- April 30, 2019
- Posted by: august19
- Category: Podcast
You can always learn valuable lessons from whatever situation you are in, no matter how aggravating they might be. Venting out their frustrations, Gail and Chris look back at some deals that happened and reflected on the things they learned from them. Gail and Chris give an update about the water issue of a house consuming 5,000 gallons per day. Gail then shares her concern to close a distressed house in Oklahoma at an inexpensive price while Chris talks about an issue regarding the process of doing three loan modifications. Join Chris and Gail as you also reflect on the lessons you may have learned from certain aggravating deals.
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Looking Back And Learning From Aggravating Deals
We’re going to change it up a little bit for our episode and we’re going to do a full episode on what happened.
We’ve both had aggravating things that happened that have some lessons in them for all of us.
Before we get to yours, a follow-up to our last episode where I had the borrower with the water issue. The borrower allegedly sent an email noting that whatever it was has been fixed, and it was a simple fix that they could do their own.
Before you go any further, for the people who didn’t read the last episode, let’s say you were alerted by the water company that the water usage at this one particular house was 5,000 gallons a day. Is that correct?
Yes. In essence, the water company noted there had been a large water usage averaging 5,000 gallons per day. I got my attorney involved. It is a contract for deed. We had the water turned off to try and resolve the issue. The borrower who is in communication and then working with us, but the water department has noted this problem has been on and off and ongoing for several years. When it was noted to us that it was a simple fix, we’re going to request the water department provide an inspection on the property before turning the water back on.
Your borrower has alerted you that it was a simple fix. Did they tell you what it was and how they fixed it? I’m hoping that chewing gum is not involved.
I don’t know if chewing gum is involved but the correspondence was on the lines of, “Issue has been resolved. It was a simple fix that I took care of myself.”
This reminds me. I had a niece living with us at one time when she was in college age. She used to take showers that lasted over an hour every day. How many gallons do you think an hour is running the shower?
Typically, you have low-flow shower heads which most people dislike because they don’t provide a lot of pressure. They are a few gallons per minute. If it’s 5,000 gallons a day, that’s the equivalent of a hose spigot running consistently. A half-inch line typically running like that with not a lot of pressure will do about 5,000 gallons a day. If you were running a faucet, that’s the same thing. That’s probably about 5,000 gallons a day.
We were talking about this. We said, “When you hear water running somewhere, wouldn’t it sound like there was a white water rafting operation going in your crawl space?”
Not necessarily. I’ve given up on trying to put some of the puzzle pieces in my head on some of these issues because it’s stuff you can write a book about, but some of the stuff you can’t make up.
A friend of mine has a second home up in the Pocono Mountains and she happened to be up there. She happened to go down into the utility space where all the guts are, the electrical, the plumbing, the hot water and everything. She discovered that the hot water manifold was broken. I don’t even know what that is. That is part of I assume an on-demand hot water system, which I don’t have. Apparently, this had been spraying for quite a long time because there’s a tremendous amount of mold in there. It was shooting up. It completely soaked the floorboards from underneath and they have wet floors above this space.
Insurance should cover that. Usually, when water heaters go, insurance covers those.
That was their first thought and that person’s coming soon. It’s heartbreaking because they built this house themselves. My friend’s husband is an architect. They physically did some of the work. They’re bummed out. That’s all the water issues. That was the last episode, onto the new horror of now. I was sitting here minding my own business and I got an email from the title company that is closing a distressed house for us that we’re selling at an inexpensive price. This is in Oklahoma. We’re selling this house. It’s nice on the outside house. It’s pretty. It’s a three-bedroom house, it needs everything on the inside. For an investor who is the person buying this house, that’s an exciting project. We’re only selling the house for $12,500. I hear from the title company. We already knew there was about $1,100 in taxes. There are multiple code enforcement fines on this house for weeds for the period of time when it was sitting vacant before we bought it.
