EP 638 - The Top 20 American Cities Facing The Most Distress And Trouble In 2020

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 Note Closure Show. As always, Scott Carson. Excited to be here with you today. On today's episode, I want to talk about an article that I actually came across about a week ago, and I wanted to do a bit of a dive into it because I think it really brings up some points and things that are taking place that I don't think a lot of people think about. And I'm talking to a lot of the to those that are listening, a lot of other real estate investors, realtors, mortgage brokers, and I want to talk to those that keep thinking that there's not going to be an issue. And I hear this from some of my friends in different parts of the country. Dallas, Houston, Miami, Southern California, San Diego, Louisiana, even Northern California, San Francisco, and some other parts of the country, like, oh, the market is great here. We're not going to see a downturn here in our neck of the woods. And I have to tell people, look, you haven't seen the majority of issues. Yes. Do we know that there's been job loss? Just check. We know that. Okay. Do we know that people have been laid off? We know that. We know that businesses are closing. Check. Right. We know that people aren't paying their mortgage payments. Check. All right. What you may not see are other habits or other identifying factors taking place across the country. And I was very blessed to come across an Excellent article from WalletHub discussing some of the things that are going on. And I wanted to bring it up to let you guys talk about it because it identifies the cities that are being hit the hardest when it comes to what's going on in the country right now, okay. And it basically identifies the top 100 cities with most people in financial distress during COVID 19. Now, the thing I want to go through with this, okay, we know the unemployment rate has been slowly improving as the country reopens. We know that still 12.6 million Americans are still out of a job. Okay. In addition, one survey said nearly 69% of Americans would find it somewhat difficult or very difficult to meet their current financial obligations if their next paycheck were delayed even for one week. Okay. People in some cities are faring better than others. Okay. And what WalletHub did is it compared the 100 largest cities with data limitations across nine key matrices. Okay. Includes factors like the change in the number of bankruptcies filings between June of 2019 and June of this year, the average credit score, if it's gone up or gone down, and the share of people with accounts in distress. And means multiple accounts in distress. Credit cards, car payments, student loans. It also did something interesting. I found valuable places in the cities where people are actually googling, looking for loans, looking for bailouts, looking for a variety of issues that deal with finding money for the most part. Okay, so I'm pulling up this list here so you guys can see it. And I was really surprised about how it hit. And so literally the nine things it talks about obviously is credit score. But here's the thing. Search interest for debt. Search interest for loans. That's two different things. Bankruptcy filings increasing, average number of accounts in distress. People in distress. We know that because of forbearance agreements or people being laid off credit scores. And they average the total score. Now, what might surprise you and might not surprise you is the cities that kind of hit that part. Now, you know, the first one or two is not a real big surprise because of everything going on there and how heavy it was hit with everything being shut down. But the number one city facing difficulties, see, it was the most people in financial distress. It actually Las Vegas, Nevada. And their ranking score across these nine matrices, they had a total score of 72%. It was the number one score. Credit score was, okay. Ranked 14. People in distress. Number five. Average number of accounts in distress was number two. So people living in Vegas, that says that they're distressed on mortgage payments. Bankruptcy filings decreased. They were mid route, about 41. Searches for debts was roughly in the 15 area. So Vegas, think about it. Obviously, big tourism, big city when it comes to living there. I mean, who doesn't love Vegas? I love Vegas. We've been talking about going back to Vegas, Okay? But what happens in Vegas doesn't always stay in Vegas. When it comes to a national pandemic. Now, the number two city was Chicago. Chicago, Illinois. Overall city score, 34th. When it came to credit score, same thing. About 33 ranked number 