How To Avoid Horrible Surprises When Buying Assets

GDNI 09 | Buying Assets
 

Sometimes, we encounter a couple of hiccups when buying properties or assets – be that a leaky bathroom or a loophole in a contract. Others find these hiccups after purchasing while the lucky ones get to rectify the situation before they have signed the papers. Gail and Chris get down into these hiccups or what they call horrible surprises. It is their goal in the coming new year to have horrible surprises before buying the assets, and not after. They share some personal experiences while breaking down some of the regulations and important things you must consider – from a quitclaim to county liens and more. Look over everything and be more cautious when buying as Gail and Chris show you the things that you may miss.

Listen to the podcast here:

How To Avoid Horrible Surprises When Buying Assets

I’m here with the ever fantastic, Christopher Seveney.

Gail, how are you?

We’re on a roll, Chris. We wrapped up a wonderful little video where we got interviewed by the always fun, Laura Hazzard. She was nice enough to ask us what we’re doing on this podcast and who do we think we are to be podcasting to the millions.

To our audience, we use a company called Brandcasters or Podetize is the name of their entity, who takes care of our podcasts for us. If you’re ever interested or thinking about starting a podcast, I would definitely recommend you reach out to them. They handle everything from the editing, putting the blog and they’re doing some specials, interviews on people who have just started out in podcasting and a lot of things you probably didn’t expect. There’s a lot to podcasting and they take you through every step. I’ve got to say, they’ve been extremely helpful to our success.

We have to record and then they do everything else including marketing it very heavily. I can’t say I even understand everything that they’re doing. When I’m getting the People’s Choice Award, I will realize that they have played a key role. I see them being very busy and I’m not sure what we’re all doing. We’re new to podcasting. That was the whole point. That’s why they were talking to us. They wanted to catch us while we are the deer in the headlights before we become confident podcasters.

Gail, any new updates or any new interesting stories that you got?

I had something sweet happened that I shared with you. One of our houses, we’ve talked a lot about our vacant rural houses that I was not sure we should buy. We have one in Indiana that I thought was going to be a problem to sell. We are not going to be able to get cash for it because there aren’t that many people clamoring for it. We have found buyers and it’s a lovely young couple, who are coming off some hard times. They’re bouncing back up and they’ve got a little bit of money. We have agreed to sell it to them on a land contract. They are so excited. They are feeling like it’s a holiday miracle because someone is giving them a chance to own. Not just a roof over their head but a chance to build something for a lifetime. The gentleman said to me that he wishes he could come and hug us. He’s so grateful and it’s such a precious gift to him. I felt like crying. This is my first phone call on a Monday morning and I felt, “This is so sweet. This is why we do it.”

That’s part of why we want to get out to the audience and get people to understand. Part of the business that you do is to try and help others. In this instance and in other instances, we have plenty that we can share our stories with. We’re out there assisting borrowers and making an impact.

I can’t believe that you can make money doing nice things like this for people. When I think about who gets to do that, most people who do nice things for people don’t make money. Doctors are the obvious people that cash in while doing nice things. I’m not going to go to medical school. I already explained that to my father, the doctor. Thank God I found my way to do this instead.

I was writing something down because in the last episode, we talked about having vacant properties. This system and this process we came up with Marketing Arm and trying to get them sold and so forth. I have seven properties that are in very stages of being an REO. Since pretty much the last episode we discussed this, I’ve got four of them under agreement, pretty much following the processes we put in place.

Are you making money on this?

Yes, I am.

Can you give us any idea, did you double your money? Did you make 30%? What did you do?

Several of them are bought with my IRA. Three of the four are. One of them is rough numbers, going to make about 10% on it. Another one is depending on the inspection because it’s on private utilities. If I have to replace the septic system, that can vastly change numbers. Then on the other two, I’ll say there turns are exceptional.

We’re talking and we decided to make this episode about the horrible surprises. My goal in 2019 is to have the horrible surprise before I buy the asset and not after. I took a big step in that direction because you and I have a house under contract in semi-rural Indiana that looks on the face of it to be an excellent deal. We’re buying it for $15,500. It needs about $5,000 in cosmetic work. We will be able to sell it somewhere in the neighborhood of $60,000 to $70,000 on the seller finance or we could rent it out for about $650. I’m excited about it. Then I woke up the middle of the night with this thought, “What about that septic system?” I spent the whole morning trying to figure out if it even has a septic system. The seller thinks it’s hooked up to the municipal sewer. I called a gentleman and I love when I get people like this. This guy is the dad of a family-owned company. He’s been doing this work for 35, 40 years.

