EP 536 – Fifteen Critical Items When Selling Notes

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 Closures. As always, Scott Carson, excited to be here with you today. Hopefully you're out rocking and rolling and kicking ass and taking names. But one of the things that we always see with this time of year obviously is banks that are coming out and looking to move assets. Now it's just not banks. We also have a lot of private sellers. We also have a lot of people that have originated loans this year and looking to cash out so they can either a invest in other assets or balance just looking to purchase new assets. They want to use the capital or the money that's been tied up in their owner finance note or their note to, I guess you could say maybe double up, double down, move from one asset class into another one or use that money for a purchase or down payment towards a new asset of some sort. So I have seen a lot of people been sending out emails and posting stuff that they've got a note for sale, but they're leaving so much of the relevant information off of their posts or they send an email blast out or an email out to their database of investors. Maybe it's just not a blast, maybe it's a small list, but they still continue to leave a lot of questions unasked or unanswered when they only send partial information and they send a picture of the property and only two or three items. So I thought it would be very relevant to go in and create a list of 15 items and discuss each item a little bit so that you're better prepared as a note seller. Now we see this happening quite a bit. As I said, this time of year people move an asset. You also see a wholesalers that are getting more and more into the note selling business because they see lists, they're tapped into it, they don't want to do all the work. They want to just basically throw stuff against the wall to see what sticks, see who hop up and say something. Hopefully they're excited about specific state and area. But if you can provide relevant information in your posting, maybe it's not in the photo, I would. You know, especially in social media these days, so many People try to cram so much information in the photo and it's too small, too shrunk down, doesn't look good. So just take the time and make a point. If you're looking at assets or you're looking to buy assets, you want to make sure that these questions are either answered or asked, all right? Because what will happen is people have to come back to you to get more information. They'll come back to you. So the more you can provide information on the front end, the better off you'll be. The faster that transaction will close, and you'll often be a lot better off and be able to make money. And that's what it's all about. Faster by selling the asset faster or being able to broker the asset faster. Because your buyer will have all the information that they'll need. They'll have all the relevant either A to give you a quote for a counter or to bid on your assets too, if you're not going to give them the value or the price. The value, but the price. Now, obviously this information, when we start talking about some of the information, is still going to be dependent on a double checking the information, pulling values, and doing your own due diligence on the asset as well. So those are some important things that to keep in mind. Still not going to. Still got to put eyes on the property. Still got to pull title reports. If you got it, you can before funding. Obviously, you should never fund before pulling title and getting a copy of the collateral. But without that information, you can still make an offering. And These are the 15 critical items. 15, not 2, not 10. 15 critical items that we see to be effective as note buyers and sellers out there in today's market, some people are talking about less. I want to talk about what you really need, the 15 critical items that you need. So hopefully you enjoy this. If you're listening to this on our podcast, you may want to go over and check out the actual video on our YouTube channel, YouTube.com weclosenut subscribe while you're there. And we actually I put together a short PowerPoint so you can be able to see this, to write this down and go from there. So hopefully that's valuable for you. I think it is, because I don't want you trying to remember this while you're driving. For those who are listening, working out, These are the 15 critical points, but give you an opportunity to be able to pull that information and use it in your checklist. And when you're looking at deals, you can have a short Checklist of things that are available for you. So we call this the 15 critical items when selling notes. And this is actually podcast 536. It's hard to believe that for you here. So first thing first is you need to know the lien position. Is it a first position? Is it a second position? Is it a contract for deed? Not quite the loan type. But is it a first? Second contract for. They all have relevant information. Obviously if it's a second lien position, you're gonna need to know more information about the first. If it's a first, that's great. You're kind of in the space. And we'll get to another critical item that you need to know in your 15 when you're looking at buying or selling the notes as well. But lean position, it's grows a first lien or a