PART II 2 ahp_1k-123119.htm PART II

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 1-K

ANNUAL REPORT

  

ANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933

For the fiscal year ended December 31, 2019

  

American Homeowner Preservation 2015A+, LLC

(Exact name of registrant as specified in its charter)

 

Commission File Number: 24R-00035

 

Delaware

(State or other jurisdiction of incorporation or organization)

  

38-3989694

(IRS Employer Identification Number)

440 S. LaSalle Street, Suite 1110, Chicago, IL

(Address of principal executive offices)

  

60605

(Zip Code)

 

(866) 247-8326
Registrant’s telephone number, including area code 

 

Class A Interest
(Title of each class of securities issued pursuant to Regulation A)

 

 

 

 

 

 

 

   

 

 

Table of Contents

 

Preliminary Statement Regarding Late Filing of Annual Report 1
Caution Regarding Forward-Looking Statements 1
The Company and its Affiliates 2
Operating Agreement 3
Management 3
Management Fees 3
Our Affiliates 3
Investment Strategy 3
The Bidding Process 4
Resolutions 5
Key Positions 5
Loan Servicing 6
Leverage 6
Factors Likely to Impact the Performance of the Company 6
Offices and Employees 7
Our Revenue 8
Our Operating Costs and Expenses 8
The Trust 8
Regulation A Offering 9
Management Discussion 9
Operating Results 9
Liquidity and Capital Resources 9
Trends 9

 

 

 

 

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Directors and Officers 10
Names, Ages, Etc. 10
Business Experience 11
Legal Proceedings 13
Family Relationships 13
Compensation 13
Overview 13
Management Fee Paid to Managing Member 14
Ownership Interest of Managing Member 14
Report to Investors 15
Method of Accounting 15
Stages of Development 15
Voting Rights of Owners 15
Interest of Management and Others In Certain Transactions 16
Ownership of Related Entities 16
Activist Legal LLP 16
American Homeowner Preservation, LLC 16
AHP Servicing, LLC 16
Financial Statements 17
Exhibits  
Signatures  

 

 

 

 

 

 

 

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Part II

 

Preliminary Statement Regarding Late Filing of Annual Report

 

We are filing this annual report on Form 1-K late in reliance on the temporary relief from ongoing reporting requirements provided in paragraph (f) of 17 CFR §230.257. Like most businesses, our operations have been impacted by the coronavirus infection in the community and steps taken to avoid it. We have reduced staffing in our central offices and some of our administrative employees have been working from home or have been furloughed. Accordingly, our ability to close and reconcile monthly, quarterly and annual financial records has been impaired. In addition, similar circumstances have occurred at the offices of our independent accountants and auditors. Between these two systematic impairments, we have found it impossible to provide properly reviewed financial statements quickly enough to file our SEC reports timely.

 

Caution Regarding Forward-Looking Statements 

 

The term “forward-looking statements” means any statements, including financial projections, that relate to events or conditions in the future. Often, forward-looking statements include words like “we anticipate,” “we believe,” “we expect,” “we intend,” “we plan to,” “this might,” or “we will.”

 

In this Annual Report, we make forward-looking statements. For example, the statement “We believe long-term trends favor secondary and tertiary cities” is a forward-looking statement.

 

Forward-looking statements are, by their nature, subject to uncertainties and assumptions. The statement “We believe long-term trends favor secondary and tertiary cities” is not like the statement “We believe the sun will rise in the East tomorrow.” It is impossible for us to know exactly what is going to happen in the future, or even to anticipate all the things that could happen. Our business could be subject to many unanticipated events, including all of the things we talk about in the “Risks of Investing” section of our Offering Circular.

 

Consequently, the actual result of investing in the Company could (and almost certainly will) differ from those anticipated or implied in any forward-looking statement, and the differences could be both material and adverse. We do not undertake any obligation to revise, or publicly release the results of any revision to, any forward-looking statements, except as required by law.

 

 

Given The Risks And Uncertainties, Please Do Not Place Undue Reliance

 

On Any Forward-Looking Statements.

 

 

 

 

 

 

 

 

 

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The Company and its Affiliates

 

American Homeowner Preservation 2015A+, LLC, which we refer to as the “Company,” is a limited liability company organized under the laws of Delaware. The Company pursues two main goals: to generate income for its owners and Investors and to help struggling homeowners through a difficult time.

 

The Company was formed to invest in (buy) primarily non-performing mortgage loans, meaning loans that are secured by a mortgage on a principal residence (i.e., somebody’s house) and delinquent in payment (i.e., the homeowner has failed to make one or more payments). We refer to these as “Loans.”

 

The Loans we intend to buy were often originated or previously owned by financial institutions or hedge funds, such as Citi Mortgage or Wells Fargo. Other originators include Countrywide Financial, Lehman Brothers, and a variety of smaller banks that are now defunct.

 

We typically buy loans through an open bidding process and have developed a proprietary model for calculating the amount we will bid. We focus on loans in low to moderate income areas, although we may buy loans nationwide across all value levels.

 

After we buy a Loan, we approach the homeowner, who by definition has been unable to make payments on his or her mortgage. We do not necessarily try to extract the maximum possible value from the Loan. Instead, we work with the homeowner to try to achieve a quick resolution that is acceptable both to the homeowner and to us. Depending on a number of factors, including the income of the homeowner, the local market, and the value of the house, four outcomes are possible:

 

1)       Outcome #1: The homeowner is able to refinance the Loan – for example, by borrowing money from a bank. We accept the refinanced amount, which is lower than the face amount of the Loan (but still more than we paid for the Loan) as payment in full, and the homeowner stays in his or her house.

 

2)       Outcome #2: Even without refinancing, the homeowner is able to pay us a lump sum that we accept as payment in full for the Loan, and the homeowner stays in the house.

 

3)       Outcome #3: We and the homeowner agree to modify the terms of the Loan, i.e., the principal amount and/or the interest rate. After the homeowner has begun to make regular payments under the new terms, we may retain the Loan or sell it to a third party. In this situation, the homeowner also stays in his or her house.

 

4)       Outcome #4: In situations where the property is vacant, or where the homeowner does not elect another resolution, we take ownership of the house and sell it. The homeowner may either sign the house over to us voluntarily (i.e., a deed in lieu of foreclosure) or we may be required to take legal action (i.e., to foreclose).

 

In general, our revenues come from five sources:

 

1)       The proceeds we receive when a Loan is refinanced under Outcome #1;

 

2)       The lump sum we received under Outcome #2;

 

3)       The proceeds we receive when a Loan is sold under Outcome #3;

 

4)       The proceeds we receive when a house is sold under Outcome #4; and

 

5)       Any Loan payments we receive from the homeowner along the way.

 

We will make a profit if the sum of these revenues exceeds the price we paid for the Loans, after subtracting all our expenses (e.g., management, servicing, legal and other costs).

 

 

 

 

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Operating Agreement

 

The Company is governed by an Operating Agreement dated January 21, 2016, which we refer to as the “Operating Agreement.” A copy of the Operating Agreement is attached as Exhibit 1A.

 

Under the Operating Agreement, the owners of the Company are referred to as “Members.”

 

Management

 

Business Management

 

Under the Operating Agreement, the Company is managed by American Homeowner Preservation Management, LLC, which we refer to as the “Managing Member.” The Operating Agreement gives the Managing Member exclusive control over all aspects of the Company’s business. Other members of the Company, including Investors who purchase Class A Interests in the Offering, have no right to participate in the management of the Company.

 

Investment Management

 

The Managing Member has delegated responsibility and authority for making investment and trading decisions to AHP Capital Management LLC, which we refer to as the “Investment Manager,” pursuant to an Investment Advisory and Management Services Agreement dated January 27, 2016, which we refer to as the “IMA.” A copy of the IMA is attached as Exhibit 1A-6A. The Investment Manager is currently exempt from registration as an investment advisor with both the Securities and Exchange Commission and the State of Illinois. Pursuant to an Asset Management Agreement date March 1, 2018, the Investment Manager has designated AHP Servicing LLC, or “AHPS,” as the asset manager for certain mortgage loans held by the Company.