I happened to get him because he was sitting at the doctor’s waiting room and had nothing better to do. He answered his phone. He’s the septic king of that area. I learned more about septic systems in Henry County Indiana than you will ever want to know. If I’m ever a contestant on Jeopardy, I’m hoping the subject comes up. Something can always be wrong with the septic system. It would have to be addressed. What this gentleman told me, which is a little chilling more so than the usual roll of the dice with the septic system is that if it has to be replaced, this particular county has put some harsh regulations in place such that, it would be a minimum investment of $18,000 to replace this thing. I’m cautious and the big weird thing here is that all the public information says that this thing is on the public sewer. When I called the sewer people, they were like, “We don’t even have any sewers in that area.” I’m in this weird place where I’ve no idea. Let’s try to figure out what to do before we pull the trigger on this deal.

I have a story that popped into my head. When I was living up in Massachusetts, I was living in a town called Wayland, Massachusetts. It was a small two-bedroom house. We had a big lot with an in ground pool. The lot was 19,800square feet. All the other lots in the neighborhood were 10,000 square feet. It was almost doubled every other lot. I wanted to do an addition on the property and increase the septic system. Within a quarter mile of the town well was for water. They had strict guidance that if you’re under 20,000 square feet, you cannot have more than a two-bedroom septic. If my yard was 200 square feet bigger, I could have a four-bedroom septic but because it was under 20,000, I could only have a two-bedroom septic. Meanwhile, most of the houses in my neighborhood were all grandfathered in and were three and four-bedroom. For me, who had the biggest lot in the area, I was stuck.

That was a new reg those guidelines on bedrooms and septic?

GDNI 09 | Buying Assets
Buying Assets: Surprises are always better before than after.
 

No, it was always there but when I bought the house, it was one of those things. This was in 2004, I was still in my twenties young and naive and never asked a question. A lot of people don’t know what a septic system is, which there’s no sewer. It’s a tank with what’s called the leech field, which handles the liquid and the tank handles the waste. When there are problems with them, it’s a learning experience. It’s one thing as an investor when you’re looking at this. That’s one of the things where we talk about rural investing, a lot of people don’t want to. That’s one of the little secrets and surprises. It’s a question you have to ask and make sure. There’s a test called a PERC test that can a lot of times tell you if you’re buying vacant land whether or not you can build on it.

That sounds like a good engineering topic you would sink your teeth into. I don’t understand how septic systems are rated by bedrooms. They’re literally counting how many people are in the house? Is that what the bedroom reference is? How many people are they guessing are in each bedroom or are they thinking?

It’s based on house occupancy and how much flushing will take place.

I know nothing about septic systems. This is very interesting to me. This is my journalism background. I can get super interested in almost anything but this gentleman was saying that when there’s a three-inch rainstorm, there’s a whole area of this county where people’s septic systems cannot flush their toilets for three days because the tanks are so full. There is nowhere for the water to go. It just comes back. I did not realize that water could go in to a septic tank from the outside, not from the house but from the ground. That turns out to be exactly what happens.

That’s better than a surprise that I had in Ohio where the sewer drain got clogged. The borrower at the time thought it would be easier to move out than unclog the drain and ended up with four feet of water in the basement. Let’s say lots of black penicillin also known as mold filled throughout the house. That’s a surprise too that story that I had with an extremely difficult borrower, which I’ve now exited from that deal. I got a few more gray hairs on my head with that deal. That’s one of the things with note investing and this type of investing. If you don’t get to see what the inside the house looks like, you’ve got to be very careful and always check to make sure utilities are on, power’s on. Unfortunately, since it occurred after or during the phase when I was buying it so there wasn’t much I could do. There are a lot of surprises you can find inside the properties as well. I’m sure, Gail, you’ve had some surprises if you’ve ever had to go back in a property and things that you found.

