Author Topic: Chances of collecting when borrower has died  (Read 15134 times)

supergeek62

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Chances of collecting when borrower has died
« on: November 27, 2012, 01:23:32 PM »
Hello all,

     Unfortunately, two borrowers with loans in my portfolio have passed away.  I've read the official Lending Club position saying they make a claim on the person's estate and if there is money available, the loan will be repaid.  I'd like some real-world feedback, though, from anyone else who has had this happen.  Is there actually a good chance that the loan will be repaid, or is that a very unlikely scenario?  How long does the process usually take?  Thanks in advance for your advice!

rawraw

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Re: Chances of collecting when borrower has died
« Reply #1 on: November 28, 2012, 05:36:50 AM »
Hello all,

     Unfortunately, two borrowers with loans in my portfolio have passed away.  I've read the official Lending Club position saying they make a claim on the person's estate and if there is money available, the loan will be repaid.  I'd like some real-world feedback, though, from anyone else who has had this happen.  Is there actually a good chance that the loan will be repaid, or is that a very unlikely scenario?  How long does the process usually take?  Thanks in advance for your advice!
I've considered trying to run analysis on this, cuz borrowers dying result in deeply discounted on the FolioFN.

But you are an unsecured borrower.  So you are pretty low on the hierarchy of distributions.

yojoakak

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Re: Chances of collecting when borrower has died
« Reply #2 on: November 28, 2012, 02:20:49 PM »
Probably can't be any worse that the collection rate on Defaulted loans where the borrower is still alive. And those are dismal.

Someone recently bought up all my bankrupt notes for cheap. I wish them luck. I'm just happy to have them "off my books".

supergeek62

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Re: Chances of collecting when borrower has died
« Reply #3 on: December 01, 2012, 11:00:40 AM »
Ok, I wound up selling the note on Folio - at a big discount, but at least it is off my books!

New Jersey Guy

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Re: Chances of collecting when borrower has died
« Reply #4 on: December 01, 2012, 11:19:51 PM »
There is a pretty good chance notes will get paid after a person dies.  Typically, the executor of the estate would be in charge of distributing proceeds to cover expenses, debt and taxes.  The executor would work with the families attorney to make sure everything is locked up.

Normally, there are life insurance proceeds.  Debt money is usually paid from that.  If there is a surviving spouse, it's possible that the burden of debt would fall on that person (could vary from state to state).  However, again, that is what life insurance is for.  All you can do is hope that the deceased had enough insurance to cover everything.

Typically, it could take about 60 to 90 days to cover all the details in order to close an estate.
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rawraw

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Re: Chances of collecting when borrower has died
« Reply #5 on: December 02, 2012, 11:43:26 AM »
There is a pretty good chance notes will get paid after a person dies.  Typically, the executor of the estate would be in charge of distributing proceeds to cover expenses, debt and taxes.  The executor would work with the families attorney to make sure everything is locked up.

Normally, there are life insurance proceeds.  Debt money is usually paid from that.  If there is a surviving spouse, it's possible that the burden of debt would fall on that person (could vary from state to state).  However, again, that is what life insurance is for.  All you can do is hope that the deceased had enough insurance to cover everything.

Typically, it could take about 60 to 90 days to cover all the details in order to close an estate.
Do you have any data related to LC to back this up?  If so I'm interested.

New Jersey Guy

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Re: Chances of collecting when borrower has died
« Reply #6 on: December 29, 2012, 11:53:51 AM »
Do I have data to back it up?  Heck no.  Unfortunately, I had the expiernce of being an executor twice.  Both times I had to create an escrow checking account to funnel estate cash and life insurance proceeds through.  As the credit cards and loans came due, I would pay them off and supply the creditor with both a letter stating I was the executor and a copy of the death certificate.  This would close the account or cancel the credit card.  This is part of what the executor is supposed to do.

