In the investment world there are times when things do not go exactly as planned. As an investor, sooner or later, you may be faced with ethical dilemmas bringing you to that moral fork in the road. Do I foreclose on the homeowner or do I put more energy into the deal? This is a very real-world decision you may have to make.
Picture these scenarios:
When a monthly payment is missed, whether it be a mortgage payment, car payment, student loan, etc., you will soon be getting a call from the owner of the debt. You can surely hop into the seat of the homeowner receiving the call from the bank asking “where is our money?”. You can also imagine being the bank needing to collect money from the homeowner.
Sometimes, we will takeover a file from a company who was working on a modification with the homeowner. The company that sold it to us did not finish their discussions before closing the deal. We inherit the file and take over contacting the homeowner. If the homeowner answers, they usually have their guard up. In some cases they were talking to previous note holder just weeks prior. Unsurprisingly, they are confused that we are now claiming to own the note. This becomes a dispute of the homeowner saying “you don’t own my mortgage”. This results in us having to show them that we are in fact the note holder, we will then supply them documents that prove our ownership.
Once that is handled, we now have to settle the dispute of…
– Do you want to stay and pay?
– Do you have enough income?
– Do you have the ability to make the payment after you make your car payment, groceries, gas and all living expenses?
Now pretend the homeowner is on disability and receiving medicare/medicaid but their funds have been stalled for the past six months. They inform you that their medicare has been switched back on and they are now able to make their monthly payment on time each month. A little bit of ethical decision-making comes into play that causes us to be a human and look at them not as a file number but as a real person. It makes us think of how we would want to be treated in this situation and say yeah, maybe this doesn’t follow the guidelines of what I wanted to do initially but I also want to do right by Mrs. Smith who has been in the house since 1974.
As with all investments, there may be oversights when purchasing a file. Should an issue arise, ask yourself “what was my original strategy?”. How long did you want to be in the file for? Do you event want to mess around with these scenarios or would you rather sell the note for a higher price than what you bought it for? These are some of the decisions that we face as note investors. Some issues are exclusive to notes and are new-to-you if coming from traditional real estate. These speed-bumps are manageable and you have multiple exit strategies to pursue.
Ultimately, there are various routes to take in the note industry that cause us to look at everything in real time, make hard decisions, and have our servicer or loss mitigation team make a decision as it comes up. In an industry full of loan numbers, debt, and labels, sometimes it pays off simply be human. There is still profit to be made while showing compassion. Many times both sides win and that is the beauty of notes. Making money, while helping people.