Creative Finance Is Under Attack!

We're live on YouTube? Yep.

What's up everybody? Welcome back to the New and Experienced Investor Podcast. I'm one of your hosts. I'm Alex Barnett. I'm the new guy.

I'm Joe Holmes and I'm the Experience Guy.

Darn right. Today we're talking about creative finance. It's under attack, everyone. It's gonna be made illegal in the next week is what—

That and wholesaling.

And wholesaling and novations.

Everything else, yeah.

Today we're talking about subject-to. And let's start off with a story from Joe because it was my understanding that subject-to was created by Pace Morby. in the last 5 years. Is that true?

No.

Oh, okay. Apparently you bought your first house that you still own today via subject-to, but the transaction may have gone a little bit different than what people are doing today. Would you care to explain?

So back in the day, and I'm talking 40 years ago, the banks didn't have any restrictions on taking over their loans. which is what subject-to is. So my first condo that I bought, there was an advertise in the Penny Saver at the time, um, take over my payment. And I'm like, well, how old was I at the time? I think I was 22.

Nice.

Somewhere around there, 22. And, um, Gosh, I'm thinking back. That's 50 years ago. Not 40, 50. Oh, gosh.

That's crazy.

It's flying by. Anyways, and I called the person and they said, yeah, you know, it's a woman, I'm getting divorced and I don't want this place. My husband doesn't want this place. So if you want it, you just basically take over my payments. I said, well, that sounds interesting. Let's go to the bank and talk to them. And we actually went to the bank and talked to the person there.

Local bank?

It was a local bank. You know, obviously, It wasn't Bank of America, you know, Chase, Wells Fargo, any of those. It was just a local bank that had the note on this property. And they said, yeah, not a problem. You know, we'd prefer that, you know, somebody be paying us. So I took it over subject to. They did put the loan in my name. And that's different than, you know, subject to nowadays. Subject to nowadays is you take over— the responsibility of paying the loan to the bank, but the loan remains in the name of that owner, the seller of the property.

Right.

So that's, that's where the difference falls in. And then along the way, the banks decided, you know what, we're not making any money doing this, so let's change it. And oh, by the way, let's put what's called a due-on-sale clause on there. So if This person decides to sell the property or transfer the property to Joe.

Right.

Yeah, we're going to call the loan due. Okay. In my 50 years of doing this, I may have a handful of cases that happened. And what I tell people most of the time is that, you know, the bank really, all they care about is getting their payment every month. As long as they're getting their payment every month, they really don't care what's going on anywhere else. Uh, you know, why disrupt that? You know, so it just doesn't make sense. And then everything technology-oriented today, it's literally, did the payment come in? Did the computer put a check mark here? And let's move on to next month.

Yeah.

And keep our fingers crossed we get next month.

Right.

Okay. But when they start missing payments is when they start to get concerned. That's the problem. And I think that's part of what we're going to talk about today, right?

Exactly. Yeah, yeah, this guy breaks it down pretty, pretty simple, but of course he, he brings up—

And I went to the video that, uh, that he had pointed to, and, um, it was about what they call buying a house subject to. And so what does that mean? It means buying a house subject to the existing mortgage that's already in place on the house staying intact and the buyer taking over the payments on that mortgage. And so the video that he pointed to was from a fellow named Pace Morby. He's a real estate investor and he's also got some coaching and training products that I have never checked out, but the, the video itself and how he explained it is very clear and concise and I thought it was a good video. So this whole subject-to idea is part of a world, if you haven't come across it yet online, called creative real estate. Which is basically all of these different strategies and ideas outside of simply buying a property using cash or getting a mortgage and using a down payment to buy the property.

Right.

Pretty simple, I guess.

Yeah, pretty simple. I mean, you know, it's evolved over the years, right? Pace has made it famous, but it's still the same.

Well, you were doing it before it was a buzzword.

Yeah, it's still the same.

Now everyone's talking about it.

Yeah.

But I think one of the biggest things that people freak out about is the due-on-sale clause. You know, that's— we talk about doing this and then everyone's like, what about the due-on-sale clause? What about the due-on-sale clause? And like you said, a lot of times it's really never enforced.

You know, it's like— I mean, it's not that it's 100% guaranteed, but if you live your life on 100% guarantee, you probably wouldn't leave your house.

Yeah.

You know, so, you know, there are some risks involved. If you set it up correctly, and I know we're going to talk more about this, but sometimes you're not putting much money into this deal at all if you set it up correctly. So, you know, if you've made an investment and you end up losing whatever, you know, that's just part of the investment, you know, world out there.

Right.

So you take the good with the bad and you move forward.

Yeah. And for those of you that don't know, the due-on-sale clause is basically when the lender, they have the right, and it's pretty much written into every mortgage, they say everything is due right now. The entire mortgage is due, you know, in a week or whatever. And I've even seen where some people get the due-on-sale clause, but then they're able to work it out with the mortgage company.

Right.

And, you know, 'cause ultimately they don't wanna take the asset back. They just want somebody to pay for it.

So, and, and a lot of these deals, like, we, you know, we've done deals where we'll do the subject to, uh, one deal I'm thinking about, we put nothing down on the property.

Right.

And the seller just literally just wanted to get away from it. And so we took over that responsibility of making the mortgage payment. And the only thing we had into it was the rehab funds that we had put into it.