33rd for people distress search for loans. Though it ranked number one. People that are looking for loans, looking for debt. It came in at number two. Now, the biggest surprise on this list so far was 3, 4, and 5. Okay. And I only say this because the Fact, I'm in Texas. In Texas, we've been very blessed. Even going back to the previous Great Recession in 2008, 2010, we didn't lose a lot of value. Texas stayed pretty fairly level. And I have a lot of friends in Houston, like, oh, my God, everything's going great here. And I think Houston, surprisingly, Houston came in third. All right. I don't think it's just because of COVID Houston's been taking it on the chin with the hurricanes and the floodings and is actually the number one county in Texas with the increased number of foreclosures and defaults. And that's been the case before COVID And Covid didn't help anything. So Houston came in number three with a score of 66.7. That followed up, surprisingly, with the Alamo City. San Antonio, Texas, came in fourth. Okay. And then surprise, surprise, number five was Dallas, Texas. All right, Dallas, Texas, IT ranked in 39th for credit scores. People distressed, 58 out of 100. Average number of counts of stress lowered, number at 69. The bankruptcy files top 30. Search for people looking for loans and debt that rank pretty high. San Antonio. I wanted to put this back. I forgot to mention this. Number four ranked number four for credit score drops since COVID kicked in. Okay. Number six we talked for five was Dallas. Six was Phoenix, Arizona. That came in at six. Seven was LA, California. That's a big surprise, LA. And then number eight, surprisingly, was my hometown of Austin, Texas. Austin, Texas, did not do well. It's ranked eighth as the city being hit the hardest with COVID which I find it kind of surprising. I had a score of 65. Now, the numbers between 3 and 8 were less than 1%. So Austin, Los Angeles, Phoenix, Dallas, San Antonio, and Houston all could have been in that mark, right? Anywhere from three to eight. But surprisingly, surprisingly, we had a couple cities there that hit very, very hard. Now, you look at Miami. Miami came at number nine. All right, Miami, Florida, score of 60. And then 10 was Fort Worth, Texas came in at 10, just under 60 at a score of 59.72. So you had five cities out of Texas in the top 10 cities being hit the hardest out of the hundred. So that's the thing you got to keep in mind. Our biggest cities in Texas are. Part of the problem are people that are seeing issues when it comes to credit score decreases, number of distressed accounts, people in distress, bankruptcy filings, and certain people searching online for debt assistance and then also for loans. Okay, so five out of the top 10 fall into the Lone Star State, Houston, three, San Antonio, four, Dallas, five, Austin eight. And then Fort Worth, 10, which is surprising. Now, as we start dropping out of the top 10, Memphis rolls in at number 11. Okay, I could see that being hit pretty heavily hard because of it ranked number five. Actually it was a fifth highest when it comes to credit score drops. That's not really kind of surprised with Memphis being a highly rental market. 85% of the city are renters. Number 12 was the Big Apple. New York, New York. They came in at a score of 57.72. San Diego, surprise, surprise. San Diego is the 13th largest impacted city out of 100. And that's kind of, surprise, very surprising on that because San Diego's always been so great and Internet people there. But yes, it's been people that have been hit hard. They didn't do so bad. As far as credit score drops. They ranked it at 68. Number of people distressed, 54. The accounts in distress was low at 85. But when you start looking at bankruptcy filings, you saw it ranked number 13. That was the second highest behind Austin. Austin came at number 10 for bankruptcy filings in the last year. Out of the top 100. Rolling on from San Diego, you go across the country to Jacksonville, Florida came in at number 14. And then Orlando. I thought Orlando would actually rank higher on the list than they did. Orlando is the 15th highest ranked city. Feeling in distress. Now, it wasn't so big across the board when you look at credit scores stayed about the same. It was ranked 85 out of 100. But what was surprising was the fact that it ranked 15th in boast people in distress. That's probably because of all this touristy Disney, Universal Studios. Average number of accounts distress that came in ranked is 15th. From Orlando, you see Cleveland, Ohio came in at 54.4. Laredo, another Texas city down south near the border, came in at 17th. It ranked number three for the amount of people in distress out