Can you Really Wholesale Notes like You do Real Estate? with Scott Carson: Taking the Land featuring Sharon Restrepo

Or buy notes that are at least six months behind, up to six years behind.

Oh, wow. Hey guys, thanks for tuning in to Taking the Land today. I am here with my guest Scott Carson, whom you are going to love because we're going to talk about wholesaling notes and Scott is all about notes. And I'm just going to give you a quick but I don't want to leave out any dirty details about Scott Little here. Our special guest, Scott is an active real estate investor and entrepreneur since 2002, focusing on the niche of distressed mortgage notes. And that really intrigues me. He has a lot to teach and I hope that we have enough time to pull a lot of that out of him. So, so that you can get at least some lessons. So take a notepad and a pen out because you're going to want, it's not just an interview here. We're going to like really try to teach you the concept of wholesaling notes. All right, so he's purchased since 2008 over $1 billion in distress notes on residential and commercial properties all across the country. He's helped thousands of real estate investors, just like you and I and entrepreneurs create wealth through his debt buying tactics and classes, helping his students close thousands of deals. He host the nationally syndicated radio and podcast Note Closers show podcast with millions of listeners. An avid sports fan, he spends his free time traveling, gardening and making memories. He calls Austin, Texas home with his wife Stephanie and their four legged children. So help me welcome Scott. Yay. Okay, so Scott, thanks for being here. And so tell us how you got started in the note buying business.

Yeah, no, no problem, Sharon. Glad to share that. So I got lucky. I started a mortgage company actually back in 2002 with a buddy of mine and our sponsoring broker was treating, teaching and traveling the country teaching creative financing, wraparound mortgages, owner financing, and also taught the niche of non performing notes. And as everything started to hit the fan back in 2000, 2008, he's like, this is a prime time to be diving into the non performing note space. And so I just basically traded my origination hat for going out and started buying notes, non performing mortgages from the banks that I was originating for the lenders. And that's kind of how I got started today. Basically a four year apprenticeship and creative financing in the paper game.

That's cool. We all kind of start somewhere and then find like something that like, you know, speaks to us and jump into it. Like for me, I started out flipping houses and I was like, there's Got to be a better way. I was buying from wholesalers, but I didn't understand what they did. So, you know, it was that learning curve. And then I had no choice but to jump into a different niche that didn't involve me being out at the houses. And I kind of learned a wholesaling real estate overnight. And I've stuck with that always as a side thing to do because it just generates a lot of income with the least amount of work and the biggest reward while I'm flipping, while I'm doing all these other things. And as every time I've heard you, I've said I'm going to go out and do that too because it's in the business already. And so because of that, I actually ended up not buying notes and keeping them, but wholesaling notes. And so I want to talk about that. Because you can wholesale notes as well. You don't have to own them, you don't have to use your money to buy it. You can do just like we do with houses and it's, you don't need a real estate license and you can do what Scott is doing. You don't have to start out on a huge scale like Scott, and he teaches you, no matter what level you want to be doing this at, how to do it. So let's kind of start from A to Z and walk through the transition of what that looks like in the note business from a wholesale perspective. Can you start with like, what would be the first thing that you would tell your students to go out and do or tell these listeners that they could go out and do? Well, first of all, you know what, I'm sorry, Scott. Let's back up and let's make sure everybody understands, you know, the difference between the distress note and the performing note. And you know why we're going to go after one or not the other.

So a mortgage where somebody's paying on time, that's a performing note, it's handled by a third party servicer in most cases and it's the borrower paying on time. They're paying every month in and out. That's a performing note. You also have, then you have the opposite side, which we see a lot of right now, non performing notes where people aren't paying. And usually you have some that are just behind. Then you have stuff that's in default where the borrower is not paid in at least 90 to 120 days. Plus oftentimes we're buying notes that are at least six months behind up to six years.

Behind. Oh wow.

