Ep 205: The World of Buying and Servicing Notes with Shante Duffy

Given as to why they use this servicer over another one. And it was okay, that's how you bridge the gap. They're just getting what they need so. And what they want. And that's what I needed. And what I wanted was to figure out how to bridge that gap. And that's essentially what kind of took this off. It was just to make sure that we could be a servicer that's needed and wanted in this space.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host Chris Larson. If you haven't yet, get a copy of our book for free at our website nextlevelincome.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's show we have Shantae Duffy, the director of Business operations at By Loan Servicing. With over a decade of hands on experience, Shantae has established herself as a seasoned expert in the field. As co founder of bifi, Shantay played a pivotal role in establishing BIFI as a platform by by investors for investors. Hence the name bifi. Assessing the faults and complaints from other investors, Shantae was able to incorporate them into how BI was structured with the vision of addressing common pain points caused by the industry standard way of servicing loans so that investors can focus on what they do best and ditch the frustrations. What truly distinguishes Shante is her unwavering passion for fostering growth and authenticity within teams. She actively engages in educating others in the industry, establishing herself as a thought leader and valuable resource for fellow investors. Shantae, welcome to the show.

Thank you, thank you for having me. I'm excited here.

Yeah, I'm excited to have you here. I was sharing a little bit about you in the intro but I would love for you to share a little bit about a little bit more about your background in the business here with the audience before we get started.

Awesome. Well, I'm Shantay Duffy. I am one of the co founders and the director of operations of Byfi Loan Servicing. I've servicing industry for a little over a decade now with which is crazy to think about when I say that I absolutely love servicing pain points and all but yeah, what I do and I love it and I don't really see an end in sight for me on that. So that's me.

Wonderful. How did you get into the business? And just for for the audience, let's, we'll talk a little bit about, you know, the different types of loans out there. What loan servicing is kind of why the business exists. For instance, I was buying, this is going back over a decade now. We were buying non performing notes and we'd buy the notes and we'd, we'd hire them out to a loan servicer. So I think, I don't think a lot of people know Shantae, like what happens after someone gets a loan or after somebody like for instance in our situation buys a loan? Like what, what happens after that process?

I deal with investors who do buy loans. I've been seeing a lot more of seller financed paper coming through as well, which is fun to see. But essentially every lender, Esther, needs a servicer to service their loans. That servicer's job is to basically keep the loan in compliance. But everybody kind of knows this as their company that accepts payments. Yes, that is a major part of what we do. But we also keep your loan in compliance and make sure that we send out statements, late notices, we keep a record the payments that borrowers are making. You know, we assist with any loss mitigation. Your non performing loans, someone has to work those. We want to get these borrowers to be performing again. Your servicers usually kind of handle your loan management side of things with the instructions that you provide as a lender. So we work per your instruction and also within the realm of legal actions and things that we're allowed to do and what we're not allowed to do. But that's kind of us in a nutshell. We have a lot more things that go out to any loan that's needed, additional services and things like that that we offer. But naturally your servicers are responsible for processing your borrower payments, keeping a record of that and keeping your loan in compliance for federal and state regulations.

Gotcha. So for the audience, for those that aren't familiar, so if I go and I buy a house and I get a mortgage from let's say one of the big banks that's out there, or maybe it's my local bank, what, what happens? Like I know sometimes those banks sell off the loans, sometimes they package them into other things. What's the process? You know, so you know, if somebody like actually goes and gets a first loan on their home when you, what happens after that?

If they go to their natural bank and just, you know, apply for a mortgage, they get a loan. You're now obligated to pay back that loan. When you go to big Banks, they usually have their own servicing department. So bank of America, Wells Fargo, those bigger places, they usually have their own servicing department. And you're not making your mortgage payment to your bank in the world that I'm in. These are loans that may have been sold by the bank to private investors to essentially it's kind of anybody who has money to, you know, to take on that note that private investor now needs a servicer to do everything that the big bank was doing while the borrower is paying back their mortgage. So when loans get sold, borrowers get notified via a letter from the current servicer letting them know it's a goodbye letter. And a lot of people get nervous when they see these nothing on your loan term changes, it's just where you're making your payment changes. So you might today payment to one of the big banks and then someone else bought your loan. Now you're getting a letter that says oh no, you need your loan payments to start going to by fire to any servicer the lender has chosen. And it's again, it sounds really scary but nothing on the loan changes, it's just where you're making the payments and who you're making the payments to.

