EP 450 – Targeting Short Sales For Note Deals

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This is the no Closer 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 noclut show. Hopefully you have had a great day. Great rock and rolling along already. Today's episode is I think it's gonna have a lot of impact on a lot of real estate investors out there if they take to heart what we end up discussing today. And today's topic is about short papering. Short sales. Now a lot of people are learning short sales. Oh, that's an ugly two syllable, two word phrase. Short sale. There's nothing about short sales. How the heck am I going to invest in a short sale? Well, as note investors, one of the great things is you have to realize as we're buying distressed debt and distressed debt definitely comes into play when we're dealing with short sales. Short sales are obviously a borrower who is upside down, usually in their property, usually behind, you know, usually negotiated with the bank to allow them to sell the property or to list the property with an agent and try to get it sold for cash at an amount below. It's the total payoff. And the only person really takes short in this, isn't it the borrower? The borrower is owed something but the bank has got to approve, the lender has to approve the reduced payoff amount. Now what's great about this is we cut our teeth on short sales years ago. Actually back in 2007, 8, 9 and 10 actually was doing short sales in a variety of different states across the country. Obviously it's a different ball game what it is now compared to what it was a decade ago. But from talking with agents specifically, it's starting to see an increase amount of realtors dealing with short sales. Starting to see short sale agents that are starting to specialize just on that aspect. Okay. One of the great things that you have to realize is there's some really bonuses to looking at short sales right off the bat versus dealing strictly with a bank's list. Now the bank list, when we get a list in from the bank, you don't know initially if it's occupied. It might say it is, but you still got to double check it. You don't know which way the borrower is going to Go, do they want to try to stay in a house? I mean, you can tell some of the stuff obviously by pride of ownership when you're driving by or if they've tried to make payments in the back end over the last six to 12 months, if you can see the servicing notes. But the thing is, if you see a property is listed for short sale, it's literally almost kind of like a home run. All right, a couple of ways. Now, that is dependent on a couple things. First and foremost, I want you, if you're listening out there, I don't want you to run out to your local agent, say, hey, send me all your short sale listings. That's not at all what we want you to do. That's not going to be an effective use of your time or their time. And today's episode is all kind of about outlining a little bit of the things you can do to help specialize this. So first and foremost, going back to it. In a short sale listing, one thing comes immediately, the point. The borrower is ready to get out of there. They're ready to leave the house, they're ready to walk away without getting any money in their pocket. That's the thing about a short sale. A borrower walks with nothing. Okay. You've oftentimes you'll have properties or loans, short sale deals where there's a first and a second. Usually the second Camino gets you down for 5% of what's owed or less, depending on, of course, what the house is worth and the market, what's on the first. In some cases, market values have increased quite a bit. So that first is fully paid off, the second is fully paid off. So that's something to keep in mind. You're not going to be seeing a lot of short sales in hot markets. Like, we don't see that much here in Austin, Texas, but we are starting to see them pop up in other places like Houston and Dallas and some other areas where the markets have started to kind of go south. It started to get soft. Okay. Like I said, the beauty is the bar is ready to rock and roll. Get the heck out of the door. Right. Second thing, it's listed. So what does that mean? Well, it means you can go see what's going on inside of the property without having trying to just peek in the window. You can actually get in with a realtor and walk the property and see what kind of condition it's in. All right. Beauty of three words. You actually have three people already or three. Another third thing is you Already have a realtor involved. You've already got a realtor who probably knows the homeowner as a contact person. So the key about investing in short sales or key about looking at notes that are on a short sale listed property is they don't usually sell quickly. And this is no offense, I will have some realtors that are in short sales that will argue with me, oh yeah, we can get this negotiated. I totally agree to that. Some. There are some really great short sale negotiating agents that are phenomenal at getting things done in 30 to 60 days. Okay. Some will drag it out. This is why you've got to be careful. When you get a list of notes sent to you and you're looking and you see the property that's listed for short sale, you want to make sure that this realtor is not the borrower's like best friend. We used to drag short sales out when we needed to once drug a short sale out for over four years just outside of Salt Lake City. She's a single mom of four kids, so that's an important thing. When you get a list in or you see one of the properties on your list is a listed short sale, look at the days on market. You want to see what is the listed price compared to the value of the price. Hopefully they're not listing at 100% of value. That's why it may be dragging up. You want to see if it's hopefully listed at 80, 85, 90 cents of the dollar of value. So it entices people, buyers to put bids in and stay involved with the deal because hopefully they'll end up with a discount on the property selling at full value. It's hard to get people that will hang around for a while if you're selling close to full value, especially if it's over in comfort. So a couple of things to keep in mind as well too. You're not going to go out and chase short sales as far as just contacting every short sale listing out there. There's a very important factor when you're doing this and it's not the agent, it's who the heck the bank is. Okay? Who is the bank out there that sell you that note at a discount? Now this