Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!

On Joint Venturing, Sinkholes, And Serial Bankruptcy

GDNI 75 | Joint Venturing

 

It’s exciting to think about making it big in the real estate space. Unfortunately, in this industry, you don’t make money on every deal. In this episode, Chris Seveney and Gail Anthony Greenberg talk about joint venturing and the roles of the JV partner either as a sponsor or a funder. They also discuss the implications of a sinkhole found in one of the houses Gail is trying to sell, and her serial bankruptcy declarer on a house she foreclosed. Chris and Gail encourage everyone to take the leap and jump into notes because even with all these bumps along the way, it’s still more fun to do deals than to keep waiting for that perfect one.

Listen to the podcast here:

On Joint Venturing, Sinkholes, And Serial Bankruptcy

It’s another adventure. We’ve been having lots of great guests on, but we figured you all could use a break.

Speaking of what’s got going on Gail, what’s happened with you? Is there anything new and exciting?

I found out that my house that I’m trying to sell in Mississippi that I thought had a big crack in the foundation actually has a sinkhole. This was initially terrible news, but then I asked you if it’s possible that there could be an insurance claim now that it’s not just a crack but a hole. I feel renewed hope that maybe there’s a way out of this thing.

For me, I got the funds and closed on my first long-distance rehab in Fort Wayne, which technically I replaced the roof.

I’m sure most of the money you got was purely for that great new roof.

About 25% of it was.

It’s money well-spent.

Unfortunately, in this industry you don’t make money on every deal. This one, I didn’t make any money.

I’ve got one of those going on also. People have known me talk about my serial bankruptcy declarer who declared bankruptcy seven times in six years. I have a house that used to be a note I successfully foreclosed after years. During that time, not only did I have legal bills pile up, but there were delinquent taxes that literally doubled. This is not a cheap tax county to begin with.

Were you using the divorce attorney to do the foreclosure?

Technically, he’s not a divorce attorney. I don’t know what he’s good at. It’s not foreclosures. That was definitely not. We always consider people to jump into notes and start taking your lumps because the sooner you get it over with these stupid mistakes, the sooner you’ll be done. This is one of the first notes that I ever bought. I will be lucky given the delays, the piling up of the taxes and penalties. I will be lucky if I only lose $9,000 on it. I bought it in my IRA, so luckily there’s no person who entrusted me with their funds. This was one of the first notes that I bought. Talking about your catalog of beginner mistakes, I don’t want people to feel discouraged that they can’t buy anything until they’re experienced and then you can’t get experience until you buy something. There is a little bit of that flavor to it. This amount of time has elapsed, it’s actually okay because it’s in prospective for me. This particular IRA has grown enormously. To absorb a loss like this, it hurts my ego.

GDNI 75 | Joint Venturing
Joint Venturing: If you’re funding the deal with someone, you can’t get in any trouble. It’s the sponsor – the person you gave the money to – who needs to have the involvement.

 

One of the things we want to do is opening up for a lot of people on questions that they have and things that are topics that are on their mind. We didn’t come with any specific topic coming to mind. We wanted to throw it out there for people with some questions you have. What are some of the challenges you have? What is it that you’re working on? What can we help you with?

Who would like to come on and talk about it?

We do have a question, “People always talk about how the SEC will come to get you if your JV-ing with other investors. What’s the real deal if I’m JV-ing with another investor or they’re bringing capital? What’s the violation? First, Gail and I are not attorneys. You should definitely talk to an attorney. Our interpretation from talking to attorneys is there’s something called the Howey Test. The challenge is if someone is giving you money and they’re investing passively with the expectation to make a profit or return based solely on your efforts, then it’s considered security. One of the major test components of the Howey Test is that component. What you need to do is look for an exception to that. Based on attorney exceptions, there are exceptions such as making the person the ability to be an active participant.

That’s the easiest one and don’t you think also the most fun? I liked the interaction, two heads solving things. To me it feels fairer if it’s someone’s money. They shouldn’t be sitting at home wondering what you’re doing with it. They should know.