Yeah, and I think this is, this is a surprise to some people. I've seen this happen. I've seen, you know, I've gone through a mortgage broker before and they said, hey Chris, you know, don't, you know, you'll probably see we sell our loans which means we sell them to somebody else. So somebody pays a specific amount of money for that future income stream that they're getting. And this is where you know, if you look into it, there's, there's primary mortgages, there's secondary mortgages, there's performing notes and there's non performing notes. Shantay, do you mind breaking down those categories for us?

Yep. So we service all of those. Just make that clear. You. A performing note is basically a loan where the borrower is paying consistently every single month. We're walking to April, they're going to pay for April. A non performing loan means that the borrower has not been their payments, especially not consecutively as well. So we see both of those. We see borrowers who'll make a payment in March and then not pay again until August. That falls into the non performing at this point because they haven't made payments. Senior liens are just first position liens. There's nothing that is of it. That's the only lien and mortgage on that property per se. There are Plenty of times over there's junior liens and secondary liens and that's just where there's a first mortgage and a second mortgage. They are not always owned by the same person. So this could still be with a big bank and your second lien could be with a smaller investor that you've never heard of and with a small servicer. That means you have two loan payments though.

Sure.

For the mortgage, for the borrower that's paying these mortgages. We service both those. A lot of the junior liens that I interests are a little bit different. They're not always conventional and just fixed rate. Sometimes they're home equity lines of credits and things like that where you know their interest rates because it's constantly changing based on the terms of that note. But borrowers have both. Some have one, only some will pay off the first. And now that second moves into first. It's the order of mortgages that you have on that loan.

Yeah. And so again if somebody, if you out there and you're listening and you're like well this is a little foreign to me. You know, you get your primary mortgage and then maybe you get a line of credit like a, like a home equity line of credit. We saw this especially coming out of the Great Recession. You know, a lot of these notes were non performing. Home prices went down, people got upside down. They just stopped paying for, for various reasons. Why would you know, this would be surprising people. Why would an investor want to buy a non performing note? So this is a loan where someone, and I'm going to pay money as an investor for that.

There's a few different reasons. There's reasons why borrowers also stop paying. I know that I like not myself. I like looking at non performing because a, I either want to work something out with the borrowers. Sometimes it's just there's no communication and no one's put in the effort.

Or maybe somebody died or something happened.

And there was anything can happen. But the flip side to it is there's a lot of, I know a lot of lenders that look for non performing notes because their intent is to property not accepting monthly mortgage payments for 10, 20, 30 years.

Okay, let's stop there for a second. So you're saying an investor may buy a non performing note with the intent of foreclosing on the property.

Yep. Which means that if no one bids at the date of sale, the date of auction, that property becomes an reo which means that it stays with the investor. The borrower no longer has any obligations to pay back the note because they were foreclosed on. They also just lost their home at that point. Investors can turn around and sell the property as is. They can choose to fix and flip it. I've seen that a lot. Or they just kind of put a renter in there, a tenant and they just kind of had a property management company. It's different variations. When you're buying notes you need to kind of plan with your exit strategy as to what you want to do. So when you're looking at notes you're like okay, this one's non performing. There are several different exit strategies you can take. You don't want it to stay non performing. Buy a non performing note to just do nothing with forever. You have to eventually do something before you know, statute of limitations comes into play and things like that. So the intent is more so what the exit strategy that you would want to take as a lender, what exit you'd want to take. And you have several different options. So fun. They do require a little bit more work. Definitely a little more costly on the purchasing it. Not on purchasing, on working the loan and a little less costly on purchasing the note. Where performing loans are the opposite. They're a little bit more pricey but you're getting residual monthly income per the note as well. So there pros and cons to both sides. It just depends on what everybody likes.

Yeah. So some investors may buy a performing note. They may pay a slight discount to, to give cash to the, the seller of that note so that they can get that. And you know we've seen there's like there was commercials on for years and years. I used to see them on TV when, when we watch TV with commercials which people don't really do that anymore. Yeah. But you, so have you ever seen like oh, we'll buy your, your lottery payments or we'll buy. It's the same thing. You're, you're paying just like a bond essentially. But non performing notes are a little bit different. So. And you could buy primary non performing. You can buy secondary non performing. What, what types of discounts are you seeing out there from an investor side? So if you have a, a note that's, you know it's, it's, it's got a dollar that's owed back. What, what's typical that you're seeing out there?