is where the big thing years ago when we first got started in the note business and we were doing shorts with good results, we had a big short sale education company that was teaching short sales on the east coast and the west coast. They were doing these big conferences like, hey, come on out and we'll have you Talk about the note sale. And then you can negotiate all these short sales with the banks and buy the notes and we can buy that note at a discount and then approve the short sale at a big discount. You make the difference between the two. And I was like, well it doesn't always work that way. This is only going to work. This is a big, big thing. Drumroll please, here. This is only going to work if you can actually the bank is willing to sell you the note. This eliminates immediately your bank of America's, your Chases of Citibanks, your Wells Fargo's, for the most part. They're not going to sell you a one off note on a property. And this still falls in case then with those regional and smaller banks that are willing to sell and play ball, who knows what they'll sell the note at? Who knows if the short sale department is negotiating for talking with the special assets department. Some cases they are the same department, in other cases they aren't even in the same building or the same state. So that's what it all comes down to. This is why if you do know a short sale agent or an agent representing short sales, you're gonna want to reach out to them and say, hey, would you mind sending me the addresses and the bank that you show as being on as the lender of that short sale, they send you bank of America, Chase, like I said, they send you the bigger banks. You're not going to deal with those, you're not going to buy the notes on those. Okay, just not going to happen. Keep moving. Oh no. You can't pull in like 50 short sale deals together and say I want to buy all nothing. These 50. It's just not going to happen. They got too many of these things wiped out. So let's get that straight through your head. Everybody out there, okay, you're not going to buy a note from bank of America, Chase, Citibank, ever. It's one or five hundred of them. You're not going to go out and buy the notes on listed short sales across the country. Not going to happen. Been there, done that, got the T shirt and the scars to prove it. What you are going to do is the regional banks or if you're a student of ours and you are already calling banks and you find a bank that's willing to sell, as you're getting lists in, you're seeing listings in that institution, then that would be a great hot lead in to contacting that asset manager, see about buying the note. So let me give you an Example on something. I'll just use an older case example. So we have bought a lot over the years from Wells Fargo Financial when they were in business, they're no longer in business. They were a subset of Wells Fargo. They're like the little corner subprime lender doing mortgages and things like that. Well, we were getting their lists in. I was buying three, four assets a month from Wells Fargo Financial on some lower value stuff outside of Texas. Well, lo and behold, my friend who's a short sale agent pulled up a listing of short sales and she did that. She basically pulled up the list of short sales that said third party approval was tagged in their MLS and said short sale. And then she was looking at property listings. There's usually a button called the real estate report that is on most MLS is where if you click the button it'll show who the last lender is on public records, who the bank is on that deal. And it pulled up, lo and behold, this one was Wells Fargo Financial, like, oh, hey, well, maybe we make this work. It was on a property here in Austin, which was even crazier because we don't see a lot of stuff here. And so we were pretty excited about this on the MLS for over six months, actually closer to nine months. And my agent friend called the listing agent and said, hey, what can you tell me about this listing? And she's like, well, the listing agent said, we already have a cash buyer in place and a short sale just drag it out there because it's in probate. But I believe it's about to be finished with the probate aspect of it because the borrower had passed away without a will. Nice property on a corner. Lot three, big car garage, three bedroom, two bath, about 1600 square foot home. And so we're like, okay, let's go take a look at it. So we jumped in the truck, ran over, take a look at it, open the lockbox, got the key, walked in and it was a decent property. I mean, like I said, a three bed car garage had some nicer appliances, a little older house. I needed some upgrades, but still had new appliances throughout. Somebody had updated, done some updates to the thing. Fortunately there's a little Chihuahua running around in the house. That was the borrower's dog. Now somebody's coming, feeding the dog on a regular basis and cleaning them up after it because they left the big bowl of food and a big bowl of water. So it wasn't a family member. I think it was the agent or somebody else coming by. But the Thing to keep in mind, we're walking around. Okay, this is not a bad house. A couple cracked windows, beautiful red brick. Need some landscaping. Three bay car garage. In one of the Bays was a 2001 white Chevy Suburban. Keys were actually in the ignition. How do I know? Because it was unlocked. I went and checked it walking through. Hey, the borrower's dead. Nobody's going to get mad at me for doing that. The second bay in the garage was filled full of antiques, furniture from the floor all the way to the ceiling. Some display cases as well. And the third was just boxes, boxes and boxes and boxes of stuff. Wasn't a hoarder. It was all organized. Right. And so when you're walking around this house, it's like there's still the bed, there's still furniture, clothes in the closets. All right. Toothbrush sitting in the cup on the sink in the bathroom. Kitchen was not in a disarray, but you could tell that somebody hadn't come and cleaned up. That for the most part, wasn't bad in any form or fashion. But you can just say, well, somebody either left in a hurry here or didn't make it back home, unfortunately. So anyway, we come away numbers on the house, numbers on the mortgages was just a first lien with Wells Fargo Financial back in the day. $220,000 unpaid principal balance, and then it also had two years of back taxes on it. The value of the house was around, give or take, around 160 maybe, depending