Yeah.

So even if the, the bank had, uh, you know, decided to call that loan due, they'd have to go through the normal foreclosure process.

Right.

Which is here in California, 3 months and 21 days. We had sold the property by then, you know. So, and they got their money, so they were happy at the end of the day.

Yeah, everybody wins on that. Um, and you know, you don't really have to overthink it because some people are— they ask, well, do I have to get a servicing company, which is a third-party company that makes the payments on your behalf? And Typically what we've done is we just get their mortgage login and then we'll change like the username or the password, put our own bank account in there, and then it just, it just gets, you know, ACH transferred like normal.

Which is a great question because when I started, we had third parties because there was no computers, right? You know, there is no way to keep track of this. And if you were the seller and I was the buyer, you would want to make sure that I'm making this payment and I'm not just collecting rent or whatever. I'm doing on my end. So I would send my money to a third party, usually an escrow company. The escrow company would pay the mortgage company, they would pay taxes, they would pay insurance, everything that needed to be paid. And then they would notify you, hey, Joe just paid, so you're okay this month.

Right.

Okay. Yeah, but I agree, nowadays with, you know, access to all this information and the accounts themselves, yep, you can put somebody else as responsible for this account online. And that's what we do. And that way, if the seller wants to log in and say, oh, look, Alex paid this month's payment. Oh, I'm good. I'll look at it next month. They can do that. It's a lot easier nowadays to do than it was before.

Right, exactly.

Because obviously a third-party servicer wanted money to do it.

Oh yeah.

You know?

Yeah, everyone's got to get paid. Everyone's got to get paid well. And I think since Pace has kind of been touting subject-to, making it more popular, I guess, you know, you got a lot of people that are coming in and they don't really realize the severity that this sort of transaction can have on the original mortgage. You know, I guess whoever—

whoever's—

On the seller.

On the seller.

Yeah, on the seller, because You know, if you just stop making the payments, that's their whole credit history gone up in smoke essentially.

Yeah.

And a lot of these people are already in trouble and you come along and you're like, hey, I'd like to help you. And you know, maybe you make a few payments.

Yeah.

Maybe the rent isn't what you thought it was because you're newer or whatever reason things go wrong on your rental, then you get behind it. You're not really on the hook for anything.

No.

You know? And so I think that's where more people are shining a light on, these transactions where Pace comes in or anybody and they say like, hey, you can get into real estate with no money, no credit, it doesn't matter. Do these subject-to deals, don't put anything into it. And then, you know, you default on that and you just screw over, you know, somebody's life. People are shining a light on that and I think they should.

That happens with anybody in any industry Whatsoever. If you're a bad guy, you're going to be a bad guy.

Right.

You know, just don't be a bad guy.

Yeah.

If, Alex, if I want to buy this place from you and, you know, let's say I put $5,000 or $10,000 down to make you happy and, you know, you'll take the money and move out of the place, whatever it is, you have to be able to trust me at the end of the day.

That is true.

Should you do your due diligence? Absolutely. You know, maybe ask me for a credit report. You know, maybe ask me to fill out an application, a credit application, right? And run it through a lender that you know or whatever to make sure that, you know, I've got a good FICO score. Um, maybe ask me, you know, do you own anything else? You know, what's your net worth?

Yeah, that's a fair question.

If people aren't asking these questions, you know, they're, you know, they're not knowledgeable.

Yeah.

And if somebody is gonna be, you know, a bad guy, unscrupulous, they're gonna take advantage of that, you know, but that's on them, the bad guys.

Right, no, absolutely.

Absolutely. But yeah, I agree. You know, you have a few of these that fall apart and the sellers start complaining and, you know, it's like anything else, you know, if you've got a complaint from one person, the best remedy is to stop everything. You know, it's like, that shouldn't be the best remedy, but that's how, The government and government officials and people look at it, it's like, well, you know what, he did a bad thing, so let's just stop this whole thing from occurring.

True.

Yeah. And I wonder if they're going to try and do that. The only thing is, I mean, this has endless amount of, I mean, I guess I don't want to say case law, but it's in the IRS Code installment payments. And I think actual Sub 2 is in The car forms, it's all up and up.

Yeah, it is.

I think it just gets weird because the mortgage companies now are kind of in the dark. So I don't know where that really lies, but it's allowed. It's legal. It's allowed.

If the mortgage company stops getting their mortgage every month, then there's a problem.

Yeah. But it's completely legal.

It doesn't Really, that doesn't really happen a lot, right? I mean, obviously it does because there's some bad actors out there.

Yeah.

But, you know, there's, there's, there's lots of deals that are done. Seller financing is another one, right? You can do seller financing. I can give you, you know, $5,000 or $10,000 down, you finance the rest of it. What's the difference if I stop paying you? Your, your remedy is to foreclose on me. Same thing with subject-to. They can foreclose on you.

Yeah.

As well. So, right, you know, that's, that's the remedy.

Yeah, no, absolutely. Yeah. And what people have been doing recently is doing what's called a mirror wrap, where you put the seller in second position behind the first position mortgage. So then if for whatever reason the seller gets alerted that you're not making your payments, they have the ability to foreclose on you. Because what a lot of people were doing was basically just signing it over And then even if you were getting notifications, hey, you're not paying your mortgage, they had no repercussion to go after the person that was actually on title. So it was kind of putting people in a precarious position, you know. So you live and you learn, and as long as you're doing things right, then you can sleep at night.