Part of the business that we should do is to try and help others. Click To Tweet

I’m thinking since our topic is terrible surprises, I will share one that is probably very common particularly when you’re a new note investor. You’re doing due diligence on a note and this strictly applies to land contracts, where we’re going to own the house and not just own the debt on it. You’rechecking the taxes. You’re looking for all the liens and fines that are against the deed of the house. All of those become yours when a property is quitclaim deeded to you. A quitclaim deed is not like a warranty deed that most people would have when they purchase a home, where there is a guarantee and title insurance that protects you from any unknown liens, fines or mortgages or anything that’s on the house. You do a title search, you find out everything that’s owed. It all gets paid at the closing and you get a nice clean house in terms of the money owed on it. Not so a quitclaim deed. A quitclaim deed is a giant roll of the dice and you have no idea. It’s up to you to find every single thing that’s out there before you accept that property.

In my case, I didn’t realize that properties can have municipal fines on them that are not yet liens. The title search that we do to see what’s owed on a house, a title search like that will not show those. A title search also will not show delinquent taxes that have been sold in a tax sale. There are a lot of things that won’t show. You can get a very clean looking title report and then have a whole bunch of terrible surprises. I bought a house in St. Louis Missouri. I have to say St. Louis has been a site of all my great defeats in this business. In this case, there was a sewer lien of $1,500 that I didn’t catch. It wasn’t even a lien. It was a charge, that’s why I didn’t see it. That was not a good one.

Those are not pleasant. I’ve had one where I had checked the county liens or county taxes but there is also a city tax as well. When it came back after foreclosure and stuff, they have their deed transferred into the name, you have to clear up and pay upon all the taxes. I’m like, “Taxes are already paid.” “The county taxes are paid but the city taxes aren’t paid.” I was like, “How much is that?” “$3,000.”

Was that Memphis? Memphis is like that.

It was in a property in Maryland that I have.

Is that normal in Maryland to have county and city taxes? You need to tell us the city.

Not typically. Typically, things are either done by the county or city but in this instance, it’s a remote area on the Eastern Shore of Maryland. That bit me but you’ll have those. For example, I got a water bill that is in Gary, Indiana for a property that the deed and everything are in my name. The water bills never got transferred into my name. I was on the phone with the Water Department to have those transferred. The Water Department won’t let you put it in the borrower’s name, it stays with the property so it goes with the property owner. That was only $58, that wasn’t too bad.

I had an experience that is making me think you are so lucky the water bill stays in your name because I took back a house in Flint, Michigan. I’ve talked about this house before. This is a borrower that I worked my buns off to keep in the house and against my better judgment. I not only gave her a second chance, but I also gave her a third chance and we have each other’s phone numbers. We had conversations. This was not at all a remote situation but the house had a sewer/water bill on it when I bought it as a land contract. First of all, I was very new to this business. I assumed because the borrower’s name was on the water bill that it would never be mine. The other thing that I thought was if it is mine, I’m going to get her to reinstate and then she’s going to pay down this water bill and everything’s going to be fine. None of that ever happened.

She moved out and I, with great fear and trembling, called the water company because I had to get the water turned on for the painter. I said to them, “This balance on the water that goes with her, right? It doesn’t stay in the house?” They were like, “No, that’s your water bill, $2,500.” I was incredulous and I said, “How did you let her rack up a bill this size?” They said, “We didn’t, we turned off her water.” I said, “Yes, but then you turned it back on. Didn’t you make her pay the balance? Why didn’t you make her pay the balance before you turned it back on?” They were like, “We can’t make her pay this balance. This is a very large balance.” I said, “At one time it was not such a large balance. That might have been $200 instead of $2,500. Why didn’t you require her to pay the entire $200 back then before you put the water back on?” They could not say.

I buy notes for less than $2,500.

The irony being their water. Imagine paying that much for their water.

It comes at a premium.

It’s special, we can all agree on that.

GDNI 09 | Buying Assets
Buying Assets: Properties can have municipal fines on them that are not yet liens.
 

As we talk more about surprises, here’s a question for you, Gail. What is the most amount of dumpsters you’ve had to use to trash out a property?

I had a pretty big property in Bay City and we used a 40-yard dumpster, which is the biggest there is.

Just one?

Yes, outside of tearing down a commercial building. That thing was full and the guy who cleaned it out probably took several truckloads on his own way as well. That was the biggest.

I’ve had three.

Three 40-yard dumpsters?