second lien. A second lien, you're gonna pay a lot less for second lien. You also have to do a little more due diligence on the first lien. Okay, but what we're going to be talking about here too is the fact that hey, if you know if it's first or second lien, that's gonna affect your pricing. Your point? Especially when you start getting into other things along the way. Now, second lien position, you know you're probably gonna pull a title report further along your due diligence once you agree on price to contract for deed. The there are specific rules that are different by the contract for deed in some states than they are in a first lien position in some states. If it's a true lien position, first lien, you may have a redemption period like in Alabama, Minnesota, it's a year from the time you foreclose and a contract for deed you may be able to evict for some foreclosures. So it's important to know what kind of a lien position is out there. Okay, status. Now what I mean by status. Well, what I mean by status, is it a performing loan, is it a non performing loan or or is it a re performing loan? Is a performing loan. Great, I'm looking for performing notes, you know, that you're probably going to buy off of yield basically somewhere between a 12 to 15% ROI, maybe more, maybe less, depending on the balance and other things in the critical items. If it's a reperforming loan, you're going to want to know, okay, great, it's reperforming, but it was once non performing. What are the terms that we'll get to Lead to other things. But the status is one of the most important things out there. Performing non performing reperforming, they all have different reperforming is not bad. You just want to make sure you know okay then how long has been re performing re performing for? 12 months. Great. It is true. Re performing three. This is the thing that kills me. You need to know the full address of the property so you can see what kind of property type it is. You know, is it a 3:2 condo? The full address is important. Many people are sending out lists where the list is sanitized. Now what does the sanitized list mean? Means there's no full address. They removed the street address. So you just got city, state, zip and then the rest of information that doesn't help you pull numbers. There's one big fund out of New York trying to sell millions of assets by just providing a sanitized list. And you bid on the sanitized list and then you get to pull. Nobody's going to bid on that. It's just counterintuitive to us as note investors and paper investors to pull values on stuff. What's it look like or can we, you know full address. You can see what's around it. Is it near big box stores or is it on the water? Is it off the water? Is it by train track? You know those are all things to full address which unit. If it is a condo or townhome. Those are all important things to keep in mind when the full dress you want to bed bath, square footage. Okay. Yeah, you can provide bed bath square footage. We still want to see what the comps are in a neighborhood. We're pulling up. Okay. So that's why if you don't provide a full address, I won't even look at it. I know 99% of their investors aren't going to waste their time looking at deal if you don't know the full address. I don't care to say just Miami. One thing to keep in mind. I know that some people don't want to put the full address down because they're trying to wholesale the address. I get that. I understand that they may not have the property under contract and they're just trying to flip it for a buck. I get it. Go ahead and sign. Have your buyer sign an NDA. You know, have them sign in hopefully a non disclosure agreement or an NCND not compete non disclosure. And then send that list out just for those people that have signed that list. Okay. Number four, you. You need to know UPB now, somebody called me today. What's UPB mean? Unpaid principal balance and paid off. Basically what's owed on the note. All right? Now, an important thing is unpaid principal balance does not include the payoff. It doesn't include back payments. Like, I'll give you an example. A guy called me today, want to know what he owed in his loan. I go, well, 40. You actually owe 88,000. That's your full payoff. It shows in the statement here that only owed 44,000. I'm like, yeah, that was a few years ago. You've got 72 months of back payments that you've not paid. He's like, oh, okay, that makes sense. Now, we as note buyers, we buy off the unpaid principal balance. The only time that we're going to buy off a full payoff is if there's a ton of equity value above. If the property's worth 100 and they only owe 45, you want to make sure, okay, it's a lot of equity there. What's the payoff amount? What's the number of months plus the legal added to it to figure out the true payoff amount. So that's the important thing, knowing UPB and the payoff amount. Or sometimes we'll say true legal balance. All right, sometimes you'll see that on spreadsheets. Other times you'll have to figure that out yourself and put that number in there, too. So those are the first five. Lien position, status, full address, and then the UPB and payoff. Okay, that's the first four. Five is the value of the property. We talked about this briefly, but that goes along in line with letters. Need to know some sort of value on the