With non-performing notes you can run into a lot of unique situations. This week I ran into one on a CFD in Cincinnati that was new to me. Some cities require that for a CFD the water bill is in the name of the CFD holder, and Cincinnati is one of those (Toledo is another). The borrower is still responsible for paying the bill per the land contract, but the account is in my company’s name.
The borrower wasn’t paying on the loan and claimed they were sending payments in and the servicer was losing them. They also weren’t paying the water bill. They would say they were going to pay the water bill and then never do it. They also said they would send in proof of the payments and never do that either. I ended up having to go through the forfeiture process and in early January the land contract was cancelled and the borrowers were given 7 days to leave.
The borrowers didn’t leave and I had an appointment set with the bailiff to do the eviction. A few days before the eviction I received a water bill from the city:
When I got this I wasn’t sure if they just left the water running for a month, or if they had vacated and a pipe burst. I immediately called the city and had the water shut off. They did have the recent polar vortex and there had been some extremely cold weather in the area. When the eviction and set out happened they were gone and it turns out the pipes were ok. So they must have just left the water running like the wet bandits from Home Alone. I’m pretty happy with the result as it would have been much more expensive to deal with if there were broken pipes and flooding. Not only that, but the interior is in good shape overall. My cleanout guy has been doing REOs for many years and said he has seen people run the water like that before, although its been a little while. So having a borrower leave the water on for a month isn’t entirely unique.
But to me this isn’t the craziest thing the borrowers did on this deal. Their unpaid balance was just over $36,000. There was a few thousand more in arrearages and late fees, but I was willing to work with them on that. The home had BPO values of $55,000 for a 30 day quick sale and $60,000 for a 90 day list. So they forfeited a lot of equity here which to me is the real crime. Plus the rental rates in the area are higher than what they were supposed to pay on the loan. So the wet bandits may be bad guys who like to do mean things, but they are definitely not smart….
After I get the home sold and have all the final numbers I’ll write up a detailed case study on this. This deal also had some other twists and turns that I haven’t mentioned here. In fact it will probably make a good candidate for my chapter in Scott Carson’s upcoming Loan Tales book. But when you add up what I paid for the note, legal fees, cleanout costs, forced placed insurance, taxes (they weren’t paying those either), other costs related to dealing with a REO, the up front due diligence expenses, other odds and ends, and yes the water bills…….. my total cost basis is going to be well under $25,000. With a BPO of $60,000 and an interior condition better than my realtor expected, my JV partner on this should end up very happy when its all said and done. So I have 2 takeaways from all this:
1) The wet bandits are actually real and can cause you some headaches. But just like in the movie, they aren’t very bright.
2) If you buy a note at the right price, you can deal with some unexpected hiccups and expenses and still come out on top.