Three 30s. I had a property in Maryland. As you can tell, we like to invest in Maryland, that’s on my backyard. The borrower had filed Chapter 7 Bankruptcy. He wasn’t responsible for the house or any payments. I was trying to give the guy a deed in lieu. I offered the guy $1,000 to sign the property over to me. I don’t think he understood. I even sent a door knocker and a neighbor to go talk to the guy but the guy was like, “I want nothing to do with this house. Just leave me alone.” I ended up having to foreclose on it. That’s a whole other topic of borrowers not trusting us.

When we got inside, this place literally looked like there were 100 people living in there and they all left at the same time. It’s like all of a sudden, an alarm clock went off and people ran out of the house and left everything. There were three mattresses in some rooms and stuff. It was a mess. The interesting thing is once I had the guy get all that stuff out, it’s a beautiful house. It needs some work, probably about $15,000, $20,000 worth of work. At the end the day, houses on the street sell for under $100,000. I’m on the market and it shows very well. It’s amazing how much stuff people leave behind. That does surprise me. I can see people leaving stuff they don’t want and usually we’ll have some trash out, which is usually a small dumpster, maybe up to one dumpster. It’s amazing sometimes how much people leave.

I haven’t had a hoarder’s house yet but I feel like this is a game of Russian roulette. It’s going to happen at some point. It sounds like you came close right there.

Yes, I was close.

I had a house that I took back. The borrower abandoned it. We were not in a position of evicting anyone. When my guys went in there to check it out, they said the smell from multiple animals was overwhelming like the eyes-tearing situation in the family room.I’m a huge animal lover. There’s almost nothing they can do that makes me upset with them. When I heard that, when you think about how absorbent the subfloor under the carpet is, what are you going to do about that? They ended up not having to replace the subfloor but they had to seal it. They used Kilz, the super good primer.

You’ve got to use something because that smell is very difficult to get out.

It’s a mutant’s smell. It has a life of its own. I haven’t been there but I am told it’s fine now.

I haven’t had too many issues. That Cleveland house that had a cat issue as well, along with the mold and everything else, so that was the least of my concerns. One surprise I did have that popped in my head while we talk about animals was I had a property inNorth Carolina. The borrower was on a land contract, no longer wanted the property because they had moved to a different area. They were upside down on it. We gave the borrower Cash for Keys and took the property back and then had a local realtor list it. The house is in very good condition. It didn’t need any work. They make it livable. The agent called me after the first showings and said, “I want to let you know, the neighbors have three pit bulls. A lot of times they let them run around not even on a leash.” Lo and behold, I don’t know if the dogs weren’t inside at the time but I have four offers on the property within a very short time. Probably because as you know, I like to price things properly. I don’t inflate things. I dip with pricings to move. That was a surprise that I wasn’t aware of. Sometimes you can’t just focus on your property, you need to focus on the neighborhood as well.

It's amazing how much stuff people leave behind. Click To Tweet

Maybe the pit bulls were friendly. Maybe the buyers were super dog people. It could have been a combination of both. We’ve had a number of neighbor issues when we’re trying to sell houses, not with the animals coming over but with they themselves coming over and trying to scare people away. I’ve found that with these country houses. People get used to having things their way. They like being quiet. They like that the houses next door are vacant. It’s the opposite in a city. Nobody wants a vacant house. It’s such a gathering place for villains, potential vermin and all kinds of problems it creates. While in the country,people seem to want these places to stay empty. That’s certainly been our experience.

One instance wanted to buy it but was about a third the price of where everyone else was. The prospects are going to own property were mentioning that they had a visitor every time they go by that was telling them, “Please don’t buy this. A meteor is going to come crashing down on the property.”

“It floods and everything else.” We had a property in Ohio where one of the neighbors said, “That floods too. The basement’s full of water. There’s no heating source in there other than the fireplace.” These were just crazy bald-faced lies out that the well water was polluted and could never be cleaned. That someone had poured oil down the well or something. I wonder who that someone might have been.

Gail, have you ever had to do a title claim with title insurance?

GDNI 09 | Buying Assets
Buying Assets: Nobody wants a vacant house. It’s such a gathering place for villains, potential vermin, and all kinds of problems.
 

I’ve been lucky so far. If there are any claims to be made against any of my properties, they have not come forward yet. You have though, haven’t you?