 

Management Fees

 

The Managing Member charged the Company a management fee equal to 0.1667% of the total capital accounts of all of its Members as of the last day of each calendar month, or approximately 2% of the capital accounts per year, plus $60 per month for each active asset. However, the $60 monthly asset management fee has been waived for assets serviced by AHPS. The Managing Member is responsible for the compensation of the Investment Manager.

 

The “capital account” of a Member will generally be equal to the amount the Member paid for his or her Class A Interest, minus the amount of capital that has been returned to the Member.

 

Our Affiliates

 

American Homeowner Preservation, LLC, or “AHP,” is an affiliate of the Company. The Managing Member of the Company is also the managing member of AHP, and the Investment Manager of the Company is also the investment manager of AHP. AHP is also in the same business as the Company, i.e., buying distressed mortgage loans and trying to work out amicable resolutions with homeowners. AHPS is an affiliate of the Company. The Company and AHPS are both subsidiaries of Neighborhoods United, LLC. AHPS is the servicer for the majority of the loans owned by the Company as well as the asset manager for certain loans.

 

In addition to servicing loans, AHPS also engages in the same business as the Company, i.e., buying and resolving distressed loans.

 

Investment Strategy

 

The Investment Manager believes the Company can continue to buy distressed residential mortgage loans at significant discounts to their unpaid principal balances and to their current and estimated future market values. Many holders of sub-performing or non-performing mortgage loans are motivated to sell these loans at favorable prices. Sellers may prioritize their non-performing loan portfolios and look to sell the low to moderate balances and the most distressed loans to other Investors willing to take on the resolution.

 

 

 

 

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The Investment Manager believes that the size of the non-performing loan market is sufficient to meet the needs of the Company.

 

The Company has generally invested in lower-dollar value loans, corresponding to the mortgage loans on lower-value homes, and anticipates that the Company will do the same thing.

 

The Investment Manager has significant experience with low to moderate value mortgage loans, generally on residential properties worth less than $150,000. The Investment Manager believes it is one of only a few national, institutional-quality buyers (with committed capital) for these low to moderate value assets, and it seeks to continue to specialize in smaller and more delinquent loans.

 

The Company intends to invest primarily in U.S. single-family residential mortgage loans, secured by one-to-four-family homes. On occasion, if the Investment Manager believes it would be a good idea based on market conditions, the Company might also acquire (i) direct interests in real estate (“REO”), (ii) mortgage loans secured by more than four family homes, and/or (iii) and commercial loans, and (iv) strategic joint venture arrangements that meet our return and social responsibility model. Despite these occasional purchases, the Company expects that mortgage loans secured by one-to-four-family homes will comprise more than 90% of its total portfolio, although the Investment Manager is not bound by that figure.

 

The Bidding Process

 

Bidding on loans and loan portfolios (groups of loans) is both an art and a science.

 

Typically, the process begins when a seller provides the Company and other potential buyers with a list of loans being offered for sale and requests initial bids. The seller might, or might not, provide such information as:

 

  · A full or partial address

 

  · The borrower’s name

 

  · The property type

 

  · The original loan amount

 

  · The original appraised value

 

  · The term of the loan and the maturity date

 

  · The current and/or original interest rate and principal and interest payment

 

  · The escrow balance

 

  · The borrower’s original FICO score

 

  · Loan modification data

 

  · Payment history

 

  · Foreclosure or bankruptcy status

 

  · Property square footage and lot size

 

  · Broker’s price opinion

 

  · The delinquent tax amount

 

 

 

 

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To help make sense of the data and make accurate bids, the Investment Manager developed and began using a proprietary pricing model in June 2015. That model continues to evolve to address changing market conditions.

 

If the Company wins the initial bid, we order various due diligence documents, including a title report, a tax report, and a valuation report, and dig deeper into the due diligence materials, noting such items as (i) whether the original borrower is still the owner of the property, (ii) whether the loan still holds a first lien position, (iii) whether the property is occupied or vacant, and (iv) the amount of delinquent taxes and other liens. Our original bid may be adjusted upward or downward based on these and other factors.

 

Revised bids are then submitted to the seller. The seller may counter with a higher price or drop some mortgages from the sale if the seller feels the bid is too low.

 

Resolutions

 

After we purchase a Loan, we contact the homeowner and try to achieve a consensual, mutually-satisfactory resolution. These are the circumstances that lead to each resolution and what is expected in each case:

 

Reinstatement of the Loan Where the borrower is willing and able, he or she can bring the loan current either in a lump sum or by making payments over time. After the loan is current, we may sell the loan.
Settlement of the Loan When the borrower (i) has a short sale buyer, (ii) can refinance, or (iii) otherwise has cash on hand, we might accept a payoff of the loan for less than its face amount.
Modification of the Loan When the borrower cannot bring the loan current or pay it off, we might allow a modification that involves lowering the interest rate, extending the term, or reducing the principal. After the modified loan is current, we may sell the loan.
Deed in Lieu of Foreclosure When the property is vacant or the homeowner no longer whishes to keep the property, we might accept a voluntary deed in lieu of foreclosure, giving us ownership of the home. Depending on the circumstances, we may pay the homeowner for the deed. In either case, we will end up selling the property.
Involuntary Foreclosure As a last resort, we can foreclose on the property and sell it. Sometimes, a homeowner who has been willing to speak with us will change his or her mind when we begin foreclosure proceedings. Involuntary foreclosure often yields a lower recovery than consensual solutions and we try to avoid it.

 

Key Positions

 

The following are the key positions in the operations of the Company:

 

  · Vice President, Trading. The Vice President, Trading is responsible for all matters regarding the purchase and sale of mortgage pools. Duties include building and maintaining relations with loan sellers, purchasers, and brokers, negotiating the purchase and sale of mortgage pools, analyzing due diligence materials for purchases, and handling legal documentation for the transactions.

 

  · Vice President, Chief Resolution Officer: The Chief Resolution Officer is responsible for directing our loss mitigation, foreclosure, and other resolution activities for loans and real estate owned. This includes establishing reconciliation strategies, optimizing user technologies, reviewing control reports for outliers, providing guidance on high-risk scenarios, and coordinating efforts between the separate roles.

 

  · Vice President, Servicing. The Vice President, Servicing is responsible for all general servicing matters for the loans we intend to service for affiliates and third parties, including taxes, escrow, periodic statements, collections calls, and systems oversight.

 

 

 

 

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  · Due Diligence Specialists: Due Diligence Specialists run potential loan purchases through a rigorous screening process. Among other things, they seek to determine (i) an accurate value for the underlying real estate, (ii) the outstanding loan amount, (iii) the owner of the property, (iv) the amount of outstanding taxes on the underlying real estate, and (v) any encumbrances on the underlying real estate.

 

  · Document and Collateral Specialists: A Document and Collateral Specialist run potential loan purchases through a rigorous screening process. Among other things, they seek to determine (i) an accurate value for the underlying real estate, (ii) the outstanding loan amount, (iii) the owner of the property, (iv) the amount of outstanding taxes on the underlying real estate, and (v) any encumbrances on the underlying real estate. Furthermore, the specialist verifies that all collateral needed to validate ownership and existence of the mortgage and property are obtained, imaged and recorded. This includes verification on newly purchased assets and the necessary creation of assignments, allonges, and lost document affidavits, as needed.

 

  · Litigation Coordinators: Litigation Coordinators manage the Company’s relationship with its attorney-vendor network, represent the Company at hearings and mediations, and handle all servicing-related activity that is required from the attorneys while assets are litigated, including bankruptcy activity, foreclosure complaints, evictions, quiet title actions, and tax sale reviews and challenges.

 

All of these roles are filled by AHPS, not the Company. The Company itself has no employees.

 

Loan Servicing

 

Collecting payments on loans is referred to as loan “servicing.” The Company itself does not service the loans that it acquires. Instead, it engages a third party.