of the top 100. Okay, three. Right. It ranked third for that. Six. It ranked six for average number of counts in distress. Okay. When you figure those two, I would have figured that the FICO scores would have been a bigger hit in top 10. But actually it would be ranked 12th for the biggest change in FICO scores. All right, rolling onto that, you had Indianapolis coming at 18. Philadelphia was 19th, and the nation's capital, Washington, D.C. was in at 20th. Atlanta came in at 21. Detroit 22. Mesa, Arizona was 23. And then surprise, surprise, North Las Vegas came at 24. And Des Moines, Iowa came at 25. Some other numbers on here was kind of hard. Tampa was 26, Nashville 27th, St. Louis 28, Denver, Colorado 29 and El Paso 30th. Now, I'm not going to go through the whole list here of 100 on these things because it's just you can go literally to the link and we'll put the link in the comments on the podcast and go to the website. We'll also put it in the YouTube video in our description so you can click on it and check everything out for you guys as well. But it was an interesting article. And that's the thing you got to realize, ladies and gentlemen out there, it's just not the forbearance numbers that we see. It's just not unemployment numbers. And when you take these numbers that we see that they're disclosed. And then you roll that in with what we're seeing from Barr Financial list as far as the banks with an increased amount of defaults and that number going from $85 billion in Q2 to over $120 billion in Q3, where the numbers increased by close to 30/billion. It's affecting people in a variety of fashions. Yes, if they're not getting paid, they're using their credit cards to pay for some things, we can understand that going. But it's also people are having to pick and choose. Are they gonna pay their student loans, are gonna pay their car payment, are they gonna pay other debts, timeshares, Are they gonna pay other loans? They have second car, car payments. That's the thing to keep in mind too. Now I'll give you an example. JP Morgan Chase, big lender sent out like everybody else did. Hey, if you've got an auto loan with us or a mortgage, you know, a home with us, let us know. You can apply for a forbearance immediately on our website very easily. And it was 100% approval right there for 90 days. And they're willing to extend it all out there for you as well there. So I think the numbers might be a little skewed that it may not be figuring in that you may have people out there that could have qualified for forbearance agreements on a variety debt that just never called, never called on their student loans, never called on their credit cards, never called on their mortgage loan payment or whatever else might be out there to delay things. And they just assume, which we all know assume means. It means an ass out of you and me both. But the thing that you have to keep in mind, ladies and gentlemen, here is when you start seeing these identifiers. Now, does this mean we're going to see foreclosures in the fourth quarter? I'm going to say. I'm just going to go and tell you right now, we're not going to see a huge amount of foreclosures taking place in 2020. We're going to start seeing those in Q1 of next year. That's foreclosures. That's not note sales. Big difference there. What you are seeing is we're seeing a variety of banks have sent us lists to look at where they have the foreclosure dates that have been delayed. They were either set to go in Q3 or Q4 that have been pushed out to who knows when. Will it take place in the first quarter of the year? Will it take place in January? Is Biden or Trump, whoever ends up winning the election, gonna delay things another period of time, another 60 days, 90 days, 30 days? I honestly don't think even if they let the December 15th executive order expire, I don't think Trump will probably extend it. He may very well before he leaves office in January or if he's still around in office, who knows? Because we still don't have a clear winner as when I'm recording this right now. But what I'm trying to get at, ladies and gentlemen, and this is something you have to keep in mind, it's gonna be different. It's not gonna be like a gong goes off dong. So suddenly we have this wave of foreclosures. What you have to figure in when it goes from an executive order like that, then it goes back to the statewide level. What happens at the statewide level? And each state is completely different than we know when it comes to foreclosure timeframes. Texas, obviously, fastest in the nation, 21 days prior to the first Tuesday. If you file notice of default demand letter and everything like that, boom, you can foreclose the