Yeah.

Um, but you know what's interesting? I mean, you brought up seller finance. A lot of people think it's the same thing— subject to and seller finance are the same thing. No. But, uh, we have a quick video here from the man himself To kind of explain the difference.

So subject to is when somebody has an existing set of payments that I can take over. Seller finance means I work directly with the seller and we structure a payment that works for the seller. If I go to Craigslist right now and I start calling people that own Toyota Priuses, you're going to run into some people that own them outright, and you're going to run into some people that still have car payments on those cars. Seller finance means the car is paid off and I can just say, hey, I'd like to buy your car on payments. And in subject to, I just go, oh, you have a car payment? No problem. I'll just take over the car payment exactly what it is. Registration gets put in my name, ownership gets put into my name, and I'm the owner of the car. So subject to is when somebody has—

Agree.

Agree. Except as far as the car goes, I don't know how he's putting it in his name. I don't. Yeah.

You're not the legal owner until you pay it off.

Exactly. You have a pink slip, but that's with the lender.

Yeah.

So how do you transfer that into your name?

I don't think you can.

I don't think so.

Yeah.

I think you can take over the payments, but it's going to be owned by Toyota or whoever the— until it's paid off.

Until it's paid off.

And then it would, I guess, go to the original seller.

Correct.

So that's— yeah, I don't know how you do that.

Yeah, that, that, that I don't know. But everything else I agreed with. Yeah, you know, it's like if he's got some place, some state or somewhere that, uh, you know, allows that, that's, that's a different story. I don't know.

Right, right, right, right. So I'm just pulling up this due-on-sale clause, what investors need to know in 2020. Oh, I don't know why it's looking all weird like that. One second.

That's good.

Okay. It was like when I was scrolling, it looked kind of funky. Okay, there we go. Do you know anything about this Garn-St. Germain Act?

St. Germain, yeah.

Yeah, okay.

That's the due-on-sale clause.

Oh, that is?

Okay. Yeah, that's the law.

Gotcha.

Okay. That's the law.

And then apparently, if it's in a trust, then—

It's in a living trust, they can't call the loan due.

Okay.

Yeah.

So that's another reason to do that, I guess.

Yeah. Honestly, even to the point where if you transferred it into a living— or you transfer it to a land trust, right? Okay. And then in the land trust, you originally put the actual owners of the property, then you can take that and put it into your name, right? And that way, they couldn't call the due-on-sale clause because that second document that gets put into your name, right, is never recorded. And in fact, the land trust is never recorded or living trust. It's never recorded. It's just going to say, you know, Alex Barnett and lovely wife.

Yep.

Trust.

Okay.

And then you, Alex Barnett, sell that trust to me. Okay. But none of those documents ever get recorded. Right. Other than the name. That's it.

Okay.

That's the— that's it. That's all. So it's kind of a workaround.

Yeah, I have seen some people talking about just transferring it to a trust. And doing that. But yeah, I mean, maybe it's worth the extra, you know, not hassle, but just cover your bases, you know?

Yeah, absolutely. You can do that.

That way the mortgage company's not coming after you.

Yeah, it's just another way to hide what you're doing, right? Basically, right? It's not illegal, you know, it's just, just a workaround, basically.

Yeah, absolutely. Okay. Gotcha. Um, so yeah, interesting. I think subject-to is probably here to stay. I think it's just maybe gonna be socially, it's gonna come under a little bit more scrutiny. And, and in the guru world, people are probably, you know, gonna make sure that they're—

I think if they continue the way they're doing, and I'm talking about the bad actors, then they're gonna start restricting a lot of this stuff to licensed real estate agents. Yeah. Okay, because it's easier to go after a licensed real estate agent because, you know, they have, you know, insurance and just different types of ways to get at them. Uh, where if a wholesaler is doing this, or, you know, any— anybody, and if they're doing it the right way, they're putting it into a land trust or an LLC that they literally could just walk away from.

Mm-hmm.

You know, it's like, oh, you want this property? There's nothing there. Here you go.

Yeah, you know, right.

Moving on.

Yeah, exactly.

You know, but if it was something structured where real estate agents that were licensed, then you could go after their licensing. Um, you know, that'd be, that'd be a different story. And unfortunately, maybe that's where we're headed. I hope not, but maybe that's where we're headed.

I think it is. And that's a perfect segue into our next subject here, is there's a lot of states that are already going after the wholesaler and they're really coming after them, calling it the Predatory Real Estate Wholesaler Prohibition Act. Like, that is crazy. And, you know, who's behind it? The, you know—

Realtors Association.

Yeah, exactly. Realtors Association.

Absolutely.

They see, you know, the wholesaler coming in, it's a kid, he's 19 years old and he makes like 40 grand.

Yeah.

He had a crappy house on the street and was able to put a deal together.

Absolutely.

Agents are like, that's my commission going to this kid. How dare he?

Yeah.

So exactly. Um, you have that side, but you also have, you know, the other side of that same or a different 19-year-old kid says, hey, I got a buyer for you. Go ahead and pack all your stuff up. It's a little old lady and she's ready to move to her new house. Oh, actually I have to cancel. She's like, but I've already packed up my whole house.

Yeah.