 

The Company has entered into multiple third party servicing agreements with SN Servicing Corporation and AHPS.

 

Leverage

 

The Company might borrow money to buy Loans or other assets, which is referred to as “leverage.” the Company will also incur liabilities in the nature of trade debt in the ordinary course of its business. Where we borrow money to buy loans, the amount of the borrowing typically does not exceed 70% of the price of the loans.

 

Factors Likely to Impact the Performance of the Company

 

The ability of the Company to conduct its business successfully depends on several critical factors:

 

  · Availability of Reasonably Priced Loans: For the Company to succeed, it must be able to purchase distressed mortgage loans at a reasonable price. The volume of these loans skyrocketed during the recession of 2008-9, as homeowners were unable to make payments and financial institutions were forced to liquidate their portfolios. As the economy improved the number of distressed loans declined, creating a more competitive environment for the purchase of non-performing loans. We anticipate that the current COVID-19 pandemic and its devasting impacts on the national economy generally, and labor markets in particular, the volume of these loans will increase significantly again as homeowners will be unable to make payments due to a job loss or salary reduction.

 

 

 

 

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  · Competition to Purchase Loans: We have been successful buying distressed mortgage loans. Although we believe the Investment Manager has special expertise, others have entered the market, bidding against us for distressed mortgage loans. The more competition there is, the more difficult it could become for us to purchase loans at reasonable prices. If the pool of distressed mortgage loans becomes large enough, it is possible that additional competitors will enter this market and increase demand for these loans.

 

  · Availability of Credit to Homeowners: One way we liquidate the loans in our portfolio is when the loans are refinanced by a lender and the loan we hold is paid off, in whole or in part. If credit markets tighten, as they did in 2008-9, homeowners might not be able to refinance loans, or not as easily.

 

  · Housing Market and Property Condition: Another way we liquidate the loans in our portfolio is to take ownership of the house securing a loan and sell it. If housing prices fall again, our profits may fall along with them. If property conditions deteriorate, the value of the property may decline irrespective of the housing market.

 

  · Interest Rates: Our business is sensitive to changes in interest rates. If interest rates fall, the value of the loans in our portfolio increases. If interest rates rise, the value of the loans in our portfolio decreases. Today, interest rates in general, and mortgage interest rates in particular, are low relative to historic averages. This could suggest that interest rates may be more likely to go up from this point, but the countervailing impact of COVID-19 on the larger economy and its anticipated impact on the real estate market could also cause these rates to remain the same or perhaps drop even further.

 

  · Changes in Laws: Current law allows us to conduct our business in the manner described in this section. However, the residential housing market in general and the residential mortgage market in particular are highly regulated by both the Federal government and by State governments. Many states also prohibited foreclosures on residential properties during various state-directed “stay-at-home” orders, among other protections for homeowners intended to halt the spread of the virus. With the potential for a large increase in the number of homeowners unable to pay their mortgages when such orders are fully lifted, it seems likely that political pressure of federal, state, and local governments to intervene will increase, causing a change in laws or regulations that could be adverse to our business.

 

  · Performance of Internal Systems: We continue to improve our internal systems and to adopt new systems. We rely heavily on these systems and expect we will be required to continually update, improve, and replace them in the future.

 

  · Ability to Attract Qualified Employees: Like many businesses, we rely on data and computer models and spreadsheets. Nevertheless, we are very much a “people business.” Our ability to continue to attract and retain highly skilled employees is a factor impacting the success of the Company.

 

Offices and Employees

 

The Company’s offices are located at 440 LaSalle Street, Suite 1110, Chicago, IL 60605. The Company has no employees. For the year ended December 31, 2019, the Investment Manager used employees and services provided by employees of AHPS to fulfill the duties performed by the Key Positions. The Investment Manager’s total payroll related expenses during its most recent fiscal year was approximately $0.

 

 

 

 

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Our Revenue

 

The revenue of the Company includes:

 

  · Payments we receive from homeowners with respect to their mortgage loans

 

  · Payments we receive from other borrowers with respect to their mortgage loans

 

  · Rental payments we receive from leased real estate

 

  · Proceeds we receive from the sale of loans

 

  · Proceeds we receive from the sale of houses or other assets

 

  · Proceeds we receive when a homeowner pays off a loan

 

  · Payments we receive from homeowners or other borrowers to accept a deed in lieu of foreclosure

 

Our Operating Costs and Expenses

 

The Company incurs a variety of costs and expenses, including:

 

  · Management fees

 

  · The costs of the Offering

 

  · Costs incurred in finding, evaluating, and purchasing Loans and other property

 

  · Commissions

 

  · Settlement charges, including title charges

 

  · Custodial, administrative, legal, accounting, auditing, record-keeping, appraisal, tax form preparation, compliance and consulting costs and expenses

 

  · Loan servicing and property inspection and preservation fees

 

  · Investor communications

 

  · Insurance premiums

 

  · Taxes and fees imposed by governmental entities and regulatory organizations

 

  · Bank and escrow fees

 

The Trust

 

The Company and AHP are the beneficial owners of the American Homeowner Preservation Trust (the “Trust”), which was established by an Amended and Restated Trust Agreement (the “Trust Agreement”) by and among the Company, AHP, the Investment Manager, and U.S. Bank Trust National Association (“U.S. Bank”), which serves as the trustee of the Trust, dated October 29, 2014. A copy of the Trust Agreement is attached as Exhibit 1A-6C.

 

 

 

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The Trust is treated as a “grantor trust” for tax purposes, with the result that all of its income and losses are reported on the tax return of the Company as the sole beneficial owner.

 

Under the terms of the Trust Agreement, substantially all of the assets of the Company will be held by the Trust and managed by the Investment Manager. Investors will not be parties to the Trust Agreement and have no personal interest in the Trust.

 

The Company has elected to structure its investment program through the Trust to address certain state licensing and registration requirements applicable to the mortgage loan industry.

 

Regulation A Offering

 

The Company on May 24, 2018 completed its offering to the public of limited liability company interests denominated as Class A Interests to an offering under Regulation A (the “Offering”) and an Offering Circular dated May 20, 2016, as updated and amended from time to time (the “Offering Circular”). The Offering Circular is available through the SEC’s EDGAR site, www.sec.gov/edgar, and may also be obtained by contacting the Company.

 

The Offering began on May 20, 2016. As of the conclusion of the Offering, the Company had sold $35,579,904 of Class A Interests. We refer to the purchasers of Series A Investor Shares as “Investors.”

 

Management Discussion

 

Operating Results

 

The operating period is from January 1, 2019 through December 31, 2019. During this period we earned $84,160 in net income.

 

During this period we did not acquire any additional mortgage loans.

 

Liquidity and Capital Resources

 

We concluded our offer of Class A Interests pursuant to the Offering Circular, which was “qualified” by the Securities and Exchange Commission on May 25, 2016 (we refer to this as the “Offering”). As of the close of the Offering on May 24, 2018, we had raised $35,579,904 from the sale of Class A Interests in the Offering, the majority of which came in the final three months of the Offering.

 

To buy loans, we have used the proceeds from the Offering, advances from affiliates, and loans from third parties. Details about our third-party loans and advances from affiliates can be found in the Independent Auditor’s Report included below.

 

Trends

 

After closing the offering, the Company dedicated significant resources to ensure that the influx of capital was deployed effectively into investments with attractive potential returns. This affected the timing of our earnings, but positioned the Company well to generate strong future returns. As discussed in our 2017 annual report Form 1-K, our purchase of two hyper-distressed loan pools also affected the timing of our earnings.

 

Additionally, as unemployment approaches or threatens to approach levels not seen since the Great Depression, we are already experiencing or expect to see a number of effects of COVID-19 including a spike in the number of payments defaults with borrowers on loans we service, and an increase in the amount of time and resources we spend on reaching resolutions. In addition, foreclosure and eviction moratoria across the country has impacted our ability to move forward with many legal actions.

