EP4: How to Structure a Dodd Frank Compliant Deal w/ Dan Deppen

All right, welcome back. My name is Mundo, and today I have a special guest with us, Dan from Call the Underwriter. Welcome to the show. First of all, I'm excited to learn about a little bit about yourself, your background, kind of what you're doing with Call the Underwriter, how that started, and hopefully you can educate our audience a little bit about the RMLO process and how that works and why it's important.

Yeah, sure. Well, first off, thanks for having me on. I really appreciate it. Yeah. So some background on me. I'm basically on my third career at this point. So I started my career as a mechanical engineer in the aerospace industry.

Wow.

Mechanism, design and things like that. So I did that for about 10 years, and then I decided I didn't want to do government contracting for the rest of my life. Although I love the, the big budgets, I got to work on some really cool projects, especially in the wake of September 11th and all that.

Well, you got out at the right time because those budget cuts are coming.

Yeah, it's very cyclical. You know, if you look at the history. The thing was when, when the money was flowing and we were doing cool stuff, I really enjoyed it. But then there were like dead spots where you're literally like sitting on your hands waiting for budgets to get approved. And it was cool, but I didn't want to do that for like another 30 years. So then I went and I did my MBA at the University of Colorado and then went into product management in the tech industry. So worked for Oracle for six years, some startups, and then more recently aws. And then in the midst of that, I got into real estate because I had always done a lot of investing in stocks. Like Since I was 19, I was always interested in investments. And I had invested through the dot com boom and bust cycles. Like in the late 90s, I was convinced I was like a genius and had it all figured out until the crash came. And then I realized I had no idea what I was doing. And then, you know, in the financial crisis, right. You know, you saw stocks take this, whatever, it was like a 30, 40% drop. And so I wanted to diversify into real estate. And Even back in 2016, ish, when I was looking at that, you know, the market here in Denver was pretty challenging for rentals. You know, cap rates were pretty rough. And so I was looking around for alternatives and that's where I found mortgage not. And that really appealed to me because one of my dad and my grandfather had worked in the loan business back in the day. Not that specific industry. But I kind of grew up around loans. And then when I was in business school, I had taken an elective course in fixed income, which is basically bond analysis. It's one of my favorite courses. And what I do in mortgage is a little bit different, but there's some similarities. So I was just kind of attracted to the subject. And what I always liked about mortgage notes is it's a really cool niche that's unexploited. So if you look at the size of the mortgage market and the seller finance mortgage market, compared to the relatively small number of individuals who are running around taking advantage of it, it's really nice. So, like, unlike some other forms of real estate investment where, you know, everybody and their brother is chasing a relatively small number of deals, to me, there was just always a lot more opportunity. So I've kind of settled in that space.

Nice. Very cool. And so you. Did you buy any real estate before jumping into that, or.

No, I went, I went straight to notes.

Okay.

So I, I didn't want to deal with, you know, landlord duties, so I, I did that. That was my original plan. That's what I wanted to do. But as you know, maybe at the time I didn't consider that, you know, you can invest that estate and there's other ways to do that. But when I was looking around the Denver area where I was, the, the math on the deals available didn't work out for me. And so that's why I ended up gravitating to notes. Now, if you do have a background in real estate, it certainly helps before you go into notes, but it's not necessarily required. There's pluses and minuses to it.

Right.

Like having just a general real estate knowledge is definitely very helpful because then you can just add on the pieces of notes that you need to understand. On the other hand, it can be kind of helpful in some cases because some people, there are some folks who kind of like, they learn one model of investing or one system, and then. And then they struggle to branch outside of that.

Right.

So in some cases, people's minds get tracked on one way and then they have a hard time understanding notes. So there's pros and cons to both back coming at it from both backgrounds.

And so what led you to. Because now you just recently purchased call the underwriter. So maybe tell me a little bit about, like, how that started. Did you know the owner? Was it a cold call? Like, how did you come into that opportunity and what made you take that leap of faith?

Sure. So for people who aren't familiar, what Call the Underwriter does is we help people who are originating seller finance notes do that origination, understand the risk of the note and then be compliant from a Dodd Frank perspective and follow the consumer laws. So I actually became interested in this space a while ago and prior to acquiring Call the Underwriter, I was working on spinning up a competitor. And so I had spent four or five months looking to enter the space. Anyways, the reason I was so interested in it is for one, the seller finance market's a lot larger than people realize. You know, there's, there's 90,000 plus of these being originated a year. It's probably more than that because it's a little challenging to tease out of the, the county records. And if you look at the RMLOs that are out there, the way it's done, like the, the resource base to assist people with those is really poor. I mean almost non existent.

Right.

So, so there's really a need in the market on the part of investors for that. Because if you're doing a seller finance deal, you're doing a subject to deal or you know, creating a wrap, you're not necessarily going to be familiar with all of the consumer laws. And believe me, it's an Alphabet soup, right? So like I spent months trying to understand the rules on originating these things and it's, it's not straightforward because one, it, there's not like one law you can just go read. There's a whole bunch of them that have actually been passed over decades and, and the way they're written, they're, they're kind of overlapping and a lot of the language in them is very fuzzy. And you know, as I was well going through the, you know, the 20 hour training you need to do to be an originator and talking to various attorneys. I mean I've had cases where I've had two different attorneys give me different opinions on, on how to do something. So as an individual, like you're creating one loan or even a couple of them, you know, you're going to have a hard time, you know, figuring that out on your own. And so that, that's why I need, there's a need for service providers who can help with number one, you know, doing the underwriting, vetting the borrower, making sure you have a solid loan. Like that's step one. Like, like one thing I'm working on is kind of dividing between the actual underwriting and the compliance piece. Like a lot of people are like, well I know there's this compliance thing. I want to do that. But really what's almost as or more important is making sure that you're creating a solid loan, that you understand the borrower and the loan the value. So whether you plan on holding that loan or selling it off like you got a pretty good vested interest in making sure you have a solid loan. And then on the compliance side, the big thing is after the financial crisis when they passed out, Frank. So you know, pre financial crisis, right, you had all of these crazy loans where, you know, banks weren't verifying income and you could just kind of say whatever and get a loan and nobody cared and what the law said. And it's funny, deep diving this. I'm not, you know, a big fan of having multiple layers of confusing regulation to do something, but if you actually get all the way through it, it kind of makes it. I think the rules actually make a lot of sense. And they say that if you're making a loan for someone, mortgage loan, where it's going to be for their primary residence, meaning if they can't pay and they get foreclosed on, they're losing their home, you as the lender have to validate that they have the ability to make payments on that loan, which for one hand you should kind of do that anyways, right? But you have to do that. And then there are some other rules around disclosures, right? So you have to provide the, the borrower a loan estimate seven business days in advance so they have the opportunity to review it. You have to provide closing disclosures three days before you close. And what they're really doing is cutting out a lot of predatory practices, right? So they don't want people making loans and saying, hey, as long as I get a big down payment, I don't care if they can pay or not. So I'll get this big down payment, I'll just foreclose and rinse and repeat. And you know, they have the disclosures. They don't want people just winging a stack of papers in front of somebody at the last minute with maybe some garbage terms buried in there and then just asking them to sign. And once you know the process and you're set up to do it, compliance doesn't really get in your way. You're kind of, you're going through this underwriting process you already want to do anyhow. It's just a matter of knowing the process and sending the right things out at the right times. So.

