How To Get Non-Compliant Borrowers To Pay You

GDNI 64 | Non Compliant Borrowers

 

Every business generates headaches, especially when you are in the notes industry. Hosts Gail Anthony Greenberg and Chris Seveney share their bad experiences with borrowers who are very hard to reach when it’s pay time. People are getting bad advice on owning houses after bankruptcy these days. Many are looking for the easiest way out from their debts and even expect not to pay it. Gail and Chris share some borrower issues that have been going on for years. The notes business is extremely highly susceptible to being sued in every aspect of real estate investing. Gail and Chris narrate their personal experiences on how they got clients to not go down the legal battle. They also share some good news about four of their borrowers reinstating their payments.

Listen to the podcast here:

How To Get Non-Compliant Borrowers To Pay You

Gail, how are you?

Chris, I am so glad you asked. I have been needing this therapy session for a long time. I hope our audience will be entertained and delighted to know that we are going to do an entire episode of what just happened because this sucked coincidentally for both of us.

This is an episode you’d definitely want to read. One of the things that we get a lot of people feedback from is they like our episode because of how real and honest we are. This is one of those. It’s not all pink polka dots and smiley rainbows or whatever that saying is.

Do you want to start or do you want me to let it all out?

I’ll let you start because mine is a little more challenging because I can’t go into as much detail on things because of where they’re at. I can give some variations but go ahead. We’ll let you start, ladies first.

I had a whole starting story planned to start with. You and I had a development with a borrower that I think deserves to be the opening Bali on this. We had sent a demand letter to a borrower and it has expired. The attorney emailed me to say, “Today is the deadline. Have you heard from this person? Has anyone heard from this person? Are you negotiating with the person?” I hadn’t heard anything from the person. I thought to let me go into my servicers’ portal and look at the call logs and see if they’ve had any conversations with them. Surprisingly, they had a conversation with her. First, I didn’t totally understand what it said but I think there was a part of my brain that was not allowing me to believe what I was reading because the notes literally said, “Has no intention of paying this loan.”

When you read that, you just want to know more. I called the person who had left the notes and I said, “Please tell me all about this conversation.” He goes, “I called up and said I never had any plan to pay this loan. In fact, I did a bankruptcy just so I would never have to pay this loan.” He had to break the news to her like, “If you completed that bankruptcy and it was just charged, it may be the case that you personally are no longer responsible for this loan, but the loan stays on the house and the house can still be foreclosed on and taken away from you.” This is apparently very unwelcome news to her.

Did the borrower think that, “I filed Chapter 7 Bankruptcy and that I get a free house?”

That is apparently exactly what she thought. He had to give a more realistic example and he told me what he said to her like, “This is why people can’t go buy Maseratis, not pay their car loan, declare bankruptcy and keep the Maserati.” That doesn’t happen or we would all have a Maserati I suppose or whatever it is that you dream of. She did not realize that. It’s interesting, they know conceptually these tools are out there. Bankruptcy has a legitimate basis to help people who are earnestly trying to sort themselves out, but it was never meant to be a get-out-of-jail-free card for anyone with enough money to file the bankruptcy paperwork.

Correct me if I’m wrong. This is a property that the person grew up in and stuff too?

It has got sentimental value. She should be paying a lot of attention to what she needs to do to keep it. That’s not happening. The next thing she said was, “I don’t have any income.” The servicing person said, “How do you pay your other bills?” She goes, “I do have some income. I make $900 a month.” Then she was like, “I make $900 every two weeks.” Then she said, “My husband works full-time.” He left, hung up on this conversation with a distinct feeling that this was blood from a stone. There would never be a penny coming from this borrower and it would behoove us to continue on the legal path we’re on.

I’ve had a similar instance where I have a land contract. I’ve been trying to reach out to the borrower and there were notes of a borrower wanted to restate and pay a few thousand dollars. Basically, I haven’t been able to hear so I sent out a demand letter expired. We’re filing the complaint. I had a realtor in the area who did a lot of foreclosure stuff for banks and stuff. He goes, “I’ll go knock on the door and check.” Because I asked him if he does an occupancy check and he’s like, “I’ll go knock on the door and see what’s going on.” He goes sees if it’s occupied. He had coffee with the people. He got the tour of the house and got the condition of it. Their story is they spoke to some counsel that told them, “You do not have to pay for this house.”

