EP 431 – The 3 F’s – Flipping Assets

Foreign this is the no Closers show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for pennies on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now, here's your host, CEO of We Close notes, Scott Carson. Good morning, good afternoon, good evening, everybody. Welcome to this episode of the Note Closure Show. I'm Scott Carson. Excited to be here with you today. And today is going to wrap up, really the third part in our three part series about the three Fs of note investing. We've talked about defining the assets, we talked about the funding on the assets and today we're going to talk really about the exit strategies for the 3F, as I like to say, is the flipping side of nuts. Now, yes, some people talk about the flipping or the flow, those different things, I like to consider them all together because it's an exit strategy. You're really buying the paper in some sort of fashion and then looking to flip it of some sort, whether it's through one of 10 different exit strategies that are available out there. So one of the great things is for those that are listening to this show on itunes, awesome. Thank you for listening. As always, please feel free to subscribe, leave a review. If you're watching this live on Facebook or on any of our YouTube channels or on our binge TV networks. Thank you. As always, if you're listening to this live on any of our 16am FM radio stations. Awesome, Great stuff. You're watching this on Instagram or Facebook Live. Hey, great. We encourage the interaction as well. We can possibly get you guys to respond. That would be awesome. If not, hey, take some notes, grab a piece of paper. If you're out driving listening to this, make sure you don't trip on something or run into something and cause an accident. So like I said today, this episode is all about the different exit strategies that are involved with note investing. Like I said, it's the third F in the 3s of note investing. We talked about finding funding. Today's all about flipping. So let's dive into the content here that we're going to discuss with you guys today. Going through and kind of breaking down each kind of exit strategy for those that are watching, those that are listening to this episode. And I will tell you before I dive in to this, one of the biggest mistakes I made early on as a note to investors, a real estate entrepreneur, because when I got into note investing, Over a decade ago, one of the biggest mistakes I made for really the first two years was trying to foreclose on everything, trying to come into the note space from my fix and flip background, my traditional real estate aspect of things. Oh, I want to control the real estate. Well, you do control the real estate by owning the note, you really do. But I was so gung ho on trying to foreclose on anything that I missed out on a lot of profits that I could have had by modifying or working out some sort of fashion with the borrower. So I encourage you, if you're listening to this real estate investor and you're thinking about getting in and out, you have to come with an open mind. Every deal has its own country western song. Every deal has its own set of specific things that happen based on the foreclosure time frame, based on what's going on with the borrower. All right, what's going on in their mindset. You have to keep that in mind when you're looking at buying distressed debt and you always buy something and you want to try to keep at least two or three of your exit strategies open and options to you. I'll tell you right now, a vacant asset is going to have very limited exit strategies. When you're buying a non performing loan, it's vacant. Your goal then is really how to get a deed in the loom if you can or have to foreclose. And then really it's not a modification. Any of the strategies that are going to keep the borrower in the property, you're going to end up foreclosing and then trying to sell it as an reo. Hopefully it doesn't need a lot of work. But for every asset that we've ever bought that was vacant, 80% of them, I would say, needed some sort of major rehab. Very rarely you're going to buy a vacant asset and be able to list on the market immediately. That has happened a few times. I'm very blessed to do that quite a bit, especially down in Florida and some other areas. But for the most part you're gonna have to do some work. And that's one of the biggest mistakes I made early on, like I said, is I could have tried to keep the borrowers in the houses. And we'll get into that more in a second because if I can get them rate performing, that's really the biggest profit. We start looking at ROIs, time value of money, the velocity of capital as well too. So got a lot of stuff that we're diving into Like I said, if you'd like to, you can join us live on Facebook channel or also on the Note Closer Show Instagram TV feed that's ran live now. So what I'm gonna do is I'm gonna pull up a little bit of those are watching this video here. If you'd like to go back and catch the video, you can because we're gonna pull up and pull up a PowerPoint. This helped me kind of keep me guided through the 10 different exit strategies with you guys. That way I'm not getting sidetracked and going somewhere else. So like I said, three Fs of notes in the flipping. That includes all sorts of different strategies on but it's all about your exit strategies. How are you gonna make money now that you bought something? Right, I bought an outperforming note. How the hell do I make money with it? That's what most people thinks. Okay. And so there's really a quick rundown. 10 different exit strategies that you can really kind of dive into. One is wholesaling the note. Two is reinstating the loan. Three is modifying the loan. Four is just is offering a loan assumption to the borrower. 5 is a short sale. 6 is indeed lieu cash or key. 7 is a cash payoff. 8 is foreclosure. 9 is to resell the loan. 10 is to sell the reperforming loan. And then that's basically 10 strategies. Now one of the things we will not be discussing in here, just so everybody knows is we won't talk about hardest hit funds. All right. Hardest hit funds are extremely difficult to get. A lot of states are no longer offering that. You should not be buying a non performing note in one of the 19 states that are that are offering hardest hit funds. One of them that did. And expecting to get that as your major exit strategy. That is a big no no. That's how you're going to end up losing money when it comes down to everything. So let's talk about what do you do with these things once you end up taking the closing on the deal? And we'll go from there. Okay, so first thing, wholesaling notes, very, very common for those that are a lot of real estate investors get into wholesaling notes right off the bat. It's one of the first thing they're gonna get into real estate. Wholesaling real estate. And you can do the same thing in the note business. You can do wholesaling pools, you know, portfolios of loans. You can wholesale individual assets. All right. You can charge a Flat fee, you can charge a percentage. I mean like a flat fee could be like 500 bucks or 1,000 or five grand, whatever. Percentage could be 2%, 3%, 5%. Depends on what you've got the asset under sale for and literally what the deal can hold. If you are buying below, really probably in Today's market, below 60%, one off asset and it's a higher valued asset, I'm gonna say higher than 75 grand, you're gonna have a harder time. You can't