on the work. So they're upside down, 50, 60 grand. I don't remember exactly how many months total behind they were, but we know it had been listed for nine months, so we assumed it was probably at least a year behind. So like I said, my agent had reached out to the listing agent. Okay, what kind of cash offering do you have? Do you need a backup offering? All right, and the agent? Well, no, we got a really strong cash offering. The 160s high. 150s. Okay, great, cool. So you're looking for like a 10% discount off of value, right? About value was depending on where your comps came in and kind of rehabbed. Having a 3B car garage was a little different. It was the only one in the neighborhood with like that big corner lot, too. Okay, in the 150s, 160s. So then what did I do next? Well, I got to make sure I can buy this note before I do anything else. So I called up my asset manager. Name at the time was Steve, Steve at Wells Fargo Financial. I remember he was out of California back in the day. And I'm talking to Steve and I'm like, hey, Steve, I see you've got this house. I've got you see you got a note on this area. There's also two others with Wells Fargo Financial that we're painting short sales to that we found from doing the list. I said, hey, I see these three. Would you be interested in selling the note on these to get these off your books? I see they've been on defaulted for over a year. They're short sales, especially this one's in probate. Who knows when it's going to come out of probate. He's like, yeah, I'd be interested in looking at a bid and potentially accepting an offer. Just depends on what the numbers look like. I'm like, okay, just want to make sure. Let me run some numbers and get back to you. He's like, no problem. This is the conversation. Seriously. We'd already built rapport already closing some assets from, like I said, closing a couple of deals. I mean lower valued assets. This was a really nice asset compared to some of the other stuff that I was buying. And so I consult my realtor. I'm like, okay. So I call Steve back up. I said, hey, would you accept 50 grand for this note? He's like, 50 grand? It's like 25,000 something dollar of UPB. I'm like, yeah. I said, but it's a short sale. It's also needs a lot of work. It looks like somebody's let the dog run wild in the house. I took pictures of the dog when I was there, took some pictures and provided Steve as well. Let me think about it and get back to you. Day goes by, two days later, I pick up the phone and call Steve because I heard from him two days. He's like the lowest I could go on this, Scott. He goes, is 75 grand. I'm like, you know what, I think we can make that work, right? And so like, okay. I hang up the phone before I try to do a dance. Okay. I am just excited and jacked up. I was like, okay, we can buy this on at 75. There's a high 150, high 150s maybe low 160s. Cash offering. Let's call up some money, people. So I pulled my comps. I pulled the listing on the asset, I pulled the values, what we saw, conservative values, pulling comps like we would with anything else. And I went talk to my money partner and Mr. Johnson here in town. I said, hey, I had him find some deals for me before. He was also a very active investor. He was a mentor of mine and made a lot of money in the note business earlier on in RTC days. And I'm talking say, hey, I've got a note deal here on a listed property, listed short sale. I brought my agent along as well. I said, hey, my agent says they've got a cash offering in the 150s. I 150s. Do you want to fund this deal and we'll split the profits? He was like, okay, yeah, let me take a look at it. And he actually, can I go buy the house? So, sure. He wanted to see the house. So we jumped in our car, drove to the house here. At the time, we actually drove down south, got in the property, walked around it, showed him everything. He's like, I'm glad to fund this deal. And he goes, we'll just split it. I'm like, that's totally fine by me. I have no problem splitting the profits because he wanted basically the assignment, everything recorded in his entity. I'm like, that's fine, no problem. We had our own agreement anyway, a separate agreement for that. So that's what we did. We called Steve up, We got a loan sale agreement on it. We got the collateral files on the stuff. Everything looked clean on it, pulled O and E, realized there's only a couple years of back taxes. We're like, no problem with that. So then we funded the deal. We wired into Wells Fargo Financial. We wired in that morning. That afternoon, I picked up the phone and called the listing agent. Now, I didn't have my agent do it. I had my listing, I had that. Give me information, left a message, said, hey, this is Scott Carson. I just want to give you a phone call. I represent the bank that has bought the note on 9016 Colin Field Drive. Oh, about 30 minutes later, I get this phone call back, and she is just frustrated. You can tell this realtor has put a lot of work into, was heavily invested in the deal. She's like, oh, my gosh. I'm like, whoa, whoa, whoa, hang on a second. I'm under the understanding you said you've got a pending offering on this thing based on what the MLS says. Is it a true offering? Can they close in 30 days? She's like, yes. I don't want to have to try to resubmit everything. I said, no, no, no, we're good. If you can send me the contract from your buyer, their proof of funds, and then also have the title company send me over an Estimated HUD one, an estimated closing document which outlines the cost, things like that. I can get this thing approved. We get this thing closed in 30 days. She was like, are you kidding me? And she cussed a little bit, but she was like, what? Are you kidding me? Are you effing with me? I'm like, no, I'm 100% serious. Here. Here's a copy of the assignment. It hasn't been even been recorded yet. The county, we can't proceed until this gets recorded. But I just want to give you a phone call so that you don't flip out and just cancel the listing and move on your way. Some agents will do that. They're tired of the loans being sold or tired of doing working. After six to 12 months, they just move on because it's not worth their time to work on an asset like this that's just going to drag on. So sure enough, Simon Mortgage gets recorded. Week and a half later, we agreed to the contract. Boom. 30 days later. It was less than 30 days. I think it was 15 days later now, but it was total 45 days from the time that we funded that deal to the time that we actually closed on the sale of the property. Now around 150, we're into the deal for 75. 