Yes, I’ve had one in the neighborhood that you like, Flint. What had happened was in this instance this was a note where they recorded the purchase before the sale. With that being done, it flagged as part of the foreclosure process when we had to foreclose on this property. The borrower used it as a rental and hadn’t paid. The last payment may have been in 2011, ‘12, ‘13 back in the day. On this part of the foreclosure process, once it’s foreclosed, it popped up on the title report. The property did have title insurance on it. We got that taken care of, which was thankful that we don’t have to go through a quiet title process. It took over a month to get it resolved. It did slow down things but it’s nice having that in place. When you’re looking at getting a mortgage note, we deal them first, so I’m talking from a first position perspective. I’m not sure how it works with second but from the first position, make sure it has a title policy at some point. If it came from a major bank, it would have one. If it was from an individual as a single lender, it may not. Definitely, something to have in your back pocket because it can save you a few thousand bucks if you ever need it.

To be clear, say John and Mary Doe buy your house in Flint. When they purchase it and they have a mortgage from the bank there is a title policy. That covers everything that’s happened up until that transaction. Does it cover things that happen after that transaction?

You want to get a lender’s policy is also what typically the lenders get. Depends on what the item is but this was a covered item. If something comes up after that fact, we can get a title person. I’m not wise enough at that answer to be honest, whether or not if something happens after the fact. My guess is it probably would. I’m not educated enough to be able to answer that.

I was looking this up because we were looking at a house to buy in Indiana. I have a contractor in Indiana whois totally gung-ho to go buy houses and fix them up. They put people in them with seller financing to make notes. He’s been out shopping crazy. He looked at the house that is up for sale for $11,000. He asked the seller if they would accept less. I don’t have the impression he’s a skilled negotiator yet but he tossed out a number. He said, “Would you take $9,500 for it?” Personally, I would have said $6,000 because it needs a roof and some other stuff. They said, “The title insurance from this place is going to cost $2,200. If you will split the cost of that with us, we’ll sell it to you for $9,500.” That’s insane on many counts. First of all, if you were splitting $2,200 that’s only $1,100 charge where you’re asking for a $1,500 discount. That’s not much of a deal. The other thing is title insurance never costs that much.

A house selling for $9,000 is not going to be $2,200. That is for sure. It varies in some places. You’re buying it from the state and everybody pays the same amount. It’s cheap but even in places where it varies, it’s never that much. My friend bought a house in Philadelphia for $180,000. His title insurance was about $1,200, which that even seemed a lot to me but whatever. Our bird dog who’s out there, I have to teach him a few more tricks about these sellers. The icing on the cake was, I looked up that house on Zillow. People tried to sell it for $11,000, bought it for $200. Even if there were taxes on it, there’s probably some room for negotiation in there.

I enjoy looking all that stuff up too. As I always mention, one of my favorite programs, DataTree, because I can look all that stuff up. What other surprises have you had, Gail?

I did have a house with a serious structural problem that could not be detected ahead of time. That resulted in me having to dump it unfortunately. I lost my one and only losing deal in real estate so far. It is my white whale. I chase the shame of it. It was so terrible and it took me a long time to get over it and realize that, “This is the game we’re in. This is what happens and everybody strikes out at some point.” The only way to not have a loss ever is to not play at all. I’m being a grown up about the whole thing.

I enjoy buying notes that are in bankruptcy because you can find out a lot more information about the borrowers. One thing that I learned was I had a bankruptcy case dismissed because the borrower didn’t file the proper paperwork in a timely fashion. Let’s say it was due on August 1st and they have four weeks to submit this information. August 21st, they submit a letter to the court apologizing, admitting that they missed the deadline but wanted the case reopened. I used to do a lot of bids on government contracts and if you’re one minute late on your bid, it doesn’t count. They don’t accept it. I was thinking, “It’s federal. This is how it works as well.” Lo and behold a few weeks later, my attorney calls me and says, “They got the case reopened.” It’s not that they had to refile a brand-new bankruptcy case. Their plan hadn’t even been approved, they were supposed to file a new Chapter 13 plan. They had it reopened and extended. This case has been one that’s been going on for a very long time.

