Open Mic Night: Dealing With Troublesome Borrowers And CFDs (Crazy Flipping Debtors)

GDNI 65 | Dealing With Borrowers

 

It’s an open mic, and Gail Anthony Greenberg and Chris Seveney openly share their stories about borrowers and CFDs – the Crazy Flipping Debtors. There is never a dull moment when it comes to investing. We all experience a mishmash of personalities that just when it seems like they’re gone with unpaid deals often reappears down at the wire. Gail and Chris share their own encounters with borrowers dealing with land contracts and how they’d ended up converting CFDs and notes. They talk about these borrowers who couldn’t make payments and who are MIA and share what they have done during those moments. A special guest also joins them to talk about his own assets and how you can find deals on your own. This episode is going to be interesting, so don’t miss out.

Listen to the podcast here:

Open Mic Night: Dealing With Troublesome Borrowers And CFDs (Crazy Flipping Debtors)

I figured I have a new name for CFDs. I’m going to start calling them Crazy Flipping Debtors. We’ll share some of the stories that we’ve had with CFDs because I even had a first for Franco.

You dazzled him with a situation he had never before encountered.

His comment back to me was, “I thought I’d seen it all, but this one is brand new.”

This is what is so exciting about our business. When you think, “That’s it. I’m never going to see a new thing,” the phone rings, an email arrives and you’re off and running. It’s crazy.

Tony is involved in this because it’s a CFD that I bought as a pool of assets and I did sell off some of those assets. What happened was I sent out the deeds to get recorded and sent out my deed, the recording from the entity to me and then my entity to the other entity. It came back rejected and said that the prior holder was no longer on the title. I called the counter. I said, “It’s got to be a mistake. You must have taken a recorded land contract and put that person on title.” They came back like, “No, there’s a sheriff’s deed.” I’m like, “Huh?” I go on Lake County Recorder, which is LCRecorder.com and put in the property address and there’s a sheriff’s deed. I downloaded it. It’s got a court case to it.

I started scratching my head like, “What?” I’m thinking, “Did it got a tax sale? Were there taxes owed? Here we go. Do I have to cut Tony on his check?” I texted Tony and I’m like, “Is the borrower paying?” He’s like, “Yeah, the guy is paying.” I looked up the court case and this is classic. The lender has a borrower on a land contract. This borrower issued a land contract to somebody else. That individual, we’ll call him basically Borrower B because Borrower A is a person who is between me and the land contract is Borrower B defaulted. What does Borrower A do? His attorney filed foreclosure on Borrower B.

Chris has a borrower whose name is John. John gives a land contract to Betty and then Betty doesn’t pay. John forecloses on her and now John has a sheriff’s deed deeding the property to him that belongs to Chris.

His attorney either never checked to see if he had the title on it or knew, but went with it anyways.

If you go past the demand letter, doesn’t your attorney do a title report?

Yes, but even now with demand letters, I use Franco. There are two things I always ask for, the Social Security number and give me the recorded deed. It’s not the copy of the deed that’s not recorded, but the recorded deed. This attorney foreclosed on this other borrower with my property and gave them the tax lien. I’m thinking through this and then it’s on my email. Franco was like, “I thought I had seen it all. This one’s a real doozy.” I explained it to him and I don’t think he got it at first. I reached back after some time and I said, “I found out a little more information on this. I talked to my general counsel and this is what they recommend.” He’s like, “Hold on. Timeout. Are you telling me that John was your land contract borrower who then put a land contract on Betty and foreclosed on Betty and now has a deed to the property?” I’m like, “Yes.” He is going to reach out to the attorney. I forgot what it’s called, but it’s basically a consent judgment that he and the other attorney will sign to void the foreclosure, to deed it back to whoever it was then allow me to record my liens.

GDNI 65 | Dealing With Borrowers
Dealing With Borrowers: It’s always like a paperwork issue. Nobody ever understands what we are required to do.

 

It’s called a do over. They’re avoiding the foreclosure, though. Does that give Betty any renewed life in this deal?

The funny thing is this happened on Tuesday at 4:00 PM. I get all this and fifteen minutes later, I get an email from a borrower who was attempting to sell the property. I reached out to him and said, “Instead of selling it, deed it back to me. I’ll take care of it.”

They weren’t going to make anything from it anyway.