Altogether there’s about $2,500 in liens or fines for this and taxes. We’re going to have to pay the realtor a couple of thousand dollars. Our big $12,500 sale is already getting a little skinny. I hear from this title agent that there are many things wrong here that we are recommending you do a quiet title procedure. For anyone who’s done a quiet title procedure, they can vary in price from probably a best-case scenario of $1,500 to $2,000 to $6,000 or more depending on where you are. I asked her, “What would that be?” She said, “In your fine state, $3,000.” She could get us a deal because it’s normally $3,600, but it’s only going to be $3,000.
She didn’t even tell me in this first email. She didn’t even send me the title abstract. She was like, “There are so many problems. You need to do this.” I was like, “Can I please see the list?” Honestly, a third of perhaps the eighteen items on this list are routine issues that other Oklahoma title companies have put us through before. For some reason, Oklahoma’s a tough place to sell a house that you have obtained on a quitclaim deed that has been quitclaim deeded multiple times. They want paperwork from every transaction that totally shows that everybody who had a hand in ever transferring the property on a quitclaim deed had the absolute authority to do it. These people are even questioning a quitclaim deed that was gotten from a prior owner of this house, a married couple. The quitclaim deed did not specifically say they were married. They want some proof they were married.
I was looking at this list. I felt the air went out of me, which is my panic to deer in the headlights initial reaction to someone dropping the boom like this on something. I started looking at the list a little more carefully and I thought, “Some of the items have to do with my company and wanting a corporate resolution from my company.” That’s easy. Others are paperwork that we can get from those other sellers without too much difficulty. Before we get involved in all of that, I thought, “Let me take the bull by the horns.”
I called our realtor who negotiated this deal and I let her know that she had already gotten the same email and was under her bed quivering. I coaxed her out and I was like, “This is what we should do. Not only were these paperwork issues on there, these liens were on there, but they also wanted surveying done to establish where the easements are and all this jazz.” All of this is coming about because the title company is treating this like a normal sale where the buyer is insisting on having title insurance. On the $12,500 purchase, if you’re not prepared to lose $12,000 on a deal, you aren’t much of an investor in my book.Why spend on something you don't necessarily have to do or you may not ever have to do? Click To Tweet
I said to our realtor initially, “There are a couple of ways for us to go here. First of all, we’re not going to do a quiet title, not at this price.” If he wants to give us $15,000 or $18,000, we’ll do a quiet title. I said, “There are a couple of possibilities. One is we offer a quitclaim deed to the buyer and he can decide down the road if he wants to get title insurance on this thing.” I can pursue all of this paperwork they’re asking for. We already planned to pay the taxes and code enforcement violations. There are a couple of things like the surveying that he needs to decide to waive or get it done himself. At this price, he needs to be part of fixing all this stuff or chipping in. I said, “Even though you and I already planned and expected to pay the liens and taxes, don’t say that to him.” Say like, “This is what it is to get this thing transferred to you. What are you prepared to do?” This does have an open-ended conversation where we’re not offering too much upfront. Let’s see. She’s off making that call.
We’ve discussed how no two title companies are the same. Title companies are similar to their insurance policies. It’s like taking insurance out on something on what are the chances of having a claim. Some title companies are more risk-averse versus others which have specific criteria like this one that needs every little detail to have everything completed. I know there’s another company that’s like that. There are other companies that are more like mortgage companies. Some of them you have to have perfect credit and all this stuff to get the mortgage and others they’ll give you a non-QM and title companies are the same.
I was thinking back on other times when we have had major issues with title companies. Another time was in Oklahoma too. I said to the realtors, “What is it about Oklahoma?” We sold two properties in Michigan and Indiana. It’s the same thing, multiple quitclaim deeds. They didn’t care. She said, “I’ve been told that Oklahoma is an abstract state. Maybe that’s why.” I thought like, “I’ve never heard that term before.” Have you? An abstract state? It sounds like, “We question every little thing.”
No, I’ve never heard that term before.
Everyone gets an abstract. That’s not unique to Oklahoma, but how much you sweat all the little details seem to be Oklahoma.