GDNI 64 | Non Compliant Borrowers
Non-Compliant Borrowers: Bankruptcy is a legitimate basis to help people who are earnestly trying to sort themselves out.

 

They had an attorney actually tell them, “Don’t pay for the house.”

Allegedly, they won’t show them but they’re like, “We have all this paperwork on why we don’t have to pay for this house.” I’m interested to see what paperwork they could possibly have because it’s not a mortgage and note, it’s a land contract. They don’t have the deed in their name. I’m curious what rights they think they may have to this, but we’ll see as the world turns on that one. That one’s only bloop-base hit up the middle compared to some of the other comments that I’ve had from borrowers. Gail, I’ll let you go on to your next one.

I’m wondering if there’s a growing movement in this country of people who think they can have free houses because obviously, that makes our life harder. The fact is I don’t want to be in the position particularly of putting older people out of their houses, but people are getting a little bad advice and it’s very strange. Someone explained to my person how bankruptcy somehow helped her in her quest to not ever to pay anything on her house. I don’t know if it was poorly explained or she just filter went through in her mind, converted it until you’re off the hook. My next one is I bought a contract for deed in a Midwest state. When I was looking at the data initially, it presented a very confusing portrait because the house is probably worth $40,000. I think the UPB was right around that, maybe a little lower. The escrow payment on this, so taxes plus insurance, every month was supposed to be nearly $500. I’m looking at this info tape and thinking like, “This is insane.” I think a small child looking at this, assuming they could read and knew how much $500 was, would easily spot a huge error. In a Midwest state, if people pay more than $120 a month for taxes and more than about $100 a month for insurance, that’s a lot on the house worth $40,000. Your insurance will probably be $75 a month.

I will say in defense, sometimes if a borrower has been way behind, they will shortchange and increase that escrow payment to make some catch-up payments.

That would be a thing. There wasn’t any discussion about that. This thing transferred from their seller servicer to my servicer. Before I even had a chance to reach out to the borrower and understand the whole situation, my borrower asked my servicer for a qualified written response and that is basically just, “Can you please explain these numbers and tell me exactly where I stand request?” It’s got legal teeth in it. The servicer is required to answer a qualified written request within a finite term. They have a strict deadline.

If you don’t, you can get sued and be liable. Trust me. I know.

It’s not meant to be a 'get out of jail' free card for anyone with enough money to file the bankruptcy paperwork. Click To Tweet

That’s exactly what happens here. This borrower’s very exasperated with everyone and decides to sue both servicers. My servicer, we’ll call it servicer B and the original one’s servicer A. I immediately get this complaint because it’s buried deep in your servicing and contract. All of you may or may not have noticed, there is a paragraph where you indemnify your servicer from lawsuits. You have said to me that in contracts you’ve had, that means only things that are not the servicer’s fault. If it is a servicer’s fault, they’re not indemnified.

It depends on the contract but also, I haven’t worked with this vendor. I know in other contracts that I’ve reviewed, there’s usually what’s called dual indemnification. Meaning if I screw up, then I indemnify a servicer. For example, if you hire a foreclosure attorney and foreclose on somebody that shouldn’t have been foreclosed upon, or they were in the military or something and they come back and that person sues everybody including the servicer, then you’re on the hook for their costs. On the flip side, if the servicer is picking up the phone, calling somebody in a known bankruptcy and hounding them for money when they can’t and that person sues. The servicer should then be indemnifying or defending you if they also name you in the suit because it was something at their fault. It’s the simplest way to explain it.

In this case, the servicer’s interpretation of this is that they have blanket immunity. If anyone sues them, they call a lender, it’s me in this case. The irony of it is the reason that they were being sued is that they did screw up. They did not meet the deadline for giving her a qualified written response. This borrower, as many do, was working with a legal aid attorney at no cost to her, and she could do as much legal work as she wanted. It didn’t cost her anything other than time, which I think she enjoyed spending with the attorney because she was able to get lots of compassion, attention and sympathy. I believe that she enjoyed the experience. Here, I’m in the situation, I feel like it’s completely unfair.