We called him and we were talking about signing cancellation, but he mentioned he had a tenant in there. I said, “I’m going to need a copy of the lease.” Within fifteen minutes later, he sent me a copy of the lease and it’s a lease option. That’s an eight-year lease with an option on it. I’m like, “Shoot me.” I texted him, “John, give me a call. I want to go through this.” He’s like, “What’s going on?” I said, “You can’t assign the property because you don’t own it.” He’s like, “What do you mean?” I’m like, “Item fifteen on the land contract basically says you can rent it out, that’s not a problem but you can’t assign an option because they’re paying you and you don’t pay me. I go after you, then they’re going to say you owe them. Trust me, it can create problems.” He was like, “Okay, no problem.” We’re still in the phase of working that out as well.

You’re like a grandpa. Your borrowers have borrowers of their own. There are two generations of borrowers underneath you.

Here’s the third one. This is one in North Carolina where the borrower wasn’t paying. He was paying, but he’s only paying principal and interest. He wasn’t paying taxes, insurance and everything else. It’s a $75,000 to $100,000 property. Taxes are $2,500 a year. They were two years behind in taxes so I had to advance $5,000 in taxes because I don’t want to go on a tax sale. I reach out to the borrower and said, “You’ve got to come up with something. This $300 a month payment, principal and interest isn’t cutting it.” The borrower finally acknowledges, “I’m not living in the house. I’ve got somebody else who is in the house and that person had been the one who was calling in making the payments.”

This person calling me and making the payments is a 76 and 79-year-old couple who negotiated the deal that they were basically going to take over the land contract from this borrower. I went to them and said, “In order to do so, we’ve got to a cancel them, give you a new one and I need to qualify you.” They’ve sent pictures but I already know with CFDs, a lot of times you can see the pictures and actually this is part of this deal. I made sure I could do a home inspection on the house as well. There are still a few things with the house, but they have definitely done some upgrades to it.

With $75,000 and the unpaid balance is $35,000, she got nervous that I was going to charge him $75,000 now for the house, which technically I have a right to do, but that’s not my intent. My intent is to take it to the UPB and any costs I had out of pocket. We talked about this in another episode. I’ve been trying to get her to fill out the paperwork for the application stuff and she filled it out. She sent me this handwritten message that essentially says, “We hope you can work this out for us. Our payments are a priority. I’ve already lost too much to keep this house with all its faults. It was much worse. I’ll make the payments as long as I live, if necessary, then at least one of my children will finish it. My son pays the utility bills, the same one that made them not so smart, but trusting deal with the prior borrower to get us this house. We appreciate anything you can do to keep us in this house. Thank you.”

That’s sweet. Tell her to put somebody in the will to be the new land contract person afterward.

That’s one of the things. What I’m probably going to end up doing is I may just convert this one to a note anyways because they’re the ones that put the equity in the house and I’m of the opinion that’s theirs. They can keep it. They put it in there, so they should keep it. In that way if I turn around and I sell this thing later, it’s not me, but I don’t want to sell it then miss a payment and then somebody sees the equity and snatch that from me.

When you get to a certain amount, you can expect the level of drama to be exponential in its growth. Click To Tweet

A lot of things amazed me about these stories. One is how aware all these borrowers who have made these moves are. They know about lease options. They know about bidding new land contracts. Not that they were allowed to do any of those things, but most of my borrowers are not real estate savvy. They’re not savvy in general, but they don’t know the tricks of the real estate trades. These people are in a class of their own. People always think it’s a very simple matter like, “My husband doesn’t want to keep the land contract, but I would like to keep it. Can we put it in my name?” It’s always a paperwork issue. Nobody ever understands what we are required to do.

It does give another side of things because most people we associate with are reasonable and we use attorneys. We try and do things the right way. From this aspect, you can see why certain states like my favorite State of Ohio is trying to get rid of some of these things because they’re unrecorded. Some of this stuff goes on and there are some issues that I’ve had run into where people are basically selling houses to people that they don’t even own.

That’s a bit much.

To be honest with you, some of these people in their land contracts are still living in the house. Someone lives in a house and says, “Come on in. I’ll sell you this house,” even if this person doesn’t own the house. You usually think most people are honest from that standpoint.

You can see how it happens because first they rent out the house and for whatever reason they decide like, “Do you want to buy it? I can issue you a land contract. I have one of my own. I could make a copy and I can put your name.”

This is the other thing too. They didn’t even take a copy of the one we had. The ones they put look like it was created by a fourth-grader.

My contractor is doing a land contract for somebody. I’m like, “What?” I still don’t know what he’s doing, but he had already consulted the people in the recorder’s office and found out what the basic elements were that had to be in there. He was off and running writing the land contracts. I thought, “I’m not even asking any questions.” You and I, when we have legitimate situations where you have a simple situation like a parent wants to give the land contract to their child who is still working or the parents retired or whatever. We’ve had this conversation where it’s like, “Is there a simple way to do it? Can you add the person to the land contract and then wait a little while and then take the other person off the land? They do a cancellation of land contracts that you didn’t actually have to do the expensive and hard to qualify for some people vetting process. You still managed to transfer the land contract. We concluded that as law-abiding citizens that no, you can’t do that. I imagine it happens.