property. Yes, I would prefer to see a bpo. And a BPO is a broker price opinion of the property or at least a comparative market analysis CMA from a true Realtor. Zillow values online values are not accurate because the condition of property could be rough. It could be in a rougher area. Try to have some sort of valuation where you at least put eyes on a property, somebody's looking at the property, pull some numbers if it is. If the best thing you can pull is a Zillow zestimate, great, but at least get some sort of valuation that way. It's important to use a note seller. If somebody comes back with a bid that's way low or way high, they're way high. They probably haven't done initial due diligence on it and they'll end up countering their bid. I would much Rather deal with a note buyer who understands the value of the asset, especially me. Especially if I've done the work to pull BPO and numbers and CMAs, not somebody's we're on the right track and go from there. Much more likely to close that way. So those are the top five once again, lean position status, full address, unpaid balance, payoff and value of the property. That's the first five out there. Takes us to the next round. Of the 15 critical items to have when buying or selling a note, need to know the interest rate. You know also is it an ARM loan just for rate mortgage or has the loan been modified? Now that's very critical thing. We see this with a lot of loans that went through HAMP modifications where the interest rate has dropped down to a 2% interest rate. That's really hard, especially on a performing loan. Or it's been modified from original 7% down to 2%. For you to make a. I don't care if it's now performing or non performing, it's really hard, especially with the performing or reperforming loan to buy it at a point that makes sense to make a good yield on your money. But that's at a 2% interest rate, it's performing. That's going to be a rough thing. You'd only offer 25 cents on the dollar to get an 8% yield on that. So keep that in mind. You know the interest rate current and past. If it has adjusted or been modified. 7 I know the due date, when's it due for some of the dates are important. When it was originated, the next due date, last pay date. If those things aren't the next month join, you know it's not performing. If it shows the due date, say January 1, 2019, you know that it's now 11 months behind. All right, so those are important. The origination date, the next due, last paid and number of months behind. Those are important dates. If it's performing non performing or scratching debt. Okay, scratching debt basically would be just 30 days behind of where it is. Okay, term is a number thing. Number eight item that's critical. Number one, that means months remaining. Is it a 180? If it's a 15 year old and it's 180 months versus a 360. So your principal and interest amount is going to change quite a bit. Especially if it's a 30 year or a 40 year. Now you've seen that happen in some loan modifications where it's a 40 year amortization where the payment is really Low, you gotta keep that in mind. So you'll see a 10 year, a 15 year, 20 year, 30 year, sometimes a 40 year, even seen a 5 year. And some of the loans we've looked at recently, those are 60 months. So term is gonna be an important number that you need to put in your calculator when calculating your yield when you're buying or selling, the aspect of it because you have to always consider if you're buying, take a look at those numbers. If you're selling. You have to think about what your buyer is looking for and understand that when selling. Okay, number nine Occupancy. One of the most critical things is it occupied, is it owner occupied, is it tenant occupied, is it unknown, is it vacant? Very important thing. If it's vacant, you know you're probably not going to have a performing note there. All right, if it's tenant occupied, okay, great. Then you probably want to pull rent rates and see if probably from Peter to pay Paul. Basically if it's unknown, that's okay. That's where you would want to double check, say okay, let's check the utilities, let's call the power, see if gas is paid, those kind of things. But owner occupied or tenant occupied is different. It's tenant occupied. You can't speak to the tenant about the modification if you're buying the note. So you need to try to track down the owner. If it is owner occupied, great. But if it isn't tenant, it also leads you to often finding if the borrower owes owns other property in the area or surrounding areas can be a nice critical thing. So occupancy, owner occupied, they're going to work with you a lot more tenant occupied, they're not going to work with you as much they may, especially if they own other assets. But unknown, hey, try to get somebody to drive by before you say hey, is it occupied? Who knows? Occupancy is key, especially with your exit strategies as a note buyer. It's vacant. You're probably not going to get re performing. It's vacant. It's probably going to need a lot more work on the inside. Hopefully the air conditioner is still there and go from there. 