I’m not the one who screwed up. The servicer screwed up. They are not accepting responsibility and I have 40 loans with them. Am I about to go to war with them about it, something that might not cost me that much? In the end, it costs me probably about $1,400 in legal costs to settle with this lady. I had to pretty much wipe her arrears, which I didn’t mind doing. I did feel some mistake had been made that it would take a ridiculous amount of time to figure out where the mistake was made and what the right number was and everything. She wanted her arrears wiped. She wanted a little bit of a reduction in her UPB and she wanted some cash. I said no to the cash, I wiped the arrears and we compromised on the UPB.

I’m thinking, “Job well done.” She’s paid regularly ever since. She’s been a good borrower. Completely out of the blue, I received from an attorney that represents the seller’s servicing company a whole bunch of invoices saying like, “We were informed that you bought this loan a few years ago and here are the invoices for our legal representation with this borrower.” First of all, when I was settling with this lady and the other servicing company wasn’t, I said to my attorney like, “What are they doing? Why are they fighting with her? Give her whatever she wants. It’s going to be cheaper than arguing.” Now I know why because they never intended to pay those invoices themselves. They intended to pass them on to whoever bought this CFD. I cannot imagine the legal theory in which I, who have no relationship with this other servicing company, I’ve never hired them, I have never found this to indemnify them. I don’t understand why I’m getting these. I am hoping and praying that I am not responsible.

What I’ll say is you can have the cleanest books, the cleanest everything and it doesn’t matter. You can still get sued. Doing things the right way can mitigate some exposure, but at the end of the day, this is a business that you’re extremely highly susceptible to being sued. In every aspect of real estate investing, that’s the case.

GDNI 64 | Non Compliant Borrowers
Non-Compliant Borrowers: When servicers have blanket immunity, if anyone sues them, they call the lender.

 

What you were saying too is that anyone can see you anytime for any reason. The way the economics of it work, it’s always going to be cheaper unless someone’s demanding some ridiculously huge amount of money. It’s always going to be cheaper to settle it if you can for under $5,000 than fight about it because it gets pretty expensive pretty quickly.

I will go off to my next one, which is I had a borrower who I bought this land contract in a Northern Midwest state where they had a lot of taxes owed. The borrower was hemming and hawing about what the outstanding balance was and everything else. I paid the taxes and did a brand-new loan mod. We cleared up what the balance is going to be and negotiated a new balance on everything. Because the borrower who hadn’t paid or made one payment was adamant that they could start making payments because we’re doing some work from home and had some disability payments coming in. The day after the modification gets signed, it’s like, “I lost my disability.” The borrower signing the mod has basically not made any payments and it’s like, “Here we go again.” This would be an interesting one to say the least. I can already get the sense that it’s not going to be an easy one to settle and rectify. I have the sense that the borrower’s going to go down fighting. I’m in the process of prepping myself for this one to know that this one’s going to be painful.

On another note, this other issue I’ve been going back and forth with on a borrower. The borrower is doing legal. We’re in the process of trying to settle it. The borrower basically came back and had an ask. This is what they wanted. As part of the mediation, we had a phone call and my attorney’s like, “It’s my understanding that you want A, B and C completed.” They said yes. They said, “What are your thoughts?” I said, “I will comply with A, B and C.” All of a sudden there’s a pause because I knew that they never thought in a million years I would comply. They came back and said, “That’s great but that seems like it’s a lot of work for you to do all that. You’ve got the whole this, that and the other thing. Why don’t we settle everything for $0.25 on the dollar? We’ll cut you a check for $0.25 on the dollar.” I’m like, “No, let’s go back to this is what you wanted and I’m more than happy to give it to you. Do we need to have the meeting with the mediator and finalize a mediation and stuff?”