I’ve converted two CFDs and notes and I did have them qualify and go through. These are low-balance $10,000 UPBs and the properties are worth $30,000, $40,000. These have been performing for four years. These aren’t ones that a person’s been paying for two months. These are long-paying and performing. Now, I got a registered mortgage loan originator to approve them.

In this one where the borrower’s deceased, someone’s making the payments for four years. In the notes for this contract for deed, they are talking about the original borrower. We called her, she answered the phone and we checked her. That was to confirm their Social Security number when the servicing company calls and they’re like, “She died in 2015,” but yet the servicing company has been talking to her as lately as this year. I don’t know what is going on. I don’t own it. I will have a seat while this show unfolds, but it’s not my show. I’ll keep you up on what’s going on.

It’s interesting because it always comes in waves too. I was telling you, “Everything’s nice and calm.”

GDNI 65 | Dealing With Borrowers
Dealing With Borrowers: When the situation calls for it, call your attorney, call your servicer, and grab a bottle of booze.

 

You said to me, “I have all of these CFDs and these many are performing. I’m bored. There’s nothing going on.” Up in the heavens, the circle of the pantheon of the gods, your words wafted up to them. They sent several lightning bolts at you.

Those are the ones that I can actually talk about. I’ve got the ones that are in legal that I’m just like, “Poor Brian.”

This is an illustration of the fact that when you get to a certain amount, you can expect the level of drama to be exponential in its growth.

I would say it depends on how hairy you get them in the payments, but you got some hair on them that can cause you some agita and then you might have a few that are just nuisances and stuff. The rest go on their way where after nonperforming, people either aren’t going to fight. They don’t want to turn it around. Another one is I had a borrower who hasn’t paid since November and basically hasn’t returned phone calls and done anything and so forth. I’m starting the forfeiture process, it got delayed because some of the deeds, the recording of them got delayed or was incorrect or whatever. We got that squared away and so the borrower got a ten-day notice. I texted them and my first text was, “I’m in meetings and on conference calls. I will try and get back to you by the end of the day or tomorrow morning.” Literally after I sent that, he called four more times in the next ten minutes. I put in, “I AM ON THE PHONE.”

He probably thought you couldn’t be on the phone because most guys can’t multitask. They can’t be on the phone and texting at the same time.

It’s amazing though, eight months you can’t get in touch with somebody and all of a sudden, down to the wire, the person reappears.

Feet to the fire. That’s where everything happens unfortunately. Things are never super quiet. I bought my first notes in the early part of 2017. Because they were my first ones, for some reason they’re all older women, some with disabilities and things like that. I’ve gotten too involved with them. I know too much about them. We talked too many conversations and it makes it hard for me to think like a steely business person. I don’t ever want and I know you don’t either, to be so steely that you’re impervious to the anguished cries of borrowers. This is Good Deeds Note Investing and we are very much committed to doing good deeds.

I have one borrower. The demand letter is expiring on this lady and I never wanted it to come to this, but her loan before I even bought it, first she had her arrears put on the back of her loan and she had her balance reduced at the same time. She had her payments reduced. This was only a couple of years into her loan. A couple of years later, the two things that had been added to her balance, the arrears and the reduction that they gave her temporarily, they wiped all of that. They vastly reduced her unpaid balance. They vastly reduced everything. When I took over the loan, she was behind by how much, but I put her on a forbearance plan. That didn’t work. She has paid at times and then she’ll skip three months and everything. You tear out your hair. This borrower has been the beneficiary of so many modifications and attempts to prop her up with this. We all have to admit at this point, she can’t afford the house. That’s the reality of it. It looks like it’s coming to a sad conclusion. I’ve got a lot of that stuff going on right now. We had a podcast where we did nothing but scream and bitch about it. I don’t want to repeat myself.

I have a property and I don’t know if you recall the story where the borrower couldn’t make the payments. I bought only in contract and paid $5,000 in taxes on it. The borrower couldn’t pay. I offered the borrower a free house.

It’s not the house she was at.

You try and help borrowers but sometimes, it doesn't work out and you have to do what's in the best interest for you and your entity. Click To Tweet

I basically said, “Give me this house. I will give you this other house for free. It’s livable. It’s in the same area.”

It wasn’t admittedly as nice a house, but it was going to be free.