150 is what we netted, basically, after some closing costs and some other things like that. We're taking care of commissions. And basically we were splitting roughly about 65 grand in profits on a $75,000 investment. Not a bad day in 45 days, everybody, right? I wish every deal was like that. So that's why it can be a nice payoff if the bank is willing to accept it. Now, if you can get the bank to accept 20% less than what's owed or 20% low market value, hey, you can still make money with that. But you got to be careful when you start chasing things. Sometimes the bank knows what the offering is and they're willing to hold it out. Here in Austin, here in Texas, you gotta be careful a little bit. In different areas of the country, you might get a bigger spread than you will in other parts. You just have to play the game. It's a numbers game. And worst and foremost, honestly, most of the time, the note, I'm given the details of the note or the details of the short sale listing that note, if they're already through it most of the way, they may not sell a note. But that leads. It's a very powerful tool. It leads. Here's an idea for you. That asset that Short sale listing is a warm lead into the bank for their other list of assets. That's what you want? Yes. If you can buy that note and then make some money on it, make the agents happy, make the buyers happy, make the sellers happy. Great. Sandwich yourself in. Squeeze in. If you make 10, 20% in 60 days, hey, that's nothing to cry about. Your investors are all going to be happy with that aspect of things. Now the thing to keep in mind here is but it's all about getting the list of other things they have on their books. It's all about getting a list of other assets they have whether it's locally or rest of the country that you can work through. Now that's really what the golden goose is using a short sale. I spent some time last week actually calling on foreign institutions that my short sale friend in Dallas, I won't share her name here. She'll be on a future podcast in the next week or so calling to track down some of these bankers on these assets. See, we can't get this short sale bought. Had a couple conversations or reviewing some things. Supposed to be sending over a non disclosure agreement to me here today, tomorrow and then hopefully they'll send me over a list of assets I've notice they're looking to get rid of that hopefully includes one, two or three or four of these lists or one of these assets that my friend is working on as a listing agent because then I can actually help speed up her closing time frame and approvals and it works as well. So that's one thing. How do you find listing agents that are short sales agents? Well, you find these by going to local real estate clubs. You find these by going to meetup groups. If you've got an agent, hey, do you have an agent in your office that specializes in short sales? Or heck, you just jump on the MLS and look for third party approval required short sale listing. A lot of the MLSS will have that note tag keyword in their MLS's because they had so many of them 10, 9, 8, 7 years ago. Now it's rebounded. That's not saying you won't find short sales in every market. Yeah, you'll probably find a short sale or two here and if it's in your backyard, more power to you. But realize it can be tough depending on your market. Like here in Austin, you know, I don't expect the bank to approve short sales at a big discount because we've got such a hot market. Low inventory, less than like three months of inventory on the mls. So you have to realize this is a numbers game. It's like anything else. But now, so you just calling and saying, hey, when you call an asset manager, hey, can you send me your list? You now have an asset. Oh, hey, I'm calling regarding the note on 123 Main street or 123 Collin Field or 10701 Pecan park, whatever it might be. That actually gets a little bit more tension. Then can you send me what you have on your books? Now another thing here, you're not going to call the loss mitigation department. You're not going to call the short sale department in a bank and say I want to buy your notes. Just not going to work, not going to happen. Okay? Because those guys and gals in the short sale negotiating department of the banks, they're not happy campers. I think they probably did something wrong in their previous life or did something wrong previously at the bank to keep their job. They're in the short sale department, okay? Why do I say that? Because they're not happy folks. They're not. Usually they've got a stack of files on their desk and they're going from one file to the next one. They're making sure everything is there before they prove it. Now with the help of some of the technologies, things like Equator software, service like that at bank of America developed, some banks are much easier at operating. You basically log in to your system if you're a short sale agent, upload the documents. And what do you have to upload if you're a realtor trying to get a short sale? Well, you've got to send over the borrower's financials. That means they're tax returns or pay stubs for the last two months, copies of their bank statements, a hardship letter, guessing over a authorization to release information. You also have to send it over a copy of the listing agreement with the realtor. You also have to send over hopefully an offering and contract with Hope with, you know, cash offering or approval for financing. This takes some time. A lot of times your short sale agents will deal already with investors, will write up and sign off on contract and send over a proof of funds letter to get this ball rolling. And sometimes you'll have agents that get approvals and their investors like oh, I don't really want to fund that deal. I just sent you in a contract to get the ball rolling. So I don't know, I gotta have to ask our friends in the short sale if they still see a lot of that. For the banks have Gotten onto that smarts where it's not an actual really valid contract because I used to do that for several short sale agents. They would call me up, hey, do you mind if I send you a contract? You sign off on center of your proof of funds letter so I can get the short sale ball rolling. I'm like, that's completely fine. So a couple things to keep in mind too. If you're negotiating or buying a note and you're becoming the bank, and there's the first, second. Now we approve about