And are you guys involved? So you're obviously heavily involved on the front end of a transaction and providing a recommendation for the investor to whether approve or deny it. And from my understanding, they do have that option, right? You, you gu. Make a recommendation and say we don't think that this borrower is qualified based upon these regulations. But at the end of the day they're still feel, you know, they're able to make a decision themselves, right?

Yeah, absolutely.

Right.

So, so in our transactions, the seller is actually the originator, you know, so everything's kind of flip flop from a traditional financing transaction. We're not like a bank, we're not call. The underwriter does not lend funds, we don't hold the loans. We act almost as a consultant in a way. You could think of it as to the people doing it, right? And so ultimately it's their call. You can't, can't stop them from doing things. But, but to your point, we make those recommendations, right? And you know, sometimes the recommendation is yeah, this was super solid, good to go. You know, sometimes the recommendation is, well, the loan's compliant, but it's kind of close to the edge, you know, so you're, you're, gonna, you as the lender are gonna be taking on a little bit of risk, you're not gonna have a compliance issue. But you know, it's a little bit of a marginal borrower. And then there's ones where I've told people straight up, like, even if the borrower can make this work, because what happens a lot of times is the borrower is not compliant because maybe there's things on the credit record but they can clean that up, right, and make it compliant. And sometimes they have ones where I say, look, this person's got a lot of issues. They would have to clean up these 10 things. And even if they did that based on the record, like I would not loan to this person. Now one thing, one lesson learned I've had and one like really key tip for people creating seller finance loans that I think is important. Where I've seen people get painted into a corner a little bit is they find a borrower, they get the sale under contract, they negotiate the terms and everything, they send it through the underwriting process. Maybe that takes a little bit of time because there's some back and forth with the borrower to get all the information right? Sometimes the borrowers just give you all the information on day one. Other times like it's a little bit of a process to get everything. They get through all of this, they get to the end and then they find out, you know, there's problems. This loan isn't going to be compliant, it's not going to be great. And then the seller's kind of faced with this scenario. Where do I start all over and list it and find a new borrower and go back to square one or do I kind of grit my teeth and roll with it? And that's a really tough spot and sometimes people just grit their teeth and roll with it, which is, which is not great. The way that you keep yourself from getting painted into that corner is by pre screening the borrowers. So like on our website we have a quick like one page pre screening guide. But if you have an early conversation about the borrower, about what their income level is, you know, what kind of debts they have, do they have bankruptcies and foreclosures, you know, recently, have they been 60 days late on a mortgage payment in the last year? Most of the things that are going to disqualify the borrower, you can find out in a pretty quick conversations. So as long as they're being truthful, you're going to get a pretty good idea whether they're not going to clear. So one of my biggest pieces of advice is for people to have that conversation with the borrower early on. Don't get super excited and skip that because maybe they're willing to make a big down payment because you might end up in one of those tough spots a couple weeks later.

Yeah, I remember not too long ago I was consulting on a transaction and the borrower, to your point, had some things on their credit report that were really kind of putting them on the borderline of, you know, being a good sellable note. And what was important to the seller was that they could create a note that was sellable and attractive. And so what they actually decided was to have the borrower pay off instead of using the cash that was going to go to the seller, they were going to take $6,000 and pay off some of their debts to clean up, you know, their, their personal situation. And I saw the seller willing to take a hit for that $6,000 just for the marketability of the note to make it more attractive. So those are definitely trade off decisions that you have to make. And if, if you're not familiar with the RMO process on the front end and your exit strategy is to ultimately sell the note, I think it's really important to get educated on that. So that way you know what questions to ask on the front end to your borrower to, you know, pre vet and qualify before they even get to someone like you.

Yeah. And that's the other advantage of doing that underwriting process. Right. So like aside from compliance and aside from knowing that you have a valuable note if you're going to hold it. Yeah. If you're going to wheel around and sell that note at some point. Sometimes people create these with the intention of selling them right away. Other people's hold on to them, but they may want to sell them at some point. If you've done that homework up front and you have that full underwriting package, your notes a lot more marketable because there are. And I'll tell you what, there are a lot of people out there looking to buy seller finance notes because you don't see as much bank originated paper these days. We had kind of this blip. It was more than a blip, you know, after the financial crisis where banks had all this bad debt and they sold off and they kind of made their way through the system from big funds to smaller funds to individuals and some of that stuff still floating around. But like the people who are looking to buy notes for cash flow are generally looking at seller finance notes. And so if you look at the world, it's really interesting the last couple months talking to so many people creating these because there is a, a wide range of standards that people follow. Like, like on one end of the barbell, you know, there's a lot of people who just don't do anything. I mean they act like it's like 1980 and there's no rules and they just let her rip.

Right.

And, and then there's people who are like, like, like the person you were talking about. They're like, okay, I'm going to cross every T and dot every I. Maybe I'm going to make hair, take a haircut to make sure this person is super clean. And then, and then there's like people that do stuff in between. But if you want maximum value for your note, if you've done that homework, you have the underwriting package. People are, you know, if I'm a buyer number one, I'm going to want to buy that note a lot more and I'm going to pay more for that note versus the person who just stuck their finger in their ear and did something wild west style and who knows what. What you've got.

Yeah. So how familiar are you with the. Because you're on the front end, but how familiar are you with the secondary market as far as selling notes? Are you. Do you guys play in that space at all?

