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Note Investing Horror Stories With Chad Urbshott

GDNI 83 | Note Investing Horror Stories


Just when you thought things could get really bad, it could still get worse. In this episode, Chris Seveney continues with more note investing horror stories with Chad Urbshott, the Founder and Managing Director of Equigrowth Capital. Chad details his slips and mishaps from a re-performing CFD gone badly which took months before forfeiture, irate borrowers who think you’re ripping them off, to getting your property city-condemned. Read on and learn a thing or two. Laugh, cry, be horrified, it’s up to you.

Listen to the podcast here:

Note Investing Horror Stories With Chad Urbshott

We have a special guest with us. We have Chad Urbshott with us of Equigrowth Capital. We are continuing our October horror stories and we want to bring Chad on to share one of the CFD horror stories that he has. Gail and I share many of ours, but we like to bring on other investors to get other perspectives as well. Chad, how are you doing? 

I’m great, Chris. Thank you for having me on again.

Thank you for joining us. For people who may not have caught some of the prior episodes, why don’t you tell people about yourself?

My name is Chad Urbshott. My company is called Equigrowth Capital, properties are one of the subsidiaries. I’ve been investing in real estate for about a dozen years. I started in ‘07 buying rental properties, doing lease options. I got into student rental properties, which turned into animal houses. It was a little bit too hairy managing over twenty students. My background is I’m a structural engineer. I’ve got a background in construction, very similar to Chris. He and I fall to pretty similar path and I think we’re almost the same age. It’s was leery almost how co-related we are. I’m Canadian, although I was Americanized for some time. I had a house down in Florida that I used to go back and forth to, but because of life circumstances, I sold it. I’ve done some commercial development as well. All along the way, I was buying more and more real estate back in 2013. I jumped into it full-time.

That’s when I started investing down in the US in Florida, buying foreclosures right off the auction, like the Courthouse auctions. That evolved into doing some turnkey rentals down in Florida, up in Cleveland. I got into fixing and flipping mostly down in Florida. While I was doing that and buying them from the foreclosure auctions, I started taking a keen interest in reviewing titles and making sure that what I was buying in the foreclosure auction was indeed the first lien and there wasn’t a second lien or an HOA lien and nothing behind us. That’s how I discovered the note world. In 2015, the hedge funds all moved in and were buying pretty much everything played on scene and buying them at retail prices. I was working with a firm called RSI Asset Management. A guy named Bill Bymel owns it. I was working with him and his team and that’s how I got introduced to note. He said, “You could buy the note before you got to foreclosure.” I’m like, “How does that work?” I started doing some investigation into it. One thing led to another. I partnered up with a guy back in 2015 and did quite a few deals with him and then struck out on my own in 2017. I went cold turkey on everything else real estate related and I’m buying notes and wind everything else down. Here I am, it’s been a crazy ride so far and getting crazier.

Chad, I know you’ve been working on potentially taking down a large pool of assets. Are you still doing due diligence on that? 

That’s another reason I got sick and stress going around the clock. Myself and another partner are taking on a pool of around 70-ish notes and closes.

Thank you for coming on. When you get to 70, you’re supposed to close on. Before we get to the horror story, I want to ask one other question for people out there. Since you’ve been in notes, what has been one of the things that you thought would be difficult that turned out to be more simplistic and vice versa? What did you think would be more simplistic and turns out to be more difficult?

When I first started, I was using my own capital and I bought a dozen or so out of the gate. Not all at once, but within a couple of months’ span. I was overwhelmed beyond belief. I was like, “What have I done?” I thought I have to slow down here and figure out what I’m doing and get some systems in place. The hardest thing was running the day-to-day aspect of it, from the asset management side. Once I got systems in place, I sat down for a few months and I’m a big Podio fan and got that all set up and running. I got my accounting system all switched over and I’ve gotten somewhat integrated. I wouldn’t say I was twiddling my thumbs. I was like, “This is now a lot easier than I thought.” It’s a matter of checking in with the servicer once a day, going through the notes, and figuring out what needs to be done. I also went from literally hours and hours a day to probably one hour a day. That was at the time when I didn’t have many, but I’m a little bit more involved in that now. That was probably one thing I thought was turned out easier than I thought. One thing went from easy to hard with taking back property as an REO, even though I’ve been buying real estate for a dozen years, these things are definitely not the average property. This is a good segue into the note horror stories.

I’ve got so many horror stories to choose from. I’m going to present two. I’ll try to go through the first one because it didn’t end up well, but it’s out of my hair and I’m glad it’s gone and over with. I’m sure I will run this again, but this was one of those stories where what else can happen? Anything you think could possibly go wrong definitely did on this one. The first one is re-performing, a CFD gone bad. That was in Kansas City and the next one is a foreclosure gone awry. What I mean by that is a foreclosure that has taken way longer than it should have. It’s still in the process and not even close to being done yet. This note or CFD, there’s a bit of a story behind this one. This was one of the very first ones I purchased with a partner back in 2016. There were a lot of numbers and this is a case study I put together.

We bought this in the partnership. At the time we bought the $14,000, it was not performing at the time. What happened was they started paying again and then they stopped. In one of your episodes with Bill Griesmer, he mentioned Peak Servicing. I’m sure this one was with Peak and we had no idea for months that these people stopped paying. That’s what happened. Eight to ten months went by before we realized what was going on. We scrapped the old land contract and we did up a new one. I can’t remember why the legal fees were so high, I just remember there was a lot of back and forth on this land contract. The original person in the house was an elderly lady. She was the only one on it. Her son came along and he wanted to be added to the land contract. We’ve got a new land contract. There are some of the fees, taxes. We’re all in it for about $19,000. When they did the note again, we sold it to them for $40,000 and they put $4,000 down. We did 10-10-10. There was the income including some of their payments and selling costs. Our profit on this is pretty decent. That’s close to a home run. That circle around the $26,000, I thought, “This is a really good-looking note.” It’s a re-performing note. I bought it out of the partnership. The value of the property when we bought it in 2016 was about $40,000. This was in Grandview, Missouri.