The only way to not have a loss ever is to not play at all. Click To Tweet

In February, I will celebrate my second anniversary of owning a note that I’m foreclosing on in Pennsylvania. We haven’t been trying to foreclose the whole time. We started in September of 2017. It has been one thing after another. We finally got the foreclosure judgment. We were heading for the sale and gentlemen declared bankruptcy, BK-13. That itself was not a surprise. This is the seventh time he’s declared bankruptcy in six years. The thing that surprises me about the government, the federal government, the state government whatever it is. Here we have a situation where this guy owns seven properties that are all in default and all have huge amounts of back taxes on them. They’re all in this one municipality in Pennsylvania. He owes probably $80,000 in back taxes on these seven properties together. Every time the tax sale is looming, which is the end of September, he waits until a couple days before that and he files bankruptcy.

Shortly thereafter, he also falls out for not filing the papers he has to file. It was never his plan to go through the whole bankruptcy process anyway. His plan was to get himself another year to play around with these properties. It’s not like he’s out for a higher paying job and he’s going to be able to salvage all of it. He’s an older man. He can’t let go. All of us who are owed money by this man should pool our funds and get him a good talking therapist, where he can work through his feelings about these buildings so that he can maybe let go. My attorney got me all excited. He said, “With all these filings in such a short amount of time, we could probably go after him for a bad faith judgment,” which is saying what appears to be true. Bankruptcy is supposed to be a tool for people who are making a genuine, sincere and earnest effort to reorganize their finances or get themselves back on their feet and hits pause on any action happening with their properties in the meantime. That’s not what this guy is doing. This guy is gaming the system. He doesn’t have a plan. There’s no way he’s ever going to be able to salvage all these things. He’s using the courts to mess with everybody.

When people learn how to manipulate the system, they get very good at it.

I don’t even know that he’s being cynical about it. He may be one of those people who cannot accept the reality of their situation. He bought right before the market crashed. He can’t believe that happened. He keeps thinking it will come roaring back to the pre-crash levels, which in some places it has but not the kind of properties he has. They were not valuable to begin with. They’re still not. They’re not trying to get a lot more valuable.

Speaking of crashes, I see Bitcoin is under 4,000 and the Dow is down over 600 points. That’s a big drop. Has your note investing portfolio drop like the stock market?

Everything looks like it’s where it was before all that happened. Don’t ask me about my other stuff in that stock market.

That’s the wonders of investing in notes is you are not tied, no correlation at all to the stock market. One story I remember you telling me that was a big surprise was didn’t you buy an asset that was a contract for deed and all the collateral had the borrowers on it, but you come to find out they weren’t the borrowers, someone else was?

We were thinking that we had a free and clear house in Cleveland, Oklahoma. The borrowers had done a quitclaim deed back to the people we bought the property from. When I tried to board the services, I kept saying, “It’s an REO. They’ve already deeded it back, so you don’t need to board it.” They were like, “Those people who deeded it back are not the borrowers.” That triggered a journey of a thousand miles to find not just one borrower but they had been a young couple. They were 25 and 24 when they bought that house. They were a young unmarried couple and they’ve had a bad break up. I was tracking them both down and getting them to sign. The young woman was very hard to find, and she wasn’t responding to anything that I was sending her.

I tried to enlist her ex-boyfriend, her co-borrower to find her. I even offered him a bounty if he could get her to sign. We both pretty much struck out for a long time. The only thing that finally worked was that I got the name of her mom. According to our borrowers’ rules, I couldn’t talk to her mom at all about the fact that she owed money. I told her that I was a lender but I couldn’t discuss any aspect of it with her mom since she wasn’t on the deal herself. The mom did give me her attorney’s name. I contacted the attorney to let her know that I was trying to give this girl a chance to get off the hook with this property, “Here’s the paperwork.” That seemed to break the dam. I did hear from her after that and everything was fine. I had another weird surprise. I bought what I thought was a land contract in Birmingham. This is the one I thought you’re talking about. I have all this land contract paperwork and the house is deeded to me as is always the case with the land contracts. If the borrower doesn’t have the deed, we have the deed. They have the right to buy it by making their payments like a car loan.

GDNI 09 | Buying Assets
Buying Assets: Bankruptcy is supposed to be a tool for people who are making a genuine, sincere and earnest effort to reorganize their finances.
 