one short sale a month, one short payoff a month on what we're doing here in our own portfolio where borrowers are trying to sell the property, they owe more, and we negotiate anything down based on either a, they owe more or the values have dropped. Whatever. One thing you're going to want to look at, obviously if you're the bank, like I said, you're going to see a copy of the contract, make sure you're not increasing like 8% in realtor fees. You have the right to squeeze the realtor fees down if you want to. I wouldn't really squeeze them down beyond 5, maybe 4%. Just depends on if there's been a lot of time involved on the deal or not. Now, a lot of times Realtors will have short sale negotiators working out. If they got to get paid a fee, I'm fine. If they've helped this thing along, making sure that they get paid. Sometimes they include as part of the commission where each the buying, a selling agent will give up 1% or a third of their commission to the negotiating company to do that. Realtors are kind of cheap, unfortunately, so you got to make sure and check that or check what type of fees they're adding on to usually like line 1300, line 1400 of the HUD. So that's the thing too. What are these expenses? What do they include? What do they include? And go from there. You know, you want to make sure too that the borrower is not getting anything as well. Now, in some cases include the sale of the fridge or sale of furniture. That's okay, I'm not really worried about that. But like I said in the good words of my friend Rachel Guile, who used to be the head of loss mitigator for Ever Home bank in Tampa, she goes, if we got a bleed, everybody's got a bleed. It's kind of a funny thing, the short sale story here. Another one actually includes my friend Rachel Guile. And you see what she's up to these days. I don't think she's back at Ever Home bank, but we're negotiating short sale at Ever Home bank and we got a short sale delayed or a foreclosure sale delayed on a property here in Austin because we called and were able to negotiate it because we say, hey, we have a buyer. Just delay this another month and we get this thing sold. And Rachel Guile sounds rough sounding and I'm not doing it justice, but heavy smoker. I'm like, okay. Then you realize you're dealing with a short sale agent or short seller for a bank. They're probably not having a great day because they're constantly going to fight people back and forth for values and closings and in the foreclosure department, stuff like that. And I said, well, how was your day? And she started laughing, right? Rachel started laughing. And I said, hey, no, I really mean that. We have eight of us here in the short sale department at Ever Home bank and we're all facing foreclosure as well. They're out of Tampa. She goes, I've got a mortgage with Wells Fargo in my condo. I'm upside down because the market dropped and me and everybody else here is facing foreclosure. She goes, do you do short sale negotiations for people outside of Austin? I'm like, yeah. And so it was funny. You hear her put the phone down and leave it. Hey, everybody, I got a negotiator on here who's willing to help all of us with our mortgages and our own short sale properties. And I was like, oh, yes, I'm glad to help out. So we ended up getting all eight of those people all. It was like 10 properties total. Some, a couple had investment properties, all of them had their primary residences and able to work out negotiations and short sales or loan mods for all of them with other lenders besides Ever Home Bank. Okay, but what's funny is talking to Rachel, I said, hey, you know, I'd love to have you come out to an event to talk about the market, to talk about short sales, to talk about kind of negotiation things we should and shouldn't do, things we should look for, things we shouldn't look for in the negotiation side of that aspect. And I'd love to pay her way. And she's like, what? I was like, you know, we'd love to have you. I'd pay out southwest flat. And that's what we did. We had an event going on here. So when I was working with my previous mentor, Bob Leonetti and Jamie Kayla, I Said, hey, we got a head negotiator for a short sale company for a major bank coming into the event. How's that sound? They were like, that's awesome. So that's what we did. We flew Rachel out, we put her up in the hotel, came and spoke on stage. She was the hit of the event because people just loved her personality or spun. She was maybe five foot tall, just a little dynamo on there and had a good time visiting. She flew back out that Sunday night and we continued to talk and other things on other assets and stuff. But every time I had a loan from home bank, that's who I called and was able to get a few more negotiated down because of that fact that I had built a relationship with her. And that's really what it comes down to when you're dealing. Especially good short sale agents, they end up building relationships with one or two people in the bank short sale department to really kind of say, hey, here's what I'm working on, here's what we've got going on. Let's work to make this a good thing. A good short sale agent is not made overnight. It takes years of working through stuff and months of working through some things. I know several medley, Nicola Espinoza, Yvonne Cavazos out of Houston. I know some people in different parts of the country, but here in Texas, those are the three that I would turn to. But these are deals that are distressed. The bank is going to want them off their books. You already know that. You got a willing and able borrower willing to work with you, to walk away so you don't have to deal. The whole aspect of trying to reach out to right party contact because you've got right party contact already, you've got values, you've got interior views of the properties. Those are the three biggest things that most investors struggle with. Getting a hold of the right bar, knowing that they want what they want to do. And third thing, what does the inside of the property look like? Do they have a buyer too? Short sales are not going to always end up being obviously a loan mod. Okay, oh yeah, we're going to go to loan mod. That's not going to end up happening. It can be a nice chunk change, a nice return made, buying the note, approving the existing sales contract in place and just making your difference in the spread between what you can buy the note for with the final closing. But like I said, comes down to the main factors is a that bank, one of the