I signed the paperwork and Cash for Keys to another house. She ended up coming up with some money for a down payment. She started to complain about UPB. She thought it was wrong, all this other stuff. I’m like, “I’ll do a modification for you, but the modification always states that you accept this as UPB. You can’t go back and fight it later on. She does that. She makes the first payment and hasn’t paid since. She says, “I have an income now.” The problem is the payment is at $400 a month, so she can’t probably find anything to rent for that price anyways. It’s a decent house. It’s probably three times more than that other house that I was offering to give her.

I’m sitting here thinking, “I don’t want to take this house, but this woman hadn’t paid for four years prior. She makes one or two payments and now gets caught again.” It’s somewhat frustrating that I tried to help, but I can only do so much. You try and help some of these borrowers and sometimes it doesn’t work out and sometimes you have to do what’s in the best interest of course for you, your entity and if you’ve got funding partners and stuff by trying to work with the borrower. Sometimes you try and help them and they don’t want to be helped.

We have a borrower who hadn’t made a payment in five years. She went through a bankruptcy, I don’t think she completed the bankruptcy, but she started a bankruptcy several years ago. She thought because of that, that her debt was wiped out and she never has to pay again. When our outreach person asked to pay, she said, “I am never paying this loan.” She is making it very clear.

I had one where the borrower filed a Chapter 7 and he didn’t want the house. He wasn’t living in the house. He was getting divorced and this was in Maryland. I chased him down and found him. I had somebody meet with him and it was a local resident. I was like, “You don’t owe me anything. You don’t have to pay for a house. I will give you $1,000 to sign this house over to me.” The guy’s like, “No.” I’m like, “I’ll cut you a check for $1,000. Take the document to your attorney or do whatever. I’ll pay for your attorney to even review it.” “Leave me alone.” I’m like, “Okay.” I foreclosed on the property.

Did you ever figure out why?

He wanted nothing to do with the house and just didn’t want to be bothered. He didn’t have the time and he doesn’t want to be bothered. For some people it’s like, “You tossed away $1,000.” Maryland’s not cheap to foreclose and everything so I was offering him that. If I would offer him $5,000, he’d still say no because he didn’t want to be dealt with anybody.

It’s not easy to understand. Chad also remembers you saying how bored you were. You must have told a lot of people how bored you were.

Chad and I sometimes buy outside the box.

GDNI 65 | Dealing With Borrowers
Dealing With Borrowers: Most of the stuff you usually see is between 10% and 15% depending on the asset if it’s performing.

 

I am aware of this. Suddenly, stuff hit the fan, Chad. Chad is the unofficial third amigo.

We can share his pain.

This will be very cathartic for anyone who’s struggling with anything.

The reason why I would like to share these stories is that this isn’t the stuff that anyone teaches and you can’t teach it. What are you going to teach? My response typically for anything like this happening is one of two things. Call your attorney, call your servicer and grab a bottle of booze. Chad, how are you?

I’m good. I’m barbecuing. I had a busy day and busy nights so I’m catching up on my food intake.

I thought to be a note investor was passive and you didn’t have to work.

I was thinking about that actually and then I jinxed myself. It’s the Law of Attraction. It was funny you said that because I saw the same thing in myself. I’m like, “It’s summer. I might as well stick some relax time,” and that all went out the window.

What’s going on?

I’m in legal, so I can’t talk about too much. One thing I can say is that a CFD in an area that’s not recognized, let’s put it that way, not that it’s a big deal, but the borrower has not paid in ten months. When I bought it, it was three or four months. She’s been cooperative. She’s agreed to sell the property. At the time we bought it, we thought there was a ton of equity and we sent a realtor over there to check it out. It’s worth half of what we thought was going to be. I’m not too sure what we’re going to do with that one.

Chad, I have a question for you. With realtor BPOs and stuff when you get them, how often are they accurate in your mind?

It's a very old timely thing to be impressing the neighbors and falling apart on the inside. Click To Tweet

Never. In this case I’ll have to admit that I put a little bit too much faith in this realtor, but I agreed with his analysis actually. He’s a rehabber as well and he came up with the number that made sense to me in an area that I’m not familiar with. That’s why I relied on his expertise a little bit. Once he got inside he was like, “Wow.” He didn’t want to call me back. I had to call him twice.

He didn’t know how to break the news to you.

I called him and left a message. I texted him and I finally got ahold of him and he gave me the lowdown. This place is full of mold. He said he’d never seen anything like it. There was an add-on that had six and a half foot ceilings, no kitchen but they had a temporary makeshift kitchen out in the garage. The values coming up is less than what we paid for the note.

I’ve got one of those too.

I trusted somebody on a drive by and they missed the big crack in the foundation.

I’ve got two of those.