It’s not a bad-looking house. 

That was what it looked like. When we first bought it, I was looking through all my pictures and I was going quickly. I’ve got a lot worse ones, but that’s how it looked when I repurchased it. I got in there drive-by and it was a little bit overgrown, but it still looks decent in shape.

When you say repurchases, you’d bought this and worked it out, redid the loan and then you bought it back out of your partnership from your partner, is that what you’re saying? 

Yes, it was in a partnership. They just wanted to cash out and get their capital back. The value is $45,000, the UPB was $36,000 roughly. The investment to value is 50% if you look up the value property. Purchased UPB is 72% and the yield is 24%. It looks like a screaming good deal all day long. The reason I did all these numbers, I was reading the blog with Bill and I’m like, “He’s got a whole bunch of details. I better come up with something quick.” Somewhere along the lines, it was switched over to another servicer before I bought out of the partnership. When I bought this, the servicer that was holding it instituted that either you had to have ten loans or a minimum monthly charge of $200. I wanted to keep it there for the sake of keeping everything seamless with the borrower so that they don’t see any hiccups. A bunch of the performing CFDs I bought, I kept it with the servicer.

Is it Land Home

Yeah, it was Land Home. I was like, “I’m not keeping that. That’s your policy.” I switched over to Madison and I didn’t know exactly what happened, but something got lost in translation. Land Home was collecting escrowing taxes. I don’t know why but they didn’t forward the escrow to Madison. Something got screwed up there. They mailed the escrow check to the borrower. Madison boards it. Their payment was $600. Maybe a little bit more than that, small change. They make two more payments and then by the time Madison gets boarded and everything and I had realized that they weren’t escrowing the taxes. I said, “Please put escrow taxes on this.” Since they’re missing the previous amount and two months have gone by, they had to take out years’ worth of taxes and truncate them down to eight or nine months.

The payment went up to $30. This borrower was irate that his payment had gone up that much and I had tried to tell him, “You got the escrow check for the taxes from the previous servicer. You can use all those taxes.“ He wasn’t having it. He thought we were trying to rip him off. He even got his attorney involved to review it and then he said the new land contract was a phony, even though we spent $3,000 on it. Two months in, he stopped paying, him and his mother. After that, he was responding but he was like, “I’m not paying another dime. I’m only paying the $600 or whatever it was. That’s all I’m paying.” At that point, I said, “No, don’t accept any more payments.” That’s the way it’s going to be.

A couple of months after that, there’s a contract for deed and for all the readers out there, the difference between a contract for deed and a note is in the traditional mortgage, you have to foreclose on. You’ve got to go through the whole process. This is in Missouri so it’s not traditional, but it’s almost as quick as doing forfeiture on a contract or deed. On a contract for deed, it’s almost like an eviction where it actually has to go through the courts. You present to a judge that they haven’t made a payment. It’s almost like a rental where they haven’t made their payments, then the judge issues a forfeiture judgment and then you can get your eviction from there. He wasn’t budging and he files for forfeiture. I’ve done a couple in Missouri and I’ve done one foreclosure. I’m pretty sure the foreclosure was quicker than the forfeiture.

My attorney has told me in Missouri and Georgia, you’re better off having a note in your land contract.

The last foreclosure I did, I bought it in January of 2018. There was no answer from the borrower, so I issued a demand letter. We started the foreclosure process at the end of February and the foreclosure happened in the middle of June. It was quick. April or May, I initiated the forfeiture. We get it in October of 2018. I get the forfeiture. They’re still in the house. I send the dry buys and during this time I started getting notices from the city about uncut grass, junk in the yard, unpaid car park, animals, mostly they got five or six of them. I called them up and I said, “We’re trying to get these people out on the property, can you cut some slack?” They said, “We’ll give you a bit of slack.”

They kept sending the notices. We ended up sending a preservation company over. It’s the one that I used to use that I no longer use. It literally took them a month to get over there or at least two, three weeks. I wanted to do a door knock, “The grass wasn’t cut so let’s cut the grass and let’s get this property taken care of.” He was met at the door with the guy wielding a knife. This is when the fun begins. We get the forfeiture and then we got to proceed with the eviction because they were still on the property. We get the eviction. The forfeiture may have happened in August and we got the eviction by October I believe it was.

That’s still not a lot of time. Ten months is a good amount but not forever.

I think we started the forfeiture in April or May, so four or five months have gone by. I remember I got an email from the attorney handling the forfeiture. The sheriff locks it out on Monday, and this was a Thursday. I’m like, “I’ve got to get someone over there quickly,” because when you do an eviction, you need to have someone to change the locks. In this county, you need to have the moving crew there. The whole weekend I scrambled and I finally found a local property manager that would go over the property. I talked to him over the weekend about it and he says, “I’ve done these lots of times. I handle 80 properties myself.” It ended up being on a Monday. Luckily this property manager called me up and he said, “Do you mind if I drive by the property so that I can get a handle on what’s going on?” I’m like, “Yes, go ahead.” I said, “Be aware, the borrower is probably still there, don’t go in.” He’s like, “No problem.” He goes by there and the sheriff lockout was scheduled for 2:00. Plus, it’s on Central time and I’m on Eastern time.

I get a phone call at 3:15 and 2:15 Central time, and the property manager said, “I thought you told me the lockout was tomorrow?” I’m like, “Yes, it is.” He said, “The sheriff is here now and he is screaming at me that I’m late.” I said, “Let me check my email again.” He goes, “The good thing is I came by.” He was by himself and the sheriff is giving him a hard time because he didn’t have a crew with him. It turns out the property is vacant. They weren’t there anyway. Luckily the sheriff didn’t have to escort them out. The sheriff has said, “You can do whatever you want with the property. Just secure the locks.” The sheriff made sure that the locks were changed and secured. It’s probably not the worst I’ve seen. Probably one of the worst I’ve had but they weren’t hoarders, their belongings were in there. The biggest concern was the nice little crack in the foundation wall.