The attorney was like, “Let me get back to my client on that.” I’m like, “Go ahead. I don’t know what’s there to mediate for because I’m just sitting here thinking that you asked for this, we’re giving you what you wanted.” It goes back to I think they never thought in a million years that I would give them what they wanted. It was something that I thought was reasonable. This one’s been a thorn in my side in the last few months. This is an issue that popped up. The issue is actually going on to other prior servicers, owners of this thing as well. I wasn’t made aware of it after you bought the note and they’re like, “Thank you, Mr. Seller.” This isn’t something that has started brewing up. This has been going on since October 2018 to give people a time frame of how long some of these issues can go on.

You don’t want to get sued.

I would be shocked if I didn’t in this one.

That’s a nice long time to be battling with someone. Like my case, I settled with a borrower. This thing bubbled up like methane gas from the valves of the Earth coming up through the lava and volcano. I thought I was clear of that one and just able to move on to my next borrower without revisiting an old borrower.

Do you have another one? Because I can keep going.

Compare to these things, my next complaint is minor and administrative. I spent time using Simplifile to eFile a bunch of things. Actually, three assignments of mortgage that were never recorded on a note that I bought a few years ago. I am unfortunately taking to foreclosure. We also found out I’d been missing allonge on that. I was a much less knowledgeable note investor back then and I did not cure my paperwork right away. I’m hunting down the seller to give me that allonge. I have to say that those kinds of problems usually are fairly easily resolved even if a company goes out of business and you need an allonge from them. That could be a problem, but a lot of the companies that we deal with, they don’t get business. They might get absorbed by someone else.

Even banks, if you need satisfaction of mortgage from a bank, the banks get acquired a lot. I had a mortgage that was supposed to be a satisfaction mortgage a few years ago and the original bank had been acquired and then the one that acquired them was acquired. It’s like you’re going a long way down the lane to find the person who can give you the document, but that’s neither here nor there. I was trying to record all this stuff and a bunch of things had to be done in Birmingham. I love Jefferson County, Alabama. They record things so quickly. I don’t think they even look at them. You send them, they record them usually within half-an-hour. If you eFile, you’ve got the recorded thing back.

Other counties, however, you almost feel like you can never finish with them. I consider four attempts to file the same document to be pretty standard with a lot of counties. I had my first brush with a county in Davidson County in Tennessee. We all think of Tennessee because it’s a foreclosure, it’s so quick there and they seem very relaxed about things. I never think I’m going to have an issue. It took me four full attempts to record a simple quitclaim deed because the frustrating thing is the first time someone rejects it, they will tell you certain reasons. You’ve fixed those and you resubmit it and the next person who rejects it gives you entirely different reasons that should have been mentioned the first time of how we’re not.

I feel like it’s a game with them to find something. That’s like, “She’s back trying to do this again. What else can we find?” Davidson County is Nashville. I don’t know if this is just their thing, Tennessee makes you add to any document that you’re recording via eFiling so they’re not getting an original. They make you put in something called a true copy certification, which is notarized. It tells them that you are validating that the document you’re submitting is a copy of an original that exists and you have to be notarized in making that statement. They have something else too.

GDNI 64 | Non Compliant Borrowers
Non-Compliant Borrowers: Filing the same document around four times can be frustrating, but this can be pretty standard.

 

Maybe they’ve always had this. I just never tried to record anything in Davidson County before. Something called an oath of consideration where you’re testing to the value, which is crazy because the deed has the value on anyway. I don’t know why this ever document. Maybe some people don’t put the value on deeds. I wonder about that because I’m starting to get the impression that in many places because you don’t pay transfer tax everywhere on a quitclaim deed, sometimes people put down zero. That was the value of the transaction, in which case I understand why they need this extra document. I felt like I got caught up in such a spider web with this and it was the same day I got all these invoices from the servicer that doesn’t even work for me.

Anytime you do something like that, you should put $1 because technically an agreement has to be an exchange. I’ve got one for you. I have a borrower who was on a trial payment plan, which they were making multiple payments per month. When it expired, they would have to start going back onto their normal payments. The borrower was making ten trial payments. They made the first seven and then they missed number eight, but made number nine and then missed number ten. The reason why is the odd numbers were less money than even numbers. The even numbers were basically their regular mortgage payment and they had another payment in between that was to try and catch one of the arrears. We’re doing well at the start and then they fell behind and so forth. Knowing that they fall behind, but they also come to find out weren’t paying their water, sewer, trash, any of those other bills that they had as well. Of course, it’s a contract for deed. Also, there were county violations on the property for not mowing the lawn. A lot of other incidentals as well, those add up by the way.