banks that's willing to sell the notes that you've got a relationship with. And then B, are they willing to take a big enough discount where you can squeeze yourself between what you're buying, the note and the final sales price? That's the thing you got to keep in mind, everybody, it comes down to those major things right there. Thing is finding out what the sales price is, what's the listing price, what's the highest sales contract that the bank or the realtor has, investor or buyer. The thing you gotta realize if you've seen this listed for six months or nine months, there's probably, if they had an original buyer on the hook that buyers probably moved on because they got tired of wasting. Especially if you look at the time of year that's going on, a lot of people move at what times? Primarily two times a year, Christmas holidays or summer holidays. So as we're getting in to closer being to summer here relatively, maybe here basically almost already. And then you get to summer. Now's a great time to be diving into that aspect, to be making those relationships, going out and talking to your agents, or if you are a realtor and you've got access to the mls, looking to see short sale listings, short sale agents looking in your market, pick up the phone and talk to an agent. If you've got Keller Williams or J.B. goodwin or Century 21 or ReMax or Exp Realty, talking to those departments, calling those office, say, hey, is there a realtor that handles your short sales in your office? I would love to visit with them. Because honestly, when you start speaking about the fact that, hey, you buy notes and you talk a little bit about this stuff with them, they're gonna get excited about it. But what you have to do is to set the clear expectations. And there's no guarantee I can buy these notes. We do buy them. It's just a matter of seeing where the bank is at. And they're willing to sell this one off or use it to sell other ones. But here's a big ding, ding, ding. It may lead to more listings for that agent. It may lead to potential more short sales for that agent, which is a win win. Now you've got a partner working with you. All right, if there's more distressed assets in the neck of the woods, what are realtors gonna do? A lot of realtors go out and knock on doors to get short sale listings. Hey, I see you in trouble. Let me help you sell this house, let you stay in the house while we're selling it versus you can sock away, save a little bit of Money while we get this thing sold and go from there. All right, I am a fan of short sales is one of the 10 different exit strategies we have. That's a little bit different mindset about going out and approaching the agents that have that available. Now some people like, well, Scott, that's great, but how do I raise the capital for it? Same thing. You bring on your money partner, you go to your local real estate club, you have your investor do the numbers with you, work through the due diligence share that you're both working through this. So it's not a security you're working through with pulling values or seeing the exit strategy you're talking. That's a great solid thing. And then some cases, some people will just do short mezzanine financing, some people will want a flat interest rate, some will want to do a split. I mean, it's all what you can negotiate with your borrowers. You may want to look at creating a fund that focuses on this. The thing you got to be careful about with this though, and create a fund is you want to have that money allocated and working and working through on a regular basis. Short sales are not going to be the same thing as buying and not getting rehabbing the borrower and get them to stay in the property. Most of the time, I mean, there's not saying anything. You can't do that by buying them. Say, hey, would you like to do a loan mod, stay the property? You could do that, but if it's already listed for sale, they already got a pending contract. You can't go back and say, oh, we're cancel the contract because I'm staying in the property now and it doesn't work that way. Okay. That's a way to burn a bridge with a realtor really fast and you don't want to do that. Okay. Now one of the things too, what you have to realize, everybody is, oh, here we go. Yeah, seeing what kind of comments we've got here. Good morning, Joseph Babbitts. Good morning everybody. And once again thanks to everybody for such all the great comments. I'm so excited. I mean, this last weekend we had an amazing group of students in Joe, Melissa, Steve, Michael, and spent a great couple days in one of our fast track trainings. So looking forward to seeing what these guys and gals are going to be doing in the next few months, in the next years. Really rocking things along. We've got our mastermind ready to kick off here in a couple of days here in Austin. It's a great time. End of April is always a fun time for what we got rocking and rolling in the business. And it's just I have to give a big shout out to everybody out there. It's also posting comments on Facebook, posting comments on YouTube or leaving reviews on itunes or Stitcher or any of the other platforms out there. Thank you so much for listening. Thank you for watching. Thank you for sharing. You keep sharing that, you'll enjoy this stuff. We'll keep cranking out content for you. We'll keep providing as best the quality content as we can and trying to stay on top of what we're doing here in the note business space, in the real estate space. I'm excited over the next couple weeks, over the next three weeks we've got some great interviews. Some of the speakers for note camp commercial that is coming up in July. I know we're getting an early start on that. We are effectively 90 days out from this weekend. It's going to weekend basically or just under that right at about 90 days. We were really excited about that. We think there's going to be a lot of positive impact and short sales and commercial happen too. It's one thing to consider in mind as well too. Sometimes short sales happen a little bit more often in commercial especially it's on vacant properties. It's harder to pull an NOI cap rate when you got a vacant property with no renters in place. It's harder to get that. And sometimes the banks are willing to negotiate on that but also sometimes willing to let you joint venture to have them joint venture carry the financing to higher valued assets where they can move that note off the bad side of the books to the good side of the books and recast it to you or your team of