NPN Story-Saved by the COVID Bell
How did COVID affect our assets? There was a two month pause from March to May, 2020 where everything, everywhere was at a standstill. After that, some states started to open back up and were back to normal within a couple of months.
Other states had delays with the strictest states loosening up in the Fall of 2021.
(Some blog posts related to the pandemic: 8 Coronavirus Pandemic Predictions for the (Non Performing Note Business), 8 Coronavirus Pandemic Predictions Revisited (6 Months Later), 5 Reasons Why our Note Funds Have Been Stable (During the Pandemic))
Here’s the story of a non performing note we purchased in 2019, all the way through COVID, until we liquidated it last month.
Mediation, Pre-judgment
The foreclosure complaint had already been filed when we bought the loan and we were pre-judgment. The state of Wisconsin had a law requiring mandatory mediation between the borrower and the lender so we attempted to set up a mediation in good faith.
The borrower kept avoiding the mediator and communicated just enough to keep things going. After three months of trying, we knew that we were dealing with a borrower who wanted to extend the inevitable and was resorting to delay tactics to prevent the foreclosure. We filed a motion to terminate mediation, which was granted and allowed us to proceed.
Judgement and Redemption Period
We were granted judgment shortly thereafter but were stalled by Wisconsin’s 6 month post-judgment redemption period. Nothing we could do for 6 months! In December, 2020, the redemption period expired (with no contact from the borrower) and we were clear to go to Sheriff’s Sale.
Sheriff’s Sale Stopped by BK Filing
The day before our January, 2020, Sheriff’s Sale, the borrower filed for Chapter 13 Bankruptcy. It was a pro se, bare bones filing: the borrower filed the bare minimum paperwork by himself without an attorney. He was just trying to stall the sheriff’s sale.
Sure enough, he missed all the deadlines to turn in the rest of the forms & schedules and the bankruptcy was dismissed a couple of months later.
Our next sale date was in mid April, 2020.
Second Try at the Sheriff’s Sale
As March, 2020, rolled around, it was clear that COVID was becoming front and center news and governments around the world began taking action to combat the spread. Our sale date got canceled. This borrower, who showed no signs of making any payments on his delinquent loan, had been saved by the bell. Who knew at the time when things might go back to normal?
COVID Delay
For all of the non performing assets in out investment funds, this became a waiting game. First and foremost, we as a society had to see what the effects of COVID were and how best to fight the spread and “flatten the curve.” The most we could do as investors was monitor what was going on and see how different states responded. At the time, it felt like the delays for our assets went on for an eternity. For this loan, the COVID related foreclosure delay lasted 4 months, which is not that long in retrospect.
We were able to get a third sheriff’s sale date in August, 2020.
Third Time’s the Charm
This time the sale went through. We were the highest bidders so the property reverted to us as REO (”Real Estate Owned)”. By the time the sale was confirmed, we received the Sheriff’s Deed, and the occupants vacated the home, it was in the middle of a snowy winter in Wisconsin. The contractor took extra time to get our rehab done because of weather delays and getting permits from local government offices with reduced hours.
Sub Standard Work from Contractor
Our agent listed the property and it sat for months in what was supposed to be a hot market. We gave the listing to a different agent and discovered that the first agent had not done a very good job. Although the updates and the pictures looked good, sometimes you can’t see the details that really matter. It turned out that the contractor had done some sub standard work and this was turning off buyers. We contacted the contractor directly and he agreed to make things right, which he eventually did.
Conclusion
We got a buyer for the property and sold it at the end of 2021. Finally, one of our longest delayed assets was behind us!
Not much we could have done about the COVID related delays, the borrower filing bankruptcy on us, or the delays with the weather and permitting offices. The extra carrying costs during these delays hurt us but, in the end, we didn’t lose money.
Given the crazy circumstances of COVID, that’s not too bad!
Final Numbers:
Purchase Price: $73,500
Total Cost Basis: $166,748
Sales Price: $179,900
Net Sales Price: $168,500
Net Profit: $1,552
Days Held: 1052
Return on Investment (ROI): 0.9%
Annualized ROI: 0.3%