Shantae And I've been seeing on the non. I haven't seen a lot of non performings lately. Just not just as of recently I've been seeing a lot of Seller financed that doesn't, you know, originated brand new paper. But when I do see people buying non performing notes, they're also kind of bidding, you know, 50 to 60% of the principal balance.

Of the original, of.

The, of the principal balance, what's currently owed principal balance. So they might owe a hundred thousand. The original mortgage was 300,000. But you know, they're paying usually around there. It also depends. There's many factors into it. When you're doing your due diligence. If you have a buy a non performing loan with you know, $20,000 in default taxes, you're going to take that into consideration when placing your bid to that seller.

So explain that, explain that situation real quick. So you buy a hundred thousand dollar principal balance and there may be back taxes because you know if somebody's not paying their loan, they're probably other things they're not paying. Maybe contractors where there's liens on the property, maybe they haven't paid their taxes for a year or two. So you are you a high income business owner or professional earning 2, 300,000 or even more a year but still feel like you're living paycheck to paycheck? Are you comfortable working until you're 65 or 70 to retire or do you want to achieve financial independence and live life on your own terms? You could join myself and Matt4 and learn how we both became financially dependent in our early 30s. We will teach you how to make, keep and grow your money. Teaching you strategies to maximize your earnings, keep your income that you've earned through tax strategy and legal structures and ultimately teach you how to grow it by determining your personal investing strategy as well as teach you how to analyze investments so you can grow your passive income to the point to live life on your own terms. Our coaching clients reliably do this in seven years or less. To learn more, check out our coaching program at nextlevelincome.com forward/coaching. That's nextlevelincome.com forward/ coaching.

I see a lot in the taxes and you should always check because the that you know, I always try to make sure newer investors who are a little bit more green and just kind of getting their feet wet or learning is that when there are delinquent taxes on a property it is in interest to actually pay those because tax liens will supersede your loan as a lender. So you can have a first lien, a primary mortgage that you that is non performing if the taxes are not current and not paid up to date and there's delinquencies. The tax collector has every right to put those up for tax sale, which means that anybody, the same way you could buy notes, anybody can bid on the tax bill that's owed for each year. Now, whoever buys those taxes, they might not always stay with the county or the city has. Every state is a little bit different, has a period of time where they give you time to redeem these taxes. Once redemption period is over, though, whoever bought that tax lien can actually foreclose from a tax lien position, which will wipe out your senior lien mortgage and your junior lien mortgage for a lot of, a lot of the cases. So I always tell everybody, at the very least doing your due diligence, go check taxes. Because I've, I've seen it over and over again where people don't know. And the next thing you know, it's going through foreclosure and then these numbers just go up. They accrue interest and penalties. And you know, I live in New Jersey, taxes are pretty high here. But when I look at loans in like South Carolina, where, you know, maybe $1,000 for a whole year.

Yeah.

If you don't pay that for six years, you're going to lose a property for five grand worth of taxes.

That's crazy. Yeah.

I always tell everybody, just double check and make sure even if you're in the second position, you want to know that that first lien is in good standing. Usually taxes are part of a mortgage payment. There's an escrow component on a senior lien majority of the time. And so they have a payment, the borrower will have to pay slang towards the principal and interest of a loan, but then they'll have to pay additional to cover taxes, owners, insurance, sometimes sewer and water bills as well, sometimes an additional insurance. So if a borrower is not paying, especially on their senior lien, where there is an escrow, that means no money is going in to pay these items. Which means as a lender, you're probably going to be the one that has to pay that if you choose not, you don't want to renew insurance, for example, if that property goes up in flames, you have nothing to protect yourself with.

Yeah. So again, so if you're an investor and you're out there and you're buying either portfolios or these notes, the upside is you could you potentially double your money. But it's really a numbers game. Is that fair to say? Shantae?

So always a numbers game.

Yeah. So let's talk about why did you found by.