10. One of the most overlooked items when it comes to buying or selling a note is who the servicer is very important because the servicer, well first and foremost if they're self servicing, that's a big no no. What does that mean? Well Scott, I self service, I collect checks from the borrowers every month on that stuff. Well, do you have so many sort of software you're putting into. Are you collecting cash or checks? You have the copies of the canceled checks. These are all important things. What kind of statements are you sending out monthly to them? I don't like notes when they're being self serviced. It's a big no no for the most part. I won't buy them. Too many discrepancies in the paperwork versus if it is with a third party like Madison Management, even fci. I'm much happier that it's leased with a servicer versus non services because there's a third party that's collecting, sending out, making sure you're staying compliant. Another important thing is not all servicers are created equal. We bought a lot of contract for deeds from a company whose servicer I know is horrible and actually targeted that servicing company because I knew if we could get a hold of the right party contract with the borrowers, they wanted to talk to somebody where that servicer really lack that borrower outreach aspect of things. They try to make it automated. Borrowers aren't always going to be able to work out. They need to get a hold of somebody. So that worked in our favor when buying and selling. We could find out that it was this one servicer and we got more excited versus it being somebody else. Not all servicers are created equal. All of them have their own issues. All right, the idea is just getting to the point to know which ones have the issues that you can survive with or work through. Okay, Important thing to keep in mind. There are 15 critical items, that's 6, 7, 8, 9 and 10. 6 is knowing the interest rates, 7 is the due date, how much is due, how many months behind. Eight is the term, number of months remaining or how long was it financed for. Whether it's a five year to a 40 year, God forbid anybody's doing 50 year mortgages. Nine is the occupancy, is it occupied, is it vacant, is there a tenant in place or is it owner occupied? And then 10 who is the servicer? There is no servicer. I often say, well watch out, I'm probably not going to buy but if it is with my servicer, that's a great thing too as well. That takes us over to 11, 12, 13, 14 and 15. The last five and the critical items needed when selling notes. 11. Legal status. It's a non performing legal status. What I mean by that, well, has the foreclosure started? Have you started legal on it? Has the date, has it been filed so that you can start counting down the number of months for the days it takes to foreclose in a specific state. Is it bankruptcy? Have the borrower filed bankruptcy? Chapter seven, chapter 13, if they have filed that, you're able to check that out by jumping on PACER and looking@pacer.gov to see what the borrowers have filed. So that's important thing. If there's a performing note, great. You don't worry about that. But legal status is very important. Specifically if it's been performing or non performing in that aspect of things. And what I mean by that, well, if the borrower is in a trial payment plan and and legal was done, you can then suspend it. Or if they are not following through with the legal then or following through with the trial payment plan, then you can start up the legal process all over again. You also want to make sure, especially in states that have a statute of limitation on what they can go after, especially the last four years or five years, you need to make sure, okay, has it been five years since the bank started something so we can go that route and go from there? 12 is an important aspect of things that most people don't think about. Origination type. And not all loans are created equal. Some are downright ugly. Everybody okay? A lot of people have taken workshops, oh, I'm going to be an originator. I'm going to put owner financing on our property. And that actually does not work in your favor. I think oftentimes trying to I'm going to take a property back and fix and flip it or fix it up and then let's sell owner financing. You've got to be very careful how you structure that stuff because a lot of times, especially at this time of year, people are looking to sell their notes off to have capital back or to get their profits into it. And it's tied up in a note. That does not make sense. I prefer institutional debt institutional notes because they're written and they're underwritten cleanly. You have collateral, you have files, you have a 1003A loan application. It's owner finance. Especially if somebody's doing just one, it may not be clean. You may need to have an RML take a look at somebody who's doing on a regular basis. So that adds to a whole different little aspect of critical items. Especially if it's just newly owner financed, there's no seizing that kind of goes back into the number of payments but it's newly seasoned. I don't really value that. Okay, you need to know these critical items and they need down payments. You know, if it just was basically financed with nothing down. That's not a good thing as well too. 13. Taxes owed, are the taxes owed. What's the tax status? Is the borrower in a tax payment plan? That's a very critical nature of things that going to tax sale. So they could be on time with their mortgage. May not be on time with their taxes on a payment plan. Maybe way behind. Very critical thing that you're going to look at. And you need to know this before making an offer because you can jump on just about every county website out there and check the amount of taxes owed on a specific asset. That's why you need to know the address to check taxes. You know the owner's name when you're looking at the loan amount and going from there. 