Today I will discuss an example of a non-performing note that was 81 months behind on payments (yes that is nearly 7 years) and the borrower was in Chapter 13 bankruptcy.
Since the note was in bankruptcy we could not talk to the homeowner directly but instead reached out to the debtors bankruptcy attorney to explain that we were willing to discuss options to get the borrower back on track. The attorney talked to the borrower and they wanted to lower their interest rate. So I made a proposal that not only reduced the interest rate by 3.55% but also reduced the total debt (or payoff) by over $31,000. The attorney was satisfied and presented to the borrower and they agreed.
I then ask the attorney to provide us financials of the borrower to makes sure they had the ability to pay and how much they could afford each month. After some back and forth discussions, we agreed to the terms spelled out below and gave the borrower a 12-month forbearance to permanent modification. Basically what this means is that if the borrower pays according to the forbearance agreement for 12 months then the permanent modification would kick in and remain fixed for the life of the loan.
There are many possible exit strategies (see example below) and we decided that we would keep the note for long term cash flow which will net us over $244,000 over the next 20 years.
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