That’s not cheap. Everyone who wants a real job should get a job mowing the lawn for a county somewhere because they charge, in my experience, a minimum of $250 for a mow. I don’t think it matters how big the lawn is.

The attorney sends documents saying, “You need to remediate this or that or pay this bill.” They’re basically silent over the last few weeks. I tell the attorney, “Send a demand letter.” We sent the demand letter and borrower calls in like, “What is going on? Why am I getting this? I’ve made every payment, I’ve done this, I’ve done that and so forth.” I don’t know if the borrower may own multiple homes and was thinking of another property or what was going on or what dimension this borrower possible could be living in. It’s like, “You didn’t make this payment.” He’s like, “Yes, I did make that payment.” We’re like, “Can you show a copy of the canceled check?” He’s like, “I don’t need to do that. I paid for it. My attorney will resolve it with you.” That’s the thing, sometimes people get scared by the threat of attorneys and other people are like, “I’m glad you got an attorney involved.”

A lot of times when an attorney gets involved, in most instances it can be a little more reasonable discussion because it takes emotion out of it. You want to talk painful. This one’s probably very painful. I would say from an expense standpoint, the expenses on this CFD are over $15,000 I’ve spent, and I’m guessing by the end of the day, it will probably be about $25,000 to $30,000 is the expenses. Thankfully this is not a $7,000 CFD in Gary, but I’ve got plenty of those. Anyone needs a CFD in Gary, let me know. Actually, most of the ones I have there are performing. Those are my good ones. I like Gary, even though I know some people comment that they’ll go there and get shot at and stuff. I don’t go. I don’t have to worry about getting shot at. I’ve had very good luck there.

I have one property there that started as a contract for deed and now is a house that belongs to me. It’s under contract to someone on a lease-purchase basis.

The moment you get to file the complaint with the courts, there is an easy $1,000 or more there. Click To Tweet

Who has so much debt? It slaps them in the face.

I’m not sure it’s going to work long-term, but people are in there. They are fixing it. It’s like a beehive of activity. They’re perfecting it. They send me photographs of the painted cobblestones that they have installed in the front. I’m not saying it’s the decorating style that I would necessarily have adopted, but it’s going to be a much better house if I ended up with it again, than the one that I rented to them. It’s something finally that we can’t complain about. I don’t know about you, Chris. Do you want to do another one? I feel like I’ve sufficiently vented. I’m already feeling more peaceful and I could wrap it up here, but don’t let me stop if you got more.

How about some good stories? Does anyone want to know about the good stuff that goes on?

I thought you meant good and bad.

I meant positive things there, something along those lines.

Luckily, the day of ours kicked off with some excellent news. The elevation certificate for the house I’m renovating down south. I do not have to raise the house above its level.

GDNI 64 | Non Compliant Borrowers
Non-Compliant Borrowers: A lot of people are attracted to the real estate business because it seems so positive.

 

I’ve had four borrowers completely reinstate where it was a year or more behind. That I’d say is something that I look at is very positive in that sense. I’m looking at a quick report. I’ve got 53 notes in this entity and of that, 46 of them have made a payment including 38 of the 53. I know of one that hasn’t is two of them were just got boarded, which one of them literally it got boarded. The servicer calls and the notes are thanking my servicer because they were afraid that they were losing the house because they could never get anybody on the phone to know how much to send or where to send it. They said, “I can give you this much and pay $500 a month.” What they’re going to be putting down with the $500 a month is a very good start to a deal in that sense. That’s one of the unicorns and rainbows so far. We’ll see how far that goes. I also did have a very contentious borrower who made a comment that we would never see a dime from them. If we wanted anything from the house, we could come to collect its ashes. I think it was the exact quote.

Where are they? I have a house I would love to be converted into some other biological form.