 

 

 

 

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Although we are working from incomplete information, we expect these trends to continue and perhaps accelerate, depending on the trajectory of COVID-19 and attempts by state and local governments to re-open their economies. Among other possible outcomes:

 

·Payment defaults may continue to increase causing our servicing costs to increase as a result of having to reach multiple workouts with our borrowers over the course of a single servicing relationship.

 

·We expect that we will need to increase the number of foreclosures we receive from our borrowers, which will result in reduced returns to our investors versus more consensual resolutions.

 

·Due to an increase in foreclosures, we expect to hold a significant number of real estate assets that may be difficult to resell given current economic conditions. As a result, we may experience a negative impact our liquidity which will impact our distributions to Investors.

 

In the short run, the pandemic may cause our revenue to decrease. We do not know how long the pandemic will last or how its effects will ripple through the American economy. In a best-case scenario, we would experience a short term drop in cash flow and a dip in asset values as the economy adjusts to a new reality. In a worst-case scenario, where foreclosures increase, we may have to reduce, perhaps significantly, our distributions to investors as a result of our increased servicing costs. Based on the information currently available to us, we expect an outcome closer to the former scenario than the latter and are marshalling all our experience and assets toward that end. 

 

Directors and Officers

 

The Company itself has no employees. The information described below relates to services performed for AHP Capital Management LLC, the Company’s Investment Manager, unless otherwise indicated.

  

Names, Ages, Etc.

 

Name Age Position Term of Office Approximate House Per Week if Not Full Time
Jorge Newbery 54 Chief Executive Officer, and Director Mr. Newbery will remain in office until he resigns or is removed. Full Time
Patrick McLaughlin 57 Interim Chief Operating Officer Mr. McLaughlin serves on an “at-will” basis. Full Time
Craig Lindauer 60 Vice President, Accounting & Finance Mr. Lindauer serves on an “at-will” basis. Full Time
Echeverria Kelly 51 Director Ms. Kelly will remain in office until she resigns or is removed. (Director)
Kenny Daniel 58 President Mr. Daniel serves on an “at-will” basis. 20 Hours
Charles King 33 Vice President, Chief Compliance Officer Mr. King serves on an “at-will” basis. Full Time
Leta McLaughlin 54 Director of Business Development Ms. McLaughlin serves on an “at-will” basis. 20 Hours
Robert Camerota 62 Vice President Mr. Camerota serves on an “at-will” basis. Full Time
Barry Owens 53 Vice President Mr. Owens serves on an “at-will” basis. Full Time
Suzanne McClelland 54 Senior Director of Contract Procurement Ms. McClelland serves on an “at-will” basis. Full Time

 

 

 

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Business Experience

 

Jorge Newbery, CEO and Director

 

Jorge Newbery founded American Homeowner Preservation LLC in 2008 as a nonprofit organization with a mission of keeping families at risk of foreclosure in their homes. In 2009, AHP transitioned to a for-profit entity, but AHP and the Company continue to operate with a dual purpose: to earn returns for Investors while seeking consensual solutions to help struggling homeowners keep their homes.

 

Mr. Newbery brings a wealth of real estate and mortgage experience to his role. He was the President of Budget Real Estate Inc. from 1995 to 2008, where he brokered over 1,000 troubled Department of Housing and Urban Development and real estate owned properties and acquired, renovated and operated over 200 distressed multi-family, single-family and commercial properties.

 

By 2004, Mr. Newbery owned more than 4,000 apartment units nationwide. Then financial disaster struck in the form of an ice storm on Christmas Even 2004 which devastated Mr. Newbery’s largest holding, the 1,100 unit Woodland Meadows complex in Columbus, Ohio. Mr. Newbery wound up in extended litigation with the insurer. Although the insurer eventually settled for $32 million, the settlement was too little, too late. Mr. Newbery lost everything and emerged $26 million in debt. The lessons learned from this experience formed the foundation for the establishment of AHP.

 

From 1992 to 1995, Mr. Newbery co-founded and operated Sunset Mortgage, which specialized in obtaining loans for homeowners faced with challenging credit hurdles.

 

Patrick McLaughlin, Interim Chief Operating Officer

 

Mr. McLaughlin serves as Interim Chief Operating Officer of the Company. Most recently, he was Managing Director of RockTop Partners, LLC, an alternative investment manager that specializes in distressed consumer credit markets and Ursus Holdings, LLC, which provides title curative services, consulting, investment services, analytics, and legal services to the mortgage industry. Prior to that, Mr. McLaughlin was President of First American Mortgage Services, the primary provider of national solutions for residential mortgage originators and servicers. Mr. McLaughlin’s responsibilities included business development, operational management, expansion of strategic partnerships, and financial reporting in the lender’s services segment. He holds a bachelor’s degree from the University of California, Los Angeles, a Juris Doctor from the University of San Francisco and is a member of the State Bar of California. 

 

Craig Lindauer, Chief Financial Officer

 

Mr. Lindauer is the Chief Financial Officer for the Company. In his role, Mr. Lindauer is responsible for all aspects of the financial management of AHP, including corporate tax strategies, treasury management, corporate and mortgage accounting and investor relations. He is a results-driven leader who offers broad management, with a concentration on internal controls and strategic planning to AHP management.

 

Prior to joining AHP, Craig served as the Executive Vice President for Seneca Mortgage Services and its predecessors for 15 years. Craig has more than 30 years in the mortgage servicing industry, with a substantial focus on the financial sectors. Craig is adept with the Black Knight Mortgage Servicing platform, which AHP is converting to, in order to increase the company's efficiencies and superior customer service. Craig is a graduate of Canisius College with a bachelor’s degree in accounting.

 

 

 

 

 11 

 

 

Charles King, Chief Compliance Officer

 

Mr. King holds a Juris Doctor degree from the University of Michigan Law School and a Bachelor of the Arts degree in political science from the University of Iowa. Mr. King is licensed to practice law in the state of Illinois.  

 

Mr. King joined the Company in April 2018 as Vice President and Chief Compliance Officer. Prior to joining the Company, Mr. King worked at Dovenmuehle Mortgage, Inc. from January 2012 to April 2018. Mr. King served in a variety of capacities, including Staff Attorney in Dovenmuehle's corporate Legal Department where he advised on a range of legal issues, with a focus on licensing and state regulatory compliance issues.  He previously served as the Assistant Manager of the Default Litigation Department, Assistant Manager of Dovenmuehle's Attorney Oversight Department, Compliance Associate, and Default Litigation Specialist. 

 

Echeverria Kelly, Director

 

Ms. Kelly earned her BA from Claremont McKenna College and her MS from the University of Illinois at Urbana-Champaign.

 

Ms. Kelly is a principal and minority owner of Neighborhoods United, LLC, which owns the majority of the Common Stock of the Company. Ms. Kelly contributed to American Homeowner Preservation LLC since its founding, most recently as Chief Operating Officer from September 2013 through March 2018. 

 

Kenny Daniel, President

 

Mr. Daniel earned his BS from Auburn University. Mr. Daniel also attended the Mortgage Bankers Association School of Mortgage Banking.

 

Mr. Daniel joined the Company in September 2019 as President and is focused on the growth of the Company including leading government, agency and industry relations. Prior to joining the Company, Mr. Daniel, from 2005 to 2019, was the Chief Operations Officer and Chief Strategy Officer for various national and regional real estate law firms. From 1997 to 2005, Mr. Daniel served as Director of Servicing and Risk Management of Fannie Mae’s Eastern Business Center.

 

Leta McLaughlin, Director of Business Development

 

Mrs. McLaughlin Leta earned her bachelor's degree in journalism from California State University, Long Beach.

 

Mrs. McLaughlin joined the COmpany in September 2019 as Director of Business Development. Prior to joining the Company, from 2014 to 2019, Mrs. McLaughlin was the Director of Business Development for RockTop Partners and Ursus Holdings, where she sourced both buyers and sellers of residential loan portfolios, including financial institutions, mortgage companies, and private equity funds. Previously, Mrs. McLaughlin sold residential real estate in Northern California and worked in corporate private investigations.