In this case, all of this gets recorded, the deed to me, I own the house. Then I can’t get the borrowers to pay. I’ve been trying hard. I hired an attorney to send a demand letter. He was looking at the paperwork and he said, “I looked this up and you don’t own this house. This house is in the name of the borrowers.” I go back and I look at the file and sure enough, I have a land contract but there is a note and mortgage in these people’s names and a warranty deed to them. It was a land contract transaction. They owned that house. To top it all off, the mortgage was never recorded. If at any time over the few years that they’ve had it, they had decided to sell it, they wouldn’t have had to pay anyone a mortgage. They wouldn’t have had to pay anything off. It’s a shame they hadn’t thought of that. Now that I own it, I don’t want them to do that but it would have been pretty funny if it had happened to the previous owner or the seller who gave it to me.

There are always surprises sometimes in collateral and things like that. It can always be very interesting to say the least.

It’s like the time that I bought a land contract where there was no land contract in the file. Wasn’t that a surprise? That was churning but that turned out fine because even though the seller couldn’t give me a land contract, the borrowers gave me a copy of theirs, so that was easily solved.

Having run into that where a few times and this is where you definitely want to check servicing notes and things. I’ve had some loan modifications that were completed or especially on contract for deeds or forbearance agreements. Usually it’s a forbearance agreement because that’s not typically recorded. That all of a sudden it gets boarded and the person says, “I’m only paying this much for this and then everything gets changed or I get a reset on the loan. I get a mod and stuff. I know nothing about it,” and all of the sudden nothing came over in the files, nothing ever came over in the collateral. Then the servicer reaches out to the prior servicer and was like, “Here’s that document.” A lot of times these may be originated by the servicer and when they transfer over files, it’s typically an Excel file with all the financial numbers to it but not the actual collateral. The collateral is usually held by the seller. Sometimes they maybe had it electronically or whatnot. I’ve had that happen on two occasions where there were forbearance plans that came up out of nowhere.

I feel like this is getting a little technical. We should explain that a forbearance plan is when you have a borrower who has been delinquent and you put them on a probationary plan where you say, “If you will pay some money upfront in a chunk to address all the back payments you owe, we will have this be your payment for the next six or twelve months. If you complete all of those payments on time and consistently, then we will make the forbearances. We will not foreclose or do anything else to move against you as long as you are keeping faith with this plan.” At the end of the plan, there’s usually a bonus where we take all the money you still owe for back payments and stuff and we put it to a loan. You start fresh.

It’s like freezing the foreclosure process. One thing where it can help a borrower is it stops all the late fees and all those other fees that can add up pretty quickly.

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A loan mod is when you change the loan right from the get-go. You have one set of terms, they’re paying $200 a month. Now, they owe a bunch of extra money so they agree to up their monthly payments and change the terms so that they’re still paying off the same balance but they’re paying under different terms and that’s a loan modification, also known as a loan mod by those of us in the biz.

I don’t recommend doing one off the bat. I always will do some type of forbearance plan or payment plan with the borrower before I do the full-fledged mod to make sure that they are serious.

We’re talking about how to avoid surprises. We’ve been talking on the seller finance properties that we’re offering about putting everybody on a lease purchase initially where they’repaying us rents to begin with. They don’t get the actual land contract until they’ve proven themselves for a year because it’s becoming more and more clear that it’s impossible to know from the beginning. The banks can’t know either even though they put tremendous effort into trying to screen their borrowers. You don’t know who’s going to flake and stop paying. There’s no way to know. We’re taking the attitude like, “Let’s spend a year with these people. Let’s date for a year before we get married.”

It’s definitely something we’ve been thinking about. I agree it’s a risk mitigation factor because when you look at the different phases on a lease option a person is a tenant that it’s a standard eviction. They have no rights, obligation, no nothing. The contract for deed, they do have an equity stake in the property so it’s a process called a forfeiture, which is as lengthier and time-consuming and costly as a foreclosure. Then on the note you have the foreclosure. If you’re going to do any type of owner financing, you have different options. For us, based off of hearing stories also from other investors and some of them being not the most positive, doing something that can mitigate a lot of risks is well-worth it.

These are the ninja tactics that you evolve into with these things. It’s like you don’t want to go into it expecting someone to fail. As a parent, you never have that view, “I’m going to cover my bases here because I don’t know if you’re going to make it or not.” I want to believe in people but there’s real money at stake. Sometimes it’s investor money, sometimes it’s our retirement money. It doesn’t matter, we don’t want to lose it under any circumstance or spend more than we have to.