The peculiar thing about this one is when you look at the pictures when it was purchased by the borrower back in maybe 2011 or 2012, the online pictures, one of them was a Fannie Mae property. It was a total disaster. Since then, landscaping this place, it’s not like they put $1 million into it, but you can see a lot of sweat equity in the outdoors. They painted the whole house, replaced windows. You would think that they would take care of the inside too because the general rule is good on the outside, good on the inside, but not in this case. I was like, “That rule definitely didn’t apply here.” I put my faith in that roaster’s opinion and I went with my gut feeling and I thought it was a little bit lower, but now what he’s telling me is significantly lower.

How would you know? You have a nice-looking house on the outside. This is very abhorrent. That to me is like the madman era in advertising back in the ‘50s and ‘60s. Everybody put on a great show for each other. It was like the whole world was in middle school. Everyone was very conformist and all the mommies made sure their kids looked good and their house looked clean. People were covering up terrible things that were going on in their lives by keeping these very high standards of appearances in the way they dressed and the car and everything. You go home and all kinds of stuff were going on. That whole pretending, I must tend to think these people are like in their ‘60s. They’re not that old. Are they the owners?

I’m not sure. I’ve never actually spoken with the borrower themselves. I have a feeling it might be their upper years, I’m not 100% sure.

It’s a very old-timey thing to be impressing the neighbors and falling apart on the inside.

GDNI 65 | Dealing With Borrowers
Dealing With Borrowers: The last quarter of the year is when the action happens.

 

Maybe that’s what it is. They put a brand-new fence up. It’s got everything going and good about it. That was one of the reasons I bought it in the first place. I was like, “This is a well-looked after property and it was only three or four months behind.

Any reasonable investor would have done the same. We need to turn this a little bit into a therapy session for Chad. He’s feeling a little bad about this.

Unfortunately, I’ve got an investor on this too.

What do you do in a case like this for your investor?

I talked at length with this realtor and he’s pretty savvy. He’s one of the best realtors and he understands ARV on a property to fix it up where it could work. He’s going to run some more numbers. The number he’s coming back with, I was looking at the column and I’m like, “That’s lower than any other properties sold for over two years and it can’t be that low.” He’s going to run the ARV. He thinks it’s going to cost $60,000 to get it into top-notch condition, the ARV where it needs to be. It’s not a high-end area, but it’s definitely not the low-end. He’s going to work the numbers backward and see where he thinks an investor might jump in and take it. I’m coming up with a number a little bit higher than him and if he doesn’t think it’s going to be worth that, I might go to different realtors to get some more opinions.

I’m curious, Chad, because I know you renovate properties and stuff like that. I know you talk with a lot of investors. Are people still looking at acquisition part price plus rehab and then 70% ARV? Is that still the case? I’ve heard that’s changed now and it’s even crept up higher, so investors are paying more for the property. I’m curious if you’ve heard that as well.

It’s ARV times 70% minus rehab costs. I never wanted to abide by that stupid rule because you don’t know what you’re going to make. I didn’t want to make a certain percentage of profit on the deal. When you have the formula, you had no idea what your profit was going to be. Back when I was doing more of the flipping, I was settling for 15% because in Florida that’s what you did. That’s what all you could get. Even then, 15% is hard to come by. Most people still want to see a 20% return, 15% to 20% on your costs. That’s what a lot of people go by. The newbies that jump into the business go by that 70% rule, which doesn’t mean much. It depends on the market too. Some markets are a lot more aggressive than others.

They have more vitality.

You’ve had a little frustration as I have with seeing some pricing come back or counteroffers come back.

I connected with someone and they’re selling a pool of CFDs in the Kansas City area. He sent me the tape immediately and as soon as I got the tape, I realized this guy has no clue what he’s doing. Judging by what was on the tape, there are maybe eight columns of data. I can tell already those types of settlers. I sent him a list of questions back like, “Which of these are being serviced? Who’s servicing them?” I looked up the entities, randomly checked and they were all over the map. It looks like there are ten to fifteen owners. I’m like, “Who actually owns these?” He couldn’t answer half of them. One of my questions was, “What is your pricing expectations?” He came back and said, “We’re expecting to get what the value of the balance of the mortgage is.” I politely declined and I said, “If you’re trying to sell a pool of CFDs in the $6 million range, usually they’re trading between $0.55 and $0.60 on the dollar, so good luck.” He never responded. They’re trying to move the whole pool all in one shebang. Good luck with that.

I got an email from someone saying, “I’ve got somebody who’s looking to move a pool of $6 million in CFDs. Let me know if you have any interest.” I got the same thing.

There was 86 I believe on there.