I founded by 5 because I got into an opportunity where I couldn't say no as much as I tried to. I love servicing. The thing about servicers and I say this to everybody, no, nobody likes a servicer, but you need one. That is always. That's how it was explained to me years ago when I first stepped into this space. And it bothered me because like, well, I don't want to just be needed, I want to be wanted. And so it was how do I bridge that gap? So BY actually stands for Buy investors for Investors. The founders are investors and we know what we want to see in our own portfolio. So there's things that we know that we would like that would help our no investors journeys and we also feel like other investors would benefit and would like these things as well. So we actually sat down with a group of investors that we are all pretty close friends and kind of had like an off the record conversation and was like if you could build your own service or what did you like? And we got very, very honest feedback and it was well, this servicer is really good at this, but they're not good at this. And I figured out why people use different servicers and just because sometimes their loan situations are different. One might handle bankruptcy better than another one servicer might not touch non performing loans. It might not offer loss mitigation help to handle the borrower outreach and getting the performing. So there's several different reasons that we kind of were given as to why they use this servicer over another one. And it was okay, that's how you bridge the gap. They're just getting what they need so and what they want. And that's what I needed and what I wanted was to figure out how to bridge that gap. And that's essentially what kind of took this off. It was just to make sure that we could be a servicer that's needed and wanted in this space.

And let's talk about that. So what, what are the services you offer that are different than, you know, okay, bank of America has a mortgage and the payments are coming in regularly. Those aren't really your clients, is that fair to say?

We have clients like that but the bank of America is not my client. But yeah, loans that come in paying and they don't require much work. It's just we receive a payment, process the payment. Now we're just waiting for the next month. Those loans are beautif. Everybody's happy with those loans. It's the non performing side that I'm not going to say is 100% different than other servicers because a lot of the services we offer also offered by other servicers in our space as well. But we do handle, we want it to be a one stop shop. That was what was really important. We didn't want people to feel like they can come to us for certain things and not everything start to finish. And any exit strategy you're going through we want to assist with. So we made sure that we built a team that can handle every type of loan and every type of scenario. So we deal with performing loans which again, those are. Everybody loves the non performing loans. We work with the investors and ask what exit strategies do you want to make available before we just start calling borrowers? We will never offer a borrower any sort of payment arrangement, agreement, anything like that without going through several steps.

Yeah. So let's talk. So I'm an investor, I come to. You have a note. Let's talk about some of those exit strategies. So I've, I've bought a Note for say 50 cents on the dollar and I, I come to buy and I say, all right, Shantae, you say all right, what are our options here? What would you like us to work through? Let's talk through some of those. For the listeners.

You have the option to just try to get the borrower to fully reinstate, which means to bring their account current. Sometimes it's just no one. It was floating in the abyss. It wasn't the servicer. They didn't know who to pay. It happens. It happens more often than you think. So reinstatement might just be enough. They may be only 3, 4 months behind. Get them to reinstate. Great. Now we're paying. A payoff is everyone's favorite as well. If a borrower just miraculously pay off, that's great. A discounted settlement also works. So let's say the borrower owes $50,000, but they can only pay off 40. You might be okay with that. Say, you know what, I'll call the whole loan paid off. If you pay $40,000 by this day, that's an option as well. We get a little bit deeper when we know the borrower had the funds to completely pay off or completely reinstate. Let's say they lost their job, they lost, you know, a divorce. Those happen a lot. Their kids go off to college, their financial situation changes. So what they could pay two years ago, they now can't. We want to send them a financial application and figure out what their finances look like to begin with. Or we could even entertain. We want to put them in a loan modification or maybe a forbearance agreement. Something that's temporary and not permanent, doesn't completely modify loan. We also do trial payment plans which are very short term, three to six months at most. Those agreements last for and again a lot of it's just I had surgery and I can't make my payment but I'm going to go back to work at this point. So we want to get as much information from the borrower to then turn around back to you being a lender and saying this is their situation, this is their scenario. Here's their financial application at the end of every month. This is how much money they kind of have to spend. After looking at their car payment and phone bills and everything else that they pay, we ask you is this a number that you'd work with? Are you willing to adjust and work with anything? It's not up to us to you. It's your loan, it's your investment, so we'll actually work those out so we share all this information with you. If you say okay, you know, they have I'll accept the 300 monthly payment. Awesome. We're going to start drafting an offer letter to the borrower, see if they'll accept that. Once they accept that, we'll generate and create the modification agreement, orbearance agreement or whatever agreement we landed on, have them execute and sign that and make sure that we reset the loan to reflect these new terms. It doesn't always go that way though. So that's still a win for both parties involved. And I was always taught win win solutions. Borrowers and lenders, as long as both sides are happy, we're good. Sometimes borrowers, they don't have the money, they can't actually afford their home and it leaves them with very little options. Instead of going straight to a foreclosure. There plenty of times where lenders are honest. This borrower can't afford it. We can't work out any arrangement. What if I get them to sign a deed in lieu of foreclosure? So that's the borrower signing the property over without going through the entire legal process of the foreclosure. There's lenders who also do a cash for keys where they feel really bad things happen. They might give the borrower some money to have them sign over the property. So you still have that deed and loose signing over. And if all else fails, we then take the foreclosure route.