really go above 65% when you figure in what you're given under contract for and then what your wholesaling fee is. Now the better thing is to have it at 50% or less. Then you can you get a little bit of room in there to make it to 55%. But also keep in mind you've got to do some due diligence. The best wholesalers are the ones that know the deal. They're the ones that are working through the asset. They know the value of the asset. They really know what kind of condition. They know the numbers. You have a plenty of wholesalers that just throw spaghetti against the wall trying to get stuff to sick. And that's not a good wholesaler. Doesn't make sense. Our buddy Cedric here, he came across a mobile home park in South Carolina on a tape. He spent some driving, drove a couple hours up to take a look at it, liked it, got it under contract for I believe 85 grand. He knew it was well over worth 100, 150. He wholesaled it to another mobile home investor and made a $15,000 wholesale fee. Now he never took control of the property. Yes. The original contract was in his company's name. He just did a one page wholesaling agreement that outlined it. He shared the due diligence with the buyer. He made the buyer who bought the note from him ultimately sign a non disclosure agreement so the guy wouldn't go around him. They should encourage wholesalers to break on deals on a regular basis. They should be happy that a wholesaler's making some money because that way they're making money and continue to bring them deals. I'm glad to work with wholesalers that actually control the assets. Now what you don't want to have happen is like something that happened. I saw this morning on one of the Facebook groups I'm part of. Somebody's got an asset under contract and they came across somebody on Facebook trying to wholesale that asset off to somebody else. And like, wait a second, this guy's a joker. Broker. You do not want to be a joker broker. What is a joker broker is they get a list in, they send it to somebody. They're just blasting out to anybody trying to get somebody to buy. They may get a list in and then they try to send out their list as well and try to do the work between. So one way to identify when you are dealing with joker brokers is seeing when somebody comes back. And when you ask what the price of an asset is or pricing, they say, oh, it's like 45 plus 3. Okay, that's normal. They're charging a 3% fee on top of it. Okay, great. But when you start seeing 48 plus three, if they're not dealing directly with the seller and you're in a daisy chain, you may see, Maybe it was 30 plus 3, then 33 plus 3, 36 plus 3, 39 plus 3. The more people in between you and the true seller, the pain in the ass it is. And I always tell people, hey, wholesaling's a great way to get started. But if you're a successful wholesaler, you can probably transition your potential buyers that are buying your stuff into funding partners. Like, listen, I've provided some great deals for you in the past and stuff like this. I'd like for you to fund this deal and either partner with me on the deal or just give me a flat loan. And that's one of the things I tell people. If you're wholesaling, you are leaving a lot of money on the table for people. You don't want to do that. You're leaving a lot of money on the table. You could be taking down and letting somebody else get. All right, number two exit strategy on the three Fs of note investment when it comes to flipping is to reinstate the loan. What's beautiful is your servicing company, when you buy a note and they start redoing the borrower outreach, this is really the first thing they're going to ask. Hey, can you start paying the existing loan? Can you reinstate? And you start doing that. And that's the thing that's important to keep in mind too everybody, because reinstatement is not that difficult. What most borrowers don't know, well, what they do know is the bank that is lending that they're on the loan for usually wants the full amount back to payments. And they're like, well, I don't have six months, I don't have a year, I don't have three months. A lot of times of back payments. And the thing you Got to keep in mind with that. It's all right. Let's just figure out. Let's just get you started. Let's start having you start paying existing payment. We'll figure out if you can start paying existing payment. We'll worry about the 12 months you're behind or the six months you're behind, putting them back in. We'll defer these back payments and you put them in the face amount of loan. This strategy to start paying on time usually works better when the rent is higher. Okay? When the rent rate to the property is a lot higher than what the existing mortgage payment is. Because you're talking to the borrower like, listen, if you're going to move out, you're going to go pay 2 grand a month or $1,500 a month. Your mortgage payment means $800 a month. Let's just keep you in the house. Thing you want to always ask though is you try to want to get some skin in the game from the borrower. Not the full 12 months, okay? Not their scalp skin in the game. You want to work to try to have them bring a couple months of back payments, two grand, three grand, something. The more you can get in a down payment or some skin to gain from the borrower towards reinstating, the better off it is. More likely they are just continue to pay on time. All right? My good friend Jamie Harrington from Hickory, North Carolina, formerly of Taylorsville, came across this condo note in Charlotte, bought it for less than 33 cents of what was owed. Actually bought paid for at about 50 cents a dollar what was owed about 33% of the value. Reached out to the borrower. Borrower was able to start paying on time again, but then was also able to bring five grand to the table and sign on bonus. Now, his total back due was a lot more than the five grand, but she was willing to let him get started with something and he was willing to bring a table one to stay in the house. And we find a lot of times, most times the borrowers, they want to stay, they want to try to work it out if they can of some sort. But it just depends on their mentality. Now, the more you let somebody stay without paying, they're just going default. I can guarantee you that they're eventually going to go default without having some sort of skin the game towards that. All right? They can't afford to start making an existing payment. They can't afford that stuff. Then you got to look some sort of fashion of either modifying the loan or look, we Say, start with a trial payment plan, a TPP as we call it in the industry. All right. A trial payment plan is a great, great thing to work on. Okay. Now I never, when you modify the loan, I never reduce principal right out of the gate. I mean you can do a lot of things with modifying, reducing the interest rate principle, forgive past due payments, do a loan deferment plan. I always, like I said, you can do a variety of things in adjusting to the face amount of the loan to make it more affordable for somebody. But you never modify to begin with. You always start off with a trial payment plan. Hey, Mr. And Mrs. Barr, let's get you doing this before I do this. Let's get you paying and back on the right track before I modify the loan. Okay. I've dropped interest rates, I've forgiven thousands of dollars off the face amount of the loan, I've forgiven back payments. I mean, I do a variety of things. Hey, for every $100 extra above your existing payment, I'll