We do, yeah. So So I started buying notes on my own about eight years ago. So I own about 60 of them now. And I've used outside funding for a lot of that. So buying notes has been my main business. And so I'm pretty familiar with that ecosystem. And haven't, you know, the call, the underwriter acquisition is fairly recent. So I've been kind of neck deep in the transition process and we can talk about that more a little bit later. But what one of the nice things about this is I have relationships with so many originators of seller finance notes, and I have a much better map of the seller finance ecosystem. A lot of those people who create notes do want to sell them. They're not necessarily familiar with the folks who want to buy. So one of the things I want to help the market with is, you know, ultimately figuring out how to pair up those, those buyers and sellers. So it, so it becomes a more liquid market. So is one of the challenges with notes, it's not a very liquid market.

Right.

It's kind of a small world, very relationship focused for the most part.

Yeah, that would be an incredible amount of value to be able to provide that value to someone generating the notes on the front end and say, hey, I already have someone willing to buy it if it looks like this. You know, generally from what I see in the marketplace, it should have this interest rate, these terms. The borrower profile should look generally like this. And you can kind of help structure that in that way. That would, that would be amazing.

Yeah, that's the other thing I recommend is people want to reach out to me ahead of time because one of the other mistakes sometimes people make when they're originating their first note, maybe they're not familiar with the seller finance world. You know, they'll create a note with too small an interest rate. Like, they'll say, oh, okay, the like. Especially a couple years ago when interest rates were like 3%, they were like, oh, I'll create my note at 3, 5%. I'm getting way more. That's good. But the thing is, when, when you sell a note in the secondary market, at least the individuals, they're generally looking for a 10% plus return.

Right.

So, so if you create a Note with some 5% interest rate, then if you want to sell it, you might have to take a gigantic haircut, which nobody wants to do. So you need to consider the loan terms ahead of time. So sometimes people come to me with underwriting deals and the terms are not necessarily what I would recommend, but at that point, they've already negotiated with the buyer. They're under contract. It's kind of too late. So if people ever want to drop me an email or you know, give me a quick call to talk through it, I'm always happy to do that, you know, with folks before they commit.

Yeah, no, I appreciate that offer. So what do you see? Like let's say it's a 10% note, right? Are you still seeing the notes as far as, let's say it's a $30,000 principal note, 10% annual interest rate. Are you still seeing it being sold at a discount on the principal at that point? Because they, they want to get the value out of it on, on day one, right?

Yeah. So, so here's the thing. It's, it's there, there, there are so many variables, it's hard to give a one size fits all answer. So I'll give scenarios. Yeah, if you're creating like super high quality, you know, kind of like bank grade paper that you can sell to an institution, there are some smaller banks that will buy up that stuff. You, you could get someone to pay par for it. Par meaning like 100 of the balance. There are a handful of investors who will provide table funding for deals, which means I set up this seller finance deal, I'm creating this loan at 10% and somebody is going to step in just kind of like a bank would in a traditional transaction and finance that. Those folks are a little bit few and far between. The majority of the individual note buyers have been conditioned over many years, especially after the financial crisis when there's so much non performing stuff on the market to buy things at a discount. And the thing is depending on the kind of paper.

Right.

The way, the way I think of it is there's a million factors that determine the risk level of a loan.

Right.

And kind of my process for buying notes is I look at all these factors and I come up with what I think my required risk adjusted return is. So maybe it's 12%.

Right.

And then I look at the loan terms and I back into a price. So whether I need a discount or not or how much to me is kind of like based on what return do I need based on that risk level. One of the problems, you know, one of the things I think some note buyers do that holds them back a little bit is they anchor on getting some percentage discount. They're like, oh, I like to pay 80 of unpaid balance or 75%. But really what makes sense is going to vary widely deal to deal. So by and large if you're selling a note. To get back to your original question, most buyers are going to want some kind of discount, right? So, so you should kind of be prepared for that. And if it's your high quality 20.

To 30% range, is that kind of where you're thinking?

No, I mean, I mean it. So if you're creating like really high quality paper, 10 interest rate, I mean you should be somewhere 10 discount or less.

Right.

Because when you discount that, you're going to be north of a double digit return. If it's really high quality stuff, if it's sketchy stuff, you didn't really vet the borrower, maybe the loan to value isn't right. You know, you might need like a 20% return to buy that. So now based on the interest rate. Yeah. You might be in that like 20, 25% discount range depending on the loan terms and how everything pans out. So the way that I like to think about it is like what kind of paper do I have, what return do I need based on that risk level? And then I back into the price and the discount just kind of is what it is. You know, it kind of falls out from there. But there are a lot of people who are just allergic to not getting a discount. But there are lots of like good deals created with high rates of return that, that makes sense that are available. So you know, I think you just want to be flexible. Like, like the other thing I've been talking to people about lately is a lot of people, you know, five, 10 years ago, they created kind of a recipe for how they buy notes. And the problem with that is the market evolves over time. So there's a lot of guys out there, very experienced folks that know how to do due diligence and buy a note, work the borrowers and do all that stuff that are kind of stuck on a recipe that doesn't work and the more anymore. So you need to understand what you're doing, but then you also got to have flexibility that you can tune your recipe over time.

Right.

Because the thing that works great in 2024, 2025 is probably not the exact strategy you're going to be using in 2030. So you need to understand like the fundamental concepts and then be able to adjust. That's what the best, best note investors do.

Awesome. So tell me about how you got into call the underwriter, like that whole opportunity to buy the company. I know you mentioned earlier that you were gonna kind of fire up a competitor to that. So what made you decide to acquire Instead.

Yeah. So I was actually. I've been a client of Carl Youngerwriter for about six years.

Oh.

So I've done a lot of non performing notes and so my non performing model actually go out of my way not to foreclose. I try to rehab the borrower, but it doesn't always work. And so I end up with reos. And when I have to sell that reo when I can, I like to sell it on terms. And so, you know, I've used Call the underwriter, you know, a number of times going back over five or six years or so. So I was very familiar with them and how they worked. And I knew the previous owner, Max and had done some other business dealings with him. So I was very familiar and comfortable with them. I was interested in entering the space just because there's such, there's just such an unserved market. I mean, investors have a big need for these services and they're just not a lot of folks out there to provide it. And they tend to be small. So I think there's a need for a larger, more scalable provider to help people originate these notes. And then the previous owners, when I found out that they were actually buying it, completely different business in a different area, they're actually buying a much larger one. I was excited because I already knew him. They've been around since I think the original guy started like in maybe 2017ish. A lot of people are very familiar with it. There's this like existing client base. So that was great for me. So instead of like starting from zero, you know, I was able to kind of take a big head start. Now the challenge with that is having existing clients is, is great. It's a smoother process than starting from zero. But now as I make adjustments and set up the business and scale it the way I want, I've got to do that while you're serving customers. So there's pros and cons to those two ways of doing it. Yeah.

