and are now supporting them in exchange for a ‘first position’ at a nice nice fat paycheck.

    Just a few thoughts on the profits of HOPES.

    #33444
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    @piloto wrote:

    The homeowner is now in a quick ‘no’ foreclosure, ‘quick’ eviction position to loosing his home if he misses a payment. When a loan mod was accepted before, the bank had to start over in the foreclosure process.

    I’ll let Dave address the remaining questions but I wanted to address this one too.

    It never matters what the “value” of the property is as long as the Homeowner is able to continue to make the, now reduced, monthly payment. The term of the loan does not change, only the payment. The principle may also be reduced but it is not necessary.

    As far as a Loan Mod is concerned, even if one was accepted, the Loan Mod contract now eliminates the possibility of the homeowner ever being able to sue the lender for title or damages and it allows the bank to sell the property, at any time and without ANY further notice, right out from underneath the homeowner. I’ve personally knows several people that had a sheriff knock at their door, while in a loan mod, and tell them their house has just been sold and they now have 5 days to “Get Out”. Their payments were current too. And in one case the homeowner was not in default at all before and it was the lender, not the homeowner who initiated the loan mod. There are now hundreds of cases exactly like this all over the country.

    Loan Mods Suck and are only Temporary, period!

    What are the homeowners alternatives here? They are upside down, behind on payments, in foreclosure, going to lose their house anyway, and now we come along and with HOPES, get the bank to reduce the payment, bring the loan current and allow them to keep their home. If they can’t make the reduced payment then we are still doing them a favor by putting someone else in that can, without having to qualify for a loan.

    I’m Just Sayin’

    #33445
    Avatar of dave salcido
    dave salcido
    Member

    @piloto wrote:

    Forgive me Dave… but I have to play devils advocate with this.

    A- You bring up good points. Let me try to justify my position on each of your points.

    You get a 24% interest which you sell for cash at inception of the transaction and you and the ‘angel investor’ are paid and gone.

    A- If all works right, at the end of the transaction, my 24% interest is to be sold to the lender at a discount; hopefully somewhere near what a real estate agent would get in a short sale. The angel would also be paid their interest and the lender and homeowner would continue on as co-beneficiaries.

    The homeowner gets a lower payment but is still on the hook for the overencumbering loan, probably at a longer term.

    A- Yes. The belief here is that anyone that invests needs to understand the inherent risks. Some stocks go up, some go down. Some real estate goes up, some goes down in value. Reward or risk is always the outcome. The question is, how do you recover when investments fail? The homeowner agreed to pay a debt. When things don’t work out according to plan, the homeowner must decide whether to honor the debt, challenge it or walk away from it. HOPES proposes honoring the debt based on the homeowner’s decision to honor. It’s not my decision, but I will offer to help the homeowner make good. There are many ways to satisfy the needs of all parties.

    The homeowner is now in a quick ‘no’ foreclosure, ‘quick’ eviction position to loosing his home if he misses a payment. When a loan mod was accepted before, the bank had to start over in the foreclosure process.

    A- As it stands, the lender can foreclose anytime they want after the statute of limitations has passed so eviction in foreclosure could take place in a matter of days anyway. With HOPES, if default occurs, eviction is a provision built into the beneficiary agreement. The homeowner remains a beneficiary, just not the occupant. It could become cost prohibitive for the homeowner to remain a beneficiary if he defaults though and he may be better served to relinquish his interest in lieu of the high replacement costs for new occupancy.

    The NARS member waits and ‘HOPES’ that the property value appreciates (most annalists don’t see the bottom for at least another year). Let’s not get into what the dollar will be worth if the market ever appreciates.

    A- If the “Analylists” were so in tuned to trends, they should have saved us from the mortgage meltdown. They didn’t and here we are. History shows continual upticks after downturns. I hope history will repeat as soon as possible.

    How about splitting that upfront cash with the person who brought the deal?

    A- There is no upfront cash in my scenario; only a buyout of the managing beneficiary’s or investor beneficiary’s interests when the lender is ready to accept HOPES. But if there is any cash up front, I think sharing equity is a good thing.