What does active participant include? It’s completely interpretive honestly. Typically, the SEC will only deal in issues where it’s millions. It’s usually a state financial agency that will probably be the first one to crack down on you. It would be because of some type of complaint. If you keep your partners and everybody happy, more than likely they don’t come looking for you. It’s when somebody files a complaint. That’s my philosophy. We’ve spoken in the past and stuff, it’s about communication, letting people know what’s going on and having them participate in the decision-making process or if they want a more active role giving them the ability to participate and be active so it’s not solely on you.

I had a JV call about taxes along for closure in Pennsylvania. I’m making sure that it’s tax sale season in Pennsylvania. I want to make sure that this one isn’t slipping away while we’re dithering around with the foreclosure.

Christina asked, she’s JV-ing with someone and funded the deal. If you’re funding the deal with someone, I don’t believe you can get in any trouble. I don’t think you are doing anything wrong. It’s the sponsor. The person who you gave the money to is the person who needs to have the involvement and it all comes down to what’s in that JV agreement. Having that JV agreement written in a way that is making it be a comprehensive deal. It’s the same thing. Sometimes people who do fix and flips and giving some people money. Is it a loan? If they’re getting profits split from it, technically they should be active. A lot of times they’re not. People give some of the money instead of charging a specific rate. They get a percent of the deal. A lot of times they should be active in that sense or there should be some agreement to make sure that they’re not doing any violations.

Christina asked how much should she be involved if she’s the funder? In the getting to know you conversations that you have before you team up with someone to do fund the deal. That’s one of the key discussions because you want to establish upfront. When you are the sponsor and you are taking on funders, these are the kinds of things that need to be discussed, clarified and the expectations set correctly. I’m going to handle routine matters. I’m going to call you on every significant matter for any big decisions. We’re going to discuss them. I’m going to report to you quarterly. I’m going to send you financial data quarterly. Our JV agreements they say that we will report quarterly.

I work in the corporate world. There are certain things that I can do and make a decision on and go do. There are other things like I need to get ownership approval before I go do something. For those who are in the 9 to 5 world, it’s similar to that. If you’ve got an asset and the borrower pays three days late and the servicer says, “Can we wipe the late fees?” That’s a decision. I’m going to wipe the late fees. Do you want me to go converse with someone like that? If it’s something that like, “I’m filing a foreclosure and I’m going to start spending $5,000. It is probably a conversation you should have with the JV partner.

In every human endeavor, everyone has a sense of when they can act on their own initiative and when they need to consult the significant other, whether it’s a personal relationship or a funding relationship like this.

If you’re not in the 9 to 5 world and you have a spouse or significant other, what are you allowed to do without their approval?

You can't buy anything until you’re experienced, but then you can't get experience until you buy something. Click To Tweet

It’s very little in my house. If I get permission, your household is organized in a similar fashion.

I still don’t even know if I have permission to buy a note yet.

I want to say as much as we would love to believe that these regulatory agencies are there to protect the innocent, from what I’ve seen, they don’t do very much at all.

It depends on your state. I’ve heard of somebody getting whacked in a state for not doing much.

Someone quite innocent doing something quite minor by accident.

On the flip side, there are other things that go on that seem getting ignored. We have a follow-up question, “In my case, I’d be JV-ing on someone and I purchase the note on my investor’s criteria with what we’re going to buy in a split. I keep them in the loop with everything as far as recording.” If I’m doing a deal with someone, I give them a link on Dropbox or OneDrive, all the collateral, everything that’s there. They can have access to it. They can go look at whatever. They can ask questions. I go through the asset with them and what it looks like, the UPB and everything. It’s not like give me money and I’m going to go buy an asset and you don’t even know what assets involved. You should know and see it. You’ve got to know the borrower’s name, middle name and their Social Security number. Think of it no different than you have a rental property and getting a renter in there. You’re putting money into this deal, you want to know as much as possible and you should know who that person is.