That’s a half-inch crack in that wall? 

Yes, I have other pictures, but there has been some shoring done in the basement over the years. This one is definitely crumbling.

Is that potato salad in the next one? That’s my code word for mold. 

Yes, in the basement there was some mold. He calls me about a half-hour after he called me the initial time when the sheriff was yelling at him. All I hear was a gagging noise. He goes, “I’ve been doing this for years and years back during the recession, I must’ve done five a week or something. This is definitely the worst smelling house I’ve ever been in my life.” He was gagging as he’s telling me this. All of a sudden, he said, “I’ve got to get out of here.” He ran out of the door and all I could hear was him tossing these cookies. I’m like, “That’s not good.” He said, “This place was full of urine, feces and human diapers.” The elderly lady was apparently not able to make it to the bathroom. The son was not taking very good care of her. He says, “I’ll send you all the pictures. If you want me to clean it out, I’ll bring my crew back in the next couple of days and we’ll get this cleaned out for you, but we’re going to wear gas mask to come in here.” I’m like, “Yes, I can imagine.”

He sends me pictures and as I’m going through them in the bottom I see this sign. I’m like, “What the heck?” As I’m squinting at it, I’m like, “Is that a dangerous building sign?” Sure enough, I called him up and I’m like, “What’s going on with that sign?” He goes, “I forgot to mention that as I was running out of there.” I said, “What is that? Are they condemned by the city?” He says, “Yes, it looks like it. You might want to give them a call and say what’s happening.” I was like, “Okay, great.” He’s going to come back and he verbally told me it’s going to cost $1,500 to $2,000 to clean it out. It looks like a lot of junk, but it’s only an 850 square foot house. It wasn’t that much in their basement.

GDNI 83 | Note Investing Horror Stories
Note Investing Horror Stories: If you’re just starting in note investing and using your own capital, think of slowing down. Figure out first what’s going to happen and integrate systems in place.


I paid $1,500 for that one I posted on Facebook that was about 750 square feet but had a yard and a garage. It was completely filled as well.

I called the city. I found the phone number. The City of Grandview called up the inspector, left a message and never heard back. I found the website that had all the inspector’s name on it. I shot him an email. The property manager asked me, “When do you want me to clean the property out?” I said, “Let me figure out what’s going on with this property. If it’s condemned, you might get fined for going back in there.” He says, “You’re probably right. If I were you, I would let us clean this out and then deal with that.” I should have taken his advice, but I said, “Yes, no problem.” Finally, within weeks later, I got an email back from the inspector. “Indeed, the property has been condemned. We had a welfare call made by the caretaker of this elderly lady. They go to the house and see the condition. They entered and called the police. The police actually arrested the son. The police called the city because of the dismal condition of the property and the city came and condemned it.”

In this big long email from the city, he proceeds to tell me that in order to lift the dangerous building placement on the property, I needed to get city-certified and county-certified contractors to go in and clean this property out. I called the property manager, I’m like, “Are you licensed with the city?” He said, “I do have all my license except for the one they’re looking for.” I’m like, “Great, of course.” He says, “If that’s what they told you, good luck. You’re going to get raked over the coals by the few guys that are in the city.” Long story short, I ended up getting an REO agent on this, thanks to Dickie Baldwin. She was fantastic to work with the amount of crap way to deal with to get this thing up and running and cleaned out. She had a few contractors that were totally certified with the city. She sends over to the house and I said, “You’ve got to go to the city first and get a permit to enter. You’ve got to all sign in, give your ID and pay a $50 permit.” They go down to the city and get this. I thought they’re going to clean it out. No, they went to assess it.

How big is the city? 

It’s got to be like a five-man wrecking crew with a lack of response. When they go and investigate it initially, they came back with a $5,500 cleanout fee. I wasn’t obviously too happy to get that from them and try to get them down, but they gave me the reasoning and the reasoning was they had to wear hazmat suits. They went down to the city. They had this whole list of procedures they had to follow. They had to wear a special type of breather, the whole works.

Did you consider sending somebody in on a Sunday with a dumpster when the city officials aren’t working and get the thing cleaned out and see what’s going to happen?

I was contemplating that, but this thing was being patrolled apparently by the city and the police and given it had that red sign all over it. I did talk to the property manager and he didn’t want to risk it afterward. He says, “I’m not stepping foot in that place. I could get thrown in jail.” They weren’t budging on the price. They go back down to clean it out. This is probably February or March of 2019. They cleaned it out and they do a pretty fantastic job. They better have after the price. They send me a bunch of pictures and I’m like, “Great. Can you go back down to the city now and get this lifted? The part of the scope I gave you is getting this thing uncondemned.” A week or two goes by, all of a sudden, I get an email again from the inspector and in capital letters, it was screaming at me that I had let these people into the property without them getting another permit. He was finding all of us and taking us to court. I could go on and on about all of the stuff that they were threatening. It was sitting there empty, all cleaned out. It took another four months to get this thing uncondemned. The contracting crew had to go back down there numerous times and get fingerprinted. It was unbelievable, the stuff that this inspector was in.

What was their beef after it was cleaned out? Getting another permit, why did they want a permit for?

They wanted a permit to enter. These guys didn’t get the second one to go back. Apparently, they’re supposed to get one every single day they went into the property. Obviously, they didn’t inform us of that. Finally, it gets lifted and then I go to sell it. Since this thing had a stigma attached to it, all the local investors probably knew what was going on. We listed it up for $45,000. I was getting offers at low $30,000s, and that’s the highest offer I was getting. Everything else in the area was selling $45,000 and up. I was scratching my head and like, “What is going on with this thing?” It was in bad shape notwithstanding that big crack in the foundation, but according to realtor it’s pretty standard in that area and the people just shore them up and they pass inspections, it’s not a big deal. I thought, “I’m going to look into rehabbing this.” I sent a couple of contractors by and I did not get a good feeling whatsoever. As you know, rehabbing from a distance is never fun unless you get a trusted team on the ground.

