I've probably overreached

[SumDay]

I've mentioned on here before that my father died and left me with real estate I never wanted. He owner-financed houses that he flipped, and he died right in the midst of the mortgage crisis. I couldn't have sold those houses at any price at that time.

Three of the folks eventually walked away, and I was able to sell those to cash buyers in the past few years, so now I'm down to a handful of houses that I hold the promissory note on. I'm not the landlord, I'm the mortgagee or the lender.

One house has a very young couple who struggle to make their very modest house payment. They are chronically late, and always have what they perceive to be a valid excuse. "Bank screwed up our account" (25 times?), "I underestimated our insurance payment" (40 times?), "the car broke down" (I get that one...), "our child needs a new hearing aid" (that one always gets me).....

Her check bounced again this month (for her payment due November 10), so I sat down and wrote her a letter. Here's the gist:

1. I haven't been charging the $50 late fee, but starting 1/1/14, I will. And you're already 30 days behind now, so just include the extra $$ or get caught up.
2. It's apparent to me your money is controlling you, you aren't controlling it, and that's very stressful on a marriage (I know, because we've been there)
3. If you attend, and complete, AS A COUPLE, Dave Ramsey's Financial Peace University and show me the certificate, I will take $100 off your next month's house payment.
4. If you then make a full year of house payments on time, I will renegotiation your 30 year - 8% rate to a lower rate for 15 years.

I figure #3 is well worth it, because I'd like to have to stop chasing them every month. And #4 is worth it because I'm almost 60, and I don't want to be dealing with any of this in my 80's. All the other notes will be paid off in ~10-12 years.

I feel like I'm trying to control them, but their actions affect me, and I'm sure I'm not the only creditor they struggle with.

Thanks for letting me vent. I just needed to spill my guts on this.

 

[REWahoo]

I think you are going above and beyond to deal with their financial problems but I doubt you'll see any real results. Hope I'm wrong.

 

[Ready]

I'm not a legal expert, but I think it would be a good idea to run these types of letters by a real estate lawyer. I know there are very strict laws regarding how a landlord must communicate issues regarding late payments from tenants. I would hate to see your good deed turn into something you weren't expecting.

 

[Chuckanut]

You have a heart. Something most of the Mega Bank big shots don't. They are far better off owing you than some Mega bank. I hope they realize it.

 

[Chuckanut]

+1 on what Ready said. Alas, often a good deed cannot go unpunished.

 

[LoneAspen]

You're a better person than me. I'd foreclose on them.

 

[tryan]

Assuming you don't want to foreclose - Why sell the paper for 60-70 cents on the dollar and be done with it.

It was your fathers passion ... you don't have to make it your's.

I get junk mail from note purchasers all the time. 30% discount for your situation would be common (they'll foreclose and make a pretty profit).

 

[Amethyst]

Using the same excuse dozens of times, and getting away with it? Trust me, they know. The meanest creditor gets paid first, every time.

Amethyst

You have a heart. Something most of the Mega Bank big shots don't. They are far better off owing you than some Mega bank. I hope they realize it.

 

[Sarah in SC]

I admire your kindness and as a person who went through the Ramsey program, I would wish nothing more than to see your desire for them to do the same work out.
But not knowing anything about the law, I'd also recommend running it by a lawyer.

 

[daylatedollarshort]

I think your heart is in the right place, but I have a friend who got sued by his tenants and others who are basically funding housing for people who are neither friends nor relatives by letting them live free during hard financial times.

I would turn it over to a lawyer or some kind of loan processing place to collect the payments or evict and not deal with them personally at all any more. I suspect an attorney will advise to skip the Dave Ramsey approach and just evict them when they don't pay. Give the money you would have foregone in mortgage payments to a registered charity that helps needy families if that makes you feel better.

One other thought. The note is an 8% rate? If you simply lowered that rate could they make the payments?

 

[someguy]

I went through a similar thing as landlord. Trust me, when you're "out of the weeds", you'll most likely look back and realize these tenants were masters and you were the puppet. And be ready for at least $5K, perhaps $10K out of pocket when (not if) you ultimately have to evict them.

I think you should start charging the late fee, and follow the rental/lease agreement to a T.