When you’re the sponsor taking on a funder, you should have them fill out a questionnaire with basic information about what their goals are, what their expectations are on the return that they’re hoping for. After I have an initial conversation with someone who thinks they would like to invest, that’s the first thing I have them fill out. Some people have pretty unrealistic expectations as they’ve heard about notes and how great they are. I’ve had people tell me that they want 25% or 30% returns. It’s better that we say goodbye rather than have a bad breakup later.

We have a question, “Does your JV partner have access to your servicer or what else?” I don’t typically give them access to the servicer. I am working on something where the servicing notes, they may be able to get access to those. I don’t want that person calling the servicer, talking with them because when you have too many people involved speaking with somebody, things can get miscommunicated. Servicers can get confused very easily in my experience.

They can do simple tasks.

If somebody asked me, “Can I see the service and comments?” I’ll say sure.

You can usually download those very easily and just email it.

GDNI 75 | Joint Venturing
Joint Venturing: Pennsylvania just let people keep declaring bankruptcy that you’re helpless to some degree.

 

Sylvia also talked about something in BK that she’s looking in servicing notes and the guy was in trouble. Someone mishandled and it’s been going on since 2013.

Sylvia, if only you had guided me when I bought this thing. I thought it was comical that this guy kept declaring bankruptcy. I assumed that I would easily gain the upper hand. That’s before I realized that Pennsylvania just let people keep doing it. You’re helpless to some degree. It’s not a good feeling even though I’m going to take a small loss or not. I’m very relieved and the money that I’ve invested, it’s been wrapped up in this thing for so long that even though I’m not going to get it all back, I’m delighted I’m getting a chunk of money back. Move on and do something else. Maybe I’ll buy a house with a sinkhole underneath it.

Christina mentioned, “You don’t want multiple people starting directly with the servicer for the reasons mentioned.”

I don’t even want to talk to them, but I certainly don’t want anyone else to talk to them.

I spoke to Shante on different things but my customer rep, Damian, I probably haven’t spoken in several months.

I talked to him. He’s fine.

I email him. He knows that between 7:00 and 7:30 in the morning, he’s going to get barraged.

Roger is saying, “With FCI, you can’t talk to them. They don’t return calls when you leave a message.” That is so true. When they start answering your emails, you start to get the phone numbers and extensions of different people like the escrow lady and the insurance person. You can start to have access. You can’t dial the main number, but if you know their extension, you can sneak up on them.

The fastest response I ever got from them was when we had that boarding on that asset. When Gordon saw my name, he was like, “No, we’re not going to board this with my name on it because FCI and I didn’t have a good relationship.” It’s identical to what you mentioned, Roger. I could not get a woman whose name starts with a K or C. I couldn’t get a response to emails even though you get my response says “They’ll reply back to you within 24 hours.” I’m not sure. Our clock must be broken because a few hours passed but no response. This thing called the telephone, she needs to take a course on it from Alexander Graham Bell that you have to pick up the thing to speak and people talk through that. I sent a not so nice message and I’m blacklisted from FCI.

They get very sensitive. I sent a frustrated, angry email to them once and I hurt them in the fields. They got all these emails, like, “Don’t talk to us like that.” I wasn’t even talking. They should have heard the way it sounded in my head. Roger, the other thing is when you’re new and you don’t have much with them and they don’t care. It’s particularly difficult. I initially got past the hurdle that Chris did. I was far cleverer than you, Chris. I knew of this guy. His first name was Hector. I don’t even know what department but he is a helpful person. When I couldn’t get Cassandra to call me, email or answer anything, I called Hector and I was like, “Is she anywhere near you? Can you go ask her to answer me?” I guess it was embarrassing enough to her that she actually wrote back to me and this beautiful relationship began. They’re a pain. Chris is not welcome at many servicers. He’s burned his bridges.

Not that many. It’s more than one, but less than three.

It's impossible to stay in business and to stick to one strategy. You will never ever want to do one thing. Click To Tweet

You’re running out of people. You’re going to have to service your own loans.

It’s not a bad thing.

You have to become somebody to FCI. Up until that point, nothing gets done.

I could have my great grandparent’s service loans and get a better response from them.