Yeah, yeah, that's the last option. But so like you said, if somebody's, if somebody can't pay, they're really struggling and you're able to take over a home and you're an investor that understands this process and you've paid a discounted amount for this mortgage. You may really assist them to get out of there without a big stain on their credit score. And, and then you can, you can take that home and resell it or rent it out or loan on it.

Right? Yep.

Yeah, gotcha.

We kind of COVID all of those.

Yeah. And again it's, I think this is surprising to a lot of people to hear that one. You can go and you can buy or sell these mortgages out there on the market. First position, second position, performing, non performing. I've seen these notes on everything from homes, mobile homes, land, all this stuff that's out there. You can get creative, you can, you can buy a property at a wholesale rate, you can resell it at a retail rate, then you can sell that note off and create a spread there, which I think is, is an interesting strategy. And I think you mentioned this Shantae, what we're seeing a lot, especially in our mobile home business, mobile home park business, is that sellers, now that interest rates have gone up, are much more interested in owner financing. Whereas you know, when rates were 2 and 3 and 4%, people really didn't, didn't have that appetite.

Yep.

Yeah.

A lot of seller finance, a lot of wrap loans or sub twos. Those are what I've just, I feel like they've just been blowing up which is exciting to see. And you know these borrowers are great. Brand new loans. They're starting, you know, that's beautiful. So that's just what I've noticed is really popular right now. And then of course you know, some commercial loans that we've been getting as well. So yeah, we do risk those too.

Yeah. And it's wild. As you see the real estate cycles I've talked about a lot on this show kind of ebb and flow over the years as rates go up, rates go down, you know, property prices go up, property prices go down. We have expansions and recessions. You know, there's, it's always good to understand the strategies that are out there. Shantae, who, who, who should give you a call to learn more about what.

You do at by any investor that generally who doesn't know. I love the green investors. I love watching them grow. I like sharing knowledge and helping. I'm not even saying you have to 100% use by. We're not, you know, 50 state license. So there I talk to plenty who have loans in states that I don't service, but they ask a question and how do I go about this? I am all for giving any sort of assistance that I can. If I don't have the answer, I will find someone who does a lot. One thing I want to stress, servicers are not attorneys. Do not give legal advice. That's the one thing I want to stress. I'm an attorney. Do not ask me a legal question. My response to you is going to say you need to talk to an attorney and ask that question. That's where that I feel like that's a little bit of a gray line. Some investors that they kind of expect legal advice when I can't even make decisions on how you handle the loan. It's your choice. I definitely can't provide you with legal advice because I'm not a practicing licensed attorney either. So I always tell people to ask questions and network is really important. Networking is really, really important. It's about, you know, who you know and just engaging as much as you possibly can. So anyone who just has broad questions, specific question about loan servicing I can assist with to the best of my ability. And if I can't, I promise you I will find somebody who can.

Awesome. And what's the best way for listeners to get a hold of you if they want to reach out?

I always tell everybody to email me. You can email me at servicingifils.com you'll get a response from me. And we can always set up. I always like to set up times to talk to people so I can, you know, get their full attention. They're ready and come with your questions. So I just shoot me an email, set something up and we'll talk.

Awesome. Shantae, Shantae, thank you so much for sharing more about Bifi with the audience today and being a resource for everyone out there.

Absolutely.

Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to gift you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple podcasts.