    I understand that this could help the homeowner stay, but as you have stated in the past; (when we were pushing loan mods as the best thing since sliced bread) more people fail in a loan mod than not, and end up loosing their homes anyway. Yes and I do understand that it is ‘their decision.’

    A- Did I ever push loan mods? I don’t think I did. If I did, I would have been wrong knowing what I now know.

    What ever happened to the retoric that went something like; ‘those big bad banks’?

    A- I still believe it for the most part (about 95%). Problem is, does the homeowner know and believe what you and I know and believe? Most don’t and would jump cartwheels if they could get an affordable payment. Too bad loan mods can’t make that kind of guarantee. HOPES can.

    Aren’t we positioning the bank just ahead of the homeowner with this?

    A- I don’t think so. If both parties perform according to agreement, both parties win. I see the homeowner remaining in control of occupancy, the lender getting paid in full and both sharing future equity 50-50.

    It seems the banks have succeeded in pushing back and we have given into them, and are now supporting them in exchange for a ‘first position’ at a nice nice fat paycheck.

    A- There are two ways to approach the banks, like a SWAT team or like a Hostage Negotiation team. I let the homeowner decide which approach I will use. Either is fine with me. I’m a professional co-beneficiary, trust managing negotiator and I do what I do as a for profit business. The homeowner should benefit as a result of including me in their trust. I am anxious for the homeowner’s success but I stay emotionally detached. I do what needs to be done to bring satisfaction to the parties at odds one to another. (I used the exact same modus operandi in exercising my duties as a police officer.)

    Just a few thoughts on the profits of HOPES.

    #33446
    Avatar of buzzbox
    buzzbox
    Participant

    Inflation and HOPES

    Assume 6% inflation is our future average rate of dollar debasement. Not unreasonable I think.

    If a homeowner, for example, is presently underwater $50,000.00 but current on mortgage payments, presently earns S60,000.00 per year and is able to maintain said payments on their fixed payment loan of $350,000.00 based on current income, they can take advantage of inflation in the same way the government does, by paying down the debt with cheaper dollars.

    Example, here’s how it could work. At the end of each year it is likely that the homeowner’s income will increase, in dollar terms by 6%. If this increased income is used to increase the payment amount each month then an additional $300.00 would apply to reduce the principal balance each month. This would be repeated in the second year and third year and so on. As the principal balance is being reduced by these additional payments the basic loan payment also begins to help accelerate the principal balance at a faster rate.

    Now while this is underway the market gradually settles down and bottoms out at whatever its new level is going to be, prior to the inevitable inflationary uptick taking hold. We know its coming. Let’s ignore future mortgage interest rates and the distortion that might cause to hold the market in check. The home then should increase in dollar terms by 6%. In the first year after the uptick assuming the market has bottomed at $300,000.00 then market value becomes $318,000.00 in the second year it inflates to $337,008.00 in the second year, and so on. This combination will quickly “un-sink” our homeowner in about three years.

    Of course our example homeowner might choose to use some of that additional income to cover other increased living costs that come with inflation rather than use all of it to accelerate principal reduction, but even using a portion of it will help a great deal.

    We need to recognize that principal reduction should be the target not the anticipation of rising home values, as replacement cost does not change in real terms. We must understand that inflationary price increases simply reflect dollar debasement without any real change in physical values. In other words if the property can be sold for $400,000.00 its replacement cost will be the same for the seller who has now become a buyer. The only way one can gain is to reduce the interest rate holding costs by reducing the principal balance at a faster rate than was scheduled in the original loan amortization table. Debased inflated dollars will help you do that.

    HOPES is essentially about sharing equity with the lender in some fashion. The lender too is underwater in the above scenario. They have in fact become an investor as well, to the tune of the difference between what’s owed and the market value. In the above case they are an investor at risk for the negative equity of $50,000.00, in my opinion.