That would be Allied. They seem to have a lot of senior citizens who work there. They’re very sweet older women. They’re very helpful but they’re hard to get on the phone too. I think it’s a small office.

They’ve got seven employees when I asked them. We have another question, “Do either of you think note investors should just stick with one strategy such as first non-performing or second NPNs or only PNs?”

That is so interesting that you’re asking that. I would say it’s impossible to stay in this business and to stick with one strategy. You will never ever want to do one thing. Chris has dabbled ever so slightly in seconds. I have not ever bought one. Though ironically my first note training was in seconds, so I almost know what to do. This is a topic that I was going to suggest for our next episode where we’re by ourselves. You are waiting for the perfect deal that is the kind that you want to do. You can wait but it’s more fun to do deals than to keep waiting.

You could be waiting for a very long time.

If you want to do deals, you’re going to do a lot of different things and you’re going to surprise yourself. My partnership with Christopher Seveney is a lesson in bursting your paradigms and branching out beyond your comfort zone, but we’re all still alive. It’s invigorating.

We got eleven-asset tape from our favorite seller. I was wondering, “What do we do with it?” I don’t think it’s from the actual seller that we buy from. I want to jump along onto the topic of first for seconds. I don’t see a difference between performing and non-performing when you’re dealing with first and seconds. I think it fits your style. Conversations I’ve had with people, a second is somebody who’s patient and wants to get involved. You’re a psychiatrist with a second in a sense, because you’re trying to get a feel for what’s the borrower going to do? What’s going to be the outcome? You’re focused on the borrower and it’s a patience game to wait it out to see what happens.

Personally, that’s just not me. First, you’re worried about the property and you don’t want to worry about the borrower in the sense that you don’t want to throw someone out of the house. Your main focus is what is that property worth and protecting that asset, which is the property. You don’t care about anyone behind you. If the borrower fails, you’ve got the property that you can go after. That’s what your main focus is and protecting the value and that asset. You’re usually more aggressive at first and trying to get to resolve. If there’s questionable equity, you’re not going to sit there and throw the demand letter. You wait the game and see what the first is doing. When you’re the first, no pay, no stay after a certain period of time. Send the demand letter and go.

GDNI 75 | Joint Venturing
Joint Venturing: There are people that will train you and then sell you assets that they have and mark them up. It’s almost a conflict of interest.

 

It’s interesting that we’re talking about that and you’re describing the difference because of my very first note experience, I was involved in a fund. It was put together ten people, $20,000 apiece, create a fund and there was an education component too. To me, this was exciting because instead of paying someone for training, I was investing in a fund and the training came with it. It seemed like earn while you learn situation. It turned out to be a terrible experience from the education standpoint. There was not much of education delivered. The thing that was very interesting about it was this is a well-known second’s guy who prides himself on. He does have a training program.

He made us all buy it as part of this whole thing. That was a very clever little angle for him. Eighteen months went by and we were supposedly able to look at the assets that were being bought, able to see what they were doing with each one of them. None of that happened. Months went by and we were like, “Have we even bought anything yet?” We didn’t know what the assets were and what was going on. They showed us a list of the assets they bought, the servicing notes of where they tried to do the workouts. They ended up in almost every case. I think they called everybody once or twice according to the servicing notes. If they didn’t start making payments, they sold the note.

It turned out that 95% of the notes were sold. I think they got a couple of payments from one note out of twenty. After watching this happen several times, I turn to my fellow students in this fund and I said, “This is not about working out seconds. This is about doing note arbitrage.” This person owing to his stature in the community has access to well-priced notes. He’s buying them and he has a lot of students who want to buy notes. He’s just buying low and selling high. That is not working out with seconds. I don’t know for sure, but I always hear great things about Bill McCafferty, who does have a training program for the first time. He started marketing to get students.

That’s one of the interesting things about the training programs and we’ve had conversations. There are a lot of people getting into training. There are people that will train you and then sell you assets that they have and mark them up. For me, it’s almost a conflict of interest in my mind. It’s like, “You’re going to pay me $2,000 to come to my training. By the way, here’s an asset that I bought for $7,000 and I’m going to sell it to you for $10,000 so I make 50% off of it and maybe you’ll make a few bucks on it.” To me, will I do it? No.