pay you, we'll credit $200. Or if you, hey, we'll drop your payment down. But everything extra you pay will put towards, will double the payment towards what's owed. What you have to realize everybody is you have a lot of flexibility in being the bank. If you modify the loan and the borrower falls back on their loan mod, then you can't go and foreclose for the full amount if you forgave them 30 grand. This is why a trial payment plan is so essential. Get them started. It's not going to change the actual mortgage information, but it's a trial payment plan that allows for them to get back on track a lot of times. Okay. There are also some state and federal programs out there that will help assist your local borrowers with a thing. We've got one borrower who got three months local government plan there in Michigan, another one in Ohio where they were able to reach out and help them make their payments and get kind of back on the right track, which is pretty good. Okay, I've got a picture of somebody here. This is a borrower's house. We bought it very bought relatively cheap borrower lived in a house for a long time, they wanted to stay in the house. We were able to do a variety of things. They could bring some money to the table. You start paying their existing payment on time. So the funny thing is when I got this note in the mail, not the note in the mail, sorry. When I actually got the loan file in the mail, it wasn't just in a FedEx envelope. It was in like a banker's box. And when I got it, when I showed my office, I thought we had like 20 files. And it turned out to be one file. As I'm flipping through the file folder, I'm seeing a hardship letter after hardship letter, loan docs, W2S bank statements. This bar been doing a loan mod for four years. I've been trying to stay in the house, hasn't gotten sick, raised her kids. And when I reached out, so I actually picked up the phone and called to myself. If you're not familiar with talking to bars, you should have your servicers do this. You should have your servicing company or your loss mitigation team or your attorneys handling what's going on with the trial payment plan. Okay, now that's one of the big things too. When we reached out to them, Bar was extremely friendly, wanted to stay in the house. We were able to come to an agreement immediately. We wrote it up quickly, I sent it to an attorney, they've created the paperwork, sent it over to them, she signed off and boom, they're rocking and rolling and they're going to have the house paid off relatively soon, for the most part, which is really good. But the thing you got to keep in mind, everybody, is you should not be contacting borrowers if you don't have license or not taking any classes. Let the experts handle it. All you're going to do is screw up. You're going to screw stuff up because if you're reaching out and then the borrower reaches out, the servicer, they're going to play you against each other. So what they'd like to do, oh, so and so said this and they get extra phone calls. No, this is not where we're going. You want to have your borrowers have one point of contact, whether it's your servicer or your attorney. And going from that point, okay? Now one thing that a lot of people forget about is that since we're the bank, we can allow the borrowers, if they can't start making existing payments, we can allow them to have somebody come in and assume the loan, take over the loan payments. I like to say kind of swapping one borrower out for another. We've got a borrower who's unhappy, can't make the payments. You've got a friend, family member, cousin, somebody down the street wants to take over the loan. I'm glad to allow them. If they've got somebody that wants to come and take over the loan, totally fine with that. But we have them fill out loan documents, see if they can afford that as well. Underwrite it. We'll let them assume. Now I've got two parties on the hook for the loan versus one party. All right, now that's a beautiful thing. It often allows for your existing borrower to get out of a bad situation or stay in the house. And you have this happen primarily with elderly. They're in the house, their friends, you know, their kids come in, they're taking over the payments, they're getting sick. We have this happen sometimes with deceased, where the children will continue to make the mortgage payment. I don't have a problem with that. Keep making the mortgage payment, paid off. We'll be fine. Not a problem with that at all. Okay, but you have the power. Like he meant. I have the power of Grayskull to do what you want to do. All right, so you're gonna really help them out. And taking a bad situation, turning into a good situation. Okay, now let's say they can't make payments on time. They can't make a payment that makes any sense. They don't have anybody come and take it over, but they'd like to get out of the house. Now, one of the beautiful things that when you're doing your due diligence on assets, when you're Googling the address, oftentimes we'll find that the property was listed at some point. Like, I have this one right now. I had a payoff request come in yesterday. I see that the condo down in Delray beach is listed for sale, and they're gonna do a short sale. Cause when I looked at the value of the property, what they owe me, they're going to have to do a short sale. So we're literally working through this right now. So you buy the note, become the bank. Okay. Maybe the property's. The borrower's already listed the property or has listed the home in the past. You know, you've usually got a realtor involved. Now, if you being the bank and they're trying to sell it, you determine the short. Yeah, they're going to say, hey, I got an offer for 85 and maybe 100,000 is owed on the property. Well, as long as you're way below what the net is, that's one of the things that we do is, okay, if you want me to prove taking a loss on this note, I'm glad to do that. But I got to see the estimated hud. I got to see the final HUD before I sign off on anything. And that's why I look at. Okay, you need me to forgive 20 grand? Okay, he owes 100. I'll forgive it to 80. I paid 50 for the note. I'm still gonna make a $30,000 profit when I paid for my expenses. And then what the net is on the estimated hud. Okay, the house is still below the upb. You'll see this happening. We end up having this happen about once, twice a month in our portfolio, which is great because as we call it short papering, I'm the fastest short sale negotiation company in America. Now, in short sales, people have been through that anywhere in the country. It could take an average of six to nine months or sometimes longer. At one point, we had the longest short sale in all of Austin, Texas, back over a decade ago when I was doing a lot of short sales, listed on the market for over four years of working back and forth with that bank. Offer come in, offer fall through. And the most important thing is when you buy a note and it's listed for sale like this, in a short sale, you want to reach out immediately to the listing agent, say, hey, we just bought the note. We're now the bank. Relax, I can approve this quickly. Can you send me over your best offering or the buyer still available to close on this thing? And what you have to make sure of it's not some real estate investor who just put a bid out to drag out a deal. You want to make sure that it's a good listing agent, that it's not the best friend of the borrower because they'll drag that