I had the grand idea that I’m going to partner up with a local rehabber, not necessarily the contractor, but a guy who does rehabs. I put this on Facebook and I had numerous people reach out to me and said, “This looks like a good deal.” I chatted with quite a few on the phone. I narrowed it down to this one guy. He went through it and he came up. The rehab budget was closer, which is more in line with what I was thinking it was going to be. He goes, “I’m finishing one right down the street. I could probably start in the next couple of weeks.” He had a business where he went into multi-unit apartments and did turnovers. He showed me some of the stuff he did. I’m like, “This guy knows what he’s doing.” He showed me some of his rehabs. Two months go by and nothing’s happened. I’m like, “What is happening?” I talk to him every couple of weeks. The last draw was when I called him up and said, “What is happening? When are you starting?” He said, “A friend of mine that owns a restaurant got really ill. I’ve been helping them out with that.” I’m like, “I’m done with this.” I’ve said to the real estate agent which we already had a list that I had to take off. I said, “Let’s sell it. What are we getting for it?” We sold it for $32,000.

There are a couple of monthly payments with expenses of $8,300, including the cleanout, some legal fees, the forfeiture, boarding servicing. It was all in for $34,000. I forgot to mention the city was so kind that all those notices they were sending me during the foreclosing on it, they managed to tack on a couple of thousand dollars’ worth of liens, which they would not remove, even though I pleaded with them while it was in foreclosure and they knew the exact story that was going on. The son in this property was also a sex offender. The reason he got arrested when the police went in was he had porn on his computer.

When you take the absolute value of your ROI based on what you projected, you are very close.

I took an $8,000 loss, but I looked out of the grand scheme of things. This is the first loss I’ve taken on notes. I’ve taken a much bigger loss on real estate before on bigger deals. You look at the loss, run it off to 25%. What if I put that $26,000 into the stock market in some stock like WorldCom, that thing goes to zero a few months later. At least I only took a 23% loss. That’s the way I looked at it because I beat myself up over this. At least I got the majority of my capital back.

There are a few things I want to mention for a little learning experience for people besides the loss perspective. There are so many people out there doing training and all they teach you is how to bid on an asset. Nobody teaches you how to manage it and stuff. The lockout process, I’m going through one for the first time where I’ve got the forfeiture and my attorney is like, “We file something with the sheriff office.” To my understanding, what they’ll do is go to the property and this location and hand a notice to somebody and say, “We’re coming.” Take the person out in this location. You can hire somebody through the sheriff, a moving company that will do it to take care of it for you. That’s pretty much the process.

Unfortunately, I’ve had to do three or four. Back when I was buying foreclosures, I had to do numerous and they were never fun. I hate having to kick somebody out of their home, but I was never there in person so I never had to witness it. It was a sinking feeling knowing that you’re closing another house. It’s part of the business. I just try not to dwell on it too much. It’s pretty sad that you have to go through the process. The way I look at it too is I’ve had lots of rentals where I’ve had to kick people out, too. It’s the same process when you’ve got a rental property. It’s exactly the same. The way I look at it is people, unfortunately, get themselves into a financial situation that they can’t get out of for whatever reason. This is life. When that sign was placed on the property, the red sign condemning it, I haven’t had time yet, but not long afterward, I went to the city’s bylaws. It clearly states that all stakeholders in the property need to be notified that it’s condemned or a dangerous building put on it. I got lots of notes that they’re going to put a fine on it for all these violations, but I never received one notice about it being violated, about it being condemned. I am going to seek out an attorney who might work on contingency and go after the city of Grandview because I have nothing good to say about this.

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I get the sense that you’ll be buying anything in that location anymore either.

No, I definitely will not be. That’s the first and last in that particular part of Kansas City.

John asked, “How did you come up with the purchase price of the note from basically buying out your partner?”

I know what we needed to get out of it to get into a partnership. It was a pretty good profit there. It was based on it being a performing note. If you look at the numbers there, especially the yield, you couldn’t go wrong. Truth be told, we probably could have sold this for $30,000 or more out in the market. I’m thinking about a discount for being in our partnerships. Also, when I’m looking at it, I also profit from this at the beginning. I also looked out too and I go, “That offsets that loss I eventually took.” This is like Bill’s horror story, someone could’ve paid over $30,000 for this note and take an even bigger loss rate. I want to go on to my second horror story. This is one of the first notes I bought back in November of 2017. I picked it up for $20,500. The UPB was around $56,000 and the payoff is over $78,000 with a bunch of unpaid interest and a bunch of stuff that doesn’t count. I base it off the fair market value of $45,000. I seem to buy a lot of properties that are worth $45,000 or so.

When you look at this right of the bat, you’re paying $0.45 on the dollar, roughly. That’s not a bad deal looking at it.

The interesting part about this one was it was in foreclosure about one month away. This is a very complicated note and I still don’t even understand how this has done. I’ve read through all the documents a couple of times and this is why we hire attorneys. This was an HOA foreclosure. However, it started out as the bank. The bank was foreclosing on this first. This foreclosure has started in 2012 and then it changed hands a couple of times. The fund I bought it from, I don’t know if they weren’t interested in it, it wasn’t worth it for them, but they weren’t proceeding with the foreclosure.

Was this the Kirkland asset?

No, it was Bank of America who started a foreclosure process. By the time I bought it from this fund, they had stalled on it. The borrower hadn’t been paying HOA dues for a year, by the looks of it. They had a couple of liens placed on the property because of unpaid HOA dues and they added up to something crazy like $20,000. As I’m looking at the complaints, a lot of legal fees, a bunch of junk fees, it was over $20,000. I thought, “There are two ways this can play out.” I know HOA foreclosures. I’m dealing with them in Florida. They’re huge down there.