So what kind of like infrastructure do you guys have? Is there like, I imagine you probably work with some attorneys that are helping facilitate this process.

Yeah. So. So the way Call the underwriter has worked previously and most RMLO guys have.

Is there like, I imagine you probably work with some attorneys that are helping facilitate this process.

Yeah. So. So the way Call the underwriter has worked previously and most RMLOs, they tend to be like one person shops.

Okay.

And, and, and if you've got a deal, you need underwriting. How fast you get that depends on how busy they are at the time. And, and so what happens is, you know, you might have slow periods and if you submit something for underwriting when they're slow, you know, you get it like that. If a bunch of people hit it once, then it slows down. If you're on a low, goes on vacation or gets sick, you know, then everything might come to a halt for, for a little bit. And that's kind of the way everybody that I'm familiar with kind of does it right now. So what I'm doing is I've got two part time people I hired so far to do loan processing and then in January, hopefully I'll be bringing on another person who's bilingual because that's another thing a lot of people have told me, like, hey, do you have someone who's bilingual who can get on with my borrowers? And what I've been doing over the last two months or so is just building a lot of the standard operating procedures and the system so that we can have a team of people working multiple files. Because I'll tell you what, when I was, when we were doing the whole transition process, after I acquired it, you know, I sat down, did a lot of training with Max Bailey and his wife and it was kind of making my head spin, especially as you're learning the whole process, because the way a lot of people do this is just kind of, you know, you have your loan software, but then a lot of it's just like out of their email box and you know, maybe a spreadsheet. There's not like CRMs and all the other systems. And so trying to keep 10 files straight at once was, was scrambling my brain. Yeah, a little bit. And so, you know, I've had to put some other systems in place so now I can go out and build a team so that now when someone submits a deal for underwriting, whoever's on call can pick that up and run with it. It's not a single point of failure, not depending on me or, or somebody else. And so it's going to take me a number of months to get all that built out where I want it. I'm also working on some workflow automation, you know, to make that easier. I'm trying to get stuff out of email and spreadsheets, but it's a tough battle. It's harder than it sounds.

So you're pretty, you're pretty involved in pretty much every file that comes in at this point, right?

Yeah, I've got my hands on all of them and, and like I said I'm not, you know, maybe there's somebody I'm not aware of. But most, most shops that I'm familiar with, that's how it is. It tends to be like a person, you know, that's what they do. Which that's, that's okay. But it's not really great, right? If you look at the, you know, 90,000 plus probably this year, over a hundred thousand deals being generated. Now the reality, most of them are not going through any kind of underwriting.

Right.

But once people start doing things the right way, there's going to be a big demand for these services and it's not really going to be met by individuals in their email box, you know, all day. We need something else. So part of what I'm trying to do is just build out the vendor network to really enable seller finance and make it easy. Because, because the other thesis I have is, you know, one, there's a lot of seller finance activity to begin with, but there would be more if one, like there's a whole other segment of people that would do it if they even knew it existed. And then there's another segment of people who know it exists, but they don't know how to do it. And to be honest, it's not super easy.

Right.

Like, even if, you know, hey, I have this property, I can't find a buyer to get bank financing. I know I can do seller finance, but how do I do that? It's not necessarily straightforward if you've never done it before and you're not already involved in a real estate investing.

Yeah.

Ecosystem. So I think once that becomes easier, we'll see even more activity.

I find it, I find it super easy on my end. All I gotta do is put in your ACH information, hit pay, and then hire you guys to take care of it for me. So it becomes pretty easy for me to do that.

Right?

Yeah. And that's the thing, right? So I mean, we do them all day, every day. So if somebody, it's just basic economics, right? Like, you know, you have different people specializing in different pieces and then they can do that really efficiently versus everybody trying to do everything all by themselves.

What, so what are you, what are you seeing as like the most common mistakes that are happening when people are bringing files into. Because at, by the time that they're bringing a file to you, I would guess that most of the people already have terms negotiated or signed promissory notes and all that stuff. And do you sometimes make recommendations and then they go back and renegotiate I.

Haven'T had anybody go back and renegotiate because once they're under a contract, they're kind of, yeah, you know, they're, they're kind of locked in. I do talk to people all the time, ahead of time. But I would say the biggest mistake people make, and a lot of times they make this just because they don't know is not following any process at all.

Right.

I mean you don't have to go to call the underwriter. We're not the only game in town. Like there's our MLOs that can do this, but a lot of people aren't even aware that they have to do this stuff.

Right.

And I would say there's, you know, there's, there's a, still to this day, a very large number of loans being originated in or basically in a legal fashion. You know, people are not following the consumer protection rules. A lot of times they have illegal terms. So there are, you know, a lot of states will cap interest rates and so like Pennsylvania is one that jumps out. I think they kept their interest rates on a, on a owner occupied mortgage at like 6.5%, which is crazy.

Wow.

And, and there are people there who will, you know, go, okay, you know, seller finance loans are normally 9 or 10%. They roll with that. And then, you know, you can find out later, oh, wait a second, like this isn't enforceable. And, and the other reason you go through this process, number, number one, you're doing it to make the loan valuable. But, but on the compliance side, what you're really guarding against, it's not that someone's going to see the loan recorded and come after you. I suppose that could happen, but that's probably a corner case. What you're really protecting against as the lender is the scenario where your borrower stops paying typically like right off the bat without any significant life changes. You know, they didn't have a job loss or divorce or medical thing, they default, you start foreclosing. Borrower shows up in court and they say, oh hey, I never had the ability to make these payments. I didn't understand what I was doing. This predatory lender took advantage of me. And if the judge says, oh well, did you underwrite the loan? Did you validate their ability to reply to repay? Did you send out the required disclosures? And if you're like, no stops paying typically like right off the bat without any significant life changes, you know, you didn't have a job loss or divorce or medical thing, they default, you start foreclosing borrower shows up in court and they say, oh hey, I never, then you could get into dark territory, you know, right then. Whereas if you've done the work and you have the underwriting packaging and say no, we did all the things, here's what we did. Boom. And, and then you're good. That's really the scenario that you're, that you're guarding against from a, from a compliance perspective.