People always ask why hasn't a bank foreclosed if somebody hasn't paid in six years? I said well a lot of these mortgages get sold in portfolios or they sold off as different tranches as they say and one seller may hold onto them and focus on a chunk, get them reperforming and some of the bottom of the barrel doesn't mean the bad deal. They just don't ever get around to them as they service them all off or foreclosure. Timeframes are different in every state and it just varies. So non performing note is usually we're going where somebody hasn't paid in at least 90 days. A minimum scratch and dent might be another term you hear where somebody's only like 30 to 60 days behind but they get back on track. So we like to target non performing as an ex fix and flipper here in Austin, Texas too in rehabber I like that because I get a much bigger discount buying non performing notes and you make money by either a like wholesaling it to another investor like me who will then take the note over, try to work it out with a borrower, get them back on track often you know, cash to walk away deed alone. They won't do that. You maybe do a short sale or you can turn around and then have to foreclose because remember if you're buying the note you're becoming the bank and you have all the same rights as the bank does. So that's where you make your money on the note business side is by getting the borrower back on track. So they start become a performing note again or in some sort of way to liquidate the property if the borrower won't be able to work with it either through I guess a friendly terms or through legal actions if they won't play with you.

Right. So the bottom line is investors. Like when you find a house that's in default and you can't find the sellers because you have to have sellers in order to sign title over to you. There's no other way to buy the house unless you can come in through the back door if you will and deal with the lender who's got the loan on that property and basically buy their position. So explain what that looks like and you know how they would find out who that is and how to go after them.

I'll make one big clarification. You're not going to buy a one off note from bank of America, Chase, Citi, Wells Fargo, the big five or six it's just not worth them to deal with a one off note. Let me just make that clarification. A lot of times we're seeing stuff in regional banks, some pretty good sized large banks, but not the big five or six. They just don't play in a one off space. So I'll make a clarification. So we find a note. Looking at the pre foreclosures list is one thing we look at. In states that have a little bit longer foreclosure time frame we'll target by calling the bank's corporate office and trying to find the person in charge of their special assets department is one title. They go by Special asset Manager, Secondary marketing manager is another title. Chief credit Risk Officer or the whole loan trading desk. Those are kind of four titles that these bankers have that they handle the distressed loan sales.

All right, will they get on the phone with you?

They will actually get on the phone with you. We contact them either via dialing for dollars or jumping on LinkedIn and tracking them down on LinkedIn.

Great tips guys. I hope you're writing this down.

Yeah, I mean LinkedIn, you can type in Special Assets manager and it'll pull up like thousands and thousands of people and it's just a matter of, it's like anything else, you gotta follow up, follow up, follow up. But the beautiful thing that I love sharing is in the note business we don't do any direct mail. We're not dropping thousands of dollars in postcards or yellow letters. And there's nothing wrong with been there, done that. But it just doesn't work because we're dealing directly with bankers, you know, so we go to the banks and then the banks will send us off in what they call a pool or it's basically an Excel spreadsheet with anywhere from one to thousands of their non performing notes that they're looking to move off. And they'll often give us some sort of pricing expectations or as we say it in our world, color as the type of discount that they're looking to accept or take. And then it's a matter of like anything else starting to do some due diligence and see if it what pricing makes sense. And if there's enough meat on the bone to either a, if we take it down ourselves, great. If not, if we're going to wholesale it, making sure that we leave plenty of meat on the bone for the end buyer but still make our profit.

So are you at this point used to wholesaling, you know, a package of notes versus one or two We've done both.

And it just varies on the port. We're often buying notes for our own portfolio right now. But we will move onesie twosies out there, you know, And I'll tell you this. Every. Every note investor is a buyer and a seller. All right? So that's the thing. I mean, every investor is like that, too. We're buying. I'll give you a great example. We were looking at buying a portfolio of 60 assets last month. Out of the 60, 25 we were wholesaling, and we're going to keep the other 35. But the fact that we were going to buy in a bigger bulk package gave us a bigger discount compared to onesie twosies individually.

