- May 14, 2019
- Posted by: august19
- Category: Podcast
Selling notes and assets can be a tedious task. There are steps that need to be done when selling a note, REO, or CFD. This includes shutting down the insurance as soon as possible. It is also necessary to have utilities changed into the new owner’s name and that instructions are clearly delivered to from the sellers. Chris and Gail discuss the paperwork one has to deal with when selling notes and assets with all the different forms that vary between states. They also tackle how dealing with bank underwriters is a part of the steps in selling, and why any sale that does not push through can be considered an opportunity rather than a disaster.
Listen to the podcast here:
The Dos And Donts Of Selling Notes And Assets
I am with Gail Anthony Greenberg. Gail, do you have anything of What Just Happened Moments?
I’m renovating a house for myself to use as an Airbnb and a second home. I was surprised and delighted to have been preliminarily approved for my renovation loan. This might be relatable to our readers, the ones who don’t have regular W-2 income. I have a crazy quilt of income. It’s been customary in the past that underwriters at the banks look at that. They’re like, “What in the world?” They arbitrarily not allowed some of it. It’s always a massive cliffhanger whether you’re going to get the money or not. If I don’t get the loan, I am reaching out to everyone to find out who would like to do some private lending short-term. Watch your mailboxes for that one.
I had a mobile notary stop by for a closing. I had a closing where I was like, “Send me the forms. I’ll overnight them.” They were like, “No, we can’t do that. We’ll send somebody to you.” I was like, “Seriously?” They were like, “Yes.” I was like, “I’ll meet you at this time at this place.” A person showed up and had all the paperwork there. He took my license and made sure it was me and I signed off on a closing for the property. It was a property in Maryland where the borrower had multiple rentals and let this one go. We foreclosed on it. Once we foreclosed, we got inside and the place was a mess. When we say a property is a mess, people think, “There might be some food wrappers.” This one’s got rats in the sink and missing drywall. It’s in Baltimore and Baltimore is a hot area. Renovated homes in the area sell for about $100,000. We ended up getting this sold and to do the financials on it which we’ll talk about on this episode of selling an asset, I’m guessing the JV partner will get probably 20% plus on the deal.
How long did you have it from start to finish?
We picked it up last summer, so about a year.
20% a year is not too shabby.
The episode that we want to talk about is what to do when you sell a note or an asset and some of the things to make sure you do because there is a checklist of things that you should do when you go to sell an asset. Whether you’re selling a note, an REO, a CFD, there are several different things that should be done. Gail, do you want to start off with what’s the first thing you should do?Anything that can be done to minimize the amount of paperwork and allow people to focus more on their business is always beneficial. Click To Tweet
This is an episode that I need months ago because I sold five houses in the last few months. I hope this makes other people feel better about things that they forget to do because I definitely did not pull out the checklist. I did not do everything in order that I should have done. This applies to any asset, like a CFD where you have forced-placed insurance where you’re paying for the insurance and you manage the insurance. The first thing that I do is I shut down the insurance. I don’t know if you do this. I don’t even know if this makes sense, but I always make it for the day after the closing. I’m not sure if something happened on the day of the closing, whether I would be covered or whether the new person has insurance.
The other thing to be careful of too is, sometimes you may close on that day but if they don’t get to the recording office and record that item until the next day, then it’s caught in a limbo. I usually put it a few days to a week afterward to make sure I’m on the safe side of things. That’s important, to check, and depending on who you use for your insurance. I use JB Lloyd so I can easily go in the system and put in that date and cancel it. The other company I used is you have to fill out a form and send it into them as well. They weren’t as automated. Their policy is still good, but I lean towards things that are automated. Definitely, cancel the insurance.
I assumed, in legal terms, the house becomes the new owners upon everyone having signed, not necessarily the paperwork being recorded. Is that not your understanding of how it works?
On an REO, if there were an insurance issue, it would get very hairy if I signed paperwork yesterday and it didn’t close until now and the house burnt down last night. Legally, you’re still the owner. That kind is something that I’ll touch upon because this is something that I do when I sell the contract for deeds. I’ll record the deed for the buyer and take that process. I have a bunch of property in Lake County, Indiana and, all of a sudden, they don’t record that deed and there are nuisance liens placed against that property that goes against my company. I could tell the county, “I don’t own this. Here’s the loan sale agreement.” They’re going to look at me and say, “I don’t care. You’re on the title.” You’re going to have to fight with the person who bought it. I always recommend, when you’re selling an asset, to offer to get that recorded so it’s out of your name and you’re not worried about getting the tax bill, getting a water bill, getting another type of utility bill on a property.