operators as now a new and performing note versus a non performing note. So short sales are making a comeback. Everybody. Several of the agents that I've talked to are negotiating on over 150 listings. Okay. Now a lot of that is the bigger banks, but that's okay. They're getting 150 short sales and they've got 10% of those that you can work here and buy them. That's 15 deals. If you're making 20 grand on a short sale note deal like that, 15 deals, how much is that? As a friend, Eddie Speed likes to say enough. That's a good roi. Okay, enough. All right. Here's some things out there that you may want to talk about going and talking at your local real estate club, say. And here's a really easy thing. Most real estate Investment clubs have a needs and wants part of their networking. What does that mean? Well, in the new month coming up, get up and say I'm looking for short sale agents, I'm looking for realtors here in the local market or anybody has realtors in a nearby market near my metroplex, I want to talk to short sale agents. I've got some things that we're working on. We're chasing us. You will also, here's another thing, reach out to title companies in an area. Hey, who are your biggest closers when it comes to short sales? Because oftentimes, yes, there will be agents that will dabble in short sales, but they're not a big fan of most agents that I know when they get a short sale. And this is the truth in the past, it may not be so much the truth now, but there's short sales. A lot of times agents will refer that listing off to a person, an expert in their office or in the area that is a short sale expert. And they'll just take their third of the commission, referral fee or quarter percentage of the total commissions as a way to still make some money but without getting having a headache. 1 When it comes to having the mind numbing thing of dealing with banks and short sales, some are great, some are very streamlined, others are just bleh. And the smaller the bank, the more you're gonna see the short sales being actually handled by the bank. I've seen this happen quite a bit in smaller banks, one off branches where the actual person that made the loan was responsible for the loan and they're the one handling the short sale. So you're not gonna have good luck with those. For the most part I would be targeting banks that have at least five branches more. But it doesn't hurt to pick up the phone, give them a phone call. If you do get a list of short sales, call the small banks, just talk with them, Cut your teeth on those conversations and don't say that, oh, we're not going to sell a note on one off branch. As law and as the rule and the truth of the ten commandments of short sales or note buying. Realize it's a small bank, realize where it's coming from. The bigger the banks, the bigger the regional banks, the more branches they have, the more states they're in, they're going to have a bigger pattern of coverage, pattern of coverage. And you're going to see short sales, you're going to see defaulted things. And let's face it guys, short sales can happen for a Variety of reasons. It's not just that they're behind. It could be also that the values have dropped some. It could also be the market. Something's going on nearby in a nearby market. It could also be a major employer is leaving the area. All right, Market values have dropped for foreclosures. There's a whole variety of different things that can cause short sale happens. I mean, there's a place south of here where I live here in Austin called Dell Valley, south side of Austin. It was heavily ravaged in short sales when the market turned south. Now, part of it was people were getting into it that shouldn't have gotten into it. 100% financing or $500 down. It was also a heavily defaulted area where when the tax values came out that their tax values were a lot higher because it's based off the full structure and the lot, not just a lot beforehand. So that affected a lot of things negatively there as well. So that's the thing to keep in mind. Just short sales are your friend. Like I said, I like to joke about that. We're the fastest short sale negotiation lender in the country. Because the fact is, if I've got an asset, all I've got to do is look at that final estimated HUD one bottom line, okay? Look at what I paid for my expenses along the way. As long as my expenses and costs are less than what the final bottom line is, I'm making money now. It doesn't mean I won't push back. Sometimes I'll ask the realtors to reduce it from a 6% to a 5% commission. I'll ask them, say, no, you can't do this. You've got to adjust this. If there's a second involved on the property too. Yeah, second mortgage. I'm not only give them 1500 bucks usually because that's what it would cost for me to go ahead and foreclose and wipe them out completely. So you'll often have sometimes second lien holders that want to play hard. Oh no, we want 50 grand or 50%. Like, no, it's not going to happen. Here's a letter. You're going to get 1500 or 5%. Now, if I'm going to get fully paid off, because the value of the house fully encumbers the first. Okay, I'll let the second get what they can get. But you also gotta be careful about that because if that's the case and the value's there and you're fully encumbered, the original bank may not be willing to sell that first lien at a substantial discount. Okay. It may want to be close to par. That just doesn't make sense at all for you. Okay. Short sales, something you should not cringe away from. Like a lot of people who I look at them as opportunities. It's a great way for us to direct find other deals out there and use those warm leads to get into the banks and their special assets department, their secondary market managers. Is anybody afraid? Well, what if the agent decides to sell it off? Well, it doesn't matter. Once you buy the note, you bought the note. Okay. The agent's not going to go around and try to contact the banks directly. They don't have the time. And I love agents, but most of them are so busy enough working on one thing, they don't have the time to add a lot of extra due diligence trying to track down the special asset manager at the bank who's handling this stuff. They just don't get it. They don't speak the right thing. They're going to call loss mitigation. They don't understand the special assets and secondary marketing managers are often different people in the institution and they just have to have time. So not worried about that. Like I said, one of the beautiful