I just recently purchased a couple of "Deceased" notes on Folio for big discounts betting the loans would get paid off.  There is no interest to be made, but hopefully a large return on principle.  I'm still waiting, as this could take up to 90 days.  If they get charged off, I'm prepared for that, and the amounts are small.  (I'd spend more for a value meal at Burger King)

Remember, though, aggressive and speculative trading is what I do.  My theories may not be suitable or in line for the more conservative investors on this forum.
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rawraw

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Re: Chances of collecting when borrower has died
« Reply #7 on: December 30, 2012, 08:09:11 AM »
Do I have data to back it up?  Heck no.  Unfortunately, I had the expiernce of being an executor twice.  Both times I had to create an escrow checking account to funnel estate cash and life insurance proceeds through.  As the credit cards and loans came due, I would pay them off and supply the creditor with both a letter stating I was the executor and a copy of the death certificate.  This would close the account or cancel the credit card.  This is part of what the executor is supposed to do.

I just recently purchased a couple of "Deceased" notes on Folio for big discounts betting the loans would get paid off.  There is no interest to be made, but hopefully a large return on principle.  I'm still waiting, as this could take up to 90 days.  If they get charged off, I'm prepared for that, and the amounts are small.  (I'd spend more for a value meal at Burger King)

Remember, though, aggressive and speculative trading is what I do.  My theories may not be suitable or in line for the more conservative investors on this forum.
Can you please let me know the progress of that?  I do aggressive and speculative trading, just not as a large % of my overall portfolio.  It's a way to increase overall ROI but without as much volatility.

AmCap

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Re: Chances of collecting when borrower has died
« Reply #8 on: December 30, 2012, 09:14:05 AM »
Supergeek - what's a big discount?

New Jersey Guy

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Re: Chances of collecting when borrower has died
« Reply #9 on: December 30, 2012, 09:36:26 AM »
"Can you please let me know the progress of that?"

RawRaw- Here I thought I had two different "Deceased" notes, but what I had was 2 notes from the SAME dead guy!

https://www.lendingclub.com/foliofn/loanPerf.action?loan_id=1384813&order_id=2934933&note_id=11637388

Hey, maybe we both have the same guy, LOL!

Anyhow, the first note I purchased settled on 12/17  for $8.  I put it up for sale and sold it the same day for $13.88.
I can't recall when I purchased the other note, but I paid $10.76 for it and it's currently up for sale for $16.26.

Since it has a long way to go til it reaches the 120-day late status, here are my thoughts on this:
1.)  The note sells for $16.26 and I gross a $5.50 gain.
2.)  I'm betting the estate pays the loan off before it gets charged off, and I gross a $11.79 gain on the principle.
3.)  The note gets charged off.  This tells me the guy didn't have enough cash & insurance to off his debts, and I'm out $10.76.  However, I won't let it get that far.  Once it starts pushing the 100 to 110 day mark, I'll reprice the note for $1 or $2 just to dump it and reduce my loss.  Even if I sell it for $1, I'm out less than $10.  Not the end of the world. 

Personally, I feel the odds are in my favor, and this note is worth holding onto.
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rev

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Re: Chances of collecting when borrower has died
« Reply #10 on: December 30, 2012, 09:56:22 AM »
NJ Guy, I agree with your strategy. There's hidden gold in the secondary market in this type of transaction. I'm starting to suspect the average LC investor is *very* conservative, so they'll dump notes into the secondary market at the first sign of trouble. We read almost every day personal accounts claiming they sell all In Grace Period notes asap, even sometimes notes just processing a payment for too long, so imagine the reaction when a bk or deceased pops up. Proportionally, I can easily imagine screaming, crying and hair pulling lol

So, that said, my concern is: do we have enough notes going into these status to be able to, statistically, profit from it? One note going deceased is like you said, you either profit between 51% and 109%, or lose 90%. You need 2 curing for every 3 you buy. And we're talking fast food cash as you put it. To really make an strategy out of this, you have to consistently buy this type of note. Folio won't allow for that, not even LC provides any insight on specific collection status of notes or loans.
Someone would have to continually monitor the web pages looking for the tracking notes, analyze the historical performance, come up with thresholds for buying, then match the information every day (or hour?) against Folio (nightmare), and then maybe turn the odds to their favor. Science fiction?

nonattender

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Re: Chances of collecting when borrower has died
« Reply #11 on: December 30, 2012, 10:01:33 AM »
[Tangent, but, for the spirit of the forum, I think this is worth posting:]

The reason that myself (and DanB - Dan, am I wrong?) aren't good at engaging on these types of questions is that the time cost of posting a reply (coming up with "what if" scenarios, and postulating suppositions for these) is 'it's not worth it';  they're edge cases and worrying about them is less profitable (from a holistic standpoint) than just writing that amount off and going about business...