I had no idea. I thought once the deed was signed, you had what you needed to go up against a utility company or a tax office. It’s like, “This changed hands here.” That’s interesting because we just sold a CFD in St. Louis that we bought a few months ago. I recorded the new deed. I electronically recorded it a week after we bought it. The entity that sold to us is still the owner of the record on all the official paperwork. I have the recorded stamp on the deed, but it never got officially recorded internally. I feel like I have to draw a line in the sand here that these recording offices or buyers who are late in recording things cannot hold up. Once that deed is signed, we’re not the owners anymore. I will fight anyone who tries to say otherwise.
In Lake County, I’ve sent a list to the sanitation department that I own these properties and they still send delinquent bills to the prior owner and I’m trying to get that fixed. From that perspective, I’d still say be careful. Granted, you may have signed something over and so forth and even the money has been changed hands, from a county’s perspective, because you’re mailing it in instead of having somebody walk it in, it can get hairy when you’re in purgatory.
When documents have been signed and money has changed hands, what else do they need? There are some places where a handshake seals the deal.
We talked about getting documents recorded. We talked about insurance. We briefly touched upon getting utilities changed in or out of your name to make sure that they are transferred out of that name and service. When it’s a note or a CFD and not an REO, if it’s a servicer, another thing to do is make sure that you notify the servicer that you sold this asset and confirm the servicer or send the goodbye letter. Some servicers may charge additional for sending certain letters, so you do want to confirm that you notified the servicer. You filled out the proper paperwork, the date that it’s sold, put an estimated transfer date and make sure that they’re taking care of the paperwork to get that transferred.
Here’s the problem there. If the buyer has not been in touch with your servicing company and told them that either it’s staying with them or what servicing company it’s being transferred to, they can’t even send the goodbye letter because the goodbye letter includes that information. “Your new servicer, you will now be sending your payments to this party instead of to us.” It’s true that we initiate things by alerting the servicer. A lot of these things do require the cooperation of the buyer also. I find myself supplying the buyer’s contact information to them because they want to be able to follow up if they don’t hear one way or another. I sold a CFD to someone. A couple of weeks or more and they’re still deciding about who’s going to be their servicer. I don’t know how you run afoul of the respo requirements if you spend too much time before you send the goodbye letter and the hello letter.
You have 30 days to notify them of the sale. That’s why when I sell an asset, as part of the whole closing package, before the loan sale agreement and everything, one of the questions I ask is, “Who is your servicer?” If they don’t tell me who it is, then I won’t complete the process or purchase because I don’t want to get caught in a situation where the buyer fiddles around with not knowing who they’re doing and we transfer money. I don’t do my obligation to notify the borrower that there’s a new purchaser. All of a sudden, you accidentally violate one of the laws because you sold an asset and you didn’t notify them of the sale within the proper period of time.
I’ve had buyers who thought they were transferring it to someone and then they are rethinking it. It’s important that we understand the sellers and we need to get clear instruction from people. If they tell you, “I told you so and so but I’m not sure,” you have to say, “You have until X date and then we have to go with whatever you put down. If you want to transfer it again later because you changed your mind, that’s fine.”
Usually, I’ll ask people or I’ll think of a form that I’ve gotten from another seller who had you fill out a form that has a lot of useful information on it. I send that as part of the loan sale package and say, “When you send me back the signed loan sale, include this form. That way, I can send that over as well.”
You’ve sold a contract for deed or a note. How do you get your transfer paperwork created? This has become an issue for me. A lot of the original notes and CFDs that I bought are being serviced by FCI. They used to be a more laid back institution. Now they are so wound up with their deadlines for things. At the same time I sold the CFD I talked about, a week before that, I sold a couple of others. I was immediately hounded by FCI to give them the actual deed and assignment of Land Contract, which, because I was the seller, I had control over when those documents materialize and could be shared with them. I thought about all the times that I’ve bought from sellers and sometimes I don’t get a deed for six or eight weeks. You’ve had that experience. You don’t get the paperwork.