stuff out. So if they don't have an agent and you think the property could sell, they want to move out, I would go ahead and hire an agent to start listing the property for sale. Okay? Like I said, the house is sold on this below the full payoff or the below upb, but it's above what you paid for the note. Okay? Like I said, I like to make sure that you're hiring the realtor. If it's the best friend of somebody, say, appreciate it, but I'm going to have my agent take care of this, okay? My agent take care of this. I always too. One of the big things, if you're hiring an agent to list a property for sale, I tell them whether it's a short sale or traditional sale, hey, let's list it at 85% of fair market value. And they're like, whoa, now I want to list it a full 100%. Like, no, that doesn't do any good. I want to list it at 85% fair market value to make sure we get some traffic here, make sure we get some offers in. If it's listed at full value, people are going to make offers. If they got to sit around and wait six to nine months to see if they get an approval, they want to get it moved into a house. The fact that I can approve this are like that very quickly. All right. Allows for us to be attracted to close in 30 to 45 days. A traditional buyer. So that's a nice thing. So let's go through kind of some numbers on a short sale deal we actually did here in Austin, Texas. Came across this property that we were looking at the foreclosure lists and saw that this bank was selling bank that we bought notes from the past. Actually was a lender on a short listed short sale. And the bar, nice looking house, three bedroom, two bath, three bay, car garage, corner lot, kind of North Austin bank was owed 195,000 plus bridges and payoffs. So they owed over 200 grand. Unpaid balance was 195. Okay. The home as it sits was worth about 150. It needed some work, need some updating. Okay. Elderly people have been within it, need some updating. Okay. Well, we were able. Since it was a listed short sale, this is one nice thing as well. If you see a listed short sale, you can often get into your access. So you need to call your local agent or go out and take a look at the property. If you're an agent, okay, you walk through and see kind of condition. That's what we did. We went out, opened the lockbox, walked through it and said, oh, hey, okay, need some work. But hey, here's some numbers on this. I wonder if we can reach back out. So that's what we did. We reached back out our contact on the special assets secondary marketing department not servicing special asset manager at the bank and said, hey bud, we bought these other assets for me. I see you've got one. So pending short sale has been on the market for a couple years. Would you be willing to sell that note off to us? Sure enough, he went back, said, yeah, make me an offer. We made an offer. First offer wasn't accepted at 60. We did make an offer at 75 and that stuck. So the minute we had that offer, he was willing to give us two weeks to close. Well, we immediately went out to our private investor here locally and said, hey, I got this great deal. It's a note we're buying for 75. It's worth about 150. All right. And it's got offers on. Cause that's one of the great things too about short sales. When you talk to the short sale agent, oftentimes they can tell you if they've got a really solid offer in place. Oftentimes they'll say, have a solid offer if they're not really looking for more bids. And this was showing, hey, pending third party approval required. When I called the agent, when my agent called the other agent, they're like, well, we've got a really strong cash offering. We don't want to add anything to the mix. There's no guarantee you get into it. So. Well, do you want a backup obligation of all three? Is there a number that I can come back? And they're like, well, no offers in the 150s. I don't think you're going to beat that. Like, okay, fine, thank you. But I knew they had an offering in the 150s by that conversational loan. Okay, we bought the note 75. We immediately contacted the agent, said, hey, we're the new the bank. Boom. We approved the short sale after getting the paperwork and they estimate HUD, we end up netting after closing costs and things 135 on the HUD. And so of course, we made a nice $60,000 profit in roughly 30 days because they closed roughly in about three weeks after we bought the note and the transfer has taken place. That was a really nice split of profits for our funding partner on that because we went 50, 50 now. Great deal. I wish they all happen like that. That's not always the case. But that was a great deal that we were able to find. Just because we knew that one bank was selling assets, we've already bought from them in other parts of the country. And we reached out and the beautiful thing is this deal, even if it didn't work out, we were able to get added on their other list for other deals they had available. So sometimes we'll use a listed short sale as a warm lead into getting on that bank's other assets, whatever the list they have available. Okay, Short paper and short sale. Great way to make some good capital deed and loom cash for keys. This is a pretty common thing that happens a good chunk of the time. If you look at what you modify, you probably get somewhere between 25, 30, maybe more to modify or reinstate in some sort of fashion if you're going to be better at that. The better you get at it, the more you due diligence and target assets. But what'll Happen you surprise, surprise. You think an asset is occupied and it turns out to be vacant. Power's on. Power looks like it's good. Lights are on, but nobody's home. So deed and loot, cash or keys is our exit strategy. Number six is basically the same thing. This is where the borrower gives a home back to the bank. Pretty simple. They literally just give you the house back. Now what you have to be careful of is always before you accept the deed in lieu of foreclosure or offering cash for keys is making sure there's not any outstanding liens on the property. And the second, sending a junior liens that are gonna, if you forgive that or take that first lien back, forgive it. And the second's now dropping the first. Now you gotta pay them off. In case there is a large second lien or other things on there, you may wanna just do a consent to judgment. Cash for consent is what we call it, where we get the borrower to agree hey. To the judgment and that allows us to speed along the foreclosure to wipe out those junior liens. Now there is no junior liens, no seconds. Yes, you can accept the property back. Let them walk in contract for deeds. You often will just do a cancellation of contract. Let them walk. One of the things that we have done to help speed up this process, if we've got a borrower who may be a little difficult, is offering cash for keys to incentivize them to walk away. Hey, we'll give you five grand, we'll give you three grand, we'll give you a grant. I've done cash for keys anywhere from 500 to 10,000 to speed up the process. Because sooner you take back the property, the better off it's going to be good. And yes, I'm not going after it from the debt. I, I'm not going to go after them for the debt. I'm just going to let them walk. Yeah, well, 1099 for that and they can, you know, they can go Then file a IRS 928form, insolvency form, and worry about that. Sometimes I won't even send them a 1099. Okay. By that point, if you've taken a deemed loom, cash or keys, now it's an reo. Now