14. I put this in here. Relevant borrower information or story. You're going to be able to tell some information along the way. Hey, is it owner occupied? Okay, great. It's performing. I don't need to know much about the story. Reperforming. What happened? You lose their job, they get sick, they're back to work. Give me some relevant information. Store especially it's non performing or reperforming. It's performing great. We're fine. But a lot of people forget about to tell the story, hey, the bar was out of work but they're back in. Or the bar just brought 10 grand to the table to reinstate their loan. Okay, great. That adds a lot of value to it. People leave that off. I think you need to have that. What's the situation with the bar? What's the story? Tell me their country western song and and we'll go from there. Okay. 15. The most important thing and this drives me bonkers. What do you want for it? How much are you looking for? Are you looking for a wholesale fee? If you're wholesaling it, are you looking for a large chunk? What kind of color, what kind of discount are you looking for? Now if you're buying a portfolio, people may tell you just give me loan level pricing. Here's kind of what we're looking for. If they won't give you the loan level pricing aspect of things, what does loan level pricing mean? Means what the number, what they're looking for in each asset. Maybe they'll just give you a little bit of color. I mean that what's kind of discount they're looking for? Type of pricing roughly. Color is very important. It means discount. So that goes in definitely. What do you want for it? Yeah, I'm looking for 75% of UPB. Okay, great, we'll take a look at it. Or I'm looking for 40% of the fair market value or 50% of fair market value. Or if on the performing notes I'm looking, I'm willing to sell it at 85% LTV if it's A, which would be a 12 to 15% yield on the payments. If it's non performing, I'm looking to sell it at 60% of UPB because there's a lot of equity behind it. What do you want for it? Everybody tell me what you want so that if you want like 95 cents of the dollar, I'm not wasting my time going back. And that's probably the most critical aspect of it. What do you want for it? Because if you don't know what the hell you want for it, then why are we wasting time? That's the most important thing. What do you want for it? What are you selling it for? So I know to look at the right number so I'm not wasting my time and wasting your time coming back with a low ball status. So let's go back here, do a quick recap once again for everybody out there. Lean position and you know if it's a first, a second contract for deed. Okay, what kind of position is in it? If it's a wraparound mortgage to put that in there too. What's the underlying lean? Need to know what kind of lien position it's in. Seconds have a big thing would be a second lien or home equity line of credit or a private second need to know status. Is it performing? Non performing, reperforming? 3. The full address. I need to know the full address so it allows for me to check out and see what kind of true property it is. Type of asset, residential, commercial, single family, condo, whatever it might be. I need the full address. No sanitized list. No address means no time wasted on pulling numbers. So I can give you a number back. 4. What's the unpaid personal balance and payoff? What do they owe? Where is it? Is it split up in 50? 50 they have. The full legal balance is way above what the value. Is there a ton of equity looks like or is there no equity? Unpaid balance and payoff. 5. Value of the property. Give me some sort of valuation. A BPO compared to market analysis. God bless. Don't give me a Zillow value, but give me some sort of value. Take a look at it and see if it makes sense. Okay? A great example is a guy called me yesterday Hey, I got a note on a property worth 230. Well the 230 is the Zillow value. When you look at the photos online it's not 230, it's more like 110, 115 at the most. Okay, 6 is the interest rate. I need to know is it fixed? Is it an arm? Has it been modified down? Is it stair stepped up from basically 2% to 3% to 4%. Where is the interest rate at 7 is a due date an important thing? I need to know the origination date. I need to know when's the next due, the last paid date, the number of months behind. Those are all critical factors in performing or non performing notes. Number eight. Give me the full term. It's a 30 year term or 40 year term, a 60 month term, 120 month term, 180 months. Where is it? On the term? Basis of stuff, how many months are remaining? None. Any other occupancy? Like I said, owner, tenant unknown. Big difference in pricing and true valuation of an asset. And really what needs to be done if you don't know the occupancy. 