fastest. Georgia second. And then you look at what's going on in other states. New York being in the top 10 and one of the longest foreclosure timeframes. It's going to take a while for banks and lending institutions that haven't filed in New York, New Jersey, the two longest states to foreclose, for them to get that docket rocket and rolling again. Now, will they have the rocket docket? What's the rocket docket mean? Well, it means if it's a vacant property, you can expedite the foreclosure. Yeah, New Jersey's had that for years New York has still always been kind of slow, two plus years to foreclose. Will we see an increase in Florida? Will Governor DeSantis step in there and delay foreclosure, delay evictions with everything taking place, Especially when you have to look at what's going on with the cruise industry, really still suspending things until the first of the year. Yes. The CDC and the national cruise industry come out and say, hey, you could technically start doing things here in November, but it's going to take them a month at least to figure out their sanitation procedures or cleaning procedures, what to do, how to get everybody on safely, how to get everybody off and how just to interact and all that goes with the cleaning stuff. What ports can they go into? What ports can they not? Will they just be domestic? The Bahamas or Barbados and back or their own little islands in the Caribbean? It's going to take a while to get those people back in the country from other places and going from there. So do I have a clear answer? Heck no, I don't. But what I can tell you is, and this article tells you more than anything else you need to take a look at is look at what's going on besides a person's mortgage. Look at what's going on besides Covid and job loss. There's a lot of other factors that are growing and building kind of that pressure, that pressure cooking underneath people's feet. If they can't pay their rent, can't pay their mortgage or aren't paying that because they don't have a job or they can't get caught back up, they've had to live in other means, credit cards being the number one thing. And if they don't, they eventually run out of credit cards or credit card companies reduce lines of credit, which they've been known to do in the past, which they've already started doing. If you've been using it now on the opposite side, if you are on the good side, where you've been paying your mortgage so you've been responsible through lines of credit and other things, and you have business accounts, you're starting to see an increase where the banks and credit card companies are giving you lines of credit because you've been responsible with it. Those that need it the most, that are searching for it and stuff like that, you're not seeing it. Those that don't need it, they're giving to. I know it seems kind of ass backwards, but think of this. It's the way the banks look at you as a borrower this way they evaluate you as an individual. What are you using? How smart do you use it? Only using 35% of your credit limits. Are you paying on time? Are you paying extra? Are you using it smartly or not using it smartly. You have to keep all these things in mind. And that's why I want to put this out there to everybody. Look, if you're investing in a city that's in the lower of the top 100, okay, you've proved me wrong. But I was very shocked and very surprised to see the top 10 top 20 cities in America being some of those that have supposedly been doing the highest real estate markets in the country. Now, Vegas really isn't surprised at number one. New York really is a surprise at 12. But when you look at the Lone Star State, you look at some of the other things that pop up in there, those are big surprises. And I think everybody has gotten so caught up in what's going on in the election and who's going to win and who's not going to win and who's doing what. We've taken our eye off the ball. We've taken our eye off of where everything is at. And that's not a good thing. You've got to know what's going on. You've got to stay abreast of the situation and realize, yes, there are going to be some opportunities in those cities. I don't think so much in Texas, in those five cities because it's such a fast foreclosure state. I think the banks are going to end up breath room or they'll move the debt off or just allow people to forbear and bump the six or nine months to the back of the loan like a lot of the government banks will do. But that still means more so than anything else, you have to look at the commercial loans too. Commercial loans in each of those top 10 cities. And we're already seeing that here in Austin. When I do leave the house.

Which.