Chris, people need to get trained somehow. That’s the conundrum.

You can foreclose from a second but it’s subject to that first, so you’d better be prepared.

If you foreclose as first, it is all yours. Whatever’s going on with it.

We have another question, “What about taking your business loan to buy notes? Capital is my issue and I want to purchase notes.”

A line of credit. I don’t know if I would take out a loan depending on the terms, but would they even give you a loan for that?

It would have to be an unsecured loan that they could forgive you. I’m not sure how far that would get you. That’s always the challenge of you wanting to learn. It’s a physical aspect of the business trying to raise capital and making sure that you’ve got the experience before you raise the capital is always the conundrum. My recommendation would be if you do something like that, start with performing loans and understand the servicing process of the due diligence, getting the loan boarded, getting to know the servicer and people you’re working with. You just have to familiarize because even the process itself, nobody ever teaches you the boarding process. It comes second nature, but the first time it’s confusing of what’s this form, what do I have to do? Making sure and putting insurance on the property and make sure that you’re properly insured. There’s a lot to it. Starting with a performing note is better because if things take longer, time isn’t money because on a non-performing you got the taxes and insurance. Your assets depreciating and on a performing note, it should be appreciating.

Christina said they’re saving up to fund a deal, “We would love to walk with us on it if we don’t mind dealing with questions.”

Instead of paying someone for training, invest in a fund and the training comes with it. Click To Tweet

If anyone ever has a deal, I’ve gotten phone calls from people, “Can we take a look at this? What would you do in this situation?” I have somebody. They were in Ohio and they JV’d with somebody down in Florida. It was these two guys in Florida who disbanded and left them and deeded the assets back to him. He’s like, “Here we go again.” We’re trying to work through him and I said, “If I bought it from you, you get crushed based on what I give you for them. I’ll help you if you want to work them out or figure out the stuff to do. I’ll give you the name of an attorney.” The person probably emails me once a week or every two weeks for questions. I’ll hop on the phone sometimes and talk to him or give him some guidance. I don’t mind doing that.

One thing, you don’t technically have to have your LLC registered with Indiana. Chris would tell you that you should.

Roger for the one you got from me, if I recall, I said I’ll record it for you to save you some of the legwork.

I would say, Roger, if I didn’t record one for him. I’m struggling to remember which one this was, whether it was mine or yours.

I think yours is the one not paying him anymore.

I walked someone through using an eFiling service called Simplifile. If you want to go to them and sign up. Once you are set up with them, you can call me and I’ll walk you through recording.

Gail, we’re going to do a live Simplifile recording. How’s that? Would people like that? We’re going to take an asset. We’ve got plenty of deeds we need to record.

I have all these assignments of mortgage. Indiana has an extra step where you have to get online and fill out their sales disclosure form and the seller has to sign it. I think if you bought it from me, I had given that to you because I usually do.

Christina said, “Some counties only allow attorneys the e-file?”

Not that I’m aware of. How would they even know who’s filing? They either allow e-filing or they don’t. If they do and it’s on Simplifile, they don’t know if you are who you are. You could be a chimpanzee.

Christina, “I keep getting calls from my investor colleagues locally who want to sell me their newly originated notes. They originated them within a mortgage loan originator and then they want to unload them.” You’ll see a lot of that. One question to ask is if they originated them, did they get a lender policy, an under title insurance policy on them? That’s a question. If it’s a note, I would ask if you’re going to buy one, ask for the documentation, 1003 which is the application to see what the borrower filled out their income and stuff. It’s always challenging buying a newly originated note. You need to know a lot about the borrower before you try and pay top dollar for it because sometimes it’s sketchy. For example, I’ve owner financed two loans to a woman who’s a realtor. She’s a contractor that does buy and holds and she’s in North Carolina.

GDNI 75 | Joint Venturing
Joint Venturing: In most cases, as long as the payments are reasonable, the buyers care more about affording the payments than they do about the overall price.