Right, awesome. So in one of the last situations I had like this, it was really a fluke type situation where, you know, the couple was in foreclosure, they're going through a divorce, and one of them reached out and said, hey, can you buy the house? And we're like, yeah, absolutely. We made a deal with the guy, but the wife refused to sign anything, you know, so there was no way now that we could buy it. No way. And so, because he was behind literally in both mortgages, but the second was willing to talk, even though they were one of these big guys, I thought, well, this is really interesting. So we were able to buy the second at pennies on the dollar, and we wholesaled it right before the foreclosure auction. It was a whole lot of scenario that you would total because there was still equity behind the first. He took it to the sale. So we made our money and we're out. And he continued the foreclosure with the same attorney, and then he made money again. And so, you know, I think that that was probably just a fluke thing that I walked into. It certainly wasn't our intention to buy that note, but because of this kind of training being available, you didn't just walk away. You were able to stay in a deal and go, wait, I can't do this, but I can do this. Right? And that's why it's so important to seek out all the type of education that people like you and I offer and, you know, and get into the coaching programs. We have somebody teaching you how to stay in a deal and make money rather than just hanging up on people walking away because you don't know there's another way. And so what would you say to a new investor? They have not really got their feet wet in anything yet about going into this note thing. Like, they're like, hey, I don't have enough money to take a package of 60 down. How could I find that one private guy, you know, and that's got a defaulting mortgage and kind of get my feet wet with a few of these people. Kind of like you would if I was teaching people how to go after those distressed sellers, wait vacant houses and you know, find them.

So let's, let's take it from that point is instead of going after borrowers like many people are used to go after the banks. Every bank has non performing paper. So let me give you a bit of example. Like one of my first cases, first deal that I wholesaled and it's a very similar strategies. I knew that there was a property here in Austin, Texas that was in default and I was getting ready to buy it and I realized they canceled the sale because the mortgage was sold to somebody. I was like what? So I tracked down, I was like, okay. The lender on it was Capital One or Greenpoint Mortgage back in the day was their commercial branch. So I started contacting Capital One. It took me a few weeks to get the right department and being transferred all over. But after my 70th phone call I got the right person. Okay. But after I told her what I was trying to do is hey, do you have any non performing notes for sale? She sent me a PDF. Oftentimes they sent Excel spreadsheet but it was a 33 point page PDF in 6 point font with all their stuff across the country. Okay. So I'm like oh my God. Overwhelmed with, you know, I'm in Austin, Texas, what's going on? So I look at my network of where I had investors at and I had a relationship to people and I saw looked at California because that's always a hot market. I saw this property in San Diego. It was a eight unit apartment complex in San Diego. And I was like okay, great. And I started negotiating with the bank. I did a little due diligence, saw that was occupied. The borrower was like eight months behind, you know, using his own personal ATM. It's worth about 700. The borrower only owed like 5, 540 on if I remember correctly. Well, I was able to negotiate the bank to sell me the note at 375. Okay. And they gave me 60 days for due diligence and closing. Now most investors, 60 days of close, that's a ton of time. Most people can raise capital if the deal makes sense. Well, I started marketing it out on meetup groups and my email blast like you would with anything else, you want to get people, right? You got a market. You can't be a secret agent in this business and succeed. Right. And so I had an investor buddy of mine, Matt, reached out to me. He was interested in the deal. I told him it was a note deal, that he'd have to take over the bank's position and then foreclose and it could take a little while. He was fine with that based on the deal. So I originally was trying to make a $50,000 wholesale fee on it. We ended up negotiating it to 35,000. So I sold it to him for 415. So the contract from the bank said 375. I created my one page assignment of contract form, which is pretty easy, or wholesaling fee form when you say saying that he was going to pay me $35,000 for my position at day 45, he wired him and his two investors wired the 4. Was it, you know, the 415 to my account. I turned around and wired the 375 to the bank of Capital One. We kept my profit in the bank until we made sure all the documents and the transfer docs were sent over. And then when he said, yep, he had received the collateral file and the assignments that transferred the loan ownership from Capital One to him. And he said, we're good to go. So we released 35. It's a pretty good happy dance, you know. And then Matt, it took him eight months to end up foreclosing and taking the property back. And he made 150 grand eight months later down the road from working with it. But for 35 grand in 45 days, that's a pretty good ROI for me because I had zero money tied up. When you're buying notes, you don't have to put up earnest money. You don't have to put up, you know, there's not inspection fees. You're doing a lot of online due diligence. You may have somebody drive by and take a look at it. But you're looking at the collateral file. That's really what you're buying, is the loan docs. And I actually have a loan file right here that we're working through. This is really what you're buying that backs the property. So it's just a bit of a due diligence. If we are making an offer on a portfolio, individual assets, and we see that something's wrong with the property, the value doesn't come back, taxes are higher, it's in bad condition, we can cancel and kill the bid. With no penalty. And that's a beautiful thing because a lot of people in traditional real estate, you got to go under contract a lot of times and then you're under the gun or seven days for inspection and stuff like that. And we don't run into that in the note business.