You know, so, yeah. Like you said, there's bad actors. There's bad actors everywhere. But I mean, this was just the first step and I think it's in a long chain of other states. And—

So the whole state, the, where, where's that? Oklahoma?

Yeah. Oklahoma. And this was in 2021.

Okay. So the whole state, there's no more wholesaling?

No. They require you to have a license now.

Okay. Yeah. So, yeah. So, and then any other states since then?

Yeah, I think we have like, South Carolina, North Carolina. Um, let me actually—

let me see.

Just look up here. We can get our own answer right now, real time. What states outlawed wholesaling real estate? Um, South Carolina. Illinois requires License for more than one wholesale deal per year. Oklahoma mandates license for public marketing. Um, North Carolina, Pennsylvania, Kentucky, Nebraska, Virginia requires a license. Oregon background checks for wholesalers.

Connecticut—

Not looking good. That's a big, that's a big list.

That is a big list.

That's a lot bigger than I thought. And what was the other ones there?

States with heavy regulation. Ohio requires boldface disclosures before contract execution.

What's a boldface disclosure?

I think it's like you have to put, I'm not a licensed real estate agent. I think you just have to put all that in there.

Oh, we, we actually put the opposite. We are licensed real estate agents.

Right.

Just to let them know.

Yeah, exactly. So I, I, and I, 'cause I, I did know some people in Ohio and they were like having to put all this stuff on their marketing that says that.

So more restrictions.

More restrictions.

Yeah.

Texas, accurate disclosures of equitable interest in all advertisements. Alabama requires disclosures of limited interest.

Yeah. And what's it say about California, New York, Florida?

Do not outright ban wholesaling, but actively enforce licensing laws against unlicensed brokering and public property marketing without ownership.

So, which means they don't do shit. Yeah, pretty much.

Pretty much. So I mean, once, once one state goes, it makes it easier for the other ones to introduce a bill and just kind of copy and follow suit. And it's, that's a big lobby, right? Like the realtors. So I mean, they're gonna—

And especially the way the market is right now, it's like extremely, extremely slow, right? It's like, you know, let's go attack these people because they got, they got deals out there. It should be ours.

It's their fault, actually.

Yeah.

I'm not getting any commissions.

Exactly. Yes.

Yeah. So that is interesting. Um, I mean, what's, what's the answer to that? Get a license, I guess.

Get a license.

You have the skills, you know how to reach out, you know how to get leads, you know how to help, um, sellers. Yep.

Yep. Get a license.

And, um, yeah. And I think another, I mean, another part of this whole story is, um, Arizona's AG just sued an equity stripping ring. Out of Arizona, and California AG settled a major case against MV Realty. So these weren't necessarily wholesalers, but I think they get lumped into the same sort of bunch here because they're going after home owners. So here, this is This is recent, May 27th, 2026. Settlement with predatory real estate company MV Realty delivering relief to nearly 1,500 homeowners. And I have a little news video that we can pull up really quick just to give kind of the background here.

California Attorney General's now going after a company exposed in one of my investigations. I first started looking into MV Realty after hearing from an Elk Grove veteran who was trying to provide Christmas for his kids. A cold call last year grabbed veteran Miguel Hall's attention. MV Realty said if he agreed to let them list his Elk Grove home, when or if he sells in the next 40 years, right then they would give him $1,250.

Well, I asked them, I was like, is this a loan in any way?

They said no, because I don't plan on selling.

And so I was like, hey, free money.

The promises back up in this court appeal.

This is not free. Free is not a Democrat way.

Fast forward a year and Miguel wanted to take out a home equity line of credit to fix up his house and help cover the holidays for his family. He says he was turned down over a lien MV Realty placed on his home. He says the company demanded $14,100 to release that lien.

You know, owning a home It's like, it's so hard to do.

And once you achieve that, they're like predators and they preyed upon me. And who knows how many other people they're preying upon? 1,500.

Country in Massachusetts, Bill Gillespie also signed a homeowner benefit agreement with MV Realty. They paid him $2,000 for the right to sell his place. I'm 67 years old.

I'm not going to be here in 40 years.

But he ran into the same problem trying to get a loan to renovate His house. They said, "Hey, you've got a lien on your house." I said, "I don't have no liens on this house." In fact, CBS News Boston surprised MV Realty customers that they had liens on their properties too.

Did you know they were putting a mortgage on your house?

I did not.

That's nuts.

Something I just heard.

You just told me I had a lien.

I didn't even know I had a lien.

So you don't know anything about this? I know nothing about. I signed the papers, but I didn't know.

Contested. Amanda Zachman.

All I want to do is slap her in the face.

While the company insists it makes the conditions very clear, we reported attorneys general in 6 states were suing the company, claiming the program was deceptive and misled customers. Now add California to that list. Attorney General Rob Bonta calls it a predatory real estate scheme, saying nearly 1,500 California homeowners have signed these agreements. He says MV Realty misrepresented the significant downsides of its agreements. Including that it places a lien on the homeowner's property, adding MV Realty is a financial predator through its one-sided agreements. The company lined its own pockets at the expense of vulnerable homeowners in California, holding their most valuable assets hostage. After we got involved, McGill says MV Realty agreed to remove the lien from his home for 30 days so he could get his loan. He says if he understood the deal— He never would have signed on. So you would instantly give them the $1,250 back to get out at least just to get out of it.