 

If I take back a property in her area in, I’ll sell it to her on seller financing. She rehabs it, gets it leased up and she buys with an entity and this entity owns outright six or seven assets. She is a very strong borrower because if she ever failed on this, I can always go after her other assets. In that case it’s like, “I have no problem trying to unload that one right off the bat because I can show how strong it is.” If it’s a borrower who is nineteen years old, has a job and has no credit history but is making decent money, yes they can pass to an MLO. Are you confident to prospect with 90% that person’s going to keep paying? The big thing too is when something’s newly originated, make sure you do a great job of checking the value. A lot of times on these owner finance deals, sometimes these lenders jack up the price and they’ll put $30,000 or $40,000 loan on a $20,000 property as an example that it can come back to haunt you. Gail, your food for thought on that?

I was going to say in terms of what you were saying about the value. When you’re doing contracts for deed, you can charge a premium price for sure. When you’re giving a borrower who could never go into a bank and get a loan, you are rolling the dice on them and selling them a house. The question to me first of all, what are the laws about how you can value a house when you’re selling it with owner financing? You can definitely charge a premium price. I don’t know where the rules are. I know rules exist to keep you from charging too much interest.

I’ve seen people go on Zillow, Trulia and Realtor and just grab the highest value and say, “Zillow says it’s worth $50,000. I’m going to sell it to you for $35,000 and you’re getting 30% equity in the deal.” I’ve seen people physically do that.

There are opportunity costs. What is the value of giving someone who can’t otherwise get a chance to buy a house? Most houses do appreciate over time. It was a 30-year loan. If it’s somewhat inflated price, maybe it becomes closer to that value eventually. Particularly people improve them as some eager borrowers do like well-healed or well-screened borrowers who are very excited about homeownership. I have someone who did an incredible renovation on a house that I sold with owner financing. When you’re selling it, people are always like if the house had an inflated value when it was sold and every contract for deed we buy had an inflated value when it was sold. In most cases, as long as the payments are reasonable, the buyers care more about affording the payments than they do about the overall price. This is not to say that you should go crazy on the price. If people can own a house for the same or less than rent, that’s still a good deal for them. Even if you’ve stretched the price.

Gail, I’m excited a little bit because people are finally asking us lots of questions. We did have a comment about originating. Check the down payment if there’s one. Make sure the higher the down payment. There are a lot of studies out there that when they put a bigger down payment, the more they have to keep paying.

That seems to be the biggest factor someone’s staying in a consistent payment, how much money they put down. That’s why when we’re selling notes, people always ask, how much did they put down? I never understood why, but we all know. Many times people say don’t bid based on a percentage of UPB. What other ways are there to bid? Who says don’t? The sellers sell based on a percentage of the UPB.

It’s usually the lower of UPB and the fair market value. If they’re trying to sell you on total payoff, a lot of times I won’t bid because I’ll ask them, “Will you verify the total payoff is substantiated?” UPB is something that’s easy to substantiate, but someone says, “There’s $30,000 and accrued interest and advances.” I’m like, “Show me every single invoice that has been paid, show me the accounting and show me quote.” They’re not going to return it. If they do, return me the money based on that. Every answer I’ve gotten is like, “Yeah, right.” I’m like, “If you’re not going to guarantee it, the UPB is something that’s pretty much guaranteed.”

Jumping back a little bit, Sylvia did ask a question about bankruptcy and the documents to ask for in the BK. I get the same stuff on every loan. I’ll ask for the collateral, pay history, servicing comments and things along those lines. The rest of this stuff is all in PACER. I’ll go through PACER and check everything that’s in there. That’s the treasure trove of information that you can find where it’s the borrower’s application. They have to fill out something out how much they make. Sometimes they don’t have to include tax returns. How many creditors there are, there’s the proof of claim by the creditor.

There’s that plan which tells you whether your payment is part of their plan or not. What does it actually mean when their mortgage payment isn’t in their BK plan?

It means they’re paying outside the plan. I filed bankruptcy and I had my house outside the plan. I’m still paying my mortgage company and I’m still dealing with them on everything. I’m not paying a trustee on a BK.