it's a house that you own. You can do whatever you want with it. Whether you want to sell it, you want to keep it as a rental or owner finance it, you've taken the property back. Important. Now one big thing before you accept the deed and Loot, cash or keys. You always, always, always want to make sure that the borrower leaves it in good clean condition. You don't want them to trash it out. You don't want to leave them junk. They leave junk in there you're not going to pay for. They didn't leave it in good swept out condition. Okay. I like to say they walk scot free dealing cash or keys. This happens a good check at the time, 25, 30% of the time, it all comes down. If you can get the borrower on the phone, we get the borrower on the phone. Great. With right party contact, see if it's an option they would consider and then go from there. Otherwise they won't do it. Hey, then you're going to move on to foreclosing. If you can't. We're not going to go after judgment for them most of the time. We're not going to do any late pays, do any credit flaws. Borrower's willing to work with us indeed. And loan or cash for keys. We're not going to chase after for other things. You just want to work with us and go from there. Okay. Our good buddy Tony here, he's a Tony Miller, he's a pilot, travels all across the country. He bought a condo note and was able to find out that because he lives in South Florida, it was in good condition, swept out condition. Borrower lived further off, was able to negotiate a deed in loan less than 30 days and then bought that thing, bought the condo note for 30 grand, got deed in lieu less than 30 days, had it sold and listed on the MLS and sold it for over 100 grand. I believe. If I remember correctly, this is down in Fort Lauderdale. It's a great deal. Paid the HOA a little bit for them to go away, but deed and lose cash for keys. We're negotiating this on a monthly basis. Hey, let's give you some money to walk. If you're not going to pay, let's give you some money to walk and go from there. Now occasionally you'll have borrowers that will bring money to the table and do a cash payoff. Now what is this? This is where the borrower pays off the loan. Pretty simple. Okay, you can do where maybe it's structured payments and they're making payments on the loan over 90 days or 30 days or partial payments here, just getting you paid off. Or they can do one lump sum. What you want to do though is always have this written out in specific terms. Hey, you're going to bring 10 grand to the table here. You're going to bring 10 grand to the table Here, 30 grand to the table here, work with them. Now I've had this happen a few times. Maybe the borrower goes and borrows money from somebody, they get refinanced out. Usually won't be a hard money lender because hard money lenders will not usually lend to an under financed buyer. But there are some foreclosure bailout programs. Some of these new non prime lenders are coming in and willing to do a, you know, a foreclosure bailout or they can go to their 401k and do a cash distribution on the bargains or 401k to wipe you, to pay you off. The lower balances have a higher hit rate when it comes to getting paid off just as happened because they can scratch together more, right? But that doesn't mean you can't have a nice high end home get sold. Now Leslie Schiff here, our friend, the Austin transplant from Southern California, she had this happen in Tennessee if I remember correctly. Door knocker went out, knock, knock, knocked on the door. The wife of the borrower answers the door, was very surprised to see why a door knocker on behalf of the servicing company was knocking on the door and she was unaware that the house was in foreclosure. I guess the husband came home and I would have loved to have been a fly on the wall because Leslie told us that two days, three days later, her attorney there in Tennessee got a phone call from the borrower who wanted to know the payoff amount. And lo and behold, he showed up with a check. I guess he cashed out his 401 barred against it to pay off the loan so they could keep the house. Now that's great, that's great. Awesome. Didn't even ask to try to negotiate down. Leslie said she would have negotiated a little bit and stuff like, but didn't even ask. So hey, if you're not going to ask, you're lost. So you'll have that happen. It's a great story when it does for us sometimes it's a great story for the borrower too because they're back on their feet now. They own that free and clear house and do whatever they want to. Okay, now let's say you can't get the borrower to pick up the phones. They're a pain in the ass, they're troubled, they won't do anything with you. You can resell the note if you've bought the note. Now that's not Wholesaling, okay. The reason wholesaling is you never really close them though. You're just selling the paper that's selling the contract. Now with reselling a note, you actually have owned the note, you closed on it, maybe you held it for a while as a non performer. Maybe it's a performing that you've bought for a while. Maybe it's scratch and dent semi performing. The thing about reselling the note is you've usually bought it cheap enough that you can turn around and sell it or you've added value to the asset by servicing a loan and doing something sort of a workout. Knowing that a the borrower is not going to re perform, this is going to be a foreclosure or knowing that the borrower is a pain in the ass and it's going to take a little while to foreclose. Now one of the things about this, you want to make sure that you've bought it cheap enough and make sure that you're still leaving some value for somebody's going to take over your troubled asset, take over your problem child. And this happens a lot. You see a lot of funds that are buying like portfolios, they send out massive letters to the borrowers. They're like dating for 30 days and like, hey, this letter is only good for 30 days. We're glad to modify it, we'll get you reinstated, we'll keep you in the house for 30 days. But after 30 days this letter is null and void. Because what's happening is they're trying to get the borrowers to reach out, say hi, I want to stay. Great, we'll keep them in the house. And those that don't respond, they're selling those assets off at 5 to 10 to 15% markup because they know the bars are not responding. They bought it cheap enough, but if you can make a 5, 10, 15% profit in 90 days, let's say that 15% times 4, that's a 60% annualized return to your investors. It's not bad if you're splitting it or whatever. So there's a thing, you see that happening. That's why you see a lot of funds are often trying to move stuff. But the thing that you've added value by, you know what's going on, you've got it serviced, you've got the paperwork all cleared with, you've pulled the title, you know the value really which way the exit strategy is going to go. There are investors that love to focus on buying REOs or they'll buy assets in Their backyard, knowing that they're going to foreclose and take the property back. They don't mind doing that. William Botnati, buddy of ours, bought some notes in different parts of the country. This one was in Lake City, Florida. Bought it, was working through it, trying to get the bar to it. Just decided, hey, it's gonna take a little long before close. I'm gonna sell it off and make my capital back. Plus, not a big profit, but at least some sort of profit. Let somebody else run with this troubled