I had posted it on Facebook, but I put in on five, six offers here and there with a few different sellers and stuff. Every single one was coming back 80%, 85% and I’m like, “No.” “What will you counter?” I’m like, “No. I’m at 40% and you’re at 85%. I’m not bidding against myself. We’re so far off.” Someone was putting in UPBs at $45,000 and I was going in the low twenties and stuff and they came back at like $39,000. I’m like, “No.” It’s nonperforming. These are notes. It was nothing like I could get a property with additional equity. I said, “If anything, I’ll pay $5,000 to foreclose. I can get that back but I’m going to pay $44,000 and get 49,000. No.”

It’s interesting though because you probably may have seen it too where a seller published some of the data that they had and because you also hear people saying, “I sell my performing notes at 6% or 7%.” It’s like, “Who are your investors?” The data from this individual was essentially that performing notes right now are selling basically gross at about 13% yield. If you’d take the principal and interest and carry that through, the nonperformers were right around 55%. You’ll see some stuff a little higher, some stuff lower. That’s where I expect things to see. When I hear people saying, “I’m getting 75% to 80%,” I don’t believe it. When I hear people also saying they’re selling their performers at 6%, I get very skeptical as well because most of the stuff you usually see is between 10% and 15% depending on the asset if it’s performing. I don’t even see 15% anymore. In 2018, you may have and now the nonperformers, they’re anywhere between 35% and 60% is what I’d guess. Probably depending on the price you’re at that higher range.

If anyone was actually selling at a 6% yield, it’s probably an educator or a guru who has a following of people who aren’t independent note investors yet, so they will buy what their guru tells them to buy. It’s not a replicate-able situation. Even for us, even as wildly famous as we are, Chris, we’re not going to buy things.

Even people who might be older and look for less risk and so forth, they still typically look for a little more than 6% or they want to put it in something. Honestly, they’re usually more comfortable in putting it in the markets or in some type of fund, a mutual fund or something.

At 6%, you can find other things to put it into. I have a great duplex performing that we’re trying to sell at a 7% yield. It’s tough. I still have it. I’ll say that.

I’ve sold off probably 30 assets plus and anything that’s been performing has never been less than 10% and anything that was nonperforming has never been above 55%, 60%.

That tape that was out, Chris, I ended up throwing in a bunch. There was actually a bunch more assets on there then the tape that we got originally. I was surprised by that. Since we had a window of opportunity to bid, they gave us a few days, I went through and pulled the foreclosures on all of them. Every single one of them was in the foreclosure pipeline. It’s pretty much the final judgment. I submitted some bids, some are pretty close to UPB. I’d be interested to see what they come back with. I made sure that if those things go to bankruptcy, if it’s a BK 13, that there’s a ton of arrearages that they have to pay off. If you do get stuck with it or I do get stuck with it, I just looked at the ones that were in hot areas for flipping in Florida and a few others. They weren’t the 65% to 70% UPB they’re looking for. We’ll see what happens.

That was the thing that was a killer for me. There are some assets in it, $80,000 UPB, $100,000 pay off and they sell the house for $200,000. They want $130,000 for it. I’m like, “The most you get is $100,000” and they’re like, “You’ll get a $200,000 house.” I’m like, “If I get the house, it’s not worth $200,000 because every other investor is going to let me take $130,000 house for $200,000, they should be stopped.” A lot of places I was bidding are in hot areas that people go to foreclosure sales and there are usually lines of people at them. It’s the same thing. I got a tape so I bid on some assets and I emailed the seller. I’m like, “What’s going on?”

The seller’s actually a broker. He came back and was like, “Probably nothing.” The UPB is $42,000. The house was worth $45,000 and they want $39,000. Some of them want 150% of what the house was worth. They want $0.85 on the UPB without even looking at the property, the house and stuff. These are nonperforming. When I sent it back he goes, “Do you have any interest in any of these?” Within about 30 seconds, I just looked at it, I ran one column to see what they’re looking for. I’m like, “No, I’ll pass.” What I’m trying to do too is if some of these people find out who the seller is through DataTree and stuff, I can in many instances figure it out. A lot of times now when I see some of these sellers at this point in time, I’m not even wasting any time or effort to look at some of these. I’m like, “Are you still looking for this?” If they come back and say yes, then I’m like, “I’ll pass because it’s not worth me spending an hour to dig into assets knowing that there’s not a chance.”

The people that we have as an audience, they are going probably going to be like, “If those two can’t find anything to buy, how am I going to get any traction in the business?” What would you say to them?

I’ll let Chad go first.