I have all my collateral stored at Orion/MetaSource. When I sell an asset, they have an Excel form. It’s your entity, who it sold to, the date the amount and which note it is and they’ll create all the paperwork for me. That’s when I tell them, “Create this paperwork and please get this recorded.” That way, I’m covered and it’s done. People who buy CFDs from me, I say, “It’s going to be about $150. It’s what it will cost because of the recording fees. I’ll show you a copy of the invoice and reimburse me that amount.” A lot of times, they’re like, “Please do,” because they don’t want to have to deal with the hassle of finding someone to record it, sending it out or doing it themselves. It’s part of doing business. It’s something that I look at as being a nice luxury. It’s similar to when we were talking with Brett from Paperstac on our episode, where it was part of their service. They’re looking at getting all recording and stuff done. Anything that can be done to minimize the amount of paperwork and allow people more to focus on their business is always beneficial.Be careful with people who are aiming to fudge a purchase. Click To Tweet
In different states, there are specific extra documents that have to be created. There are special property transfer sheets in Michigan that have to go to the county treasurer first and they sign off. In Indiana, there’s a property transfer sheet also. I don’t think that has anything that has to be notarized on it. I might be confusing these because I’ve done a bunch of these. I sold something in Memphis. They have an affidavit of property value and your signature, as the seller has to be notarized on there. It was a massive pain. When I have bought things in the past, the sellers have never supplied these things. They sell hundreds of assets probably in Memphis, Tennessee. They act like, “Do you need something else from us? We were not aware. Send it and we’ll get it notarized.” It’s like, “Really? Please.”
Indiana has a sales disclosure form that you have to fill out as well.
How do you handle it in a situation with property transfer taxes? Do you figure that out and tell the buyer, “You’re going to have to pony that up as well?”
I say, “Here’s an estimate. It costs $50 for creating a mail and getting it done. There will be a property transfer tax, which is what it is. I’ll show you what that is.” That’s something that they’ll cut me a check for later on down the line.
I’m curious if this has ever happened to you because it happened to me once. Did you ever have a buyer wanting to fudge the purchase price so they wouldn’t have to pay as much in property transfer tax?
No, which I would tell people out there, “Don’t do that.” If you’re buying five assets and it’s like, “This one’s $20,000. This one is $22,000. This one’s $25,000,” if it’s not set, you can work within, “I’ll give you $100,000 for these five assets. Is it $20,000 a piece?” When you go to a sale, “It was $22,000 for this one, $24,000 for this one, $16,000 for this one,” there’s nothing wrong. I don’t believe in that. If you’re paying $50,000 for an asset and say, “Can we fudge the deed that only shows $20,000?” Definitely don’t do that. The number should be what you sold it for if it’s a contract for deed or whatever it is.
That rolls into what we’re talking about, selling things and so forth. After a deal closes, what I’ll do is I’ll send them back their initial investment and any additional money that they’ve paid into the deal. I wait or I’ll try and come up with some rough numbers. I’ll hold some money aside before closing out the deal because taking a note or a contract for deed if you sell that asset you’re going to have deboarding costs. There might be some additional taxes. There might be some utility bills that might still be owed on the property. You’re not doing an official HUD like you are on an REO or something along those lines, but you might have an outstanding legal bill, especially on foreclosures. You’re going to have additional bills past the date of closing.
If you sell it for $20,000 and the person was in it for $10,000 and you’re splitting it 50/50, then all of a sudden, go cut them a check for $15,000 and keep the $5,000 because you may have $300, $500, $700 in additional expenses. Early on, we’re doing that. I was like, “Here’s your $5,000,” and then I realize, “There is a $600 and I’m not going back after them for that.” All of a sudden, you learn very quickly that when you have three, four, five, ten deals and you keep doing that, the next thing you know, you’ve given away thousands of dollars. Get them back a good amount of that money but always hold a percent or $1,000 to be on the safe side.
I’ve updated my JV agreements to include a language in there that there is a small amount being held for any incidental expenses. Also, you’ve got your boarding and deboarding costs from your servicer. You may sell this thing on March 5th, but you’re not getting billed on that thing until the end of April. People say, “That bill is coming.” Yes, you do. You want to send somebody a final report of all the accounting. I send people the balance sheet and P&L statement that shows, “Here’s every dollar that came in. Here’s every dollar that went out the door.” I don’t know if you do that, but I send them that full balance sheet to show, “Here’s how I came up with that number,” and not let somebody take my “word” for it that we made this much on the deal. I like to show them the actual backup to that. If you’re teaming with somebody, that’s something you should ask. It’s something that people should be providing you.