    It appears logical that they (a lender) might be willing to take an equity share position in exchange for their “at risk” negative position, for someone who can handle the loan payment, adjusted or otherwise. For a homeowner who is in default and whose future performance is in doubt they are likely to be a good deal more wary. The attraction to a lender is that it can take a non-performing loan and adjust things around so that via an equity sharing arrangement the currently non-performing asset does not become a liability on their books, provided that the prior loan packaging problems and requirements can be dealt with.

    They too must consider inflation. They are being repaid in inflated dollars and not in real terms when inflation come roaring in. They know that it will be easier for homeowners to service their loans as their incomes are inflated in the future. How does all this equate to an equity share position for the lender, who in addition has to deal with a series of investor demands regarding these sliced and diced loans and their eventual repayment. Only time will tell us the answer.

    I probably do not understand everything now conceived about HOPES but realize it is an evolving idea or concept, and a work in progress. It is very intriguing but I am struggling with the lender motivation to do this.

    #33447
    Avatar of dave salcido
    dave salcido
    Member

    @Buzzbox wrote:

    I am struggling with the lender motivation to do this.

    I wish I could tell you beyond a shadow of a doubt how HOPES will be received by the lender, but as of now, the jury is still out.

    While we wait on some of these outstanding HOPES offers that are currently under review, we must ask. How much will the lender lose if they do not consider HOPES? This is just a math problem. Loss mitigation is the overruling factor. That, along with the best solution for control of the asset. Is HOPES the best alternative to everything else out there? I think so. I HOPE so. We’ll see.

    If anyone other than myself would like to give it a try, let me know.

    #33448
    Avatar of bolieunj
    bolieunj
    Member

    @Scott_L._Moyes wrote:

    As far as a Loan Mod is concerned, even if one was accepted, the Loan Mod contract now eliminates the possibility of the homeowner ever being able to sue the lender for title or damages and it allows the bank to sell the property, at any time and without ANY further notice, right out from underneath the homeowner.

    As you stated Scott, I have also read numerous accounts and have known someone personally where this happened. However, I disagree that a loan mod contract eliminates the possibility of challenging the alleged lender. The fruit-of-the-poisonous-tree doctrine applies here as a “legal” contract cannot come from an “illegal” one and an entity cannot pass along greater title than it possesses. The UCC also has provisions that specifically address this as well relating to holders and holders in due course. By now, I’m sure many of us can name off four or five elements that make the loan mod a void contract and I have been putting that into practice.

    To the group at large:
    Is there case law that shows that one cannot challenge a loan mod? Absolutely there is. Have homeowners tried to challenge banks using what appear to be the arguments that are “supposed” to work? Absolutely. Have those homeowners won their cases? Absolutely not for the most part. However, when an individual reads those cases, the flaws made by the homeowner can be picked out if there are flaws, the errors made by the court if there are errors, or the lack of attention to proper court procedure can be pointed out. The natural response to that is, then, where are all the other cases where the arguments worked? They are out there and accessible but not publicized.

    In regard to HOPES, I applaud the innovation and respect the mental discipline, knowledge required, and creativity along with all the hard work that has been put in to develop it to this extent. I have studied the material that is out there regarding the program in detail. Obviously, there will be some roadblocks but the same minds that brought HOPES to fruition will be able to work those out. I absolutely agree that some homeowners just want a lower “payment” and this program will be a huge blessing to some or many. Personally, I am choosing only to work with those homeowners that are willing to have the alleged lender address the inconsistencies in the alleged contract.

    Regards

    #33449
    Avatar of piloto
    piloto
    Member

    First to Scott… I did not recommend a loan mod. What I said was that at one time some folks on this board thought it was not the best thing since sliced bread.

    As far as a Loan Mod is concerned, even if one was accepted, the Loan Mod contract now eliminates the possibility of the homeowner ever being able to sue the lender for title or damages and it allows the bank to sell the property, at any time and without ANY further notice, right out from underneath the homeowner

    Does this mean that we can sue the bank over mortgage fraud and violations? I would think not.