 

[Bestwifeever]

....

1. I haven't been charging the $50 late fee, but starting 1/1/14, I will. And you're already 30 days behind now, so just include the extra $$ or get caught up.....

1. 
   
   
   If you have already sent your letter, it is too late, but mine would have had only this one thing in the list, assuming they have not come to you asking for financial advice.
   
   Doubtful they will change their behavior, so then I would boot them and sell the property.
   
   The mortgage payment should be the most important debt they have, but they seem to have learned by repetition not to treat it as such.

 

[MissMolly]

I've mentioned on here before that my father died and left me with real estate I never wanted. He owner-financed houses that he flipped, and he died right in the midst of the mortgage crisis. I couldn't have sold those houses at any price at that time.

Three of the folks eventually walked away, and I was able to sell those to cash buyers in the past few years, so now I'm down to a handful of houses that I hold the promissory note on. I'm not the landlord, I'm the mortgagee or the lender.

One house has a very young couple who struggle to make their very modest house payment. They are chronically late, and always have what they perceive to be a valid excuse. "Bank screwed up our account" (25 times?), "I underestimated our insurance payment" (40 times?), "the car broke down" (I get that one...), "our child needs a new hearing aid" (that one always gets me).....

Her check bounced again this month (for her payment due November 10), so I sat down and wrote her a letter. Here's the gist:

1. I haven't been charging the $50 late fee, but starting 1/1/14, I will. And you're already 30 days behind now, so just include the extra $$ or get caught up.
2. It's apparent to me your money is controlling you, you aren't controlling it, and that's very stressful on a marriage (I know, because we've been there)
3. If you attend, and complete, AS A COUPLE, Dave Ramsey's Financial Peace University and show me the certificate, I will take $100 off your next month's house payment.
4. If you then make a full year of house payments on time, I will renegotiation your 30 year - 8% rate to a lower rate for 15 years.

I figure #3 is well worth it, because I'd like to have to stop chasing them every month. And #4 is worth it because I'm almost 60, and I don't want to be dealing with any of this in my 80's. All the other notes will be paid off in ~10-12 years.

I feel like I'm trying to control them, but their actions affect me, and I'm sure I'm not the only creditor they struggle with.

Thanks for letting me vent. I just needed to spill my guts on this.

Having worked in the mortgage business for 30+ years, I will say that your heart is in the right place, but the odds of them changing their behavior due to attending financial counseling classes are very, very slim. However, if you still choose to send the letter, in paragraph 4 you should change the word "renegotiation" to "renegotiate".

 

[eridanus]

In Texas, once you get in the pattern of accepting late payments without penalty, contrary to the lease, it becomes the de facto standard and it's tough to get it changed. This forces the landlord to always charge the late fee or never charge it. Texas is a pro-landlord state, too, and your state may be even more strict. I would talk to a lawyer.

 

[calmloki]

You are a good man Charlie Brown. I admire what you are trying to do. However. As a landlord for the last 30 years or so and as one who has carried paper on property sales and has foreclosed on property as well as working with people who have hard times paying their bills (to me, at least) - your life will be simpler and clouds will lift if you do as Tryan suggests.

Do not let their problems be made your problem. Choose the charities you wish to contribute to - don't let the charity cases choose you.

Last year I pushed some friends toward evicting a long term tenant who was chronically late and was running 3-4 months behind. We spent some months doing a complete freshening of the house and they are just about to complete a full year with a tenant who is paying on time, as agreed, and without hassle. Our friends are much happier not paying mortgage, insurance, taxes and such for their old tenant to live the rental without paying rent.

remove bandaids quickly.

 

[pb4uski]

I'm not a legal expert, but I think it would be a good idea to run these types of letters by a real estate lawyer. I know there are very strict laws regarding how a landlord must communicate issues regarding late payments from tenants. I would hate to see your good deed turn into something you weren't expecting.

He's not a landlord, he's a lender and is proposing some extra-contractual modification to help his borrower be more fiscally responsible.

 

[pb4uski]

I would suggest that you sit down with them and talk rather than do it in a letter if that is possible. Otherwise by phone. Explain your frustrations with missed/late payments and having to chase them and see if you can get to the root causes of the problem. Let them know that you want to work with them but they need to step up and change their behaviors.