And you know.

Yeah, so as far as had the ability to make these payments, I didn't understand what I was. Other mistakes, like I would say, I would venture to guess that, that the vast majority of seller finance loans are not doing this. Predatory lender took advantage of me. And if the judge says oh well, did you underwrite the loan? Did you validate their ability to reply to repay? Did you send out the required disclosures? And if you're like no, not, you know, just meeting those requirements, like mistake one is not even doing anything. And I think a lot of people do that just because they don't even know necessarily. And then there's some people that don't know and don't care. I mean there are people that are straight up predatory lenders and don't and don't care. But then, you know, assuming you're dialed in to that, well then you could get into dark territory, you know, right then. Whereas if you've done the work and you have the underwriting packaging and say no, we did all the things, here's what we did. Boom. And then you're good. That's really the scenario that you're, that you're guarding against from a, from a compliance perspective. You know, one of the big things is, you know, the interest rate having too low of an interest rate, like looking at, you know, the broader bank mortgage market and anchoring on those rates because if, I mean, if the borrower could, could get a bank loan, well then they should just do that and get those rates. Right. Like seller finance is always going to be more that, that's one of the advantages to them is they're getting access to financing that they wouldn't be able to get through a bank. And, and the other reason that's available, the reason I think this is going to grow so much and you know, can that happen? Yeah. So as far as other mistakes, like I would say, I would venture to guess that that the vast majority of seller finance loans are not, you know, just meeting those requirements. Like mistake one is not even doing, not to tangent too much but like if you look at what banks are doing. They're really retreating from a large part of the mortgage market that they used to serve.

Right.

Because they're, they're kind of capped on some of the fees that they can collect and so under a certain dollar amount, you know because the bank's fixed costs like they just don't bother. And I historically had thought that was kind of sub $100,000 housing anything and and I think a lot of people do that but now seeing a lot of these deals, a lot of them are quarter of a million three hundred thousand so so the chunk of the market that bank just because they don't even. No necessarily. And then there's some people that don't know and don't care. I mean there are people that are straight up predatory lenders and don't and don't care. But then you know, assuming you're dialed in aren't servicing has been growing so there's going to be ever more demand for this stuff.

So you mentioned seller financing quite a bit. So if you think about the transactions that are coming through you guys, are you seeing a lot of those being traditional straight up seller financing or are you seeing like sub 2 hybrid trip to that.

You know one of the big things is you know the interest rate having too low of an interest rate. Like looking at you know the broader.

Transactions where there's an initial sub 2 with the seller finance note behind it.

Yeah. Seeing a lot of sub 2 transaction bank mortgage market and anchoring on those rates because if in wraps I would say they're. I'm not sure what they are percentage wise and a lot of times I don't necessarily know if it's a sub 2.

Right.

Because you're getting the loan. I don't necessarily see everything but yeah seeing that increasingly I mean if the borrower could could getting and and while I am not the expert on sub 2 at all fact that that's a bank loan well then they should just do that and get those rates right. Like seller finance is always going to be more that that's one of the advantages to them is they're getting out that I've really been digging into because so many of my clients are doing that. And so I want to understand it in more depth just so that I can better advise them access to financing that they wouldn't be able to get through a bank and the other But I would say in a lot of those, you know, more complicated scenarios it's probably all the more important to validate, you know that you've got A good reason that's available. The reason I think this is going to grow so much good borrowers especially if you're on the hook, you know to pay an underlying lien. So where if they stop paying it could get troublesome. Not to tangent too much but like if you look at what banks are doing, they are really retreating from a large part of the.

Yeah, no, it's. There's definitely a lot of sub 2 activity and it's continuing to increase. I mean interest rates have mortgage market.

That they used to serve.

Right.

Because they're, they're kind of capped on.

Some of the fees not declined as much as would have thought. You know it's been hovering around this, you know, north of 7 for a while. And you know why would someone go get a mortgage at 7% or 8 even 8%. You know I've even. I had some loans that I bought or properties that I bought last that.

They can collect and so under a.

Certain dollar amount here that originated like close to 8% you know because the.

Bank'S fixed costs like they just don't bother. And I historically had thought that was kind of sub hundred thousand dollar house.

Why would you want to do that if you can acquire property for 3.5%. Right?

Yeah. But now seeing a lot of these deals, a lot of them are a quarter of a million three hundred thousand. So. So the chunk of the market that banks aren't servicing has been growing. So there's going to be ever more demand for this stuff.

So you mentioned seller financing quite a bit. Um, so if you think about the.

Reason a lot better I'm studying is that I might do that myself. So like when the last kid is out of the house here in a couple years, like I've got a mortgage on this house at 2.75% and when the day comes to sell that.

Right.

Like I'd rather not give up that loan if I don't have to. And I think sub 2 is kind of similar to you know, some of these other column more niche areas of real estate investment where if people understood how to do it, more people would do it.

Right.

So. So some of the knowledge in some of these areas is a little bit opaque and you know some people get.

Hung up the transactions that are coming through you guys, are you seeing a lot of those being traditional straight up.

Seller because yeah, they're more complicated maybe than just a traditional I'm good financing.

Or are you seeing like sub 2 hybrid transactions where there's an initial sub 2 with the seller Finance note behind.

It, gonna go buy a rental and get financing from a bank and that kind of thing. But they're not rocket science either, you know what I mean? So I think as, as more people learn about this stuff and know how to do it, you know, more people are going to go out and, and get involved. So. But yeah, definitely seeing a lot of sub 2 deals. Seeing a lot of mobile home deals as well. Yeah, seeing a lot of sub 2 transactions and wraps I would say they're. I'm not sure what they are percentage wise and a lot of times I don't necessarily know if it's a sub 2.

Right.

Because you're getting the loan. I don't necessarily see like that. That's another space seeing a lot of activity. So it's kind of all over the map. What I'm not seeing so much mobile.

Home deals that would be more. You're not talking about mobile home parks, you're talking more like individual units.