Some of them I see on there where one deed was done to Harbour Portfolio VI and then it went from Harbour Portfolio VII. They missed the extra Roman numeral on it. I can see that as something that should be corrected or whatnot. Some of this other stuff is completely ludicrous. For properties that are in this price point, a lot of times most investors won’t sell it with title insurance. They’re paying cash so they don’t need to have it. What they’ll do is when they go to sell the property, typically they’ll put some language in there after they renovate it that they’ll include in the price. It will raise the price to know that quiet title is something that’s going to need to be potentially taken care of.
If they keep it as a rental, is it a necessity if you’re going to hold onto it and keep it as a rental in a period of time or until you sell it. If you sell it to another investor, there are many properties that almost every land contract deal that you buy doesn’t have title insurance on it. For the most part, these properties are only $10,000, $20,000. Nobody’s ever going to get financing on them anyways, which is one of the reasons why title insurance is around. It’s also nice to have clean title to some properties, but at some point in time if you’re going to hold onto it and keep it for a long time, why spend $3,000 on something you don’t necessarily have to do or you may not ever have to do.
As a quick summary of title insurance, when do you need it? If you think you’re going to resell it right away. If you have a concern about something coming back. If there’s something questionable on the title that looks dangerous and you want to resolve it before you put money into the property or whatever. If you want financing or you want to refinance it, pull money out of it. That’s it. Did I get them all?
I would add a few that if there was a mortgage that didn’t have satisfaction from prior. If there’s anything that could attach to the property as a lien or a property was conveyed in a sense that if the recording showed it from Gail Greenberg to Chris Seveney and then John Smith to TomTom. What happened to Chris Seveney to somebody else or something like that? You’re breaking the chain. Some of these things I could go on here, we could get this paperwork for where it misspelled a name or sometimes it might have the wrong parcel number, you can get those corrected. The question is, do you want to hold up closing for a couple of months to get that where you can get the title insurance later on, and it’s some paperwork corrections?
Some of the stuff like a survey, I’m not going to recommend that we spend $500 to have some easements go surveyed to close on this property. We’re selling it as is. A lot of times, in that sense, it’s as is. If you need something to meet your criteria, then that’s your expense. They can come to ask us to pay for this stuff, but I know what our response is going to be, “You’re the one that wants title insurance, you can pay to have all this stuff done. If there’s paperwork you need us to provide you, we can provide it. Some of this other stuff that caused costs to increase, that’s definitely on you.”
The surveying is one of those as is. We met when we said as is. It’s a great example.
Each state is different. This is Oklahoma, which is a perfect example. Here’s another lesson that I know a lot of people and entities, especially on land contracts, may create their own documents. I was having a conversation with Orion who I use for my documents. On some of them, I was creating some of the assignments and stuff, which I would almost copy from the prior seller and transfer it over. They said, “That’s great, but a lot of times the prior seller may have screwed something up and may have had the wrong parcel number or something else and all that stuff. Trust us. It’s in your best interest to give it to us and let us do it. We send it through an auditing system to make sure everything’s correct on it like the parcel numbers and everything else versus you as an investor copying from the one that was sent to you and changing names on it. It sounds all good but when a company is selling twenty assets at a time, sometimes they forget to put the parcel number. They keep a parcel number from another property on this one and then you’ve got a property address or the wrong parcel number.”
I have an example of that. It was a contract for the deed I wanted to buy in Georgia. There had been three different quitclaim deeds issued and recorded that all perpetuated the same wrong lot numbers in the legal description. People kept copying it over and over again. At the point where you have a pile of wrong ones, it becomes quite a lot to unravel. In that case, one of our trusted attorneys Beth Cruikshank was like, “The only way out of this is to do a quiet title.” That was one of the expensive places although Georgia, in general, is inexpensive to do foreclosures and forfeitures. She told me that a quiet title would cost $5,000 to $6,000 there. She’s reasonable. That got my attention.
It’s funny how we’re talking about title insurance, getting it and it’s both ends of the spectrum because on the deals I try and acquire, especially on notes. I always check to make sure there’s a title insurance policy. I’m talking out of both sides. It hit me and it’s probably a good episode where title insurance has helped because my famous Wyoming asset as part of the closing needed to have a title insurance claim placed on it. Essentially, there were two parcels to the lot when we foreclosed. We only foreclosed on one of the two. That’s the way closing a little bit but on notes. That’s where I differentiate.