Yeah, that is a good point. A lot of folks are, you know, especially investors that have limited capital, they're not sure how they can invest in things. That's another reason I love wholesaling. Even real estate, there's very, very little capital, sometimes even none, even no deposit, depending on how the contract is written, you could do the same thing. And so I love the idea of investors kind of learning how to wholesale real estate and with the note aspect as well, because when you come into these situations, you don't know what you're going to find. And the more, you know, the more money you're going to make and the more networked you are. Just like Scott said, he put out the feelers and got somebody, he's in Texas and got a buyer for a property all the way in California. And so, you know, just. Same thing with virtual wholesaling. I love the fact that I can sit at my computer in wholesale real estate anywhere in the country because I've made connections, you know, or you know, where to connect. Just like you said, you can go on LinkedIn, you can go on this. But you know what my pet peeve is? Is that so many people think they're going to go learn all this on their own and instead of investing in someone like you to teach them and have access to you, they blow all that money on one mistake and now, see, it doesn't work, you know, or.

Whatever, you've all got to pay. Learning curve, whether it's. Whether it's paying a mentor or a coach to come in and save you six months of grief and get you further along in six weeks. It would take most people in six years you're going to end up paying, whether somebody's experience and them keeping you out of potholes. Or you can go to the, the school of hard knocks and pay for it in mistakes and lost income and getting your teeth kicked in because you didn't know what you did. No, a great example. I was at a foreclosure auction not too far ago and a guy is dressed all in a suit and he's all excited. And the crier gets up there and starts talking about this one property. I'm looking at the numbers like, oh, that looks pretty good. And investor, he Goes, now it's a second mortgage. The guy's guy, and the guy thinks, oh, the property's at. So the guy, the crier bids, you know, 29,000 is opening bid. And the guy goes, 29,100. And the guy goes, sold. And the guy walks up all excited. He's like, oh, I learned everything on YouTube. And everybody's just shaking their head because he didn't do this simple thing of pulling title and realize there's $150,000 first mortgage in front of the mortgage he just bid on. Now he's upside down by 30 grand. Before even got into it, you got to talk to people. Look, I get it. Podcasts, YouTube videos are great initially, but it's honestly, if you really want to go to 0 to 60 quickly, attend, attend a workshop, get some coaching, get some mentoring, it'll be a lot better for you in the long run, especially for those that have limited funds. You don't want to go blow something on a deal and be in a negative position that we've all been there.

I heard someone say it so, well, you can, you know, spend the money on your own and you're going to get there eventually, or you can buy up your way up the ladder, you know, sooner. So somewhere I want to be in five years, if I just am willing to pay, I'm going to be there in five months, maybe whatever the case may be. But not only that, if I tap into you and what you have to teach me, I've just tapped into your network. And that's one of the best things about being connected. Like even with my students, because they don't have a database, but if they have a deal, we can sell it overnight because I've got the network or what have you. I had a lender, a hard money lender reach out to me and he said, sharon, I just took back a portfolio of seven properties and so can, can you off these for me, you know, on your list? And so I helped, you know, because I have access to folks like you, right? Do the due diligence, call people and, you know, see what we can get it sold for and ultimately do the same thing. And not only that, he already had, you know, the borrower's name and number to try and work things out with the borrower. And so you know what, I love that aspect of it. I've heard you talk about that before and I think that'd be really good for our listeners where you pick up the notes and maybe, you know, bought cheaper homes. You're Somewhere and you actually have the capital to do it. Rather than foreclosing, tell them about the option they have, you know, that they could actually get this loan going again.

So that's one of the. That's our number one strategy is actually to keep people in their houses.

Awesome.