You and I are both meticulous about the reporting and the detail of the reports down to the nickel, so I do that. The other thing that I like to do, in addition to sending the check and the reports, is I calculate for them what they made on the deal. I’m like, “Look at this. You invested this amount on this date. Now you’re getting this much back. This is what you made.” I don’t know if this will sound ridiculous or not, but I wanted to have a special piece of paper that I sent along with the check. I went online and looked for artwork. I found this cute, giant that says, “Yay us,” with an exclamation point. It’s colorful like in watercolor. I send those out and I put the check in. We share a moment. I’m not there when they get it. I create a “yay us” moment between me and my JV.
My “yay us” moment as well is along with the check, I email them a document to note that this is full and final. We’re done. It’s something I strongly recommend to everyone because what you don’t want to have is years after that, somebody comes back and says, “You still owe me this much money for that,” or “What’s going on with that?” You’re like, “No, you got your final check,” but all you did is mail them a check. There’s nothing official. Did you ever get anything officially signed with them saying, “This deal is closed out,” and “This is it”? If you sit back and think that every quarter, whenever you send somebody a check and a deal gets closed out, they might get a nice big check because they get their equity and everything back. If you don’t send them anything to say, “By the way, this deal is now closed,” who’s to think that, “My deal is still open. They just sent me a nice big check.”
This is where your background as someone who’s responsible for multimillion-dollar jobs and having everyone sign off and be accountable to things. This is where that is showing. I agree it’s a good idea. I’ve never done it because when I distribute the proceeds to my JVs, it is such a moment of celebration. It’s all been good so far. We have numerous emails and texts about like, “This happened. Your money’s coming.” I feel safe without that. This is the reason I haven’t had a real job for a long time. There’s a part of me that resists the convention and the ass-covering aspects of life in big business. It takes a little of the magic out of the moment. I’m not disagreeing that it’s an excellent idea. People should make their own decisions about what feels right to them.
It’s all about protection and how much belt and suspenders you want to put on.
This is hitting me at the moment too where I’m dealing with these bank underwriters. The most hilarious thing is to be in the distress note business and dealing with bank underwriters and watching how they are trying to be sure that if they make you a loan, you’re never going to default. They feel that their process is very excellent. Yet, here we sit on the other side of the table. We buy all their mistakes. They did all those things and they weren’t right. Here, I’m someone who has never defaulted on anything in my entire life. They scrutinize me because they don’t like some of my income sources. I’m back to that. At a certain point, I always end up saying to them, “I buy these things after you’re wrong about people.” You should push back from your debts, stop looking at your underwriting criteria so much and look at me.People should make their own decisions about what feels right to them. Click To Tweet
One thing I’ll mention is when you are selling an asset, I do this and sometimes it’s my own worst enemy. I make sure like, “I got this asset sold.” It isn’t sold until the check is written. I have a partner and we allowed the borrower to sell an asset. It looks like this one’s selling this time, but I was telling him like, “Let’s not hold our breath.” I got the HUD. I got everything. All of a sudden, the day of closing, it doesn’t happen. The borrower’s financing fell through. I tell partners this too, I’m like, “When I send out quarterly reporting, here’s where we’re at. I’m going to budget. Here’s where we’re going to spend stuff.” They’re like, “What’s my return going to be now?” I’m like, “Don’t even calculate it because it’s an estimate and that’s all it is. You can estimate any return you want at this point in time, but all it is an estimate.”
Whether you’re going to make $3,000, $5,000, $50,000, that money isn’t yours yet. You can try and get a rough ballpark idea, but I’m not going to stick to that number in the sense of, “Here’s what we’re projecting this point in time.” Who knows what could happen? A county official could drive by and say, “Here’s $1,000 fine because you didn’t do this.” There’s so much that can go wrong. There are things that can go right. I’ve had an asset under agreement for sale. This one I closed on in Baltimore. I had it under the agreement and ready to close for a lesser price. I put it back on the market and got more money for it.
Don’t assume. If a sale falls through, that it’s a disaster. It can be the window to a new opportunity to sell it for more. I sold two CFDs that I got back. I got the house back and I sold them retail. These were low-value houses. They were both under $50,000. The closing date came. They’re all remote from me. Inevitably, the title company sends me an email with all the closing docs. I print them out. I go to the notary. I sign everything. They send a label. I ship them back overnight for the closing. I cannot tell you how many times a closing was scheduled. For no reason, in particular, that was even communicated to me, it didn’t happen. One person was getting money from her family to buy the house. The family member had to liquidate some investments. That took longer than everyone thought. The title company didn’t even tell me. The day came and went. There was no wire to my account. You end up chasing them down to find out what actually happened.