Correct.

Yeah.

Well, that company never got back to us. Did they say how much they were making in September? It's unclear how.

I mean, I think it's either the commission or there's like a pre-release, which is the $14,000.

Yeah. But did they say like the company, like, oh, they've made millions of dollars? Yeah.

They must have somewhere.

Yeah.

Because like, wait a second. This guy, they were gonna release the lien for 30 days, but that means they're gonna put it back on, right? Oh my God.

Well, well, no.

So I think they did this— Sacramento CBS Sacramento got involved, then they said, okay, we'll release it so you can get your HELOC, right? Then we're gonna put it back on, right? Now Scott Banta is saying they made a settlement, they have to release them all, okay, and then give the money back to all the people.

So give what money back?

The 12— the 12— oh wait, oh yeah, no, they— I, I don't know.

No, they, they gave them money.

Yeah, no, they gave them money.

Yeah, yeah.

No, there was— I think there was, uh—

So before they released the lien, I am— if I was this company, I'd say let me have my money back, right? Yeah, not the $14,000, but the whatever I gave you, $1,200, $2,000, whatever.

Yeah, so here's the results. All homeowners' contracts are void. MV Realty must individually terminate all liens. Its CEO and COO are prohibited from engaging in any business in California that requires a real estate license for 5 years. Must pay restitution to consumers totaling over $1.3 million and $1.2 million in civil penalties. Okay, so it's just restitution. Oh yeah, yeah, they made money. Yeah, for sure.

Absolutely.

But yeah, I mean, they— I, I— on another one, they have a video that explains the whole thing. that they give to the homeowner explains everything in the video. And the CEO and COO are like, we go over every part of this, and then still they're like, I was victimized, you know. Um, because then I, I guess they don't realize the ramification.

You heard the one guy say, I'm getting free money.

It's never free.

I'm never gonna sell my house. I'm gonna be here for 40 years or more. I'm never going to sell that house.

And then a month later they're like, wait a second.

Oh my gosh. Yeah. Okay.

So it's like, I don't know. I don't know where. And then of course California is the last one to jump on there and act like a hero, even though the other states already come across. He's like, hold on, let me, I need to get reelected. So how dare you to my citizens? So I don't know, I'm like on the fence of it's kind of a smart plan. I mean, they're coming out of pocket how much? To 1,500 times— what is that? It was like 1,500 people. So let's say it's an average of—

$2,000.

$2,000. Yeah, so $3 million. So they came out of pocket $3 mil. In the hopes of—

Doesn't sound like a good business.

And it's probably 3%, you know, they're like, let us list your house in the next 40 years.

Yeah.

It's probably 3%.

Well, they want 14 grand, but—

Or 14 grand, yeah.

150 times 14 grand.

Yeah, that's 14 grand, 21 mil.

I mean, it looks good on paper, but do you have 3 mil to give to people?

I mean, no, but they, they probably have investors and I mean, they started in Florida, so they must have already proved the thing.

And then— bad.

Wow.

Is it predatory though?

It can be. I mean, it can be.

When she was going door to door and you saw the people that were like—

yeah, no, that's predatory.

Yeah. Like, I've had this house.

Yeah. They're not hitting up Beverly Hills.

No.

Let's say.

No, no, it's people who bought their house probably relatively cheap back in the day, paid it off.

Yeah.

And they need the extra money right now because, you know, like Social Security, it's free money.

It's free money.

Social Security is not covering anything. And, you know, it was like an old vet, so he's probably living off his pension or whatever. And yeah, it's like, yeah, I'll take 2 grand.

Why not?

Yeah.

And it's free.

I bet you if you heard the salespeople, that's where you get into some hot water, because I'm sure they have calls from the salespeople because they said they, they're Cold calling.

Yeah.

So the guy's probably like, no, this isn't a loan. This is literally free money.

Free money. This is what we're doing for now. Free money.

It's like a payday loan.

Okay.

Oh, so, um, you know, wholesalers get lumped in with those kind of people was my point. But, uh, that, that's a whole— um, so then, oh yeah, here's the other one. I think we already talked about this one where there was a wholesaling company. No, it was an equity stripping ring that was going after people that were in foreclosure or something like that.

Yeah.

Facing foreclosure. And their LLC was called Helping Hands LLC. And then they would come in and basically—

You sure it wasn't the Learing Company? Yeah.

Basically.

The Learing Center?

Yeah. And so they had door knockers and then basically, yeah, Arizona's Helping Hands. And so they said, we can—

Who were they helping?

The homeowner.

In foreclosure? What were they actually doing?

Oh, so yeah, they were, the people were in foreclosure and they said we could stop it.

Okay.

But you have to sign this paper right now. Mm-hmm. And essentially they signed over all their equity to the, they stopped, they stopped the foreclosure and then they assigned, they signed all their equity over to the wholesaling company. Um, so yeah, the Arizona AZ went after— or AZ, uh, AG went after them. But you know, I mean, it's like white-collar crime. All they do is they pay off, uh, they pay restitution. And there's, you know, like these guys, 5 years.

Do you think they ever pay that back?

Probably not. They can get out of it somehow.

Just not pay it. What are they gonna do?

I don't know.

You know, throw them in jail? No, they're probably not going to jail.

Yeah, they'll, they'll maybe they'll make a few payments here and there, but who knows? It probably just goes to collections, I guess.