Is usually go to the grocery store or go to the Lowe's or go to the movie theater, go get breakfast tacos on the weekend, go to the farmer's market, I try to take a different trip and wait place around Austin here on the north side to see what's going on and see which businesses are closing, how much more for lease signs am I seeing? And I try to point those out. And for the most part, it is a mixture of not only mom pops that are struggling, but also national change. They're closing, shutting things down and you're seeing an increase in this. I see our mall has really struggled. I've seen our mall up on the north side here, Town Lake Lime, all they call it, has been struggling for a few years in major change. The mall's been a struggle thing, but also seeing hotels that have been under construction for two years where the construction has basically come to a stop. We got one right around the corner here and I keep sending an email to the asset manager of the bank whose name is on the sign out there trying to see if they're willing to sell that note because I guarantee they're going on two years now with any payments. And that hotel has been dramatically delayed in a couple of fashions. It can be hard to tell what happens as things don't improve. If they continue to keep venues closed and we have another peak, it's going to get a lot worse. So for those of you that out there, oh, it's just going to be great. We're not going to see a big decline. I'm sorry, I'm going to be the devil's advocate here and counter you on that because of everything else that I'm seeing, everything else on the pulse. It may be like somebody's walking along and it could be the perfect image of health, but underneath they're starting to have their arteries clogged. And I'm starting to see that clogging of the financial arteries in the country and specifically these cities out there. So stay tuned. One of the best things I think that we have done in the last six months was definitely doing the top 40 markets on the not nation top 40 tour that we did highlighting different cities. We are seeing an increase in cities that we highlighted and it was very surprisingly, I'm actually surprised at Washington D.C. and Philadelphia have had the two most amount of hits on those video replays just working organically. People are starting to look, people starting to pay attention and actually those videos which average about an hour long, somewhere between 45 and 60 minutes long, they're seeing an above average play amount, not two minutes, not eight minutes, but 16 to 20 to 30 minutes on those videos. So that tells me more people are looking for information in those cities. They're looking to see what the opportunities are and they're also looking to see where the biggest pain points are. Not only residential but commercial wise. So ladies and gentlemen, it's going to be an interesting 2021. The election will have nothing on what we're going to see taking place next year and beyond. And I just want to just respectfully advise you to keep an open mind and pay attention to things. You are seeing stress factors take place. And I love what WalletHub did with this article. He's talking about not only the search engines, but the number of bankruptcy filings. You're going to see that number dramatically increase in the next 12 months. Now, one nice thing I can actually do on this list, I didn't even think about this until right now. I can go on here and filter it by that number and you can see. So when you look at the top cities that file bankruptcy, Des Moines, Iowa, which ranks 25th nationally on this 100 list, has a number one bankruptcy filings. Honolulu, Hawaii, number two, not a big surprise, there was 33, 35% unemployment rates. They were actually ranked 56 nationally, which I find it kind of surprising. Richmond, Virginia was number third in bankruptcy filings, number 47 overall. Plano, Texas was fourth in bankruptcy filings, 60th overall. Denver, Colorado, Rocky Mounted High number five and they ranked 29th overall. Winston Salem was number six and they increased filings year over year and they ranked 50th. Louisville, Kentucky was number seven and they ranked 36 nationally overall. Birmingham, Alabama ranked eighth and was 39th overall. It was eighth for number four bankruptcy filings. Omaha, Nebraska was number nine and they ranked 66th. Austin came in at 10 and they were ranked number eight as a worst city. And so there's your top 10. So hey, am I going to see some things here in Austin, Texas? I hope so, but I also hope not. I mean we're already seeing things. So just please keep in mind the bigger city you live in, you may not see as much stuff, but you have to start looking at the city yourself versus where you're going. If you're in the same trip every day, driving to work, driving the office, and you're taking the same road, it may not look differently along those main thoroughfares. What's looking differently is the sub thoroughfares, those I don't want to say secondary markets, but those secondary roadways, those other areas besides the main drive to and from your city downtown and things like that. So keep that in mind. Everybody be smart. If this tells me anything that America needs help more than anything else, borrowers need help with more than anything else. It's interesting to see. I'm really looking forward to talking to Merrill Chandler next time we have him on to see if he has any insight to what FICO scoring new scoring thing we're doing. If it has anything to do with his article from Wallethub it would be very interesting to see. We all know that FICO and the banks are looking at your credit scores. They're pulling your credit soft pulls, checking things out, whether