And when we buy a note, that's our strategy. Now this is a little bit different. We actually target occupied assets versus vacant assets because we actually have more exit strategies when it comes to keeping people in their houses. And we can either try to get people to reinstate. That means they start making their existing payment. We'll just push the back payments to the back end of the loan. We can do a forbearance agreement which is very popular out there, where they start making partial payments or you know, like their interest rate may stair step up or stuff like that. It gives them a payment plan to get back on track for 12 to 24 months. You know, we allow somebody to assume their mortgage too, that people forget about this. You can allow somebody to come and take over payments of that house. So we've had a lot of. Especially you see, they help in a lot of elderly or divorce situations. Hey, do you have somebody that wants to come in and take over the payments? You know, you sell your house with subject to financing available already, you know that doesn't work. Then it's just a matter of, okay, there's one borrower in Florida, Jacksonville, Florida. We bought this nut cheap. She was elderly, limited income. So we basically told her, listen, don't worry about paying the mortgage, just take care of the taxes. We'll just do a deedaloon escrow so that when you do pass, whenever it is, we'll take the house over at that point. But you live basically rent free. Because it was just like I paid 1,000 bucks worth, part of a portfolio. I'd rather just make sure that somebody's taking care of the property versus trying to rehab and go from there and keep somebody in their houses. So, you know, we really helped a lot of people stay in their houses. Thousands of thousands of people across America. And the beauty of that is over time, I mean it's great cash flow. So things are coming and then things appreciate along the way too. Will then pay you off at full price in usually six or seven years. And that's just, that's the beauty of it. Now do I wish. Does every mortgage we buy end up get re performing? No, we end up having to foreclose on our fair share as well too. But we always try to give the Borrowers an opportunity to stay in the house. And it actually turns out to be our biggest bang for the buck because we'll hold that for cash flow for a while. If we bought it at 50 cents, we can then turn around in 12 months after they've been paying on time, sell it back to the market at 85, 90 cents on the dollar without having to foreclose or do anything.

Yeah, I think that that is the true blessing in the business. And so I'm gonna, I'll wrap us up on this note. So, you know, for the folks who follow myself and my husband, you know, we really love to teach that the faith based folks, you know, how to be equipped to prosper. But it's not just about us, right? Like you said, you're able to put this, keep this elderly woman, where would she have gone, right? If her family's not helping her now, where are they going to show up? And I know I've heard you talk before of the amazing things that you've been able to do because you're not the bank and you're not limited by red tape and you could actually let your compassion lead when the right circumstances arise. And so I'd love for you to share a couple of instances where, you know, you were able to do that, you know, because you were the investor who, you're making good money, you're getting paid to do what you do, but you're also bringing a service to people that, that most of the world doesn't realize that we are able to do, you know, and would say, oh, look at that, guy's a scumbag, you know, But I love, like sharing that side of it.

So here's one that I tell the story pretty often. It's one that always kind of makes me smile at the end of the day. The family, William and Sheila, lived in South Beloit, Illinois, this little small town in southern Illinois. They lived in this house for 18 years, raised their three kids or three daughters in this house. Market values went up. So they pulled an equity, they refinanced their house, pulled some equity out of their house. Well, about six months after that happened, the market took a dive. Their house went from being valued at roughly 60 to 75,000 down to 35,000. And unfortunately, William had a heart attack. He didn't die, but he was out of work for over a year. And this loan bounced around for over four years. And Sheila was trying to do a loan mod. And when we saw the packet, it was literally, I'm not joking, it was about a 2 foot tall packet because it had all the loan docs, it had all these loan modification requests. And her mortgage had been sold four times in four years. So every time it got sold, she had to resubmit a package with tax, you know, tax returns and income statements and hardship letters. And this mortgage was part of another group of 35. We were looking at buying. We saw this. I'm like, okay, looking through the collateral files as we see electronically. I was like, this lady's literally sent us in four times. She really wants to stay. And so we bought, we ended up buying the note really cheap. I mean, she owed house loan worth 35. She owed over 60, 65,000. We paid like five, I paid 10 grand for the note. I paid like 30 cents on the dollar of the value. I immediately reached out to her and I said, listen, hey, I'm your new bank. Basically, I'm your new lender. And you could hear just the wind goes like, oh, it's been sold. Yeah, like, well, no, no, I've seen your, your hardship statements. I said, listen, you know, could you start making your existing payment again? He's like, yes, William's back to work now. We just couldn't make up the last four and a half years of him. Like, that's okay, that's okay. Could you maybe bring five grand to the table? And she's like, no, I can't do that. Whenever we try to reinstate somebody, we always want to put some skin in the game. I said, well, could you bring 2,500 to the table? She's like, we could do that. I said, could you make an extra $200 a month on top of your monthly payment? She goes, yes, we could do that. I said, okay, Sheila, this is what we're going to do. You bring 2,500 to the table, you meet my attorney, you sign the trial payment plan, forbearance agreement plan. You pay $200 on top of your 466 monthly payment for the next 12 months. At the end of 12 months, we'll drop your interest rate to zero, okay? So that every penny you pay goes towards the principal. And then at the end of a year, if you want to, we'll reevaluate the property and just drop the balance down to what the actual value of the property is. So I'll forgive you like 20 grand of debt and your property's not worth that. And she's like, are you serious? I'm like, yes, I'm not joking. You can go meet my attorney. So sure enough, her and her husband showed up with a $25 check. They. They made payments on time. They just paid their house off, like two months ago.