I don't know how it works.

Yeah, so that's what people think of when they think of wholesalers. But, um, you know, there's a lot of good that wholesalers can do, I guess. I don't know. I don't even know if I can say that.

Why not? There is a lot of good. You know, yeah, I mean, if you've seen the places that we've purchased, yeah, like there's a lot of good that's done out there.

Yeah, absolutely.

You know, these, these sellers don't want anybody coming over. They don't want to deal with any of the clutter inside the house. So, you know, there's a way out. There's your way out. Yeah, we're not forcing you to sign this. We're not, you know, we're telling you this is what we're going to give you. It's your decision.

Yeah.

You don't like it? Go list it with a real estate agent. See what they tell you.

Oh God. Yeah. Some of these agents wouldn't even touch.

Yeah.

They wouldn't even touch it.

Absolutely not.

They wouldn't even go in. And I've had people where we've been outside, look, walking the properties after finally getting in and like the neighbors will come up and practically hug me and be like, thank you. Are you, are you like moving this property?

Yeah.

The one property we took over subject to in Temecula, Hemet, wherever it was. We're walking in the garage, we're walking the property, and all of a sudden I looked down and this giant pig is snorting at me.

Yeah.

They had a giant pig living in the garage.

Not friendly.

And it took us to eviction, you know, and then the sheriff got there and he says, oh, why don't you just give them another few days? No. Yeah, like, hell no, get them out. So yeah, they're there. Well, we're getting them out, and what they do—they left the pig behind. Oh yeah, and then you guys wouldn't let me barbecue the pig. I know he had to go to a home. Had to go to. They finally came back a week later and picked up that pig. Oh yeah, yeah, yeah.

And there were some people. I bet you they're the people that got out of there are are in a better situation because they such a bleeding heart.

Oh my gosh! Well, no, I hope they're in a better situation. Yeah, okay, okay. Yeah, I think they are. No, I don't think they are. I think they're underneath the freeway overpass in LA is where they're at.

Yeah, maybe you're right. You know, maybe you're right. But yeah, they were basically like on mattresses with dog feces everywhere.

Everywhere. It was terrible. It was pretty nasty.

Yeah. So we have some interesting, really interesting facts about seller financing here. Okay. It's booming, you know, with the recent interest rates where they're at, people are now reverting to something that's been going on for a long time. And that's just instead of getting the bank involved, you just go straight to the seller and make them the bank.

Yeah, absolutely. Yeah. There's nothing wrong with that.

Nothing wrong with that.

You know, and especially if the seller doesn't need any money, maybe they're my age and, you know, I want, I want to sell this house. I need to sell this house. It's not selling in a traditional way. I said, okay, well, I'll do seller financing. You know, if the money was going to go in the bank and get zero interest on it—

There you go.

Now you're willing to pay me whatever interest.

Yep.

Um, I'm 10 times better off doing that.

Exactly. And you, you really are, because yeah, you're going to be making interest on those, on the overall, you know, sales price.

Yeah.

Plus you're only paying taxes on what you receive that year. So then You know, helps that out. You're not getting—

You know what else is a plus? I don't know if you have that on your list.

Okay, yeah.

Because I've done seller financing before. Yeah, 3 or 4 years later, these people get in trouble. Oh, and they call you and say, Joe, hey, I can't make the payment. Oh, sorry, do you want me to foreclose on you, or should I take this property back with a deed in lieu of foreclosure? And now I own the property again. That's right. Yeah, isn't that cool?

That is cool. The last one, the last one that we did where the lady was like, I can't pay right now. Oh yeah. Um, and I'm like, well, you owe like $48 grand. Yeah, somehow she came up with it when I, you know, we kind of were like—

that was, that was my expertise. Yeah, have— because that was a Spanish speaker. Spanish speaker. Yeah, I, I talked to her and talked to her.

She saw the light. Yep. Well There was a—

the— Did I see a kickback from that from Alex? I didn't see shit.

Diaper money, Joe. Diaper money.

Nothing.

I needed the diaper money.

Yeah.

There was a guy that I know that's in first position. He was the— he was the guy that I originally bought it from.

Okay.

He has foreclosed on that property 4 times, he said.

You see?

And he had to resell it and resell it. And we were kind of joking.

Did he foreclose on it yet?

No, I think she still has like 4 years to pay him.

Oh, good.

But I, I called him, I was like, oh yeah, I'm out of that deal. Like, she, she paid me. And I was like, you may be getting it back again. Because he was like, I do not want this property back again. I was like, well, you may be getting it back.

That's cool. Yeah, we'll take it. Yeah, we'll take it, you know. Heck yeah.

Yeah, this is kind of interesting. It's just for whatever reason he kept getting it back. But, um, yeah, it happens. Yeah, it does. It does. Yeah, absolutely. I mean It's, I don't know, just the way it works out. But, uh, it's real growing, well-documented $29.5 billion market, seller financing.

Nice. Yeah.

Um, and it grew 8% in 2024, even though overall home sales fell by 0.7%. So what does that tell you? I think that is more indicative of the interest rates and everyone crying about the interest rates.

I agree. And if real estate agents taught themselves how to talk about this stuff, they would probably have more deals.

Oh yeah, absolutely.

But they're like, everybody I— agents that I talk to are afraid. Joe, can you do that? Like, isn't that against the law?