As long as they’re not paying. If they didn’t put their house in the plan, can you foreclose on it or do you have to wait until they’re out of BK?

When you're doing contracts for deed, you can charge a premium price for sure. Click To Tweet

No, you can actually foreclose.

I figured it was like having a relief of stay. There’s no stay because it’s not in the plan.

Christina asked on the lender title policy, “What should they have insured on there exactly? These are not CFDs or seller finance.” Typically, I don’t think if you can do it with CFDs because it’s not a recorded lien. If you originated a first position note, you are ensuring the value of the loan on like title insurance where they ensure that you are first position and that it’s a valid first position lien. If somehow somebody else a mortgage popped up later on that was not satisfied, they would pay to quiet title over it. As a lender, the borrowers want to get an owner’s policy that protects them against any deeds that may have been recorded out of order something, which does happen. I’ve had where they were supposed to record the satisfaction of one and a new one on another and they did it backward. I had to quiet title on my Flint property, which ended up getting resolved through title insurance. It adds value to the note if you’re originating a new note when you have a lender policy on it.

It’s insurance.

What percent of UPB or value would be safe to offer? I base everything off of yields. It depends on the state, the borrower, but if it’s something newly originated, I typically won’t go less than 15% yield. If it was something like a CFD where somebody’s paying for seven years and converted it to a note, maybe I go down to 12% on that. If a borrower off the street just walked in and bought the property, I’d be looking for 15% yield. If it was a long foreclosure state, I may not even want to deal with it until it’s got more seasoning.

Sophie is interested in due diligence on CFDs. She has some horror stories about CFDs being allowed.

They are sometimes. Gail, we’ve gone through 150 assets. Back in the day, if somebody sends, it was like the Wild Wild West. You always wonder like, “Why do they create all these laws for CFDs that hurt people?” I’ve got one where there were borrowers on a CFD. He gave somebody a CFD, which is illegal. He’s selling the property as his own. That person stops paying, so he forecloses on him and gets a sheriff’s deed on a property he doesn’t even own. Now, I’ve got to turn around and sue this guy because of it.

We were looking at all these performing CFDs. This is particularly interesting because generally the borrowers are great, but the people in some cases are pretty horrendous. You see all kinds of things that people do. The example Chris gave is one. We have one where there were two women. They were both on the contract for deed. One of them decided they didn’t want to be on it anymore. She gave a quitclaim deed to the other person. Neither one of them owned the house. They can’t deed it to each other. These are things that to be unraveled. The thing to ask is, is it curable? Most things are curable but probably when you’re a beginner you’re not going to necessarily know. That’s why an attorney review or a review by MetaSource, a company that does nothing but look at collateral all day, is important when you’re at CFDs. There are crazy situations. This note in Pennsylvania that’s a note, it’s not a CFD. It’s been one of the worst experiences I’ve had in this business.

To put it in perspective, that borrower that quitclaim deeded it, that would be like me taking Gail’s house and me quitclaiming it to Christina, “Leave this house and let’s go record it.” What baffles me is in some of these counties, they’re very good. Indiana, Lake County is the most painful county to get something recorded, but on the flip side they check to make sure that it’s legit not like John Doe just deeding properties over to everybody. They’ll check it. You can’t deed this property.

They look to see who owns it now before they record the new deed.

Some of these other jurisdictions, “We don’t care who owns it. Stamp it, pay your fee and we’re happy.”

GDNI 75 | Joint Venturing
Joint Venturing: A good title report is incredibly helpful in catching things about CFDs such as unpaid utility bills.

 

“We make $30 every time you record something.”

Gail, what other things as part of due diligence for CFD do you do versus a note?

I want us to reassure you that a good title report is going to be incredibly helpful in catching things about CFDs. The biggest things that concern me the most about CFDs are unpaid utility bills. You can see on a title report any bill that has been outstanding for long enough that it’s become a lien on the property, but you can have monstrous bills. Particularly water and electric bills that are not liens yet. They’re not going to show up on a title report. It’s very important to have a process where you’re checking all the important things. You literally have to make phone calls to the utility companies, code enforcement, the treasurer to find out if there are delinquent taxes that aren’t showing up in title reports. Also, title reports catch some things but not all. You can’t take it as a complete answer.