Oh, wow.

Instead of taking them 33 years to pay off, it took them just over six years. And here's the. They both cried at the closing table. They couldn't believe it.

I'm not crying.

Yeah, well, here's the thing. About six months into their agreement, I get a letter in the mail from Sheila and William, and there's a picture of their family. And they're like, we just want to say thank you so much for helping us stay in here. Our daughter, our oldest daughter just had her firstborn. We named it Carson after you.

Oh, my gosh.

I don't have any kids, but I got some kids. Not that I know of anyway. But, you know, and that's the thing, is that most people in America want to stay in their house. They want to do the good thing. And the biggest mistake I made as a really note investor in my first year, too, was trying to foreclose anything. I didn't want to help people stay in their houses or I would if, you know, try to do that route. And when I wasn't wholesale on deals, look, there's a lot of people that want to stay. And an effective wholesaler, whether it's traditional real estate or notes or whatever, you understand and do due diligence in the property. You understand the story behind the story, the big mistake. We see a lot of note wholesalers making and see this across the board. They just put a list and just slap a list out there like spaghetti against the wall without really diving into what makes this deal special. What's the real value of the property? What's the legal status? You know, how far along is foreclosure been started? Is the borrower express interest in staying? A lot of those things you'll find in due diligence by diving into it on the front end. And so it's just important, find out the story behind the story. Don't just trust Zillow, you know, if you've got. If you're close, take a good photo of the property. Talk about the deal that adds more value to investors. Like, because note investors, we're looking at a lot of deals. We don't mind paying wholesale fees and making sure somebody makes money on it. As long as the deal makes sense.

Yes.

And goes. And that's the biggest thing. Make it a win win. And there's been times that I went ahead and I dropped our wholesale Fee initially the small amount just to make a deal work because I knew I was going to have more repeat business from that investor.

Yeah, smart business decision. I love it. I think you have a lot of meat in the limited amount of time that we have. And I know that there's so much more that you offer. And so where can folks find you, learn from you and glean really easy.

You know, we close notes.com our website there and one of the things I want to do for your audience, Sharon, is we teach a class a one day kind of Cliff Notes note investing called note weekend. We always teach the third Saturday of the month. If you're interested your students followers, they go to noteweekend.com they can sign up for it's only 49 bucks but they type in the code Sharon, all caps Sharon. It'll drop it down to zero for them. And so it's a full day of me teaching the basics of note investing, how to find, fund and flip and all the extra strategies that go along with including listing.

Awesome, awesome, awesome. And I will put that across the bottom of our time here. And so thank you so much, Scott. I hope everybody learned a lot and I think that you're going to have to just listen again so you can write down a lot of those tidbits that he gave. And I know that you can't go out and do what Scott just kind of taught us without the in between due diligence. Okay. So you know, we're not telling you take what he just said and go do it. What we want to do is give you enough education to know this is something that's possible and you know, something to chew on that maybe it's possible for you and to know that there is another option sometimes when you're sitting before these sellers because for us the win win always starts with a seller if we can make the seller happy. And sometimes that is keeping them in the home, you know, sometimes it's serving that seller. I think the fruit of what we do, that seller is what profit is. And so we make our money doing that. All right, so thank you guys for tuning in and go check out Scott's website and learn from his one day event. Thank you.

Thanks, Sharon.