    Also, in a judicial state like NY, the bank may not just evict the homeowner they must continue with the foreclosure process, and until the court gives them a judgement the homeowner is still in home sweet home and even then they still have to go through the court to eject the errant homeowner.

    #33450
    Avatar of piloto
    piloto
    Member

    Dave Wrote:

    A- If all works right, at the end of the transaction, my 24% interest is to be sold to the lender at a discount; hopefully somewhere near what a real estate agent would get in a short sale. The angel would also be paid their interest and the lender and homeowner would continue on as co-beneficiaries.

    I might be missing the order of things here. When I say at the beginning of the transaction, I mean that the all parties have signed on the dotted line and are moving forward as the trust agreement specifies. It seems to me that you are saying that’s the end of the transaction for you and when you get paid and everyone else moves forward. The Trust agreement is only put into force at this point, hardly the end.

    To me the end of the transaction, is as in the Trusts I am involved in, is when the trust is desolved and all parties receive their respective pieces of the pie.

    When I asked about sharing the upfront cash I was referring to your buyout being shared with the NARS member bringing the deal or ;you swapping positions with that member and permitting them to sell their share to the bank at the negotiated discount.

    You also only list the the bank and the homeowner as continuing on as co-beneficiaries. Where is the NARS member at that point?

    A- If the “Analylists” were so in tuned to trends, they should have saved us from the mortgage meltdown. They didn’t and here we are. History shows continual upticks after downturns. I hope history will repeat as soon as possible.

    I did not say bankers I said analysts. Some of the same ones that predicted the meltdown and still don’t see us as on the path to recovery… I truly don’t think it was within their power to have caused it or prevented it from happening. That was up to Big Brother and the banks.

    I too HOPE for a better future.

    A- I don’t think so. If both parties perform according to agreement, both parties win. I see the homeowner remaining in control of occupancy, the lender getting paid in full and both sharing future equity 50-50.

    If the homeowner and bank are 50-50 at his point, I am not clear on where the NARS member is at his point? I don’t think the bank is going to buy us both out and manage the tenant replacement. Especially when they will probably only agree to remaining a beneficiary for a few years and look to get bought out through a baloon payment themselves, requiring a refy by the homowner.

    #33451
    Avatar of dave salcido
    dave salcido
    Member

    Gene,
    I probably don’t need to remind you that a HOPES EHT is different than a normal EHT in the sense that co-beneficiaries perform differently. Let’s examine some of those differences.

    EHT

    Homeowner- (Non Occupant) Settlor Beneficiary
    Occupant- Resident Beneficiary (& cash investor)
    NARS Member- “Transaction” Beneficary

    (The NARS member remains a beneficiary for the term of the trust with no real participation between the Settlor and the RB)

    HOPES

    Homeowner- Occupant (Resident) Beneficiary
    Lender- Investor Beneficiary
    NARS Member- Transaction & Managing Beneficiary

    (The NARS member organizes the agreement between the homeowner occupant and the lender co-beneficiary and is the trust managing beneficiary until the responsibility for property management is relinquished to the occupant and the lender. The lender may opt to keep the NARS member in the trust as a property managing beneficiary or may buy out the NARS member and bring in their own property management team.)

    The NARS member may choose to do this entire transaction on his own or may call in HOPES experienced negotiator to assist. If this occurs, the suggested beneficiary interests are negotiated in the beginning as follows:

    51% to homeowner
    25% to NARS member
    24% to HOPES negotiator

    If the lender agrees to terms, the NARS member and the HOPES negotiator would relinquish their 25 and 24% interests to the lender for a projected 5% (cash payment based on fair market value) which would be split equally between the NARS member and the HOPES negotiator, similar to the percentage that a real estate professional would expect in a commissioned real estate transaction even though this is a private property transaction.

    The main difference of course is that a beneficiary interest in an long term EHT is usually for the length of the trust agreement and with a HOPES EHT, the NARS member and HOPES negotiator beneficiary interests may be sold to the lender in a matter of months or even days for cash.

    I hope this clears things up a bit.

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