 

Robert Camerota, Vice President

 

Mr. Camerota joined the Company as Vice President in January 2020. Mr. Camerota is part of our Executive Leadership team; he specializes in Loan Origination. Mr. Camerota has been in the mortgage industry for over 30 years now. His is well known for his incredible expertise and remarkable loan origination process, along with his vast knowledge of mortgage operations.

 

 

 

 

 12 

 

 

Prior to joining the Company, Robert was the Senior Vice President at GMAC ResCap where he was head of mortgage operations. In that role, Mr.Camerota led the planning, management and administration phases of GMAC ResCAp, Consumer Services Operations Group, managing an annual budget of $132 million, including an oversight of 1st and 2nd mortgage fulfillment for GMAC Residential Retail.

 

Barry Owens, Vice President

 

Mr. Owens is the Vice President of the Company where he is part of the Company’s Executive Committee and leadership team focusing on Pre-REO and REO. Mr. Owens is dedicated to the growth of the Company and has demonstrated history of success working in the real estate industry.

 

Mr. Owens has over 29 years of mortgage servicing and sales experience with a history of providing technology solutions that enable operators to perform at their peak. Mr. Owens was previously Vice President of Exceleras LLC and Senior Vice President of Business Development for OrangeGrid Empowering people in progress.

 

Suzanne McClelland, Senior Director of Contract Procurement

 

Mrs. McClelland is focused on Government contracting and is part of the leadership team. In the past 22 years Suzy has become an esteemed Owner/Broker, Mortgage Specialist, Owner, Licensed Real Estate Broker, and CEO. Suzy is highly regarded by her clients and professionals in the field.

 

Suzanne L. McClelland-is a creative innovator, accomplished entrepreneur offering 30 years of progressive industry experience. Specializing in government contracting, real estate brokerage, company branding, and marketing. Dedicated to maximizing business efficiency and bottom line profits with forward thinking approaches and clear focus on continuous improvement. Personal mission remains unchanged and determined to succeed while supporting the community through volunteering, mentoring and philanthropic commitment.

 

Legal Proceedings

 

Within the last five years, no Executive Officer or Significant Employee of the Company has been convicted of, or pleaded guilty or no contest to, any criminal matter, excluding traffic violations and other minor offenses.

 

Within the last five years, no Executive Officer or Significant Employee of the Company, no partnership of which an Executive Officer or Significant Employee was a general partner, and no corporation or other business association of which an Executive Officer or Significant Employee was an executive officer, has been a debtor in bankruptcy or any similar proceedings.

 

Family Relationships

 

Mr. Newbery and Ms. Kelly are married. Mr. McLaughlin and Ms. McLaughlin are married. There are no other family relationships among the directors, executive officers, and significant employees of the Company.  

 

Compensation

 

Overview

 

The people who run the Company make money in (only) two ways: they receive compensation through the management fee paid to the Managing Member; and they receive distributions by owning a Class M Interest in the Company (but only after Investors have been paid in full). Both of these forms of compensation are discussed below.

 

The Company itself does not have any employees or payroll.

 

 

 

 

 13 

 

 

Management Fee Paid to Managing Member

 

The Company will pay the Managing Member a management fee equal to 0.1667% of the total capital accounts of all of the Members of the Company as of the last day of each calendar month, or approximately 2% of the capital accounts per year, plus a monthly fee of $60 for each active asset (loan). The “capital account” of a Member will generally be equal to the amount the Member paid for his or her interest in the Company, minus the amount of capital that has been returned to the Member.

 

The amount of the management fee will therefore depend on four factors:

 

  · How much capital is raised in the Offering;

 

  · How many loans the Company purchases;

 

  · When these loans are disposed of; and

 

  · How much capital has been returned to Members, if any.

 

Here are some illustrations of how the monthly management fee would be calculated:

 

Capital Accounts At End of Each Month Active Loans at End of Each Month Management Fee For that Month
$15,267,901.27 307 $43,871.59
$35,919,765.01 698 $101,758.25
$1,267,846.19 27 $3,733.50
$42,175,926.79 867 $122,327.27
$22,849,700.52 482 $67,010.45

 

Those figures are only to illustrate the calculation. It is impossible to predict accurately how much the Managing Member will receive as management fees.

 

Ownership Interest of Managing Member

 

The ownership interests in the Company are referred to as “Interests.” the Company will have two kinds of Interests: “Class A Interests” and a “Class M Interest.” Investors will own the Class A Interests, while the Managing Member will own 100% of the Class M Interest.

 

As the owner of the Class M Interest, the Managing Member will have the right to receive 100% of the profits of the Company after Investors receive their 12% annual return and a return of all of their capital. The amount of the profits the Managing Member will receive from owning its Class M Interest therefore depends on a number of factors, including:

 

  · How much capital is raised in the Offering;

 

  · The investment returns the Company is able to achieve;

 

  · When those returns are achieved (the Company might not achieve the same return every year);

 

  · When the Company distributes money to Investors; and

 

  · The amount of expenses the Company incurs.

 

 

 

 

 14 

 

 

Given these variables, it is impossible to predict with any accuracy how much money the Managing Member will make from owning a Class M Interest in the Company.

 

Report to Investors

 

No less than once per year, the Company will provide Investors with a detailed statement showing:

 

  · The management fees paid to the Managing Member;

 

  · Any other fees paid to the Managing Member or its affiliates, including the Investment Manager; and

 

  · Any transactions between the Company and the Managing Member or its affiliates, including the Investment Manager.

 

In each case, the detailed statement will describe the services performed and the amount of compensation paid.

 

Method of Accounting

 

The compensation described in this section was calculated using the accrual method of accounting.

 

Stages of Development

 

The stages of the Company’s organization, development, and operation, and the compensation paid by the Company to the Managing Member and its affiliates and owners during each stage, are as follows:

 

Stage Compensation
Organization None
Acquisition of Loans Management Fee
Operation

Management Fee

Distributions to Class M Interest After Investors Have Received 12% Return and 100% of Capital

Liquidation Distributions to Class M Interest After Investors Have Received 12% Return and 100% of Capital

 

Voting Rights of Owners

 

Under the Company’s Operating Agreement, the Managing Member has full control over all aspects of the business of the Company, except that investment decisions are made by the Investment Advisor. Investors will not be entitled to vote on any matter involving the Company or the Company.

 

Both the Managing Member (American Homeowner Preservation Management, LLC) and the Investment Advisor (AHP Capital Management, LLC) are wholly-owned by Neighborhoods United, LLC, a limited liability company formed under the laws of Delaware, which we refer to as “Neighborhoods United.”

 

Neighborhoods United currently has only one class of limited liability company interest, which we refer to as its “Common Stock.” The majority of the Common Stock of Neighborhoods United is owned Mr. Newberry and Ms. Kelly.

 

 

 

 

 15 

 

 

Neighborhoods United is managed by three managers, which we called “Directors.” Mr. Newberry and Ms. Kelly are two of the three Directors. One position is vacant. However, Mr. Newberry ultimately will control all decisions of the Directors.

  

Interest of Management and Others In Certain Transactions

 

Ownership of Related Entities

 

Mr. Newberry and Ms. Kelly together own the majority of Neighborhoods United, which in turn owns 100% of both the Managing Member (American Homeowner Preservation Management, LLC) and the Investment Advisor (AHP Capital Management, LLC).

 

The Company pays the Managing Member a management fee equal to 0.1667% of the total capital accounts of all of the Members of the Company as of the last day of each calendar month, or approximately 2% of the capital accounts per year, plus an annual fee of $60 for each active asset (loan). As the owners of Neighborhoods United, Mr. Newberry and Ms. Kelly benefit indirectly from those fees.

 

If the Company is able to pay investors the return due on their Class M Interests, any remaining profits are distributed to the Managing Member. Mr. Newberry and Ms. Kelly would benefit indirectly from those profits as well.