Don’t get started. I’m at the finish line, but if the curveball got thrown at me, this one’s going to take a while. Erin Quinn is going to be on speed dial. 

What normally happens in Florida is an HOA will often foreclose before a first lien does. What people do in Florida is they’ll buy the HOA. Sometimes they don’t know. Some people are like, “I got a screaming good deal on a condo for $10,000 and it’s worth $200,000.” What most people normally do is they’ll buy the HOA foreclosure knowing full well that there was a first lien in place. They own it and they can do whatever they want. They’ll rent it out for as long as they possibly can in the hopes that they’re going to recoup their $10,000, wherever they paid the HOA foreclosure and some, because usually by the time, in Florida, there was such a backlog. If a foreclosure hadn’t started at first, and that’s what people would do is they look to see if a lien had been filed. If it hadn’t started yet, they thought, “We have at least a year renting this property out.”

I thought, there are one or two ways this is going to play out. Someone’s going to buy this HOA foreclosure and I will make an agreement with them, get a deed in lieu. Say, “I won’t foreclose on you. I’ll pay you what it’s going to cost foreclosing this $5,000 to $6,000 in Cleveland, Ohio, Cuyahoga County. Hopefully, they paid less than that.” The second option, which was the most likely, is that HOA is probably going to take it back at the foreclosure. In Ohio, for all the audience out there, the minimum starting bid at a foreclosure sale is two-thirds of the appraised value. Part of the foreclosure process is you get an appraiser and I’ve seen some of the appraisals done in these and it’s like a chicken scratch on the back of the napkin. I don’t know why the courts allow them, but they do.

On this one, it came up $45,000. That’s how I came up with a value. The minimum bid was going to be $30,000. I thought it’s probably going to become an HOA owned condo. The very last minute I discovered that there was a new language put in the sheriff’s sale that if it didn’t sell, the first foreclosure would go back to sale again in two weeks with no minimum bid. I’m like, “That’s interesting. That might work out better because if someone does buy this as a third-party bidder, if it doesn’t sell the first auction, then I’ll definitely approach this to the third party bidder and do a deed in lieu. The day before, the borrower files BK. If memory serves, it was a BK-13 and this guy had no right. He already filed two or three BK-7s in the past.

That doesn’t matter. Trust me, I know.

He has no intention of staying in the property. I figured it out after the fact that that’s another delay tactic. They’ll do a BK-13 and then they’ll convert it into a BK-7, which delays the bankruptcy even longer. Six months go by and we’re into April, May of 2018. We’re set to go to the foreclosure sale. Some people bid not only the minimum appraised amount. He bid something stupid like $36,000. I see this the next day. I think the attorney sends it back to me. I’m like, “You have got to be kidding me.” It was clear language in the zero sale that was subject to the first, like, “How could that person not see it?” It was an elderly gentleman. I saw the handwritten note that he had written into the courts. It becomes a piece of legal evidence that he had no idea that he was buying this with another mortgage on it. He was trying to get a mortgage himself and the bank wouldn’t finance it. I’m like, “No, shoot Sherlock.”

Initially, you have to give a deposit. He probably lost his deposit I’m guessing.

GDNI 83 | Note Investing Horror Stories
Note Investing Horror Stories: There are no shortcuts to cleaning up your property after it has been condemned by the city.


It was either 10% or $5,000 minimum in the Cuyahoga. I can’t remember exactly what it was. I’m pretty sure it was $5,000.

Did that come to you?

No, I would have thought it would.

Did it go to the HOA?

It paid off of all the court costs first, a couple of grand worth. It went to everybody else except for me and the tax appraiser. That delayed things another six months because he had to do an appeal process. He lost the appeal as well. This gets dragged out to October of 2018. We’re back to square one. We’re ready to go to sale again I thought. The HOA said, “We’re not spending another dime.” They were sick of racking up fees of their attorney and court costs. They said, “You take this over like.” I’m like, “Okay, no problem.” Since this was originally a bank driven foreclosure and their name is still on the Bank of New York or Bank of America, the HOA came in as a cross claimant and became the lead in the foreclosure.

This is my first dealing with the Magistrate in Cuyahoga County, but everybody screamed bloody murder when they have to do it foreclosure there because of the Magistrate. It’s not only the courts and it has to go through a magistrate. He’s a judge that oversees all the foreclosures and that’s basically all he does. You can imagine the backlog. I don’t know if there’s more than one and there probably is, but there’s only a few. This takes another couple of months after this for us to become the lead foreclosure again, or become a cross claiming. I’m still not 100% sure how all this works.

That’s interesting because in the ones that I’ve done where there’s been an association, they’re actually part of the defendant because you’re the first. You’re suing anybody that has a position behind you.

They were and that’s why I was like, “That’s interesting, they became a cross claimant.” They were the defendant and a cross claimant. The magistrate wouldn’t allow it. He said, “No, you’ve got to start from scratch.” I’m like, “You’ve got to be kidding me.” We restart it again in November, October of 2018 until April of 2019 to find out that we have to start a foreclosure all over again. The attorney said, “We should be able to push this through.” He’d already moved out. I had the preservation company go in there. This is probably one of the better shots. It’s in pretty decent condition. It’s just filthy, dirty and outdated. We all get to in the bottom, these things have been selling hotcakes. I saw a couple of assets sales that looked probably about the same condition as this. They’re at $55,000 and I’m like, “At least one good thing comes out of this.” He had to redo the complaint. The attorney files it, and they sent me the complaint. I made a post about this on Facebook. I think, “I’m going to read through this to make sure everything’s okay in It.” Luckily I did. I’m reading through it and they’ve got the wrong borrower’s words name all through it and they kept referring this as a second lien. As you can imagine, I wasn’t too happy.