I know I used to do the same thing - freak out over every tiny loss and think "how can I systematize the optimal response here?" - turns out, though, that, if you're sufficiently diversified and/or looking at things from a rational basis, the optimal response is NONE.

If tons of P2P borrowers start dying - such that they even make a statistical blip (in the grand scheme) - then, ok.  But, meantime...

...

Same deal with "but, but!  i want to know what the borrower said to the collection agent when they called - where's the .mp3 file?"

It's just not reasonable to discuss as if it's of major import.
(And if it is you're doing something wrong wrt diversifying.)
(As well as not calculating the cost basis of time worrying.)

[Back to regularly scheduled micro-focused 2-d discussion.]
[Fun, perhaps, for those who enjoy it - but, not relevant...]
« Last Edit: December 30, 2012, 10:12:26 AM by PeerLend »
A little nonsense now and then is relished by the wisest men.

New Jersey Guy

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Re: Chances of collecting when borrower has died
« Reply #12 on: December 30, 2012, 10:41:36 AM »
Some notes to Rev's reply!

1.)  For aggressive traders, Folio is a total nightmare! It was not set up for this kind of trading.  I'm buying and selling everyday.  I have sold notes cancelling.  I have buy notes cancelling.  Come this part of the month, my folio site is many, many pages long.  What sucks is that when I sell a note, it won't tell me what I paid for it.  Therefore, I have to manually track it down with all those silly ID numbers.  And forget about the loan titles!  I don't know how may I have that are titled "Debt Consolidation".

I have an Excel spreadsheet that I use to track my sales.  But, I'm working on another one that will allow me to better track my purchases in some sort of order.

2.)  I agree that the bulk of investors (including ones on this forum) are ultra conservative.  They chase high NAR.  Here's some news for you!  My NAR (on the LC account page) is UP from last week!!!!!  I just looked, it's now at -11.95%.  (Yea, that's a negative!).  Last week, I hit a record low of -14.49%

How many of you guys just went to the bathroom to throw-up?

Don't get me wrong.  I LOVE ULTRA CONSERVATIVE INVESTORS who will dump a note only because the borrowers FICO dropped 10 points this month.  I LOVE ULTRA CONSERVATIVE INVESTORS who will dump a note because it just went into the grace period.  I LOVE ULTRA CONSERVATIVE INVESTORS who will dump a "Deceased" note for 40% of the principle.  GUYS!  KEEP 'EM COMING!

Conservative investors are to the far left.  I'm to the extreme right.  There are thousands of investors in the middle that I cater to.  So without conservative investors chasing ROI and NAR, I wouldn't be here!  So thanks guys!

One last side note:  Again, I do this for the fun and challenge.  Yea, picking notes is a total pain, but I know what I'm looking for and how to utilize those terrible Folio filters to quickly track things down.  I'm an early riser, so I love sitting on Folio in the morning with my cup of coffee.  It's very relaxing.  I'll check my account a few times during the day while at work, then document my sales late in the evening before bed.  Heck, I even find time to visit this forum everyday to read up on everybody's posts and maybe even contribute something useful myself.



 
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yojoakak

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Re: Chances of collecting when borrower has died
« Reply #13 on: December 30, 2012, 11:42:26 AM »
Some notes to Rev's reply!
What sucks is that when I sell a note, it won't tell me what I paid for it.  Therefore, I have to manually track it down with all those silly ID numbers.  And forget about the loan titles!  I don't know how may I have that are titled "Debt Consolidation".

There's a link at the bottom of Foliofn My Accounts to view last year's sales. But if you change the date you can see this year's sales, e.g.

https://www.lendingclub.com/foliofn/yrEndTraderStatement.action?start_date_trader_statements=01/01/2012

Or if it's already 2013
https://www.lendingclub.com/foliofn/yrEndTraderStatement.action?start_date_trader_statements=01/01/2013

supergeek62

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Re: Chances of collecting when borrower has died
« Reply #14 on: December 30, 2012, 11:51:16 AM »
Supergeek - what's a big discount?

Well, the discount was enough to get someone's attention, but not too ridiculous - i think the selling price was around 70% of par value - maybe the buyer didn't look too closely at the note to see the reason it went into grace period........