You can have a mortgage loan originator look at everything, look at the numbers and say, “Yes, they can afford this but what somebody can afford versus what their spending habits are.” Most people don’t have an income problem. Most people have a spending problem.

Also, a priority problem. I don’t know if this is true. Maybe you can tell me what your experience has been. I love having older borrowers because they are from a time when people honor their obligations. They’re not the sort of people who will buy a big screen TV instead of paying their mortgage in general.

Gail, you and I continue to be opposites. I have a 98-year-old grandmother who’s battling shingles. I love her to death, Nana and stuff. We joke she’s going to live to 130 because she is so damn stubborn. A lot of the elderly come from a time where their way of life was much more difficult than our way of life right now. Things that we may find challenging now are first world problems compared to what they have. Sometimes from what I’ve had, mine has been extremely difficult because they always think they’re right. It’s been a very challenging time and some of my most challenging notes have been for people who are older. Gail, are there any little quick tips or anything you’d like to provide? Any words of wisdom out to the audience?

Look for ways to date people before marrying them. Don’t get married right away no matter how positively youfeel. I love this couple that’s buying from us and Bryant, but we’re going to cover our bases with them. We’re going to give them every chance and hope of succeeding. We want them to succeed but we’re going to make sure that if they don’t, we’re not going to have to spend a lot of money to say goodbye.

My little quick tip is something that I figured out that saves me about five minutes a day. I started doing quick videos on my way to work in the morning like what’s on my mind because I spend a lot of time in the car sitting on traffic. I didn’t realize that you can record a video from the YouTube app right into YouTube. What I was doing was I was recording it on the camera, then I’d have to upload it into OneDrive or Google Drive and then transfer it over to YouTube and I’m like, “This is a pain in the ass.” Then my son was playing with the YouTube app watching his favorite show Roblox. He hit the button and stuff and I realized, “That is a pretty neat little feature.” Anybody out there who does any type of video recording, you don’t have to use the camera feature. You can record it right to YouTube and then upload it. Then go online later and put in your tags and description and if you want a thumbnail and stuff. It’s five minutes a day. If you value your time, $100, $200 an hour that’s $10 every video. If I do a video a day a week, it’s $200 a month. That’s gas money I’m saving.

I love that it was your seven-year-old who cracked that open for you.

I’ve got a very good and sarcastic friend up in the Boston area. I didn’t realize on your iPhone that when you’re typing something if you hold down the spacebar and you move it side to side, it acts like it will move the little bar to where you want it. I’d be typing and I’d realize in the middle of where I was typing I spelled the word wrong. I always try and use my finger and hit that spot to get there and I could never get there. I’d have to hit backspace and delete everything. It was a thing that they showed this and I was like, “It’s like the greatest sliced bread.” I posted it on Facebook and my buddy was like, “Read the instructions when they come out because that came out in iOS 7. I don’t know if you have an iPhone, that’s another one where you hold down the spacebar and you can move anywhere within your conversation where you’re typing to go back to something.

GDNI 09 | Buying Assets
Buying Assets: You don’t want to go into things expecting someone to fail.
 

This is the part that caught my attention. You correct your spelling if I correct your punctuation too in your text.

I’m a horrible punctuator. Listen to how I talk. I write like I talk.

Talk about saving five minutes aday. No one should be correcting their spelling unless you’re writing to your 98-year-old grandmother and you put in the word fork and it got autocorrected to something horrendous. That will give her a stroke.

That or if you’re reaching out to a hedge fund or talking to somebody about trying to break down a $5 million or $10 million deal, then you might want to also double check.

You want to put the decimal in the right place when you’re making offers.

That popped in myhead, I do have to give a shout-out to Chris Climer over Kirkland. It wasn’t a spelling issue but I’ve had with him now on a few occasions where some documents got lost in the shuffle between him to me and to where I store my collateral and stuff. I needed something from him and I shot him a quick note and stuff and was like, “Chris, do you mind sending me another one?” I feel so bad asking him, “Can I get another assignment of the land contract for this one? I know you sent it to me but I need another one executed and stuff and so forth.” “No problem, I’ll send it off right to you.” I’ll give him a little shout-out, not a spelling thing but helping me out there.

Maybe we’re all benefiting from the fact that he’s still on his honeymoon and he’s in a very good mood butprobably not, he’s a nice guy every day.

I’ve enjoyed working with them and acquiring assets from them.

Go out and do some good deeds.

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