It is important that we choose our buyers wisely when selling on owner financing. This provides the fund with solid collateral on its loan against such notes, and it leads to a steady stream of payments coming into Hawthorne Interests over time. Those payments provide the cash flow that service the associated loans made from the fund to Hawthorne Interests.
We heavily screen our buyers and involve a RMLO (residential mortgage loan originator) for each owner financing sale. This dramatically increases the probability of a successfully performing note. Regardless, some loans will go into default. When they do, we continue paying the fund on its loan as we foreclose on the property or have the buyer deed it back to us.
If we take ownership, the fund’s note loan converts to a land loan. It then reverts back to a note loan when we sell that land on owner financing to a new buyer.
The outcome for Hawthorne Interests can be positive or negative each time this scenario plays out. We are always able to collect a new down payment and are sometimes able to sell the land for more the second time around. This is more likely if land values have appreciated over time and/or the buyer made improvements to the property.