 

Activist Legal LLP

 

On November 14, 2016, Mr. Newbery became a partner in Activist Legal LLP, a law firm based in Washington D.C., which we refer to as “Activist Legal” (although Mr. Newbery is not a lawyer, Washington D.C. permits non-lawyers to be partners in law firms).

 

The firm represents creditors in several states and seeks to achieve consensual resolutions of delinquent mortgage loans and avoid litigation whenever possible. The firm provides these services through a network of qualified co-counsel.

 

The Company periodically engages Activist Legal to represent it in loan workout and foreclosure matters in connection with its business. Activist Legal will typically charge the Company (and its other clients) flat rates allowable under Fannie Mae rules.

 

American Homeowner Preservation, LLC

 

American Homeowner Preservation, LLC, licensed as a real estate broker in Louisiana, is wholly-owned by Neighborhoods United. As a licensed broker, American Homeowner Preservation, LLC may receive referral fees, typically 1% of the sales price, from other licensed real estate brokers as part of the disposition of real estate owned by the Company.

 

AHP Servicing, LLC

 

On June 28, 2017, AHP Servicing, LLC was organized in Delaware and began the state-by-state licensing process to become a national mortgage servicer. AHP Servicing intends to bring social responsibility, compassionate customer service, and the better use of technology to the servicing industry to improve outcomes for borrowers and lenders. AHPS services loans owned by the Company and other AHP entities, and services loans for third-parties.

 

AHP Servicing currently has outstanding one class of limited liability company interest, which we refer to as “Common Stock.” The Common Stock is owned 100% by Neighborhoods United. AHP Servicing is raising capital from investors in an offering under SEC Regulation A.

 

 

 

 

 16 

 

 

Financial Statements

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT AUDITORS AND

FINANCIAL STATEMENTS

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

FOR THE YEAR ENDED

DECEMBER 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 17 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

TABLE OF CONTENTS

 

 

  Page(s)
INDEPENDENT AUDITORS’ REPORT 19
   
FINANCIAL STATEMENTS  
Statement of Financial Condition 20
Condensed Schedule of Investments 21
Statement of Operations 22
Statement of Changes in Members’ Equity 23
Statement of Cash Flows 24
Notes to Financial Statements 25-31

 

 

 

 

 

 18 

 

 

9605 S. Kingston Ct. Suite 200

Englewood, CO 80112

303-721-6131

www.richeymay.com

Assurance | Tax | Advisory

 

 

INDEPENDENT AUDITORS' REPORT

 

 

To the Members of American Homeowner Preservation 2015A+, LLC:

 

 

Report on the Financial Statements

 

We have audited the accompanying financial statements of American Homeowner Preservation 2015A+, LLC (the “Company”), which comprise the statement of financial condition, including the condensed schedule of investments, as of December 31, 2019, and the related statements of operations, changes in members’ equity and cash flows for the year then ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Homeowner Preservation 2015A+, LLC as of December 31, 2019, and the results of its operations, the changes in its members’ equity and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Richey May & Co.

 

Englewood,Colorado

June 15, 2020

 

 

 

 19 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

STATEMENT OF FINANCIAL CONDITION

 

 

 

   December 31, 2019 
ASSETS    
Investments, at fair value (Cost $30,990,411)  $30,990,411 
Real estate owned, at fair value (Cost $179,458)   179,458 
Due from related parties   40,702 
Prepaid expenses   12,375 
Other assets   11,692 
Accounts receivable   6,312 
TOTAL ASSETS  $31,240,950 
      
LIABILITIES AND MEMBERS' EQUITY     
Due to related parties  $4,047,282 
Accounts payable and accrued expenses   475,372 
Bank overdraft   8,917 
Total liabilities   4,531,571 
      
      
Members' equity   26,709,379 
      
TOTAL LIABILITIES AND MEMBERS' EQUITY  $31,240,950 

 

 

See Independent Auditors’ Report and accompanying notes, which are an integral part of these financial statements.

 

 

 

 20 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

STATEMENT OF OPERATIONS

 

 

 

 
  

Percentage of

Members'

Equity

  

December 31, 2019

Fair Value

 
Investments, at fair value          
           
United States of America          
           
Residential non-performing mortgage loans   99.23%   $30,990,411 
           
Total investments, at fair value (cost of $30,990,411)   99.23%   $30,990,411 
           
           
Real estate owned, at fair value          
           
United States of America          
           
Residential non-performing mortgage loans   0.57%   $179,458 
           
Total real estate owned, at fair value (cost of $179,458)   0.57%   $179,458 

 

 

See Independent Auditors’ Report and accompanying notes, which are an integral part of these financial statements.

 

 

 21 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

STATEMENT OF OPERATIONS

 

 

 

   Year ended
December 31, 2019		 
INVESTMENT INCOME     
Interest income  $693,929 
Lease and rental income   153,533 
Collections income   146,583 
Other income   134,378 
Total investment income   1,128,423 
      
EXPENSES     
Management fees   668,603 
Interest expense   183,303 
Professional fees   121,074 
Loan servicing fees   81,867 
Bank Fees   57,292 
Legal expenses   34,520 
Other expenses   24,670 
Marketing and promotion expense   (2,000)
Total expenses   1,169,329 
      
NET INVESTMENT LOSS   (40,906)
      
REALIZED AND UNREALIZED GAIN ON INVESTMENTS     
Net realized gain on investments   125,066 
Net change in unrealized appreciation or depreciation on investments   – 
NET GAIN ON INVESTMENTS   125,066 
      
NET INCOME  $84,160 

 

 

See Independent Auditors’ Report and accompanying notes, which are an integral part of these financial statements.

 

 

 

 

 22 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

STATEMENT OF CHANGES IN MEMBERS’ EQUITY

 

 

 

 

Year Ended December 31, 2019
   Class A Units   Class M Units   Total 
Balance, December 31, 2018  $32,819,548   $10,000   $32,829,548 
                
                
Distribution of Units   (6,204,329)   –    (6,204,329)
                
Pro-rata allocation of net income (Note H)   84,160    –    84,160 
                
Balance, December 31, 2019  $26,699,379   $10,000   $26,709,379 

 

 

See Independent Auditors’ Report and accompanying notes, which are an integral part of these financial statements.

 

 

 

 

 23 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

STATEMENT OF CASH FLOWS

 

 

 

   Year Ended
December 31, 2019		 
CASH FLOWS FROM OPERATING ACTIVITIES     
Net income  $84,160 
Adjustments to reconcile net income to net cash provided by operating activities:        
Proceeds from sale of investments   3,658,533 
Net realized gain on investments   (125,066)
Purchases of investments   (3,827,449)
Changes in operating assets and liabilities     
Due to related parties   3,748,624 
Accounts payable and accrued expenses   440,589 
Due from related parties   329,737 
Other Assets   90,802 
Prepaid expenses   69,589 
Accounts receivable   (347)
Due to escrow agent   (291,310)
NET CASH PROVIDED BY OPERATING ACTIVITIES   4,177,862 
      
CASH FLOWS FROM FINANCING ACTIVITIES     
Distribution of Units   (6,204,329)
Re-payment of note   (227,466)
NET CASH USED BY FINANCING ACTIVITIES   (6,431,795)
      
NET DECREASE IN CASH   (2,253,933)
      
CASH, BEGINNING OF YEAR   2,245,016 
      
BANK OVERDRAFT, END OF YEAR  $(8,917)
      
SUPPLEMENTAL CASH FLOW INFORMATION     
      
Cash paid for interest  $58,382 

 

 

See Independent Auditors’ Report and accompanying notes, which are an integral part of these financial statements.

 

 

 

 

 24 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

NOTES TO FINANCIAL STATEMENTS

 

 

 

A.ORGANIZATION AND NATURE OF OPERATIONS

 

American Homeowner Preservation 2015A+, LLC (the “Company”), is a limited liability company organized on January 21, 2016 under the laws of state of Delaware. The Company is wholly owned by its parent company, Neighborhoods United, LLC, a limited liability company organized under the laws of Delaware. AHP Capital Management LLC (the “Investment Adviser”), also a subsidiary of Neighborhoods United, LLC, shall provide investment advisory services to the Company. AHP Servicing, LLC (“AHPS”), also a subsidiary of Neighborhoods United, LLC, shall provide asset management services to the Company as well as subservicing for a portion of the Company’s mortgage loans.