you have a major purchase or a major thing. It does affect you across the board. But it'd be interesting to see what happens on that. I know that I've sent the article to Merrill and he's very interested to be on episode to talk more about that. But there are opportunities if you know where to look and how to look at things. And could you literally jump on your county records and do a search for people filing bankruptcy in your city and states? Yes, you can. You go to patriot.gov and do searches for stuff like it happens all the time. Attorneys have been doing that for years to market to people. Can you look at search histories now? Not the easiest thing to look for search histories, but you can also maybe even reach out to TransUnion and other credit companies to see about buying data, increased number of delinquencies and other things like that might be a potential marketing tool for you to buy a list like that. But guys, gals, my fellow Americans, fellow note investors out there, it's going to be an interesting time. Just take a deep breath, breathe and realize that, hey, there's a lot of things going on that not everybody has all the information and you have to make some decisions for yourselves. One of the big things that I brought this up was to give people an idea of some of the cities they'd be targeting. And if you're getting listed from asset managers, you know what I would do? I would take those hundred lists and that's my 100 cities. Getting rid of New York or the states that I don't want to buy in because of either, you know, like Kentucky has the million dollar bond or New York has such a long foreclosure process, New Jersey takes forever. But the other places out there, you know, besides Chicago, forget Crook county. But that would be my hot list. Anything in these cities, my top 90 cities, that would be a good starting point for you. If you're looking for deals and you started targeting banks out there and you're starting to get lists, sort of looking at the cities we are getting listed. And when we see lists come in that there's cities that we don't recognize, we don't know, hey, just kick them to the left and keep moving on. If you're getting a list in from a bank or asset manager or you're seeing in a rural community, let me give you an Example, it's an hour outside of major city. You should not be paying the same for that price for that asset as you would if it was in the main city. Why is that? Well, let me give you an example. If I'm buying in Austin, Texas in an hour, let's just say lagrange. Okay, lagrange, it's on the way to Houston, you know, or even Elgin. Elgin's about a half hour, 45 minute drive. But Lagrange or Somerville, here we go. Somerville is a better example. Somerville is a small town, but since it's in Texas, a lot of ask me, oh, it's a Texas asking to foreclose quickly. It's far enough removed that if you have a big spike taking place in the city of defaults, foreclosures, it's going to be hard to get crews to go there to do the work. We saw this taking place last year and the year before in Flint. Flint's a pretty good sized city, lots of pretty good deals. But it was hard to get a rehab crew in Flint because they would rather be in Detroit getting paid bigger bucks to do stuff in Detroit. So you have to take that in consideration. Our buddy in Houston, that ran into two even at the storm, he bought a lot of distressed properties with the idea that he could rehab them. He wasn't buying the notes, he was buying the foreclosures, getting them as distressed. And it took twice as long for his rehab numbers because it was difficult to find the cruise. So all of his financing was completely, all of his projects are completely under finance. And his money costs ate him alive on his 20 projects because he figured six months and it took over a year. And just keep that in mind, ladies and gentlemen, you want almost a double your cost. If you're in the note business and you're raising capital, you need to be changing agreements from 12 to 24 months to 24 to 48 months or 24 to 36 months as a minimum. Because if we do have another delay, another kick out and we'll know that here shortly in about two weeks after this episode airs. What's going to happen with that? That's going to have major impact on what you're doing and how your closure, how you're evaluating things. So if you're buying notes in those fast foreclosure states and the borrower isn't interested in a forbearance and you have the foreclose, expect to hold it. But you also got to be a lot more flexible. If you wanted to take the property back and foreclose. You got to be willing to do a forbearance or some sort of trial payment plan for a period of time to get them back on track. But ladies and gentlemen, it is an interesting time to be alive. It's an interesting time to be an American. Definitely an interesting time to be an investor. Whether you're in the rental markets, the wholesale, on the fix and flip, residential, commercial, there are a tremendous amount of opportunities if you know where to look. You just got to get off your ass and roll up your sleeves and get to work. And I encourage you all to do that. And if you're looking to learn more about the note business, hey, highly encourage you. Check out our one day Note weekend class. It's a great way to dip your toes in the water in the Cliff Notes version of note investing to see if it might be something you're truly interested in. And with the amount of opportunities taking place, guys and gals, I guarantee we'll be six to 12 months ahead of most investors out there looking for other deals. So go out, take some action, be safe. God bless the USA and we'll see you all at the top, everybody. Bye Sam.