From the approach that you are taking I surmise that you think the missed/late payments are due to lack of discipline rather than the mortgage being too much for them to handle. Do you have any idea of what their PITI is in relation to their income?

If their PITI is too high/unaffordable, then you might restructure the loan with a more affordable current monthly payment, automatic withdrawal from their bank in exchange for higher payments in future years as their income increases. Or perhaps a more affordable monthly payment today with a share in any gain if/when they sell (in addition to the payoff of any remaining principal balance).

If it is due to lack of discipline then perhaps the Dave Ramsey course or some form of credit counseling is in order. Even if you pay for the course and offer an incentive for completion it may be well worth it.

 

[Rich_by_the_Bay]

I've mentioned on here before that my father died and left me with real estate I never wanted...
Thanks for letting me vent. I just needed to spill my guts on this.

Not to be harsh, but I think you are postponing the inevitable. You are a generous soul (many would have put them out long ago), but the roles need to be clarified. Meantime it's money out of your pocket every month they miss or delay a payment.

I would begin the collection/legal/negotiation process kindly but firmly. Then I would remind myself daily why I never wanted to be a landlord.

Good luck with this distasteful task.

 

[daylatedollarshort]

Look at it this way, if you wouldn't donate money to some random family that was neither family nor friends, then logically you shouldn't be supporting this particular family when you don't know the particulars of their budget. They could be going out to eat at more expensive restaurants than you go out to for all you know, and you are helping to foot the bill.

If you want to help the needy, look for a charity that has low overhead and published financial statements -

Where your donations actually go - May. 24, 2013

 

[galeno]

The OP describes why I've been saying for decades that real estate is NOT and investment. It's a JOB.

 

[Walt34]

I've never owned rental property (DW's brother's experiences were enough) but another guy I worked with put it this way to his new tenants: "If you can't pay this month's rent you won't be able to pay two months. If it doesn't come in on time I will begin eviction immediately".

I agree. What's more important than keeping a roof overhead?

Also agree with consulting a lawyer before sending the letter. In Maryland at least, you are in effect amending the terms of the lending agreement and that may come back to bite you where you don't want to get bitten.

You ain't running a charity. It is a business. Treat it like one.

 

[WestLake]

You give an inch, they take a mile. I've seen it many times. Your good heart is a sign of weakness to them.

 

[walkinwood]

Why aren't they just getting a new mortgage at a much lower rate? Do they not qualify for some reason?

 

[calmloki]

Why aren't they just getting a new mortgage at a much lower rate? Do they not qualify for some reason?

Takes money to make money. Easy to borrow if you don't need it, but almost impossible if you really really do.

 

[SumDay]

Thanks for the input and advice everyone. I thought I'd close the loop with answers to some questions:

• I spoke with my lawyer, and he says we can draw up a new promissory note, as long as the terms are more favorable, rather than raising their rate. So, we're good there. And I can collect the late fee.
• Yes, I am a softy. That's how I roll. Some things I'm absolutely ruthless on. This isn't one of them. However, I did stand up (in a big way, like FBI & IRS involvement) to one of these buyers, but that's another story for another day.
• Why don't I sell the paper/note? Because their credit is so abysmal that I was offered 30 cents on the dollar for it. And, these houses are now part of our retirement plan. 70% is a big loss.
• If I lowered the rate, could they make the payments? I have come to believe, that with this group of people my father sold to, that if their payments were $100 a month, they'd figure out a way to not be able to pay it.
• Galeno said: "The OP describes why I've been saying for decades that real estate is NOT and investment. It's a JOB." Galeno, you are spot on. I do not recommend this to the faint of heart.
• Why don't they get a new mortgage? Because their credit score is in the 500's. My father sold houses to people who couldn't get conventional financing. He did well with it. I hate it.

Interestingly enough, their notice of new home owners insurance arrived in my mailbox yesterday. Their yearly rate is 4x what ours is, for a house that is worth 1/4 of ours. We are going to sit down with them, and explain that their poor money management and credit score is what drives insurance rates.

This is my project for 2014. I'll report back after I've pulled out all my hair. Again, thanks for the input, and happy holidays to all.