On notes, it’s much more important to have the title insurance because a lot of times the assets are much more valuable on some of these lower-priced assets. Is it worth spending $1,000 on a $15,000 loan? People ask me all the time, “Did you have title insurance? Should I get title insurance on buying the CFD?” I always tell people, “It’s up to you. I’m not giving you advice.” For my business, I look at it from the way I view this as I’ve got a borrower who’s paying in this property that they’re going to get the property quitclaim deeded over to them. If they stop paying, it’s either going to be one of two things.
They’re going to get a new borrower that’s in there or vice versa, sell it off to an investor and sell it again as is. If there are issues with the title that need for a quiet title, I’ll make that on them to resolve and have them because they should be doing their own due diligence during the research and running title reports early on. I don’t see the expense of spending $1,000 on a $15,000 loan. That’s 6% right there that you’re spending on fees. What is it getting you? What’s the bonus that you’re going to get from that?
Let me ask you one thing because I’m hoping you’ll know. If you don’t do a quiet title and say you do a big renovation of a property, spend a bunch of money and then somebody pops up later. Do you know if that person, if they want to reclaim the property or whatever, if they want the property back, do they have to compensate you for the money that you put in?
It’s a good question and I think it would probably go to what the specific situation is. If say the couple was married, got divorced and one of the individuals sold off the property without getting their partner to sign off on it. He gets or she gets the money and then all of a sudden, a few years later, the guy or girl comes back and says, “I didn’t know this was sold.” That would be a hairy situation on how that would get resolved.If you need something to meet your criteria, then that's your expense. Click To Tweet
It seems he would have to go after his partner to get the money.
He would, but he still technically may have some claim to that property as well. How that gets resolved, that’d be a mess and you could have an attorney come on. A lot of these issues we see are typically typographic in the sense of wrong parcel number, wrong entity, missing an assignment or missing power of attorney. In many instances, I had one where one of the borrowers passed away and it went through the will and everything. Seven of the eight family members signed off on it. There’s a family member that didn’t sign off on it. I was talking to my attorney about it and he said, “It’s your call. They could come back and try and claim a portion of or some proceeds or something like that. What are the chances?” There is a statute of limitations in regards to how long they have before they come back. I believe it’s in Indiana. If it goes like a tax sale and it wasn’t properly posted or there’s something with Indiana where you have to wait for a period of time. After a few years, it’s a moot point. The person after that period of time can’t come back and claim that, “I own that property. I wasn’t aware it was sold at a tax sale,” or something along those lines.
I have my first tax sale property that I’m shepherding through the process. It’s amazing that these things are a bargain to buy at the tax sale, but then you pay afterward for all the notifications and the legal. It’s a lot more than I was expecting.
I recommend for people who buy things at a tax sale and you can speak a lot more to this. That whole process you definitely want to have an attorney assisting you in everything that needs to go through that. I bought one in Pennsylvania that was a tax deed. I’m in the process of seller financing it, but there are a lot of nuances that I was like, “I should have probably had the attorney handle all this for me,” at the time. I paid $300 for it. It was one of those things where I was testing the waters.
I’m done complaining about this. What happened to you?
I’d say the other thing is and I’ll roll this into what happened in a Notes and Bolts moment as well. I am in the process of doing three loan modifications. I sent three loan modifications out. In one, I’m swapping it over from a land contract over to a note because there are multiple units on this property and there have been some issues with the property in regards to whether it is tenants or violations. If you get a violation and I have other properties in the county, I don’t want that to tie to all my other properties and make it a problem, later on, to try and get the borrower to pay. The borrower is performing on loan, but I don’t want to have to deal with these headaches. I struck a deal with the borrower saying, “I’ll pay for everything. We’re going to transfer the title into your name and swap everything out.” He agreed. I got those documents out the door and also got three new loan mods that went out the door as well.
It’s always nice when you have these borrowers. My Notes and Bolts are typically before I do any loan mod, I’ll do a trial payment plan for a few months and get them paying on a consistent basis. All of these borrowers have been paying some funds and stuff. They might be a couple of years behind on the payments and we’re going to take that amount, roll it into a new loan and keep their payments where they’re at. It’s not bumping up their payments at all. It’s giving them a fresh start and these situations it truly is a win-win for the borrowers as well as from the investing side as well.