You put up an interesting point because money attorneys I use, they send this stuff through without having you look at it. Most attorneys, I’ll be like, “Did you send a demand letter?” They’re like “Yes.” I’m like, “Can I get a copy?” They’re like, “I’ll send a new one.” Even the complaints, I had one where the attorney put my home address on it and not my business address. I don’t think I ever got madder at an attorney when that occurred. I was livid.

You should’ve seen the nasty grim I sent back when I saw that, I was like, “You better not be billing me to redo this complaint. If you do, it would be absolute hell to pay.” For most of the audience, there’s a very famous firm that a lot of people use. I assumed them from the previous and it’s is usually easier to keep an attorney on if it’s already in foreclosure. I learned my lesson.

Where are you with this one? Is it still active? 

Yes, it’s still active. The complaint got refiled again. I asked for an update. I’m like, “What is the timeline now? Do you think we can push this through?”

I’ve got one in Cuyahoga. We filed the complaint and I think they have 30 days to respond. It’s 30 days from when they were served and then it’s been 30 days and I checked on the website and I still haven’t seen anything. One of the things that’s quirky with Cuyahoga County or I don’t know if it’s Ohio in general, is like you go to foreclose, they run a title report and then they have to run a second title report a day before.

That’s another thing. They tried to serve this guy the original complaint. With all the mistakes in it, they couldn’t find him. They kept coming back on return, so that delayed things for a month or two. Expense-wise, it was roughly $5,000. I’m into it $25,000. Luckily, the value of these things has gone up significantly in the last couple of years.

Financially this is still not a bad deal.

If a note deal goes bad, you're at a 23% loss rate. It's still way better than investing in the stock market. Click To Tweet

No, I wanted to present stuff that can happen. I never thought something like this would happen. It’s like one in 100, one in 1,000.

When you’re dealing with condos, condo associations and HOAs, it is complete chaos in bedlam. I’ve got a story that I wish I could share, but I can’t share. That is going to blow your minds. I want to rip my hair out and I got a tax because we’re supposed to close on it. It’s delayed again. It’s blowing my mind.

The sales were happening?

Yes, it’s supposed to close on a cash sale. This one you purchased in November of 2017, it’s been about almost two years being a note. It’s one of those things why I love Ohio. I’m curious, has anyone asked anything about a license in Ohio or anything like that? I know you’ve done some research on that and I think I have your own opinion on it, but I was curious if you run into that in regards to foreclosing in the state? 

Not yet, I haven’t. The attorney on this did inquire. Since this one was purchased before that came out, they said I don’t think we should not make concern about this. The foreclosure started well before that.

I’m on the phone with Illinois about getting licensed there. They’ve changed a rule that in order to get licensed, you have to have your company get a financial audit done. There are different levels of audits. There’s unaudited, which is here are my books. There is compiled, which means it’s compiled by an auditor or a CPA, but nothing is reviewed. There’s reviewed, which is spot-checked. There’s audit, which is a 120 point checklist. It’s what public companies get done. 

It’s $10,000 probably at least.

The other thing I’ve learned as well is if you do a 506(b) fund as part of the exemptions, a part of the SEC to have the fund, you also have to have an audit done. It’s food for thought for people out there who are looking to do a fund. In a 506(c) which you can advertise, you don’t have to get it done, but in 506(b) and you have non-accredited investors, you have to do an audit. 

Every year do you mean?

It’s every year within the first 120 days of opening the fund and then in every year-end. Thankfully the one I closed will coincide with the year-end. 

That’s why a lot of funds when the returns aren’t as great, people are like, “Where did all our returns go?” It’s usually stuff like that.

Take a note deal. Typically, the person may fund the deal and then you’ve got the expenses within the note. You’ve got accounting and bookkeeping, you’ve got other expenses that typically run as part of your general overhead, which most people don’t account for in a note game. Those, if they’re affiliated with the fund, get charged to the fund. Those can eat up costs pretty quickly, especially some reporting that you have to do. Some of the reporting, there’s a company called Evergreen that they charge $1,500 a month to essentially do the books for distributions. It’s a minimum of $1,500. I know an investor in the Northwest who uses them and I’m like, “You’re nuts.” They’re expensive.

You have to work that much harder to pay for all that overhead. Find those deals to pay for that overhead.

Chad, the first one you showed was the one you’ve been talking about with the Missouri asset that you were going through. Who’d you end up using for an attorney in Missouri? Would you mind sharing or is it something that wasn’t that great of experience? 

I’ve used them. They’re in multiple states. They’re out of Chicago. They cover Missouri as well. They’re fast. They’re like a puppy mill where you don’t get any correspondence. They get stuff done. They did that one for me in St. Louis and they had it done in four or five months. I was blown away how quick it was. It was uncontested but it’s nonjudicial.

GDNI 83 | Note Investing Horror Stories
Note Investing Horror Stories: Attorneys file complaints on your behalf without having you look at them, but make sure you do. It’ll save you money from having to repeat the paperwork.


How much did they charge? Do you know? 

The going rate and Fannie Mae guidelines. $1,000 of court costs and the advertising was $700 or $900.

I’m using a Catherine Davis. She’s a smaller outfit, only does Missouri, but I’ve done one with her and I’m using her again for one in St. Louis as well.

They’re good, but as far as communication, it’s a little bit to be desired. If I have a question, I’ll shoot them an email.

I may have actually reached out to him but never had to use him.

Whenever I reached out to him or I copy him, then I get a response usually.

One question came up when we were talking about HOAs. I mentioned Florida, someone asked about Erin Quinn if she only does Florida. I think she does Georgia and Florida, correct?

Yes, I think she does Georgia as well.

She’s in the Notes And Bolts Facebook group. If you’re in the group, feel free to reach out to her and get information on her services. 

You can’t use it because I’m the next in line.