There’s still a lot of inventory out there. I would say because it’s summer, it’s a bit of a dry spell. I haven’t seen as many coming in. Everybody knows the common denominator between all of us is that we buy a lot of stuff from a certain broker. I bought a pool. Part of that and I ended up getting some pretty good deals or so I thought. I’ve got some performing stuff at nonperforming prices. I paid less on some performing stuff that I’d paid higher for nonperforming stuff months ago. It was a pretty large pool I took down. Maybe it got some preferential treatment in pricing because of that.

However, as part of that, there are some other assets that I have my eye on as part of this that there were some issues with the title, so I held off from those until I figured out that out. There were some pretty big issues of titles in a lot of these. I held up some of them until I figured that it could be cured. I went back to him to say, “I’m ready to buy these now.” This particular broker said, “We’ll see. The seller is not taking any more deals right now.” I’m like, “You’ve got to be kidding. I’ve spent how many hours and thousands of dollars on these. You better withhold those for me because I’m not going to be too happy,” especially when I told them all the problems with the titles on these. There’s still quite a bit out there that are still reasonably priced.

Chad, you don’t have to give an exact number, but roughly how many assets do you think you bought in 2019?

I bought 40-something maybe.

It’s close to 50. I’m the same thing. I probably bought 50 assets in 2019 and my goal is to buy 60. What I would say to people is you have to be patient and there are still assets out there. For a lot of people when you’re starting out and new, you’re looking to buy one or two a month or start out slow. That’s out there. If you’re looking to take down 50 to 100 assets, that’s more challenging. If you had $5 million that you had sitting there and paying interest on it, that’s more challenge out the door. If you have $200,000, $300,000, $400,000, $500,000, $600,000 or $1 million, you could get that out the door.

What’s hard is lots of times you have JVs ready to buy and you can’t find deals. Other times, you have deals and you can’t find JVs. I did well on that same tape that Chad is talking about. I also bought at nonperforming prices, several performing notes and I was blown away. I made modest offers and a whole bunch of them got accepted. I can’t explain it. It’s like a freak of nature moment and you have to be ready to pounce when it happens because there’s no telling when these kinds of things will present themselves. I tried to tell a bunch of people who have approached you and me about doing joint ventures like, “I can’t tell you when it’s going to happen. I’m going to reach out to you at a certain moment and that will be the moment. You’re not going to have a ton of time to decide. Usually, we buy them anyway and then people buy them from us after the fact. It’s very hard. Everybody wishes you could just go to a supermarket and pick what you want off the shelf. They’re always fully stocked, but it’s hard to wrap your mind around the fact that these tend to happen in eruptions. You’ve got to grab your bucket and run outside while it’s raining notes and then you might be inside for the rest of the winter.

One thing I’ll mention along with what you hit upon is it goes in waves. I get people like, “If you have deals, let me know.” I get some deals come through and I send it to them. A week and a half later, they’re like, “I want to be in this deal.” When I hit send on my email, typically I have all my assets tagged for somebody within 24 hours. It’s more or less, “I’m interested in this one.” It’s not a full-blown commitment of, “You need to wire me money tomorrow.” It’s, “Pick up the phone, call me. I’ll go through it, explain it to you, show you the numbers and stuff.” A lot of times it is something that is one of those things. It’s like a flash sale, the old blue light specials at Kmart on sales.

Actually, it’s for people who haven’t been through a yearly cycle yet. The last quarter of the year is when the action happens so gather the troops.

I was going to say that’s true, but typically in October or November you find a lot better stuff. December a lot of times you get a ton of stuff, but it’s everyone trying to get rid of their junk. They’re looking to sell and close by end of the year or sometimes October and November to get that stuff out the door.

October and November have classically been very good.

December is a lot of junk or on December 30th I get a phone call, “I’ve got these five assets. It needs this much money. You need to close tomorrow on them. You don’t have time to do a title report or anything like that. Do you want them?” “Yes.”

We do have gotten those phone calls. Although it doesn’t seem like it’s counterintuitive, January and February have also been good for me. I feel like the sellers who don’t sell as much as they wanted to by the end of the year, they keep selling in January and February and then in March things fizzle through the summer.

It’s interesting and possibly March too because a lot of businesses have to get their corporate tax returns done early typically or they get an extension so they’re working on that. Pretty much the summertime, it gets very slow at the beginning year. The first quarter this year, I bought 30-something assets and then in the second quarter, probably about a third of that, unless you count the assets that we acquired.

The terrible assets that we are now forming our Slack team to work on. Please, if you have not volunteered to be on that Slack team, don’t volunteer at this point. We had 60 people say they wanted to do it. There isn’t that much work, unfortunately.

Do you want to explain what we’re doing in case people haven’t heard?