This one I did not want to be converted into biological form because it has lots of value and they finally realize that, “I’m not the bad guy. We bought this thing. We’re trying to work with you.” They did send in the payment, which it appears it did clear. It was thirteen months of payments, which I was getting ready to start the foreclosure process. Sending a demand letter will cost you $100, $200. You’re not involved too deep. The moment you’ve got to file the complaint with the courts, there’s easy $1,000-plus there. Before you hit the button, you want to do one last check, “Is this what I want to do?” We were in-between that stage and finally, the borrower literally stepped up right before we were getting ready to file the complaint. I notified the attorney like, “Hold off, don’t file their complaint and stuff.” They’re like, “Fine, no problem.” This was waiting for the check to clear and forth, but it’s one of those things that for a little note and bolt comment is recommended to try and do one last check if there’s been some communication before you spend $1,000-plus on a paperwork. You can add it to the account, but eventually you might get it back, you might not, but it’s going to hinder you where the $1,000 could have gone to you versus going to you to pay your attorney.

My note and bolt I think is best to be in this business aware of that not every day is going to be an exciting win. There are a lot of days when you don’t make any progress, and then there are those hopefully a handful of days where you feel like things go badly. The sun will come out. The one thing that’s sure is that everything changes all the time. A lot of us are attracted to this business because it seems so positive in a lot of ways. You can help people. You can make money. You’ve got all these great relationships with other note investors and with JVs. That’s all true. Just be aware you’re going to have these setbacks and it’s not fatal, except things that are actually fatal and it’s easy to tell the difference.

When I bought a bunch from Direct Source within the last round on March or April 2019, three of them had deceased in-between due diligence and when it got boarded. When I made my offer and when it got boarded, it’s like, “Borrower deceased.” Immediately after that, I had another borrower on a land contract that I’ve had literally called in wanted to pay $1,800 to reinstate on a Friday. Then I get an email on a Sunday and I didn’t actually respond to the email because it came back late Friday. I was like, “I’ll just wait until Monday because I want it in front of my services email thing.” It’s too late because Sunday night I get an email from a family member saying the borrower is deceased and wondered what they needed to do. I’m like, “You don’t need to send the email about $1,800.” Then I just found out that I had a borrower in Indiana who was in bankruptcy and ended up deceased. The bankruptcy has since been dismissed. I may have surpassed Adam Adams.

Formerly the Grim Reaper of the note business. Hence, he’s sickled to you.

There are a bunch of notes that I bought when they’ve been the estate of somebody. The person’s already have been deceased and knows if it’s a property that you’re interested in.

You can’t be blamed for those.

I’m not blamed for those and I’m not blaming for the ones in between. Technically, I am blaming myself for any of them. Sometimes when you buy one, where you see it’s the estate, that’s a sign of another note and bolt. That’s a sign of somebody deceased. That means you’re basically getting the property back, but you’re probably going to get it back without a fight. If you want to test the waters on how foreclosure goes without it being contested, that’s probably one that you want to check. Make sure whether or not there was probate and that you don’t have to reopen probate and go through that whole caboodle. Gail, anything else we would like to add?

Thank you, Chris. That was lots of fun. I do feel a little lighter. My burdens, I have decided to put them down. I’m not going to carry off it with me. Let’s just all take a deep cleansing breath and hope everyone is doing well out there in note world. Thanks again for joining us.

We like interaction. Feel free to ask questions as always. Make sure to sign up at GoodDeedsNoteInvesting.com for updates on things, tapes that we put out for different things. For example, we put out a performing note calculator for people. There was an episode where we talked about a performing note calculator. Also, make sure to join our Facebook group, the Notes and Bolts From The Good Deeds Note Investing Podcast. There’s a lot of traction in that group and a lot of great conversation between a lot of different parties, including attorneys, Brett Burky from Paperstac, some realtors, some investors in there who do fix and flips. If you have a property in an area that you might want to team up with somebody on acting as the hard money lender after you take it back so they can flip it. There are a lot of great discussions going on there as well.

It’s been gratifying to see that growing and everyone is welcome. Please join us. In the meantime, go out and do some good deeds.

Take care. Thank you.

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