10 who's a servicer? As we said earlier, not all servicers are created equal. Some just downright suck ass. Okay, some are horrible, some are great at communication, others that's horrible communication somewhat more. The borrowers do everything online and automated and they may not be the most savvy of borrowers. That's where it comes in. They may want to have more of a hands on approach. Some servicers I say no to, others I say yes and others I downright target so that I know I can move into my servicer who's going to do a better job. Also big no no, don't be a self servicer. It reduces the value of the note. If there's no servicer, the bank is self servicing it themselves. Look, I got owner financing, he's collecting reduces value. Pay the 15 $20 a month to put it with a servicer and it'll go a long way to getting a bid. 11 is the legal status. Has the foreclosure began? Has it not began? How many months behind Are they bar filed bankruptcies? The chapter 7 is it chapter 13? Do you have the PACER report to go along with that? That's an important aspect of that. 12 origination type. Was it under financed or is it institutional debt? Coming from a bank it was owner finance. Was this their one time they could do a year? If you do it more than once they need to have an rmlo. So let me see the RMLO documents. Make sure this is a true Dodd Frank compliant mortgage. 13 taxes owed. What's the tax? As taxes are up to date. Great. Taxes are way behind. Oh no. There's a pending tax sale. Oh crap. The important thing. 14. Irrelevant backstory to the borrower. Any relevant information we didn't know about that they were out of work, their mother died, they've moved out of the country, they own other real estate. Every deal has a backstory. As I say, every note is a country western song waiting for you to figure it out. Whether grandma got run over by a reindeer, the dog died, or they're going through the big dump mean Dallas. All right, and then 15. What's the damn price that you want for this? What are you selling it for? Give me some numbers on it. What? What do you want for? Give me some color so I can make a relevant bid or accept your bid. Accept what you're looking for and create a win win scenario. I should probably put that thing first because most people. Well he and haw if you're gonna he haul, it's not he haul. I need to know a specific number that you're looking for, especially in a pool basis. Give me some sort of color discount parameters and we can go from there. So Those are the 15 critical things. You would be surprised how many times we see things where there's only two, three address and the unpaid balance. Tell us the story, give us the things to talk about. Important thing. If you're gonna be posting this in an email, blast out. Take a few minutes to write out the story. Many of these things you can put quickly in a PDF. If you can do a lunch and learn picture of the property, you've got multiple pictures. That's always a great thing. But put the things in there. If you don't know the bed and baths, don't worry about it. But give me the full address. If it's occupied, it's an important thing. What are the taxes owed? What's the situation? So many banks and asset managers will provide notes on their spreadsheets. What's going on? Where is it at? What's the story? Morning glory. And that helps out as well too. Here's the important thing too. If you're going to mark it out for sale, take some time to get a good photo, clean it up, send somebody out to take a look at it or pull it off on a previous BPO or something. A photo tells a lot more than just a blank photo. I Have an asset here. And I still, as we're a visual person, are visual people for the most part. If you can have somebody take a quick photo, great. If somebody drive by, great. If you can sit there and have somebody take a quick video and talk through the numbers, even better. You're much more likely to sell an asset if you know the numbers and know the story and it doesn't. We're talking about writing a novel here. We're talking. Everything we just discussed can be discussed via video in 2 to 5 minutes. 2 to 5 minutes. We know the neighborhood. If you're driving by the neighborhood, hey, feel free to share if you learned something about the asset too that maybe the borrower didn't know. I mean, the bank didn't know about, hey, there's a burnout house next to it, or hey, there's crack being sold, or hey, the crime map in an area is rough. You have to realize that a lot of times people may not know exactly everything going on and that you buying the asset on an individual basis might find some information that they can pass on that can help that seller identify opportunities. Or maybe they discount the asset and discount the sales part. Like, oh, I did not know that. Well, let's fade your bid some and go from there. So that's an important thing to keep in mind. So many critical things when you're buying and selling out. Those 15 items will help you really a get all the information to the seller, I mean to the buyers if you're selling, or it's also the right information to ask if you're buying. Make sure you're a true buyer, not just a tire kicker. Make sure you're really buying for your own portfolio. And you're going to learn so much about notes by going through and buying for your own portfolio versus just trying to broker and wholesale to other note investors out there. So go out, take some action, Everybody. Hopefully those 15 critical steps help you in buying and selling notes. And that way we'll see you off the top, everybody. Bye, Sam.