Yeah, individual units. So there, there are a lot of people setting up financing companies, everything. But yeah, seeing that increasingly to finance individual mobile homes. Now those are a little different because those are chattel loans. But what a lot of people are doing is. And while I am not the expert on sub 2 at all like that, that's something. Even though the rules on those are a little bit different, they like taking it through that full length that I've really been digging into because some of my writing process. Because what a lot of times they're doing is they're creating these loans and the clients are doing that. And so I want to understand it in more depth just so that I can better advise them and selling them off. And so they want that tight package to make it more saleable. So the nice thing, and I have bought one of these, a lot of these mobile home loans are being written at like 15 to 18% because they're basically almost more similar. But I would say in a lot of those, you know, more complicated scenarios, it's probably all the more important auto loans in a way. So if they're well underwritten, those can be pretty good value. Again there is to validate, you know, that, that you've got a good. There's more risk in a mobile home than a single family residence. But then that's why you have this different good borrower, especially if you're on the hook, you know, to pay an underlying lien. So we're an interest rate to, to compensate for them. And so there are some good deals available in those as well.

Do you have times where the borrower that's being qualified as an investor or is it always like a homestead buyer?

Yeah, no, a lot. They stop paying. It could get, get troublesome.

Yeah, no, it's. There's definitely a lot of sub 2 activity and it's continuing to increase. I mean interest rates have.

Autobahn are actually investor loans, which is interesting, right? Because if it's an investor loan, well then Dodd Frank and a lot of.

Those consumers not declined as much as would have thought. You know, it's been hovering.

Rules do not apply.

Right.

So a lot of the compliance rules we talk about, those are for owner occupied residences. But a lot of investors still use that process even when it's an investor loan because it makes their loan more valuable. They know what they have.

Right.

So if you are making an investor loan traditionally you might underwrite that based.

On like around this, you know, north of 7 for a while. And you know, why would someone go get a mortgage at 7% or even 8%?

You know, like let's say you're doing a seller finance loan to somebody, they're going to have the property as a rental. And so traditionally you would look at, okay, what's the rent?

I've even, I had some loans that I bought or properties that I bought.

Lateral income, can they make, can they make this payment, blah, blah, blah. And you still want to do that, but as kind of like a belt and suspenders approach. What a lot of people like to do is say, okay, if this person, for whatever reason they don't have it rented, do they have enough income to cover this? And the credit report tells you a lot about the person as well, right? Because even if that rental property is.

Producing plenty of this year that originated like close to 8%, why would you want to do that if you can acquire property for 3.5%, right?

Yeah. And part of the reason a lot better I'm studying is that I might do that myself. So like when the last kid is out of the house here in a couple years, like I've got a mortgage on income that they can pay your note. Are they the kind of person who pays their bills?

Right.

Like rent skimming is a tempting thing for, for a lot of folks. So it still has its place outside of where the compliance is actually required. That's why to me the compliance piece I think people get own this house at 2.75% and when the day comes to sell that, right. Like I'd rather not give up that loan if I don't have to And I think sub 2 is kind of similar to you know, really concerned about it. It's kind of a thing that just comes along for the ride when you're doing stuff that you should be doing anyway when you originate alone. Yeah.

So how do people feel in the secondary market about like junior loans, some.

Of these other column more niche areas of real estate investment where it's like.

Let'S say the borrower was an investor and what they did, they got qualified as them as an individual, as an investor. But then right at closing a day later we, you know, they raised the funds from another investor and then if.

People understood how to do it, more people would do it.

Right.

So. So some of the knowledge in some of these areas is a little bit opaque and you know, some people get hung up.

Now there's a third position lien on the property or something like that.

Yeah, so, so, so people don't like those as much. So, so they're going to be less sale because. Yeah, they're more complicated maybe than just a traditional. Unbelievable. And when you do people are going to want a higher return.

Yeah.

So you're go buy a rental and get financing from a bank and that kind of thing. But they're not rocket science either, you know what I mean? So I think as, as more people learn about this stuff and know how to do it, you know more people are going to go out and, and, and get involved.

You guys would like put together the package and the understanding is that that note is going to be a second position but there ends up being a third position. I assume whoever's buying it is not going and doing it title before they buy it or anything like that. Right?

Yeah. So. So if I'm buying a note I can't. So. But yeah, definitely seeing a lot of, of sub 2 deals. Seeing a lot of mobile home deals as well. Like that's another space seeing a lot of activity. So it's kind of all there about what position I'm in and not so much if there's liens behind me. I don't necessarily care other than maybe from the standpoint of all over the map what I'm not seeing.

So it's a mobile home deals that would be more. You're not talking about mobile home parks, you're talking more like individual units.

Yeah, individual units. So they're, they're. Well if this borrower's taken on all these liens maybe they're going to go belly up or maybe they're going to file bankruptcy that it could Increase my risk somewhat. But generally like if I'm in first position, I don't or a lot of people setting up financing companies care too much in general, I wouldn't say I don't care to finance individual mobile homes. Now those are a little different because those are chattel loans. But what a lot of people are doing is care but. But it's not necessarily going to directly impact me. Usually when I'm buying a loan, even though the rules on those are a little bit different, they like taking it through that full unknown. I care about who's. Who's in front of me overall. Now when you do buy a note, you do want to do a writing process because what a lot of times they're doing is they're creating these loans and then selling them off. And so they want that tight package to make it more saleable. Do a title search. Usually I do an O and E at owners. So the nice thing. And I have bought one of these. A lot of these mobile home runs are being written at like 15 to 18% because they're basically almost more sims with ownership and encumbrance report which is not quite a full blown title search. But yeah, if you're buying a note, you definitely want to look at title because you want to know what are all the liens on the property? Is there somebody in front of me that I don't know about? Auto loans in a way. So if they're well underwritten, I want to know are there delinquent taxes? And those can be pretty good value. Again there is. There's more risk in a mobile home than a single family residence. But then that's why you have this different interest rate to, to compensate for them and this or their tax liens. Because I consider, you know, tax liens are like position zero. So there are some good deals available and those as well.

Right.

Or are there other issues or other clouds on title? One of the other things I do in my process is I pull that report and then I also have my attorney in that state.

Do you have times where the borrower that's being qualified as an investor or is it always like homestead buyer?

Yeah.

No. I love you everything. Because sometimes different states like South Carolina has some where bottom line are actually investor loans. Which is interesting.

Right.

Because if it's an investor loan, different states might have nuances where they require certain terms and the mortgage or they might have certain like interest rate rules like the Pennsylvania rule. And so I like. Well then Dodd Frank and a lot of those consumer rules do not apply.

Right.