We got forfeiture in Tennessee, and the guy who lost the house came to us after he technically lost it and begged for another chance. The house was in bad condition, and he wanted to fix it up and then have another shot at owning it. We thought, “We don’t want to create a new land contract with him right away. You failed on the first one.” We rented it to him particularly because it had a water main issue that for us would probably cost $10,000 to fix, but he has a buddy and he was going to work on it. We were like, “You can be the tenant and a tenant with the right to fix things.”
Now that he’s been doing well as a tenant and he’s been paying consistently more than his original PI payment. He’s paying a higher rent. We’re asking ourselves, “Is it the right time to give him another shot at owning this place? How do we want to ease into it so that we’re not right back where we started if he defaults again?” Why don’t we talk about what happened to you because this is something that always gives me the willies when a seller says to me, “Buy this note. I know it’s got a lot of problems. We’ll put it in the contract that I will either pay for these items or I will buy back the note from you if I don’t pay those things.”
The side letter agreements which I’ve done many and never ran into issues with any of them. A few times there were time periods or timeframes for people to produce a document and sometimes they maxed days ago and it came back a little later than it should have. This one is in regards to an asset that the seller, the verbiage is debatable because it mentioned liens levied on the property. What does the term levied mean? It was taxes and liens and there is some past due to taxes on this property, which one of these assets where the seller is like, “I don’t have any collateral. Based on the information you have, give us the best number. If there’s any past due amounts, any issues, liens and stuff, the seller will either buy it back or pay for them.” That’s what the agreement says, but that’s not what the terms were. Levied to me means because taxes are delinquent, they’re automatically levied against the property if they don’t need to file a lien and a court to have them because they’re owed.
My interpretation of levied is if you were selling this, if it’s something you would have to pay in order to sell it, that’s levied.
You need to transfer a deed and in order to transfer the deed, this needs to be taken care of. We’re waiting to hear back.
You’re in a battle of terms because you were like, “There are taxes and a big sewer lien on this property.” Was it the sewer lien that they were not sure it was levied?
The sewer lien is saying it’s only X amount of dollars and it’s double. They’re like, “How did it get doubled?” I was like, “Are you asking me?” Here’s the history that shows the fees and the good thing is it is an itemized history by date of when and what it is. I was like, “We bought this on December 28th,” because they wanted it out by year-end. I was like, “Here it is, December 27th. This was what the balance was on that date. It’s clear on there.” There’s an extra $200 since that time, which I’m not worried about.
I want to give myself a shout out here. I got that ledger for us. I asked for it and not just statement, but I didn’t know it was going to come down to this debate.
At the end of the day, this is somebody that you and I do a lot of business with. I’m sure we will be able to work this out.
We’re going to make it amicable.
There’s always a little bit of arm wrestling in between, which is all part of business, but we will get it resolved.If it's something you would have to pay in order to sell it, that's levied. Click To Tweet
This is why it’s fun to have a show because we can come on here and rant, rave and vent all our frustrations so I can be calm and friendly.
It’s fine because meanwhile on the same email that I sent them bad information and stuff, I did add, “What assets do you have left that you’re looking to move as well?” I’ve bought a lot of assets from this individual over the last few months, probably over 50 assets. Gail, do you have any final thoughts on this episode?
I’m going to call the realtor back and find out what’s going on in Cleveland.
Thank you for reading another episode of the show. As a reminder, if you could please leave us feedback on iTunes and Stitcher. Please make sure to subscribe to the podcast at GoodDeedsNoteInvesting.com where you’ll get signed up to a list as well as receive any assets or tapes that we put out for sale 48 hours in advance. On the last tape we sent out, several assets were gone before we sent them out to the masses.
That 48 hours can be very crucial. It’s a real opportunity.
Any final thoughts, Gail?
No. Thanks so much. Be sure and go out and do some good deeds.
Thank you all.
- Beth Cruikshank
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