child. Okay? Now number nine, if you want to go ahead and go through with it, it's fine. It still happens a good chunk of the time. Brand new investors usually happens 56% of the time. Season investors. There's ways of working with some of the previous exit strategies of cash or keys or deed and lose or some stuff like that. This still happens a chunk of the time and it's really the last option for the investor. You bought a non performing note and the bar is not working with you. Exhausted their options, exhausted your servicer, you exhausted your attorney. Just foreclose. Point is they're not going to respond. Get the foreclosure started. Now. Foreclosure can ruin a borrower's credit for seven years versus two years if they file bankruptcy. We'll get to kind of a little bit about bankruptcy in a minute or two. All right? The credit for seven years, they don't know that. Okay? And each state has its own foreclosure time from judicial is going to be a little bit longer versus a non judicial state like here in Texas. You know, we do everything faster, fast highways, fast foreclosures in 21 days, fast executions, all right? And other states like New York could take you three years to foreclose. You gotta hire an attorney to talk to an attorney to have an attorney up there. So I have a tendency to recommend staying away from those longer foreclosure states unless you're prepared to wait out the deal. And those longer foreclosure states are New Jersey, New York. If you're interested in Puerto Rico assets, Puerto Rico has a long like 27 month foreclosure time frame. You can check out the different foreclosure time frames by just going to the Fannie Mae website and searching Fannie Mae foreclosure timeframes. Now you can start your foreclosure process basically after 90 days late. All right? And a lot of the assets you're buying are gonna be more than 90 days late. Starts another man letter and see about working out, trying to get the modification. And that's the whole point. Trying to get the borrower to raise their hands, reach out to you. Hey, a lot of times they've gotten away, like, ah, I'm gonna. You're giving me an instrument. Take a month. All right? It ends with me. You need to either put up or shut up. You don't need to pay, you know, pay, you know, stay. All right. Important thing is get that started. Don't wait longer to start it. Start the process, get things rocking and rolling. Yes, it may take a little while for servicing to get transferred. 30, 40, 60 days. There may be an error in filings and stuff like that. That can happen, drag stuff out, it's normal. And you're going to have people that have been paying for a while that may just drop off because of the difference in the servicer and different in how they get paid. Maybe they had an ACH with a previous bank or the servicer, now they don't have one. So you got to reset that stuff up. So, so keep that in mind, everybody, that each state's a little bit faster, each state's a little bit different. And you gotta know what's going on. Always, always hire an attorney to handle this. Okay? Like I say, 21 days to 36 months pay an attorney. May cost you 750 to 1000 bucks to foreclose here in Texas and five grand or more to foreclose definitely in Florida. A lot more than probably 10 grand in New York. New Jersey for sure. Okay, you're gonna have higher foreclosure rates on vacant properties than you would occupied assets. Occupied assets, you have the full strategies to keep them in the house of either, like I said, trial payment plans, reinstatement loan mod loan assumption, even short sales or cash for keys, vacant properties, they're pretty much gone like the wind. You better expect to start stuff. You have to go through that route. Okay, like I say, 750 to 5,000 to foreclose. In most of the states we buy in. I like selling the property at the auction. I'm going to take it to foreclosure. I want to try to price the property to sell at the foreclosure auction if I can. And thing to keep in mind with that is I listed at 85 cents a dollar. What's our opening bid going to be? You listed for the full value. Now, if you want to take the property back, you like the house, you want to take it back for your own, Great. Keep it as a rental. That's Fine, just list it for the full payoff as long as it exceeds what the real value of the property is. Now if you want to try to sell and be done with it, hey, incentivize people to bid on listed at 80, 85, get your 85% as long as well below what you paid, what you're into it for and be happy because then you get a check versus then having to go out and clean up the property, change the locks, deal with any redemption rights, that kind of stuff. Be done with it. Now. I don't like buying first liens in Alabama and Minnesota for the most part because they do have a longer redemption right of a year where the borrower has a year to come back and pay me off before I can sell the property off. Other states don't have that. Once it goes to foreclosure, it's gone. But you have to be careful of redemption rights. You may want to do we reach out to the borrower. If you know you're going to foreclose, maybe there's a junior lien, you've got to foreclose that out. Go ahead and have the borrower if you can pay to release the redemption rights. If not, you're going to have to hold on that property for a while. And if you've got a year redemption period, you can't really do a lot of heavy rehab to the property because if they do come back, you're not going to get reimbursed for that. So one of the things you can do is turn it in. If it's a decent property, turn into a short term rental, Airbnb it for a while. Keep that in mind in those states. All right. Now if it's a contract for deed, if you've done a cancellation or do it to go to foreclosure. Right. Depending on the state. And then the contract for deed, it's an eviction for the most part versus the foreclosure. If you got a foreclosure and go through that, it's month average time frame across the United States, six to nine months for the most part. So keep that in mind. Some states are shorter like Georgia, North Carolina to begin with Missouri, then you've got some of the longer ones, Illinois. Okay. That can take a while to foreclose up there. I'm not a fan of buying in Cook County. Don't ask me. Okay. It's Chirac. It's like a three. Okay. Careful. I like to say get everything started within 30 days. If you get everything servicing Transfer, hey, give the bar 30 days. If they won't respond, they won't reach out to you, then move on. One of the things that I like to do and we teach this in our different workshops is for us to send out our own hello letter. You know, don't wait three weeks or a month for this new servicer to fill out the hello letter. I like to send it out a week after we fund. And it does direct the borrower not to call us. It directs the borrower to call our servicing company, to call our asset manager, to call our attorney, contact them directly so that they can avoid the foreclosure. We'll keep them in the house if they want, but they won't deal with us, they won't pick up the phone calls and we're going to move on. Okay, number 10 is resell the performing note. Now we talked about reselling the non performing note. I get on the same now with re performing notes. That's when we reach out to me the other day, hey Scott, I'm trying to sell a reporming note. I'm like, okay, it was non performing to begin with. How many months do you have it performing now? And he said 15 