 

The Company was formed to purchase non-performing mortgage loans (loans that are secured by a mortgage on real estate and delinquent on payments).

 

B.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in United States of America (“GAAP”) and are stated in U.S. dollars.

 

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services – Investment Companies (“ASC 946”), the Company has determined that it is an investment company and has applied the guidance in accordance with ASC 946.

 

Recent Account Pronouncements

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements, which removes, modifies and adds certain disclosure requirements for fair value measurements. Under the guidance, non-public entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels of the fair value hierarchy, the valuation processes for Level 3 fair value measurements, and a reconciliation of the opening balances to the closing balances of recurring Level 3 fair value measurements. Adoption of this ASU did not have an impact on the Company’s financial condition or results of operations but resulted in the removal or modification of certain fair value measurement disclosures presented in the Company’s financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU amends the guidance for revenue recognition, creating the new Accounting Standards Codification Topic 606 (“ASC 606”). ASC 606 requires the following steps when recognizing revenue: 1) identify the contract with the customer 2) identify performance obligations in the contract 3) determine the transaction price 4) allocate the transaction price to the performance obligations in the contract and 5) recognize revenue when or as performance obligations are satisfied. The new revenue guidance requires additional disclosures related to the nature, amount, timing and uncertainty of revenue from customer contracts. ASC 606 may be adopted by using one of two methods 1) retrospective application to each prior reporting period presented or 2) a modified retrospective approach, requiring the standard be applied only to the most current period presented, with the cumulative effect of initially applying the standard recognized at the date of initial application.

 

The Company’s implementation assessment included the identification of revenue within the scope of the guidance, as well as the review of terms and conditions of a sample of revenue contracts covering a broad range of vehicles and products. The Company adopted ASC 606 effective January 11, 2019, using the modified retrospective approach, and no cumulative effect adjustment was required to be recorded. The Company determined that the new guidance did not have a material impact on the timing of recognition of the Company’s revenue. The majority of the Company’s revenues come from interest income that is outside the scope of ASC 606.

 

 

 

 25 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

NOTES TO FINANCIAL STATEMENTS

 

 

 

B.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash

The Company is subject to credit risk to the extent that the banks the Company conducts business with are unable to fulfill their contractual obligations and the amounts exceed those insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Management of the Company monitors these counterparties and does not expect any losses.

 

Revenue and Cost Recognition

The Company earns revenues by selling purchased mortgage loans and through interest earned from obligors on purchased mortgage loans held by the Company. The Company recognizes revenue in accordance with FASB ASC 605, Revenue Recognition, only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the services have been provided, and collectability is assured. Expenses are recognized as incurred.

 

Net Earnings or Loss per Unit

Net earnings or loss per unit is computed by dividing net income or loss by the weighted-average number of units outstanding during the period, excluding units subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per unit. Basic and diluted net earnings or loss per unit reflect the actual weighted average of units issued and outstanding during the year. There are no dilutive or potentially dilutive instruments outstanding as of December 31, 2019.

 

Organizational Costs

In accordance with FASB ASC 720, organizational costs, including accounting fees, legal fees, and costs of incorporation, are expensed as incurred.

 

Deferred Offering Costs

The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A - "Expenses of Offering". Deferred Offering Costs consist principally of legal fees incurred in connection with the Proposed Offering discussed in Note J. Prior to the completion of the Proposed Offering, these costs are capitalized as deferred offering costs on the statement of financial condition. The deferred offering costs will be charged to members’ equity upon the completion of the Proposed Offering or to expense if the Proposed Offering is not completed.

 

Income Taxes

The Company is a limited liability company. Accordingly, under the Internal Revenue Code, all taxable income or loss flows through to its members. Therefore, no provision for income tax has been recorded in the statements. Income from the Company is reported and taxed to the members on their individual tax returns.

 

 

 

 26 

 

 

AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

NOTES TO FINANCIAL STATEMENTS

 

 

 

B.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

 

The Company accounts for income taxes under FASB ASC 740, Income Taxes. FASB ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. FASB ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. FASB ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.

 

Real Estate Owned

Real estate owned includes real estate acquired in full or partial settlement of loan obligations plus capitalized construction and other development costs incurred while preparing the real estate for sale. At the time of foreclosure, the property is recorded at the acquisition price. Improvements made to real estate owned property are capitalized. The maintenance of the real estate owned, including expenses associated with the property's disposition, is expensed as incurred. The Company actively works to sell the acquired real estate, and gains or losses on these dispositions are recorded as realized gains or losses.

 

C.FAIR VALUE MEASUREMENTS

 

FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not assumptions specific to the entity.

 

ASC 820 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon the market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

 

Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

 

Level 2 Inputs – Inputs other than the quoted market prices in active markets that are observable either directly or indirectly.

 

Level 3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

 

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

While the Company believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial statement items could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such items existed, or had such items been liquidated, and those differences could be material to the financial statements.

 

 

 

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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

NOTES TO FINANCIAL STATEMENTS

 

 

 

C.FAIR VALUE MEASUREMENTS - CONTINUED

 

The following is a description of the valuation methodologies used by the Company for assets measured at fair value.

 

Valuation of Non-Performing Mortgage Loans

After purchasing a loan, the Company intends to reach out to the obligor on the mortgage loan to achieve a speedy resolution that is acceptable to both the obligor and the Company through one or more of the following resolutions: A) The obligor is able to refinance the mortgage loan and continue to reside in the underlying real estate; B) Without refinancing, the Company accepts a discounted lump sum to sell the mortgage loan and the obligor continues to reside in the underlying real estate; C) The Company will modify the terms of the mortgage loan and the obligor continues to reside in the underlying real estate; D) Where the obligor cannot afford to stay in the real estate, the Company will take ownership of the underlying real estate, either on a consensual basis or through repossession by foreclosure, and sell it to another party. The Company’s management has broad discretion with respect to the specific application of the net proceeds of its proposed offering (as described in Note J), although substantially all of the net proceeds of the proposed offering are intended to be generally applied toward these business purposes. There is no assurance that the company will be able to successfully affect the proposed offering.

 

At December 31, 2019, the Company had investments in non-performing mortgage loans totaling $30,990,411, which includes $576,422 of principal payments collected and $9,073,073 of acquisition costs, measured using net asset value as a practical expedient, which are not categorized in the fair value hierarchy.

 

The Company has established valuation processes and policies for its investments to ensure that the methods used are fair and consistent in accordance with ASC 820. The Value of Assets Remaining is primarily the value assigned to the remaining assets as of the time they were purchased, in some cases written down (but not up). The Investment Adviser uses a proprietary pricing tool to evaluate loan purchases. The proprietary pricing tool takes into account factors that include, but are not limited to, the estimated value of the real estate securing each loan and the history of loan payments. The Company re-evaluates the value of its assets periodically.

 

D.DUE TO ESCROW AGENT

 

The Company executes securities transactions and enters into security positions through certain escrow agents. The Company is subject to counterparty risk to the extent that an escrow agent with whom it conducts business may be unable to fulfill contractual obligations on the Company’s behalf. The General Partner monitors the financial condition of such escrow agents and does not anticipate any losses from these counterparties. On December 31, 2010, there was not cash deposit amounts advanced on behalf of the Company by escrow agents.

 

E.PROMISSORY NOTE PAYABLE

 

The Company executed a secured promissory note for $7,000,000 dated December 29, 2017 with Keystone National Group, LLC. The interest was assessed on a fixed rate basis at rate of 12% per annum. The note was collateralized by various non-performing mortgage loans and other assets of the Company. On December 31, 2019, the amount due to Keystone National Group, LLC had been extinguished. The note matured on December 29, 2019.

