Real Estate Notes

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Late Payments and Delinquencies

What should I do if a Real Estate Notes payment is late?

No reason for panic. Sometimes people are just late. IRESE sends frequent emails to overdue Property Owners and their Broker, prompting them to pay their monthly payment as soon as possible.

Once the Real Estate Notes payment is more than 15 days late, the Property Owner will be charged a late fee. The late fee is divided up pro-rata among the Property Owner's Investor.

Once the Real Estate Note is one month past due, it is turned over to a foreclosure agency to pursue collection from the Property Owner. If the foreclosure agency cannot collect payment from the Property Owner after a reasonable period of time, within 3 months, the Real Estate Note will be charged-off, and may be some principal might be considered a loss. The property which secured Real Estate Note is eligible for sale at the Public Auction to recover any money on the note. The Property Owner will not be able to borrow ever again from IRESE, and since we report delinquencies to credit reporting agencies, the charge-off will adversely affect their credit report.

Can I contact the delinquent Property Owner or Broker directly myself?

You should not contact delinquent Property Owners or Brokers directly. IRESE has a detailed delinquency schedule for Real Estate Notes, and any additional contact you have with a Property Owner or a Broker may expose you to civil or criminal penalties for unlicensed debt collection. The language and tone you use when collecting a debt matter are important in the eyes of the law so what you might consider reasonable may in fact be illegal. If you were to accidentally break the law you'd be putting yourself, your fellow Investor, and IRESE at risk of litigation.

Can I collect on late payments myself?

Under no circumstances should you attempt collection on a late payment yourself. Compliance with all state and federal laws while attempting to collect a delinquent Real Estate Notes is not trivial. When necessary, IRESE ensures all collection activity is performed by licensed and professional foreclosure agencies. Investor who undertake debt collection, even if they are a debt collector by trade, are in violation of IRESE legal agreements and will undermine the foreclosure agency's ability to do their job. Moreover, in doing so you run the real risk of creating a legal liability for yourself. Learn more about foreclosure process.

How can I avoid delinquent Real Estate Notes?

Start by knowing that you are assuming some risk when you purchase Real Estate Notes, and take steps to reduce that risk. Here are a few techniques for reducing your risk when investing:

  • Invest into lower-risk Property Owners

    If you're worried about delinquencies, invest into Property Owners who have higher credit grades (AA, A, B), low debt-to-income ratios, low loan-to-value ratios, and other positive credit qualities.

  • Make small investments into Real Estate Notes and into many different Real Estate Notes

    One of the best ways to lower your risk is to invest smaller amounts into many different Real Estate Notes. The more different Real Estate Notes you invest, the less risk you'll take compared to investing to just one or a few. And the best part is that it doesn't cost a cent more to invest into many different notes than to invest into just one. In fact, there's even a tool you can use, called a portfolio plan, that will place bids for you (coming soon).

Understand the risk profile of the Real Estate Notes

Before the Real Estate Note auction, Broker collects, verifies and provides Mortgage Financing borrower credit verification, existing debt obligations, incomes sources and expenses, and other loan information.

Understanding Risk Profile

All of the above can be used to assess the Real Estate Note risk profile. Each investor might use a different model to evaluate the risk profile associated with a specific loan, thus creating unique risk profiles. Each risk profile receives a different score. Based on the score, investors may decide on the premium points they expect over risk free alternative like US Treasury bonds.

Investors are able to buy and sell their positions at will. The price will be set based on bid and ask quotes. For example, $100 note which pays 7.0% might be traded down at $98 if the risk profile score of the underlying note goes down from 900 to 800 points. Alternatively, if the risk free alternatives rates decreased from 3% to 2%, a note paying 7% might be very attractive despite on all the risk and will command $102 per share.

To help Investors understand how Real Estate Notes can be expected to contribute to their portfolio return, IRESE collects historical performance of notes with a comparable credit grade and characteristics.

Understanding Estimated Loss

The loss rate is a key driver in the estimated return and is based on the historical performance of Real Estate Notes notes. The "estimated loss" represent key characteristics of the auction for which a bid is placed. The main characteristic is credit grade, load-to-value, debt-to-income and is supplemented by a few other factors.

To obtain the loss rate, IRESE reviews notes already made with these similar characteristics, projects a loss rate based on payment history to date, and assumes this listing will have similar performance.

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