months. I'm like great. A lot of banks will, banks, investors, even funds out there are looking for performing notes that have six months of seasoning or greater. Now what I mean by seasoning, that means basically they've collected on time payments for six to 12 months and it should be through a third party servicer. If you're servicing your own notes, you're probably going to end up holding onto them. If you're collecting checks or money orders, stuff like that, and you don't have a third party handling that for you, you have to expect really to hold on to that. I just don't trust that paper as being performing. You always want to have it go through a third party servicer. Now the beautiful thing is most servicers, if they've got three on time payments, they'll move it from the non performing portfolio to a performing portfolio. So it's a lot cheaper for you. You're not paying at 75 to 95 bucks a month. You're paying 25, 30 bucks a month, which can save a lot of money and go that route. Now how do you resell the note? Now a lot of re performing notes, performing notes are selling at somewhere between a 12 to 15 yield, 12 to 15% ROI based on the cash flow. Now you have to look at if it's a reperforming loan at 4%. All right. And the seller's trying to sell his reproforming note and you want 12%. That means you're only paying 33% of really the UPB based on things. So that's probably not going to fly. So you have to look at what's going on with the asset knowing you're probably not going to foreclose. Probably going to. They paid 12 months of on time payments. They put some skin in the game. Doesn't mean they're not going to. You have a hiccup later on they will. A lot of borrowers do. But the point is that you're probably gonna hold on that note for cash flow. Now I've seen this and I've sold assets this way. We sold reperforming notes at 80 to 85% of unpaid balance. Now the notes interest rate is usually a little bit higher than like 4 or 5. Especially with contract for deeds they're usually at 9.9%. You can sell that off at a 12% to 15. You can sell it at 80, 85%. For performance notes if you're using your own funds, which a lot of people are using their own money, they're using their own self directed IRAs, whether with the Quest Trust. Hey, if it's performing and you've got a third party servicer that's collecting payments and handling that, it's really kind of hands off note investing for the most part. The whole game plan in buying non performing is to get your borrowers to get to performing and then you have the option of reselling off. Now if you bought it, you can sell that payment stream, you can sell a partial, a lot of people like to buy partials. Or you can just stay involved, sell off a part of the balance and still stay involved. If somebody's looking at 50 grand, they want to make 500 bucks on their return, well it's 75,000 and it's bringing $800 a month. Yeah, okay, I'll take your 50 grand, pay you 500 bucks and I'll arbitrage and keep that $300 difference between the 800 and 500 and I'll retain that difference in case something happens. So I've got some cushion to come back and foreclose at the borrower or go from there. Alright. Big buyer of non performing notes is Fanac USA First National Acceptance Corporation. They're out of Lansing, Michigan. They have a satellite office here in Austin, Texas. Fred Foote is the principal over there, our buddy Daniel Malcolm, Jay Daniels Andy Lemons work over there. We've had them on note camp in our virtual workshops before. They do a great job. One of the biggest buyers and what's really great is they have a portal, Fanacusa.com where you literally get online, type in all the information. It's a performing note. You can do this for owner Finance. They're a big, big, big buyer of owner finance notes. Performing or reperforming. They'll look at stuff with season on that stuff. So go on there, put a bid in. They'll come back with either a full purchase price of the note or even a partial. It's sometimes both, sometimes either or so check it out. First national acceptance corporation. It's fnacusa.com There are a lot of hedge funds looking for performing notes as well. Think about this. A lot of hedge funds have raised capital at very, very cheap prices. I know several funds have gone out and created mutual funds where they're paying like 1% in money markets and stuff to investors and they're taking that money at cheap interest rates and they're glad to pay by something that's yielding an 8% return because they're making 800% return on their money. What's not to love about that? The cheaper you have, the better off. Now that's actually a strategy we've talked about before on one of our Note Night in America webinar. I think we've also done an episode here on the Note Closure show as well, too. If you see some performing notes that are paying 12 to 15 and you've got people you've talked to that want to make 4 to 6, 4 to 8% of their money. Why not use their cheap money to purchase a performing note and arbitrage that difference in for you? I can remember my friend and mentor early on, Jamie, Kayla, used to love doing this. It's like free money. You're taking one person's money that they want, you're able to give them there that 4, 6 or 8% return and you're making that difference between their money and the 15% or 14% it's yielding, making a good return on money and you're doing a good thing. It's a win, win, win across the board. It's a win for you. Obviously you're making some money. It's a win for the person that wants to make a return on their money where it's making 0 or 1 in their 1 or less in their certificate of disappointment, they want to make four to five. It's also A win for the seller who's selling that note off 12 to 15. So that's a great thing to do. Now one strategy that pops up, a lot of people always ask me about this, well, what about bankruptcy loans? Is that a good thing or a bad thing? I know with most traditional real estate investors bankruptcy is not a good thing because oh, I can't take the property back. They gotta deal with bankruptcy in the note business. It's a good thing for us because the fact it's gonna be either chapter 13 or a chapter 7 on residential. Chapter 13 is gonna be a payment stream. And when a borrower files bankruptcy, you go to pager.gov, you can download the whole bankruptcy report, the bankruptcy filings, like eight, nine pages of just great information. It tells you what the borrower is, tell you what they think the value is, tell you what else they have, tell you what they have in for income. And if it's a BK chapter 13, the bankruptcy courts are going to try to give them a five year plan to get back on track. So that turns into loan mod. Now bankruptcy chapter seven is liquidation. Basically you're going to take the property back. At that point you can still negotiate a deed in lieu. You still negotiate if the borrower is filing bankruptcy for other reasons. Maybe it's for medical bills or credit cards. You can always have the mortgage removed from the bankruptcy filing and just negotiate a loan mod. That way you should not fear bankruptcy, Chapter 7s or Chapter 13s. You're just going to hire an attorney to file a claim for you. I love bankruptcy loans, especially Chapter 13. The biggest thing is that you have an attorney to talk to now. All right, it will either be payment plan or you're going to get the asset back. Okay. As I said before, mortgage be removed from the bankruptcy and it either becomes either a loan