I’ve spoken to her several times. I haven’t used her yet, because I’ve been using Beth Cruikshank in a lot of my things and I’ve had great luck with Beth. They both have two different styles for what I’m going to need moving forward. I haven’t spoken to Beth. I think Erin fits the more what I’m looking for. Beth admitted it and fine with it. Joe mentioned, “When you have Cleveland, they require the inspection. What needs to be done?” Post bond and point of sale inspections, have you run into this at all? 

Point of sale, it’s only in certain suburbs of Cleveland. I’ve got lots of experience in point of sale. I’ve done numerous properties around Cleveland.

I have a question for you because I’ve got one that I bought a CFD and I got a letter from them saying that I didn’t register it and there was no point of sale inspection. I sent them back the contract for deed which was recorded saying, “I purchased this but it’s been under a contract for deed. The person has still been living in this property.” They won’t allow me access to the property. I’m curious about a CFD if you bought it in the area where the point of sale, did they still make you do one even though there’s still the borrower in there? 

Most of my stuff except for the last CFDs, there was a couple in that pool that a lot of people bought from. There were three around there. I don’t think the deeds have been recorded yet because they need some more information. The rest of mine have been notes around in any other area. We’ll find out as soon as they got that deed recorded. It will probably be a nice surprise. They’re all performing CFD, but one borrower informed the servicer, “I’m giving the property back. I’m moving out.” I’m like, “Can you offer him to work with them a little bit?” He said, “No, it wasn’t worth what you were paying.” I’m like, “Fine.” The equity in it is crazy. I sent them a cancellation lien contract. He’s got a week to get it back.

Have you been to the property?

One in five-note investing deals goes bad. Click To Tweet

That’s what I’m thinking. I’m like, “What’s wrong with this property?”

When somebody runs like that, it’s usually like, “Get me out of here.”

That’s what I’m thinking is happening. If there’s a bomb going off in the middle of it or something and the value that I put on is probably going to be half of that. I’d probably take a loss on it too. I supposed to have an inspector up there, but I haven’t got out there yet.

We’ve been having some people show off their deals and stuff. We’ve all had bad deals. You’ve done many deals. What percentage would you say sometimes it’s a bad deal? Is there something that you look back and say, “I probably shouldn’t have bought that because of this?”

I’d say one in five maybe is a bad deal, probably around that ratio. I would love to be able to get inside these little-value CFDs before we buy them, but that’s never going to happen. I’ve learned to steer clear of areas. I’ve always had this ever since the beginning. If you’re buying in an area, especially in CFDs that you think your property is worth $30,000 or more but there are properties selling for $10,000 around it, your property is probably not going to be worth $30,000. It’s going to be worth $10,000. I’ve learned that the hard way a couple of times. I’ve got a couple that I bought way back when that I’m kicking myself for buying. The borrower is still in them. One of them is paying. I’m trying to do a conversion on it and another one, she’s semi-performing and she hasn’t paid in four or five months. I don’t even want to kick her out because I know how bad the property is going to be and I don’t want to deal with it.

The ones that I’ve had the worst luck were when they were vacant. There’s one even that I bought that was a three-family, and looking back I probably should have renovated it and leased out and rented it, but instead, I owner financed it to a guy. At the end of the day, I didn’t lose money but didn’t make anything. The guy refinanced them because I don’t want to finance it to him. Otherwise, I would have taken a killing of a loss. The guy paid probably an extra $7,000 to have me finance it. That’s the ones that I’ve seen and I agree 100%. If the houses are in the area of $10,000 or $20,000, then that’s what yours probably is. The other component is the vacant ones are the ones where I’ve lost. I think the most I’ve lost on a deal may have probably where you’re at between $5,000 and $10,000.

This pool I’m closing on, there were a lot of vacant properties and a lot of properties. These are all notes, not CFDs, but a lot of them were in East Cleveland where there are $10,000, $15,000 properties. There were BPOs done by the seller and they thought they were doing us a favor. By the time I got through those BPOs, maybe half of them are right, but the ones that are lower value areas, one of them had a BPO of $87,000 on it. Anytime I see anything in Cleveland proper that has a BPO over $30,000, I get very suspicious. The first thing I did was hop on Google Streets and like, “That thing is ready to be bulldozed.” I go on the county site and like, “It’s been demolished.” I opened up the BPO and I’m like, “This guy must’ve got the wrong property.”

The comparables are vacant lots, but on the other side of the highway about five miles away, right near the downtown core has commercial lots. I’m like, “Are you serious? Let’s see if there are actually any sales in the area of these vacant residential lots.” I found nearby that sold $3,000, $87,000 to $3,000. That was one of the numerous clawbacks on me. I had saved the bid and you wouldn’t believe it. The seller was very accommodating after I explained it to him. I made notes on almost every single asset and sent him the spreadsheet. I said, “Here’s the reason why my bids are significantly less now.”

I said that to where there’s a BPO of $80,000. I had somebody go take a look at the property. I sent it back to the seller. I said, “I think somebody had a typo in there typing this up and added another zero on it.” I sent over the existing pictures to them and stuff because they didn’t provide the full BPO. They had the BPO value listed on the tape. I said, “There must be a typo in this one.” I showed them pictures of the house and stuff. I came back and said, “I’m going to pull this one.” He’s like, “Yes, I understood.”

I don’t trust BPOs as far as the guys that do them.

I would tell everybody out there, whatever your BPO is, take 25% off. 

Yes, at least. On the BPOs, they usually do the 30-day value, 90-day value quick sale. Take the quick sale price because that’s even overinflated most of the time.

Are you still ordering BPOs or are you doing your own BPO?

I don’t think I’ve ever bought a BPO yet.

I’ve bought a lot. What I’ve been doing is essentially getting the property preservation company to go by and take some photos. I’ve been pulling on DataTree some of the local sales comps in the area. What I’ll do is find an agent in the area and send it to them and say, “Does this look like it fits in this price point?” It’s a little more work than sending Dickie or somebody, “Give me a BPO for this property.” The BPOs and the pictures that I’ve been getting are awful and they were way off that it wasn’t even worth it.