Chris in his peaceful moments when he’s feeling prosperous always says to me, “I would like to buy fewer things and higher value and upgrade what I’m doing.” That is one Chris, and then there is the evil Chris too. He will see a horrendous little pool of notes with three nice ones swimming on the top and the rest are on the underneath and it’s all gross, muddy and everything. He’ll be like, “Let’s buy this because this looks great. These three, we’re going to do so well with these three and even making us buy these other twelve too in order to get these three. These twelve absolutely horrible, terrible notes that no one would want, it’s still going to be great and we’re going to have a great time.” He goes back to his paying job. I’m pretty much alone with these horrible notes. This time I said, “You are not leaving me alone with these horrible notes. I am recruiting people to be with me through the storm here.” We basically have formed a team to find out if there’s any way to squeeze anything out of the twelve horrible notes that Chris has foisted on us and we’ll be saying mean but truthful things about him the whole time we’re doing it.

I do want to say a few things to that. People must be, “Chris is nuts.” I’ll put an offer in, call it $50,000 and they’ll come back and say, “I need to get $60,000 for these, but I also want you to take these other assets so we can get them off our books and we can close up on whatever it is.”

They are not idiots. It’s a good move for them.

It’s a good move for them, but here’s the thing, it’s a good move for you as the investor because what we realize is a lot of times they get mad when people cherry-pick off the top and weave all that stuff and they ask you to do a favor and then don’t do it. This seller now, if they’ve got anything that has a lot of hair on it, I’ll email and they’ll be like, “Do you want the three?” Sometimes I’ll say no and they’re like, “Okay.” Sometimes they’ll be like, “Why wouldn’t you want that?” Sometimes they may have a servicer who hasn’t done anything in a year and they realize something may have happened or whatever it may be. Especially when you’re starting out, it’s doing wise decisions. Don’t go buy all crap assets. If someone says, “Take these other three,” you don’t have to do anything with them. We’ve got some of these that we’re not even doing anything with, but you’re helping them solve a problem. You’re separating and differentiating yourself from somebody else or you’re helping them solve a problem and they will be thankful. Trust me. I’ve been very generous about other things.

A good case in point for that is getting a deal from particular sellers especially if you deal with them a lot. That one pool that I took down not too long ago is not what I bid originally. When I did my evaluation of it, it was a lot less than I anticipated. I rejected the pool so the seller came back and said, “This is the last one out of this particular fund. They need to get rid of it. Can you give us a counteroffer?” I looked at it and I’m like, “This is the one that had the $150 a month payment. That’s not even worth taking down. I didn’t look at it that close originally. I did maybe close to $10,000, but it was part of a larger pool so I was looking at the overall. I said, “How about $5,000?” He said, “Okay, no problem.” You get a free nonperforming so I was like, “I’m going to be collecting $120 a month maybe after servicing, but the return on that is pretty good.” It’s not a very big balance, but the equity in this place is crazy. I’m sure these people are pretty happy on $150 a month for the rest of their term or they might pay it off.

What I’ve done in the past so much is say the rates are at 9%. I’ve gone back to them and said, “If you’re at $150, if you can pay $250, I’ll knock you down to 7%,” and then show them how much they save over the life of the loan. They may save $1,500 or something like that, but even though you’re losing that, your return goes up astronomically because you’re getting those higher payments. I’ve had two borrowers do that where I said, “Can you afford $250? If you can, I can knock your interest right down and then all of a sudden instead of getting $1,400 a year, now you’re getting close to $3,000. You’re doubling the speed of your money.”

I may have to try that with this one. They just got boarded. I might approach the servicer and bring it to them.

I’ll go back to you on those hairy assets. I do send everything to Gail and be like, “How’s it going? What did you work out this day?” On the ones that we bought on December 30th, I did the workout for the reinstatement with our good friend, TK. I struck that deal. I’ll say one thing. I forged emailed this day. We have our first sponsor.

We’re selling out.

Actually, it’s more of a returning a favor almost in a sense because it’s somebody who we both work with a lot.

We are going to maintain our commitment to not allow anyone to speak to our audience unless we’ve used them or have heard only good things about them. I’ll keep the list quite short.

We try and vet everyone we have on. We have to have them on because between you and him, my wife is number three probably for people I talk to.

I know. Who would put up with us? We don’t even get invited to anything anymore because all we talk about is this.

Thank you for joining us on this episode. If you could, leave us a review on iTunes and also make sure you join us on Facebook at the Notes And Bolts From The Good Deeds Note Investing Podcast. As always, if you have questions, comments or topics you’d like us to cover, please feel free to reach out to us at Chris@GoodDeedsNoteInvesting.com or Gail@GoodDeedsNoteInvesting.com.

Go out and do some good deeds.

Thank you.

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