In one case, we got an offer. I almost hesitate to tell the JV what the offer is because a lot can happen between an offer and getting the wire into your account. It’s like, “Don’t get your hopes up.” With an offer, from the realtor comes an estimate, not yet the HUD sheet but the estimate. They want some seller assist. “We know the taxes are about this.” They give you a rough idea of an estimated breakdown. The important thing that hasn’t happened yet is the inspection. If they’re getting FHA, it’s financing the appraisal.
That’s a massive cliffhanger. I had a close call on this one house that had roof problems and apparently, some sparking circuits in the electrical panel. I thought, “There goes our profit.” Weirdly, the people only asked for $500 off to deal with those two things. I had another one where I have a friend of mine renovated the house for me and got it looking sharp. He said, “You’ve got this problem with the roof.” This electric panel is so old. It had the push button that is like a flip. He goes like, “I can’t imagine that you are going to be able to sell this retail with these problems.” I never heard a thing about either one of those. Where the seller’s disclosure is concerned, I didn’t have real information. It was like, “There may be something.” Having buttons instead of circuits in your circuit panel is not technically something that they ask you on the seller disclosure. I wasn’t duty-bound to describe. I didn’t even know how to describe that. Is that an issue or is that something where you’re going to want to update at some point? If I were aware of a real issue, I wouldn’t disclose it. I would fix it. If it was a safety issue, for sure. I didn’t find out about the sparking electrical circuit until it was the buyer’s inspector who informed me of that. At that point, they were cool with dealing with it themselves.
Is there anything else you’d like to add?
When it comes to utilities, if you’ve had a very good borrower and you’ve had continuous occupancy, you might not even be aware of who all the utility companies are. You’re going to have up to three, for gas, water and electric plus the sewer bill. There are a lot of people to hear from when you’re wrapping up an asset. Make sure you know exactly. Even the current bill, if you have been paying the utility bills, the current bill, the balance that is owed is not the final bill. Once everything is transferred over, they will generate a final bill. It’s not going to be massively higher than the current bill, but it could be up to an extra month. Don’t figure because you can go online, that you necessarily know what your final balance is going to be on those things. That was my Note and Bolt.
There’s always this fine line when you’re selling an asset and somebody has it under agreement and doing due diligence on it to take it off the market and stuff, which is the right thing to do. If you have a list and people are looking at the list, don’t take it off your list until that asset is sold. I’ve had multiple assets where people would go, “I’m going to buy it. This is going to happen,” and then realize like, “This happened with my IRA company.” The people may flake in some way, shape or form. You may have taken it off a tape that you’re giving to other people who may have also had an interest in it.
Usually, what I’ll do is, if somebody bids on it, I’ll say, “It’s pending,” and “I’ll let you know.” I don’t remove it yet from a tape, or if you were to post it on a site somewhere, that doesn’t list it as pending. Don’t have somebody doing due diligence on it or two people doing due diligence on it or don’t accept two offers on it. Once you have an accepted offer, there’s still that due diligence period where you’ll still want to get some backup bids in case. If one is higher, don’t try and kick somebody out just because you have a higher bid. That’s not the right thing to do. If you put a strike price, which is a price you want to sell something at and somebody else hits it, I let that other person know, “This is pending.” If this first buyer ends up flaking, I’ll go back to them and say, “This came back around and is available now. Let me know if you’re interested in it. I’m doing that with an asset right now. The person’s like, “I’m still interested in that.” It looks like an asset that I thought I was going to sell. I am going to sell but it’s with somebody else.
In some areas, houses that are up for retail sale, you’ll see that too. It will say the MLS, if it’s listed on there, will say, “Pending. Still showing,” because they are willing to take back up offers and you need them.
I’d like to thank everyone for joining us on another episode. Make sure to sign up in GoodDeedsNoteInvesting.com to register, to subscribe to our webinars and our podcast. As a subscriber, you do get an advance look at these assets that we put out for sale. When we put them out, three of the assets they’d sell in that 48-hour period. Now that people had those under agreement, I think it is definitely well worth subscribing to that. If you have subscribed, we don’t spam you with thousands of emails. We let you know of our Thursday night webinar and send you a reminder when that’s occurring. We’re trying to implement some text messaging technology. Gail, do you have any other final thoughts?
It’s nice to be part of that group because there are few times in notes where you get to feel special. You’ve got something extra.
I feel special but it’s in a bad way sometimes with the assets I have.
Thanks, everyone. I’ll talk to you next time. Go out and do some good deeds.
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