 

F.CREDIT RISK

 

The Company is subject to credit risk to the extent that the banks and brokers the Company conducts business with are unable to fulfill their contractual obligations and the amounts exceed those insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Management of the Company monitors these counterparties and does not expect any losses.

 

 

 

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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

NOTES TO FINANCIAL STATEMENTS

 

 

 

G.RELATED PARTY TRANSACTIONS

 

The Company will bear a monthly management fee to the Investment Adviser equal to 0.1667% (2% annually) of the aggregate capital accounts of the members as of the last day of each calendar month. The Company will bear a monthly fee of $60 to AHPS for each active asset of the Company. Such management fee shall be paid to the managing member no later than the fifteenth (15th) day of the following month. The Company will also bear fees, costs, and expenses as reasonably determined by the Managing Member.

 

During 2019, the Company obtained an unsecured line of credit from a related party with the availability of $4,200,000 at a rate of 12% per annum. There was an outstanding principal balance of $3,920,000 plus accrued interest in the amount of $127,282 as of December 31, 2019.

 

During 2018, the Company issued an unsecured line of credit to a related party with an availability of $1,000,000 at an interest rate of 20% per annum, and a maturity date of January 19, 2020. There is no outstanding balance on the line of credit on December 31, 2019.

 

The amount due to AHPS related to subservicing and asset management fees totaled $232,967. There is no amount due to the Investment Adviser related to investment advisory services at December 31, 2019.

 

Due from related parties represents amounts receivable to the Company for payments made on behalf of related companies under common management that enter into similar transactions with the same counterparty. As of December 31, 2019, due from related parties totaled $40,702.

 

In the event related companies are unable to fulfill their obligations with the counterparty, the Company may be required to perform to the extent the related companies have outstanding obligations.

 

The Managing Member made a capital contribution of $10,000 to the Company in exchange for its Class M Interest, consisting of 10,000 Class M Units.

 

Certain members are affiliated with the Managing Member. The aggregate value of the affiliated members’ share of members’ equity at December 31, 2019 is $38,733, consisting of 38,733 Class A Units.

 

H.MEMBERS’ EQUITY

 

The debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the Company, and no member of the Company is obligated personally for any such debt, obligation, or liability.

 

The Company allows for accredited and non-accredited investors. The Securities and Exchange Commission (SEC) has specific requirements that need to be met to be considered an accredited investor. Non-accredited investors have a limitation on how much can be invested in the Offering. The Interests in the Company are divided into two classes of interest: “Class A Interests” (or “Class A Units”) and “Class M Interests” (or "Class M Units”). All of the Class M Interests shall be owned by the Managing Member, as defined in Note E. The Class A Interests shall be owned by members whose subscriptions are accepted by the Managing Member to own Class A Interests, which may include the Managing Member and/or its affiliates.

 

Members owning a Class A Interest are referred to as “Class A Members” and members owning a Class M Interest are referred to as “Class M Members.” The Class A Interest of a Class A Member shall be equal to a fraction, the numerator of which is such Class A Member’s Capital Contribution to the Company and the denominator of which is the aggregate of all Capital Contributions made to the Company. The Managing Member shall manage and conduct the business and affairs of the Company, in accordance with the operating agreement. No other member shall participate in the management of the Company. Therefore, Class A Members have no voting rights. The Managing Member is under no obligation to fund Company cash flow deficits, incur the obligations, debts, or liabilities of the Company, or otherwise provide direct or indirect financial assistance to the Company.

 

 

 

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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

NOTES TO FINANCIAL STATEMENTS

 

 

H.MEMBERS’ EQUITY - CONTINUED

 

Each Class A Member shall make a Capital Contribution to the Company in an amount determined by the Managing Member. The Managing Member has made a Capital Contribution of $10,000 to the Company in exchange for its Class M Interest, as described in Note H. The number of interests and capital accounts in the Company are unlimited; however, the Company is limited to no more than $50,000,000 in capital contributions during any period of twelve-month period.

 

All distributions made by the Company, including but not limited to distributions in liquidation, are to be made in the following order of priority: A) First, the Company is to distribute to each Class A Member an amount equal to the Class A Preferred Return as defined below; B) Second, the Company is to distribute to each Class A Member an amount equal to such Class A Member’s Unreturned Investment as defined below; and C): Third, the Company is to distribute the balance to the Class M Members.

 

For the purposes of the foregoing paragraph, the following definitions apply:

 

  •

Class A Preferred Return: An amount such that, as of the date of any distribution, such Class A Member has received a compounded return of 12% with respect to such Class A Member’s Unreturned Investment since the date of such Class A Member’s capital contribution.

 

  •

Unreturned Investment: Class A Member’s capital contribution, reduced by previous distributions made to such Class A Member.

 

The Managing Member must try to return all of the money invested by each Class A Member no later than the fifth (5th) anniversary following the investment. If the Company doesn’t have enough money, Class A Members might receive a return of their investment later than five years, or not at all. If the Company is profitable, its intention is that investors will receive a return of their investment sooner than five years.

 

Likewise, the Company’s profits and losses are allocated 100% to Class A Interests outstanding on a pro rata basis until a 12% compounded return on all Class A Interests’ Unreturned Investment is achieved. All profits and losses thereafter are allocated to Class M Interests outstanding on a pro rata basis. For the year ended December 31, 2019, the Company’s net income was allocated 100% to the Class A Interests.

 

I.MANAGEMENT INDEMNIFICATIONS

 

The Operating Agreement provides general indemnifications to the Managing Member and its respective affiliates, and employees when acting in good faith on behalf of the Company. The Managing Member is unable to estimate any potential future payment amounts and expects the risk of any such loss to be remote, accordingly no accrual has been made for a liability as of December 31, 2019.

 

J.FINANCIAL HIGHLIGHTS

 

The financial highlights presented are for year ended December 31, 2019:

 

 

   Class A Members 
Total Return   0.35%
      
Ratios to Average Class A Members' Equity:     
Total expenses   4.92%
      
Net Investments loss   (0.17)%

 

The financial highlights presented are for the Company’s Class A Members as whole. These returns are calculated using a monthly geometrical arithmetic average that is not equivalent to the 12% preferred return of Class A Members. Due to the timing of equity contributions and distributions, an individual Class A Member’s returns may vary and the total return may vary from year to year based on the total balance of Class A Units issued and outstanding. The net investment loss ratio excludes realized and unrealized gains.

 

 

 

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AMERICAN HOMEOWNER PRESERVATION 2015A+, LLC

NOTES TO FINANCIAL STATEMENTS

 

 

 

K.SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through June 15, 2020, the date the financial statements were available to be issued. Based on the evaluation, no material events were identified which require adjustment or disclosure.

 

A new initiative which has been launched late 2019 is preREO LLC, which is wholly owned by this Company. PreREO LLC will deliver a new revenue flow to the company for the management and sale of non-performing assets with vacant and abandoned property during the foreclosure process.

 

The buildout of the PreREO initiative is currently in currently in progress and has some successful closings to prove the model. This initiative has been well received by the private investor markets as well as other asset management companies.

 

Management is currently evaluating the recent introduction of the COVID-19 virus and its impact on the financial services industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the fair value of the Company’s investment and results of its operations, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

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Exhibits

 

Exhibit 1A Operating Agreement of the Company*
   
Exhibit 1B Investment Advisory and Management Services Agreement*
   
Exhibit 1C Trust Agreement*

 

 

*Filed previously

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Signatures

 

Pursuant to the requirements of Regulation A, the issuer has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on June 17, 2020.

 

AMERICAN HOMEOWNER PRESERVATION

2015A+, LLC

 

 

 

By:    /s/ Jorge Newbery                                

Jorge Newbery, President & CEO

 

This Offering Statement has been signed by the following persons in the capacities and on the dates indicated.

 

/s/ Craig Lindauer                                                                         

Craig Lindauer, Chief Financial Officer

June 17, 2020

 

 

/s/ Jorge Newbery                                                                        

Jorge Newbery, President and Chief Executive Officer

June 17, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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