Right.

My broker said it was against the law. Well, your broker doesn't know anything, does he?

Right.

You know?

Yeah.

It's like, yes, you can do this. Mm-hmm. Assumable loans are different.

Yeah.

I don't know if you're gonna talk about that, but they're basically, It's basically the same thing. Oh no, you can't assume a loan. Yeah. Yes, you can. Yeah, you can. There's certain loans you can.

It's right there in black and white.

And that is literally putting your name on the loan. Yep. You know, it's not subject to, right? It is, you're assuming the responsibility for this loan and your name's gonna go on there and the seller's name is going off.

Exactly.

You know? Yeah. Educate yourself, folks, please.

Come on, people. Yeah. I mean, where do agents go? And when they're getting taught the same curriculum that's kind of been just punched into them the last— I feel like it's probably the same the last 20 years with some minor updates.

20 years? 50 years.

50 years. Okay.

It's the same thing.

And just from Lauren getting her license, they kind of scare you on everything that you can get in trouble for.

Yeah. That's their goal.

After she took the test, I was like, okay, I get why they're scared because it's all about liability and you're screwed if you do one thing wrong. Yeah.

Um, well, that's, you know, the holding the whole industry, uh, and handcuffing them because of the bad acts of a few, right? That's what that is.

Yeah. Okay.

You know, like I said, if you're, if you're a good guy and you know what you're doing and you do it correctly and everybody's informed, you disclose everything, you're fine. Yeah, you're fine. There's many ways to sell a home. Back in, in the '80s when I bought my home Um, interest rate was 18%. Did we use seller financing back then? Absolutely. Seller financing has been around forever. So I sold my house, I did partial seller financing on it for 5 years. 5 years later, you know, the interest rates went down, uh, and the owner of the property at the time refinanced and paid me off.

There you go.

You know, but did I get my house sold because I needed it sold? Yes.

There you go. Yeah, just being creative.

Yes.

Where can they go? Where can agents go to educate themselves on these creative—

Call me.

Okay, there you go. You heard it here, folks. That's where I learned it. That's where you can learn it.

Call me.

Join Pelago, and Joe will hold your hand, give you these options that you can— these other tools in your tool belt. Yeah, so you can get more deals done. Yeah, instead of it sitting on—

Like, who said, who said you needed a lot of money to buy a house? You don't really. Oh, you know, maybe you need good credit because if you assume a loan, you're going to have to have good credit, right? But I see deals out there every day, $50,000 down. You know, are you, are you going to be living in Riverside, Hemet? Or whatever. I mean, these houses are maybe 3 to 5 years old. Interest rates at 2.5%.

Geez.

$50,000 down.

Yeah.

5-bedroom, 3,000-square-foot home.

There you go.

Would you live out there if you only had to put 50 grand down?

I would.

2.5%? You would? You would not?

Well, I mean, maybe for a couple years.

No, you're at the beach. You're out of it.

You could drive to the beach.

You would not.

Put your longboard on top of the Tesla and then just go down Ortega. Yeah.

Hit Dana Point. Your wife—

I can hear your wife.

No, no, my wife wouldn't.

No.

But if I was single—

Okay, true, but you're not.

I'm just kidding. You know, I wouldn't, I, I wouldn't do that. But—

Your baby doesn't want to live out in Riverside.

No, no, no, no, no, no.

But, but yes, there's options.

Yeah, there's options.

There's options.

Exactly. If— yeah, I mean, a lot of people Yeah, if you're working out there, you can, you know, live closer to work and all that stuff.

What happened to remote working? You know?

Oh yeah.

I mean, if, if you were a remote worker, you could live anywhere.

Exactly.

You know?

Yeah.

It's like, okay, I'm gonna live in Riverside. I'm gonna live in the middle of the desert.

Yeah, do it for a couple years.

You know, who cares?

Wait for the next boom and then sell and then—

Yeah.

Or refinance.

Yeah.

And, you know, exactly, get closer to the beach if you have to.

Exactly.

Yeah. Um, one interesting thing was, um, regarding seller financing, Texas led the growth with 170 more seller finance transactions in 2024 than 2023. California saw the largest national decline and it was off by 21— 2,135 deals. Why do you think that is? Insurance, um, legal exposure.

People don't wanna live in California. They're moving. Yeah, they're moving out.

Yeah, I guess people there, you offer them seller finance, no, I'm cashing out, right? I'm moving somewhere else. I mean, we did see a lot of people leave.

Yeah, and, and they may be the people that actually need the money to go buy someplace else, right? So that's not an option for them, right? The, the 1,000 or whatever that number was are old people like me.

Yeah, yeah, exactly.

I want to sell this, uh, rental I have, or Even my own residence sell it, but you know I don't really need the money right now. Right. But I can only get like a half a percent at the bank, but you're offering me a little bit more than that. That'd be nice. Yeah, I can do that.

I do notice that the older demographic that own rentals, it's an easier conversation to have because they're used to well, they're more educated. They're more educated. They're used to the monthly payments.

Yeah.

You know, they don't necessarily need a lump sum to do some major life change.

Yeah, they'd rather have that lump sum money coming in every month. Not lump sum, but yeah, the, the monthly mortgage coming in every month that they can use.

Right.

You know, it's like, what are you gonna do? You get, uh, $600,000 and you put it in the bank?