So a lot of the compliance rules we talk about, those are for having my attorney review that as well to make sure that there's not something that I'm missing or owner occupied residences. But a lot of investors still use that process. Even I can these days. I've done enough, I can probably spot 90% plus percent of issues. But I'm not an attorney either. And I'm definitely not an attorney in 20 different. When it's an investor loan because it makes their loan more valuable, they know what they have.

Right.

So if you are making an investor loan traditionally, you might underwrite that based on like, like let's say you're doing a seller finance loan to somebody, they're going to have the property as a rent different states. So you definitely want to pull that title work and an attorney review before you buy a note. Don't just do, you're, you're kind of sticking your neck out, you know, if you just do it on your own. So I, I would always recommend doing your due diligence on that. And so traditionally you would look at okay, what's the rental income? Can they make, can they make this payment, blah blah, blah. And you still want to do that. But as kind of like a belt and suspenders approach. What a lot of people like to do is say, okay, if this person, person, for whatever reason, they don't have it.

Right.

Have you had to either? Well, I guess it would be more your personal experience. Have you had to foreclose on anybody?

Oh, a ton.

Really?

Yeah, a bunch. I've got, I've got a couple of them going on right now. Just earlier this week I had a lady who do they have enough income to cover this? And the credit report tells you a lot about the person as well, right? Because even if that rental property is producing plenty of income that they can pay your note, are they the kind of person who pays their bill? I had a foreclosure auction scheduled for three days ago and she filed bankruptcy the morning of the. Oh, that happens a lot. That's common. And if you're buying a non performing note where you know you might have to foreclose, you need to factor that in to your pricing acquittals.

Right.

Like rent skimming is a tempting thing for, for a lot of folks. So it still has its place outside of where the compliance is actually required. That's why to me the compliance piece, I think people get overly concerned about it. It's kind of a thing that just comes along for the ride when you're vision. But yeah, I've done a lot. They're all over the map. When I go, when I buy non performing my model is I like to buy ones where the borrower is still on the property and they've made some payments in the last 12 months. Like all that doing stuff that you should be doing anyway when you originate a loan. Yeah.

So how do people feel in the secondary market about like junior loans? Like let's say the borrower was an investor and what kinds of life.

Right.

So if the borrower's around, they've made some payments. Then in my model about two thirds of the time I can get it worked out where I get them paying again.

You know they did, they got qualified as them as an individual, as an investor. But then right at closing a day.

Later, another third of the time maybe we're doing cash for keys. Although I haven't had anybody, you know.

They raised the funds from another investor and then now there's a third position lean on the property or something like that.

Yeah, so. So. So people don't like to take me up on a cash for keys in a little while or you end up in the foreclosure process. Although for me I'm in Colorado. I've only ever bought one note in Colorado. All my stuff's in other places. Michigan, Indiana, Ohio, Mississippi was as much so. So they're going to be less salable and when you do people are going to want a higher return.

Yeah.

For a sliding scale.

So you guys would like put together the package and the understanding is that.

That all over the map. So when I get an reo it's.

A note is going to be a second position.

But they're pain and so I kind of go out of my way as the lender not to end up with those. But yeah, I end up doing them all the time. And it doesn't have to be that scary. I mean basically you're hiring an attorney, they're going to send a demand letter.

If they don't ends up being a third position, I assume whoever's buying it is not going and doing a title. So before they buy it or anything like that. Right.

Yeah. So. So if I'm buying a note, I can't do that. You're going to send a complaint. You know, they will work through the problem about what position I'm in and.

Not so much process.

The big thing though is it can be expensive and time consuming. If there's liens behind me, I don't necessarily care and you know, some people have it in their heads, oh, the borrower's not paying, I can take the property back. Well, depending on the state you're in. Other than maybe from the standpoint of, well, if this borrower's taken on all these liens, maybe they're going to go belly up. And if it's a judicial foreclosure, if the borrower fights you, or maybe they're going to file bankruptcy that it could include if the borrower files bankruptcy to delay things like this lady just did this week increase my risk somewhat. But generally like if I'm in first position, I don't care too much in general. I wouldn't say I don't. It can be a really long process, you know, and you can easily stretch out over a year. I've had them go over two years depending on how they pay out.

Right.

Care. But, but it's not necessarily going to directly impact me. Usually when I'm buying a loan, two.

Years of no income. Right.

On that note, I care about who's. Who's in front of. It's worse than that. There's no income on the note. There's the legal me overall. Now when you do buy a note, you do want to do a title search. Usually I do an owner owner's fees but at the same time, if the borrower is not paying their mortgage, they're probably not paying taxes or insurance either. So you're paying property taxes and with ownership and encumbrance report, which is not quite a full blown title search, but yeah. So you're incurring costs as that goes on. If you're buying a note, you definitely want to look at title because you, and like that's okay. It's just when you buy the note you have to factor that in. And that's the other reason too why the predatory type lenders want to know what are all the liens on the property? Is there somebody in front of me that I don't know about? I want to know are there delinquent taxes? You go, hey, I'm creating this new note sparrows probably is or their tax liens because I consider, you know, tax liens are like position zero, not great. But hey, they're giving me a good down payment so I'll just foreclose and rinse and repeat that foreclosure process maybe quite. Or are there other issues breaking easy and it may not, you know, if they fight you. So you know, just while you legally have the right to take the property back or other Clouds on title. One of the other things I do in my process is I pull that report and then I also have my attorney in that state review everything. Because sometimes different states like South Carolina has some. Where different states might have nuances where they require certain terms and the mortgage or they might have certain like interest rate rules like the Pennsylvania rule. And so I like having my attorney review that as well to make sure that there's not something that I'm missing. I can these days I've done enough. I can probably spot 90% plus percent of issues. But I'm not an attorney either and I'm definitely not an attorney. And 20 to it can be painful. It's not always great. So it. You want to have that option available as a lender but it's never been a go to option for me at least.

Yeah. Oof that. So just another day at the office for you on getting.

Oh yeah. And it gets where. And it can get work.

Right.

So it's funny. Right. So it's. It's kind of like different states. So you definitely want to pull that title work and have an attorney review. You know when you do non performing there's a range of things that can happen based on how long the foreclosure goes and what's that cost and then the other. Before you buy a note, don't just do it. You're. You're kind of sticking your neck out, you know if you just do it on your own. So I, I would always recommend doing your due diligence on that.

Have you had to either? Well I guess it would be more your personal experience. Have you had one is when you.