things that we have done in the last couple years is last year in 2018, we had our banking blitzcreet where we had 25 people come in, we provided lists in a variety of states where people were calling and tracking down the special assets and secondary marketing managers at these roughly 5,400 banks and lending institutions out there. Now, we don't always have the email, don't always have the phone number, don't always have a name. But a lot of times we do have at least a name and a phone number or at least a name and a LinkedIn profile. And that works really, really helpful. And so we're pretty stoked about this. I'm a big believer in this going to rear its head again. And I think it's smart to be prepared so much that we are actually going to be spending some time this next weekend at the Mastermind, actually talking about how to utilize these type of leads as potential sources. Not only just for one or two short sale listing, but also, like I said, getting your foot in the door, getting your foot into the special asset manager to get the list sent to you on a monthly basis, on a quarterly basis, on a weekly basis in some cases, especially as you start seeing. I'll give you an example here. Being here in Austin, Texas, I'm probably not going to see a lot of short sales here in Austin. Not for a while anyway. Doesn't mean there isn't any. But there may not be. Especially there may be somebody that's probably predominantly going to be with the bigger banks. I'll have to reach out to my buddy Boyd and check out here, but I will start checking. Like I said, I've already started reaching out to agents in other areas. San Antonio, Dallas, Houston, as markets here in the Lone Star State where I can see if I can get the agents they send me over their list of banks that they're negotiating with or servicing companies. I'll give an example. One sent me a list last week. I called out the bank that they show is actually the name of the origination side of the thing. The secondary marketing side is actually with a parent company that I had to negotiate with. And I reached out to last week in Pennsylvania, not here in Texas, in Pennsylvania, that I had to reach out to get on the phone, get transferred, track down the borrower, track down the bank president, the special asset managers through an email on LinkedIn calling the switchboard. I got bounced around. They're like, oh, we don't have that. Oh, no wonder your different institution name, your special assets department is actually handled by your parent company. That's why you don't see the switchboard. Can you just transfer to your parent company switchboard and we'll work with them? Go for it. Like I said, you have to realize that if you're a note investor, this is an opportunity if you really want to work it, this is an opportunity for. And this is something you don't have to do necessarily do between 9:00am and 5:00pm okay, if you make contact with your agents and they send you a list, this is something you do some sleuthing after hours between 7pm and 2am where at LinkedIn you can also jump on and use a couple of the list scrubbers. There's a couple different applications you can use to find email addresses of people at organizations. Or you can jump on and buy a list. Like one of the things we've talked about. There's some different lists that you come. You can jump on lane guide or fdic.gov, if it's a bank. Now what you've seen a lot right now, you're seeing a lot of lending institutions that aren't banks that are into the game, lending companies, private funds that are coming in and originating and selling off the Wall Street. So you're not going to find that contact information on Lane Guide or FDIC Gov. So you're have to track down them primarily on LinkedIn or other special groups and just trying to find who's a person in charge and maybe even pick up the phone and trying to track that person down. We have reached out on Facebook before for people when we found a name, see if they had a Facebook profile, LinkedIn, Twitter accounts, things like that. You really do be kind. A social sleuthing will help you with your short sales or as we like to say, short papering. All right, yes, it's a short sale, but you're buying the note and getting the note shorted on the paper. So we call it short papering is what it was tagged and termed years ago by a man much smarter than me when it comes to buying and selling notes. So hopefully this is valuable for you guys and y', all. Like I said once again, reach out to your local short sale agents, pick up the phone, give a phone call, tell them that you're looking to buy the notes. On that you can buy the notes, say listen, Chase bank of America City, I'm not gonna be able deal with those guys. They want 50 million. But if you got some smaller regional banks, if you just want to send me your full list of the addresses and the bank names that are on that, that you can pull off the realist report off the mls. But if you're not a realtor, you're not gonna know what I'm talking about. But when you're talking to your realtor, they'll know what you're talking about. When you're looking at the tax records off the mls, it's usually a button that links in local county records for most MLs and there's usually, but this is a real estate little flag they click on. It will often show referred to if it's a pending foreclosure as well. So like I said, you know, don't know short sale agent, just Google Short sales in Seattle, short sales in San Antonio, short sales in Dayton, whatever. Or just pick up the phone and call your local title rep, say hey, who's the big short sale agent in your area? Trust me guys, you put some time into this, you can pay some dividends, it can pay some big checks. It's not going to be a loan mod, it's not going to be a trial payment plan. Rarely, rarely, rarely. And also too to keep in mind, a lot of times if the homeowner has already moved out of the property in a short sale, which I never understood, but it still happens a ton of time. Don't be surprised if the bank finds that out and it goes back and changes the locks. Protect their assets. The bank has the right to do that. They found out the property is vacant. We do that sometimes too. We find out the property is vacant, we'll go secured immediately, change the locks and to protect our investment as the bank. So hopefully it was helpful for you guys and gals out there. Have a go out, make something happen. Have a great day everybody, and we'll see you all at the top. Thanks for listening, everybody. Bye, Sam.