Yeah.

Okay, it's in the bank.

Yeah, you know, it's losing money.

It makes you feel good, but you're right, it's losing money. It's not gaining anything, right? It's just they're losing money. It's just like literally having all that equity in your house, you're losing money every month if you're not using that money for something. And the only way to get that money out is through a HELOC, you know, refinance, and then use that money to, to invest or buy something else, right? Intelligently. Yeah, not stupidly.

Not reactionary. Yeah, I know. I know. Yeah. So I mean, one thing I did find out without being an expert at seller financing was getting into the mobile home space. A lot of those sellers are used to that because it was so hard to get funding on mobile homes that seller finance was just like a normal thing to them.

Mm-hmm.

So my first rental, Was, uh, it was actually her— like, I think it was her idea, um, to do the seller financing. She's like, I want to sell it, but I want to keep getting the monthly income. It was a rental. Why don't you just give me $5,000 down and then pay me $500 a month?

And no broken toilets or anything for her.

Exactly.

For you, yes.

For me, yeah.

But for her, all she gets is that money every month.

Yep.

Mailbox money.

Mailbox money. Yeah, I just had to deal with it. Just made her happy with the tenant who I kept for a little while until I got a call from the HOA that he was fighting with people in the dog park and he threw ice at a lady. Actual ice? Actual cup of ice. Immigration customs? This was before. Yeah.

Okay, got it.

I was like, I think it's time for him to go. But yeah.

Okay. Yeah, it turned out he was a nice guy.

He was a nice guy. He's fine.

It's a nice guy.

He was fine. Yeah. If you don't know what seller financing is, we're going to go into a little—

explain. We're going to run comparable sales. We're going to calculate a seller finance offer. We're going to close it at a real estate attorney's office. The deed is going to go in your name. We're going to structure the payments based on the offer and we're going to start making those payments. Now, we can make those payments directly to the owner. Or if we don't trust the owner, we can make them directly to their bank. So it really just depends on how we structure the numbers. If you own the property, what could you do? Number one, you could rent it, you could fix it up, resell it, you could lease option it, you could seller finance it back out, you could turn it into a short-term vacation rental, you could technically even refinance the property. And maybe if we buy it good enough, you can actually pull some tax-free cash from that as well. When you own it, you have so many things that you can do. It also says if this doesn't work, then we have this to do with it. That's the cool thing about seller financing, which is—

Okay, it wasn't the best explanation, but, um, but, but yeah, there you can do a lot of things. Um, one thing that I liked to do that we've done a couple times was we We purchase a property on seller finance, then we go and we list it on the MLS offering seller finance. And basically for a higher price, we get a down payment and then we become the bank at the same time paying the original seller. So that's kind of a cool option too.

And how do you set that up? And, and my question I'm asking is, so let's say you got seller financing at 2%, and then you put it back, and then you raise the price, right? And you throw your seller financing on top of that because obviously you've raised the price.

Yep.

And you get a down payment which probably covers the first loan.

Yep.

Okay, at what interest rate are you charging on that second Or, or, or how are you structuring that second?

Right. Yeah. So I will go higher than the whatever I'm paying by a couple points, a few points. I think I went up to 8%. Okay. Because it wasn't that—

Now, did you just, did you just do a second and they were paying on the second and the first, or did you wrap the whole thing up?

I wrapped the whole thing up.

Okay. And what is that? How do you describe that for those of you who don't know what a wrap is?

So you Do— I forget what it's called— that all-inclusive trust deed. Okay. All right. And essentially, it— the, the, the buyer, the end buyer sees me as the lien holder, and I will take a portion of whatever they give me, and I pay the original seller.

Correct. So, and the reason that you're doing that is because You're getting 8% on the entire loan, your loan and the first, right? But you're only paying 2% on the first. So you're actually making 6% on that money that you never lent out, right? So, you know, you're making money on money that really wasn't yours. So you've wrapped this whole thing up, right? Isn't that incredible?

Yeah. Yes. Yeah. And I mean, you got to I've done it that way. And then I went to a different escrow person that made me tell the first that I was doing it.

Okay.

And then he wanted to get a higher interest rate and then I got a lower one. And so it kind of screwed me. But I mean, it didn't. I mean, we came out on top, but there's multiple ways to do it. So you can either tell the first that you're doing it Or not tell the first that you're doing it. As long as they're getting their payment, it's just like the subject-to thing. As long as they're getting their payment, they're fine.

Exactly.

So it's fun. And at the end, I would say creative finance, whether it's under attack or not, is here to stay. And we're going to keep doing it in the most ethical and transparent way possible. Okay. So That's our 2 cents. Anything else you would say about it?

No.

Okay, perfect. Thank you guys for joining us. Next week we have a guest in studio. It's been a little while, but we're, we're gonna have a really cool guest, um, uh, a heavy hitter. He, he's been CEO of multiple companies and, um, he knows a lot about lending, a lot about commercial real estate, um, just a lot about real estate in general. So it's gonna be an amazing episode. Do not miss that. Joe's going on a cruise for a week, and he will be getting in early that morning and coming in to make the podcast. So he's coming back to—

Right off the ship.

Right off the ship. So don't miss that. We will see you guys next week.

Thank you so much. If you want some more advice on real estate investing, reach out to us one-on-one.