Get the property back. Like let's say if it's a land contract. There's no sheriff's auction. You just get the property or depending where it is if it goes to sheriff auction it might not sell. There's like a lot of counties where there's just not a lot of activity at those and then you don't know what you get because when you're buying.

A note before close on anybody.

Oh a ton.

Really?

Yeah, a bunch. I've got. I've got a couple of them going on right now. Just earlier this week I had a lady who. And this is actually one advantage if you're buying a newly originated seller finance. I had a foreclosure auction scheduled for three days ago and she filed bankruptcy the morning note and they just sold it. Well you've got inside photos of the property. You kind of know what the property condition was recently, which is helpful if you're buying a note that's been around for several years and maybe it's not performing. Oh, that happens a lot. That's common. And if you're buying a non performing note where you know you might have to foreclose, you need to factor that in to your pricing equation. As the note buyer, you don't have the right to go in the property. You can look at the outside but you don't know. But yeah, I've done a lot. They're all over the map when I know what lurks behind the door. And so oftentimes borrowers who ride the ship down on a foreclosure, especially with a lender like me who's like going to pains ago when I buy non performing, my model is I like to buy ones where the borrower is still on the property and they've made some payments in the last 12 months. I call that to work things out and not foreclose. You know, those people aren't just neglecting their finances. They're not doing deferred, they're not doing maintenance and you know, kinds of life.

Right.

So if the borrower's around, they've made some payment. So they, they tend to live a rough lifestyle. And so it's not that people are intentionally like damaging the property, but just they're, they might be. Then in my model about 2/3 of the time I can get it worked out where I get them paying again. You know, the other third of the time maybe we're doing cash for keys. Although I haven't had anybody rearranging for a year, not fixing anything. So by the time you get it back it gets rough. And I had one one time that was a legit quarter house. Like literally take me up on a cash for keys in a little while or you end up in the foreclosure process. Although really 3 waist deep trash throughout the entire place. It was a 1800 square foot house and I had to get four 40 yard dumpsters. For me I'm in Colorado. I've only ever bought one note in Colorado. All my stuff's in other places. Michigan, Indiana, Ohio, Mississippi, all over the map. So when I get an reo it's a. So sometimes you go through all that stuff and what you got back is, is rough. So I've gotten upside down on a couple of them pain and so I kind of go out of my way as the lender not to end up with those.

But yeah, if you're a passive node investor, you're turning into an operator once.

You think, oh yeah, so, so here's the thing, right. So end up doing them all the time. And, and it doesn't have to be that scary. I mean basically you're hiring an attorney, they're going to send a demand letter. If they don't do that, you're going to send the complaint. You know, they will work through the product. Notes is a niche but within there there's like a ton of sub niches. If you're doing the non performing stuff that I was talking about, that is not passive process. The big thing though is it can be expensive and time consuming.

Right.

And that is doing things on hard. It can be very lucrative. And like I said, it's a numbers game.

Right.

So if you go out and you do a hundred of these and you know, some people have it in their heads, oh, the borrower's not paying, I can take the property back. Well, depending on the state you're in, if it's a judicial foreclosure, if the borrower fights you, most of them are going to work out pretty well. A couple of them are going to be home runs, just phenomenal. And then a couple you're going to get sideways. If the borrower files bankruptcy to delay things like this lady just did this week, it's on.

Right.

If you want to be a passive investor and get cash flow, you can certainly do that in notes. You're just buying. It can be a really long process, you know and you can easily shrink the higher quality performing notes. So you know, so you can, you can pick and choose what you're going after. Over a year. I've had them go over two years depending on how they out.

Right.

That would be two years of no income. Right.

On that note, it's worse than that. There's no income on the note. There's the legal fear when you're, when you're buying notes.

Yeah. At the end of the day, just like anything else, it's risk reward, you know, looking at that.

Absolutely. Fees. But at the same time if the borrower is not paying their mortgage. Yeah. It's risk versus reward. It's, you know, how much work am I going to have to do? And it's funny is there's like this 80, 20 rule that applies. Like some of them, they're probably not paying taxes or insurance either. So you're paying property taxes and so, so you're incurring costs as that goes on and like that's okay. It's just when you buy the Note, you have to factor that in. And that's my best non performing deals. They didn't require much from me. You know we just kind of went through the process. The property sold, I made bank. It was great, you know but then you get a couple where. And it's funny because the other reason too why the, the predatory type lenders, the ones that are the worst deals are the biggest to go. Hey, I'm creating this new note Sparrow's probably not great but hey, they're giving me a good down payment so I'll just foreclose and rinse and repeat that foreclosure process. Maybe time sinks. They're the ones where you end up with the reo. The REO is a mess. I've had vandalism a couple times. You know I was saying like nothing good happens when a property is vacant, you know. And, and so it's funny. My, my, my worst deals are the one quick and easy and it may not, you know, if they fight you. So you know, just while you legally have the right to take the property back, it's, it's, it can be painful. It's not always great. So it, you want to have that option available as a lens that I've sunk the most of my time in and my best deals were the ones that I probably ended up spending the most least time on. It's just the way it works out.

Oh man. Well, I appreciate you joining the show.

Today Tender, but it's never been a go to option for me at least.

Yeah, that. So it's just another day at the office for you on getting.

Oh yeah.

And it gets, and it can get wor. Right. So it, it's funny. Right?

How can we find you online? I know you have a podcast as well. Tell me.

I do. Yeah. So, so you can find me at calltheunderwriter.com or you can email me at dan calltheunderwriter.com but yeah, I have a podcast as well called the Note Investor Podcast. If you just search for note. So it's kind of like, you know, when you do non performing there's a range of things that can happen based on how long the foreclosure goes and what's that cost. And then the other one is when you get the property back. Like let's say if it's a land contract, there's no Sheriff's Investor or Dan Deppin. You'll find it there too. Then also have a YouTube channel called Fusion Notes and you can find me on there as well. Can you just get the property or depending where it is.

Awesome. Awesome. Well, thanks again, Dan, for joining and learned a ton myself today. So thank you again for joining.

It goes to sheriff auction. It might not sell. There's like a lot of counties where there's just not a lot of activity at those. And then you don't know what you get. Because when you're buying a note, and this is actually one advantage if you're buying a newly originated seller finance show. Not anytime. Thanks for having me on. Appreciate it.

All right. See you.

They just sold it. Well, you've got inside photos of the property. You kind of know what the property condition was recently, which is helpful if you're buying a note that's been around.