GDNI 83 | Note Investing Horror Stories
Note Investing Horror Stories: If you’re buying in CFDs and think your property is worth $30,000 or more but properties are selling for $10,000 around it, your property is probably not going to be worth $30,000.


That’s not fine too. The pictures on the BPOs are terrible. They’re all blurry and they’re embedded in the PDF. You can’t extract them. You zoom in, the ratio on them is terrible. I do the same preservation company that I use. We use the same one, but I use another company that does a drive-by. They do for realtors and their pictures are spectacular.

I’ve been using Safeguard.

I’ve given them a boatload of work. All of a sudden, I’ve got all these REOs and empty properties, a dozen or more. I’m like, “How do I handle this?” They’ve been doing a pretty good job in most parts of it.

All the assets I’ve been buying with the fund, I would send them the list and say, “I need this part of due diligence. I need eyes on all these properties.” They send a list of 70 properties that they would go to. Literally, they’d send an email every two or three days saying, “Here’s an update.” Within pretty much a week, I had all the photos.

Are that remote locations too? I’ve never actually sent to those.

Yes, some of them are in remote locations as well. We’re working with them. From the title, the other component, I’ve been working with a company about pulling titles to them versus some other means because of the insurance component to it and stuff. I ordered some through ProTitle as well and I found that they’ve been pretty quick, where in the past they used to take a long time. They’ve gotten much better.

Can you send me their pricing?

One of them is the title company and the other is an abstractor. If it’s anything east of the Mississippi, I go directly to the abstractor. If it’s on the other side, I go to the title company because they’ve got miscellaneous abstractors in the west of the Mississippi. I’ll send you that information and stuff as well. It’s something I’ve been looking at because I’ve mentioned that people converting CFDs to notes. I had a nice conference call with them about the process of what they’re doing versus what I’m doing and understanding what a UPL state is where you need a licensed attorney to do the settlement and if you’re getting title insurance on a property. There are several states like that. I think in Georgia and North Carolina, the settlement agent has to be an attorney. What I’m doing with them is I’m sending them the purchase and sale agreement and sending them the note and deed of trust of mortgage and they are doing everything from there. With the exception of the MLL qualification, which is typically done by MLL. Everything from handling the title ordering, the deed and recording. They’ll put a HUD statement together. They’ll do everything.

This title company you’re talking about.

One in the works is the trial. I’ll let you know how it goes. 

You’re actually doing a purchase sale agreement?

Yes, because on the CFD you’re selling the property. 

I was wondering that because in the language of the CFD, it doesn’t say covered.

The difference is a lot of times in the CFD, it says you’re going to quitclaim it to them. I’m trying to get these as a full warranty deed if possible worst-case, special warranty deed. Anytime you put a warranty on it, typically you’re getting some type of assurance from somebody. The hardest part is the purchase and sale because for these purchases and sales, each one has some quirky language and most people would use a realtor contract. As you’ve been on the commercial side, if you need a construction contract, you go to AIA, you spend $100 and you buy it. The National Association of Realtors doesn’t share their contracts or forms. It’s like, “How do I get a state-compliant purchase and sale agreement?” I’m trying to find one and it’s challenging. That’s why I’ve been asking all my realtor friends in each state. That’s why I posted it in Notes And Bolts group. I’m like, “Anyone got anyone in Arizona?” I’ve got a borrower approved and I’m converting him in Arizona. 

Did you put the purchase price as the loan balance?

Yes, the purchase prices and loan balance. I’m keeping all the terms the same. I look at it from the perspective of instead of a CFD, I’m going to have a note with the borrower who had a long pay history as well as it’s a warranty deed. It’s a clean paper. What’s the difference between that and institutional paper and reality? You got to borrow qualified, you got a warranty deed, what else?

The one I did in Pennsylvania, we didn’t do a purchase sale agreement. I got an attorney to handle it. He had language and there are the mortgage and the note obviously, but the third instrument was the conversion language. He thought that was the way to do it.

The one I’m doing in Pennsylvania, they said to do a purchase and sale agreement. There are probably twenty different ways you can skin the cat. I don’t see either one being wrong eventually.

My attorney did that. It was more like a loan mod.

That’s an interesting thing you bring up because if you talk to an MLO about qualifying people. When you’re doing a conversion, you’re technically doing a loan mod, believe it or not. In many instances, you may not need to, in their minds, requalify them. 

That’s exactly what my attorney told me. He said, “We don’t need to requalify.”

I’m curious, when was it originated? 

Maybe in 2011.

That was the kicker. He said, “If it was originated before Dodd-Frank, you didn’t need to requalify.” I haven’t asked them if it was after. If it’s after, you only have to do the ability to repay, which if they have twelve consecutive months of pay history, that qualifies as the ability to repay. It’s my understanding but I could be wrong. 

This particular instance she had twelve months.

Sylvia asked, “Who do we use for our inspections?” Safeguard Properties. I forget where they’re out of. 

They’re out of Ohio, the Cleveland area. Stacy is in the Notes and Bolts group.

She’s going to be in DC. There’s a big property preservation conference. The same weekend as NoteExpo and Mark Kohler in Pennsylvania. Chad, won’t you let people know where they can reach you, how they can contact you?

The best thing is on Facebook. I’m in pretty much all the groups, Notes And Bolts, and all the other note groups that are out there. That’s probably the easiest or shoot me a text. I’ll give you one of my US numbers, it’s (561) 221-4255 or you can go to my website My contact info is on there. I don’t do Instagram and Twitter, so you’re not going to find me there. In this his day and age, it’s easy to get ahold of anybody. I’m on LinkedIn also.

People need to go to Chad, thanks for coming on and sharing your stories. Thank you all for joining us on this episode of Open Mic Night and the Good Deeds Note Investing podcast. As a reminder, feel free to leave us a review on iTunes, Stitcher, Google Play. Thank you all. 

Thanks, Chris.

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