modification, the borrower doesn't fall through the payment plan, chapter 13, then you can always foreclose. All right, so that's a good thing. Our buddy Jack Krupe and in New York has been running a large bankruptcy fund for over the last couple of years. Think of $150 million fund and just focus on bankruptcy theft for 13s. They chase because they like the payment stream. They like knowing the cash flows coming in off that stuff. I got to be careful. Oftentimes funds that have VK are going to sell that loan off higher or closer to a reperforming note rate because it is a bankruptcy chapter 13. So be careful that you're not overpaying when you paying 8085 for a new BK213, there's no guarantee it's going to perform. Okay, lots of information. This is not meant to be a complete education obviously on all the different exit strategies and note investing. I highly encourage you if you're interested in getting more information, go to noteblueprint.com that's our online training course. Got a lot of great stuff in there. Deep dive in there. We actually have Joel Markovitz from our buddy from California special part of that is on the loan service, he's on the exit strategies, he's on the different ways to make money out there in the note business. So highly encourage you to check that out@noteblueprint.com and you'll get some great stuff out there. But as always guys, you can always connect with us on LinkedIn, Facebook, Instagram, Google, even still Twitter by looking for either one. Scott Carson YouTube and we close notes or Vimeo account by looking for a weclosenotes.com channel out there. But I wanted to open this up kind of now to some of our Facebook viewers out there for some questions before we dive in and start looking and down to anything more. So. So we've got a lot of stuff that we covered obviously in the exit strategies. Okay. The thing you gotta realize, appreciate for those. Let's see here. Corey Young asked a question. Do you know anybody that has bought up after the seminar and what their experiences have been? I don't know what you mean by that, Corey. Have bought up. Bought up assets? Yeah, we had a lot of people, a lot of our students that are buying assets on a regular basis. They're buying for their own portfolio and they're doing some great stuff. It all depends on what they're focused on. Some people aren't focused 100% on buying distressed debt full time. They do it as a hobby. So I think I need a little bit more clarification in that question from you. But yeah, we got a lot of people that are buying assets and making some stuff happen. Okay. Now one of the biggest questions we get is how do you focus on one exit strategy? Well, that's the thing you gotta be careful of. You just try to focus on one exit strategy. I'm just gonna take everything to foreclosure. Like I said early on, that's one of the big mistakes that you can make. Alright. Biggest mistakes that you'll make is doing that is just trying to focus on fix and flips or I just want to focus on buying these for rentals. Or just want to buy on the performing side. Now I like performing assets. This is why when we do, when we buy non performing notes, we're always double checking to see what's going on. Is the borrower home? Is the borrower, are they working or is the power on? What's going on? Is the house being taken care of? Is there looking like somebody's living? Yeah, we're peeking in windows. Would necessarily recommend walking around the property with things. You might get shot doing that. Okay, now the thing that you got to realize to everybody is you got to be a little flexible. Once some of the assets that I bought that thought that were going to turn into performing notes or reperforming turn into foreclosures. Others I thought were going to be foreclosures turn it to reproforming notes. So you kind of have to be ready to rock and roll quite a bit and be able to be flexible when things change. Because things are going to change. That's a given fact that things are going to change with your asset as you work through things. People. I'll give you an example. Around the first time of year we have several borrowers that got their loan completely up to date. Just recently went and got their tax returns. It was a sizable lump sum. So they put it towards the mortgage payment, got back up and we were working through the foreclosure process. We've stopped that now you have people that get sick or they get laid off. I mean life doesn't stop happening as you're a mortgage investor, your mortgage in default. To keep in mind too, you have natural disasters and things like that. So some of the things that have worked out well for us is having insurance on properties, especially on the loans that when we did buy the asset and we walked in and it's covered in black mold. Hey, we're sitting. Okay. All right. Or the fact that when we came in and we were able to repair things if the borrower trashed the property on their way out. So just be a little flexible on kind of where you want to go with the assets. Like I said, every asset is a country western song. By this time I should be the better than George Strait or Hank Williams Jr. Or all the country western song best hits I've had with different types of deals that we've done over the last couple years. There are any questions or comments for those that are watching. Like I said everybody, there's multiple strategies. The more you know about the strategies, the better prepared you're going to be when you're making bids when you're looking at the due diligence, I mean if the power is turned off and the powers and the property is vacant, it's probably not going to reinstate. So you're going to lose those chunk of performance based exit strategies. But as I like to say, when I'm doing my due diligence, I say, okay, what's it going to look like? I'm going to run numbers. If I can reinstate provides, occupy. If it's vacant, I almost always kill the deal because I like stuff that's occupied unless it's here in Texas somewhere or in Florida. God's waiting room. All right, what's it going to look like if I have to foreclose or do a deed in lieu? And I usually will chalk up when I'm paying foreclosure costs is the money I would use to pay for deep loan cash for keys. But if I can get the asset now six months faster than foreclosing, it's a win win for me, baby. And then of course, what's my exit strategy? If I take the property back, is it going to make more sense for me to sell it as an reo, keep it as a rental owner, finance it and oftentimes most of the time it's going to be better for me just to sell that asset off, get back my equity out of the deal, then go back and double down. Nothing wrong with owner financing, but you're going to end up tying your equity up for another 12 or 18 months that you can't really tap into. There's nothing wrong with rentals except I don't want to create another job. And especially if you're buying in multiple states, that can be tricky when trying to do a rehab or rental from across the country. So other than that everybody, that's what I've got for this episode of the no Close show. Hopefully this is valuable for you as always. Check out our website weclosenotes.com for more information. As always, thank you for listening to the podcast. Thank you for sharing this as well. Go on over to itunes if you don't mind and leave us a review. We'd really appreciate that as well. But otherwise, go out and make something happen everybody, and we'll see you all at the top. Bye. It.