I finished everything regarding downloading the bank data. I’m hoping that for those who left us a review on iTunes, Stitcher or Google Play, make sure that you’ve posted on Facebook or send me the email and I will send you the software program so you can download all the information from the banks. On the Notes and Bolts Facebook group, I did post the data to see what the data spits out into. I can also provide some sheets of what all that information means because it might be great to some of you. It teases people by putting that up there. If you’re interested in the software and you’ve left us a review, I will gladly give it to you for the wonderful price of zero.

Does everyone even understand what Chris is offering? There is a well-known subscription service that lets you see which banks have loans to sell. It’s quite expensive. Banks only publish this information quarterly, but the subscription is monthly. You can already see the problem. You can pay for three months and get information for one. Chris already had the software written that would go to the same source that the subscription service goes to and download the information. Yours is not refined. The bells and whistles aren’t the same, but for the relative cost of zero, it’s good.

Do you want to know which banks are selling assets? If that’s what you want to know, then this is what it tells you.

Leave a review and then take a screenshot of it, send it or if you can paste a link into an email, send it to Chris. Post it on Facebook, that’s even better because that will make other people feel competitive and jealous that you’re getting all the goodies and they’re not.

Our service does tell us how many audience we have.

Did you check our stats? We’ve been so busy. We have a lot of performing contracts for deed that will be going up for sale. The reason I want to do an episode about waiting for the perfect deal is the vast majority of people who read our blog thinks they’re only interested in nonperforming loans because they see that as being where the greatest potential gain could be. Actually, with performing notes, there are many strategies that give you the ability to profit from a performing note also, and even partner with JVs on performing notes. We’re going to teach those because we would love to interest you all in these performing notes.

We have put a ridiculous of time into doing the due diligence on them ourselves. We’re confident that we have identified all the ones that have title issues that we need to resolve before we put them up for sale. The ones that we’re putting up for sale are good to go. We would love to teach you all. Going back to the question about sticking to one strategy, don’t stick to one strategy. There are too many opportunities in other strategies. We’re going to teach about partials and different ways of doing partials where you don’t have to wait until five years to start getting some payments yourself.

You pick up a performing note for $10,000 at your acquired 13%, 15% yield and then turn around and flip it to somebody at 9% yield. You can either make a few bucks off of it or you can tag some money to the backend. That’s another option now that you can do. There are a lot of creative ways to get to things. Gail, we have 33,535 downloads and we are averaging 5,000 downloads per month. We started at 2,000 and bumped up to 3,000, which is 1,000 per month. Keep this pace and that would be about 60,000 a year.

We owe it all to you guys. Thank you so much for reading. Who would have imagined?

Our goal was 10,000 downloads in the first year. We set the bar low because we didn’t know how many and we figured, “We get 50 people, we’re happy.” We’ve got average episodes of about 500 downloads per episode, so it’s good.

It’s gratifying. There aren’t that many people who do notes. I think there are a lot more who would like to but haven’t found their way in yet.

The thing that I enjoy is when people will call me up. I have no clue who this person is. I don’t see them on an online or anything and like, “I read your blog.” I’m like, “Cool.”

I was talking to someone who wants to learn the note business and he was like, “I heard you just got your daughter to give you money for note?” I would like to get my girls into it. People are paying attention, Chris, so watch what you say.

I’d like to thank all of you again for reading. As a reminder, we have an open mic. If you go to GoodDeedsNoteInvesting.com, you can register where you’ll get email notifications to register. Any final thoughts, Gail?

Thank you for getting us to 33,500 downloads. We enjoy and look forward to it. You know that’s true because we have so much work to do. Thanks for all the love. We send it right back to you. Go out and do some good deeds.

Important Links:

Love the show? Subscribe, rate, review, and share!

Join the Good Deeds Note Investing movement today:



Leave a Reply