How to Pick a Loan Servicing Company for Your Note Business

Foreign.

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 panties 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 Nodes, Scott Carson.

Good morning, good afternoon and good evening everybody. Hey, welcome to this episode of the no Closure show. As always, Scott Carson. Excited to be with you here today. And today's episode, as you probably read, is all about kind of the loan servicing, how to pick a good loan servicing company to manage your note portfolio. And this is a very frequent question we get do I need to go get hire a servicing company? Now like one of our newer students who went through one of our workshops, Judy just asked this question, hey, I'm looking to do this. Do I need to go hire a servicing company before I even get around to buying my first note? And the overwhelming answer is no, you don't need to go hire a servicing company now until you've owned something. And let's walk through this a little bit here first and foremost, okay? Now I've come up with a list of five big keys that you need to consider when buying notes and hiring a servicing company. But before we get to those five keys, I want to walk you through this process some things to keep in mind.

Okay.

A lot of the times when you're buying either a performing note or a non performing note, you're going to ask for a full payoff statement, right? You know, making sure that the, the unpaid balance and legal balance that you're bidding off of matches up.

Okay.

And that will tell you who the servicing company is of that payoff. Now if it is being self serviced where the investor, whoever holds a note is servicing themselves, that means they're collecting payments. That's a red flag for me. I don't like to deal with self serve servicing they need, especially with owner finance notes. If you're got an owner finance notes, put it with a third party servicing company, put it with somebody to collect the payments to keep track of this stuff that you don't have to, you don't have to mail statements out that kind of stuff. If you're doing that to save on 25 or 35 bucks a month, it's going to cost you more in the long run when you get a lower bid.

Okay?

But when you're buying, I'll give you an example, people are either buying performing or non performing notes okay. So if you're buying performing notes and the servicer will allow you to retain servicing with them where you keep the existing server servicer and I would if there's long, as long as there's not some minimum or huge amount that the the servicing company requires. There are some servicing companies out there that require you to have a minimum number of notes with them or a minimum monthly bill. Okay, we'll talk about that more later on. But if you can take over service or not take over, but you can buy those notes and keep the existing servicer and it's a performing portfolio, do that as long as it's not ridiculously stupid expensive, do it that allows for that borrower to keep making the same payment to the right comp, the same company without any hiccup of, without having to try to find who they need to mail it to, how they need to set up ACH or automatic payments, try to keep it servicing coming, performing, that's pretty easy to do.

Okay.

Non performing notes, you may be able to keep an existing servicing company or some servicing companies don't want to deal with non performing. So you may need to find a different servicing company.

Okay.

Or if you're buying like reverse mortgages, you may need to either A have to keep it with existing company or B move it to somebody who's licensed for Fannie Mae, you know, HUD those type of loans and there's a few out there that are licensed to hold those. Not every servicing company is going to be licensed in that area. Also, you know, depending on where they're licensed or what states are licensed, that's one of the big things as well. So keep that in mind. Servicing A, it's not something to be scared of. Servicing companies are going to send you three, four page information about your entity, your llc, what you're buying, that kind of stuff, you know, all your LLC information or whatever entity you're using, they're going to ask you for that and that servicing transfer is going to take place between the existing servicer, whoever the existing servicer is from your seller reaching out to your company, keeping with either A, keeping it with the existing company so they'll just need your information to set up a new account.

Okay.

Or B setting up and transferring that information to your company, whoever you're hiring, if it's a new servicing company and that can take 30 to 45 days for that to happen. So one of the things to do is right before the day you're supposed to fund. Yes. If you're going to have to get a new servicing company. You're probably going to have to do that a week out. Okay, from funding just to let them know who you're going to go with. That's fine. If you're going to keep the existing servicing company, you just need to set up a new account, pick up the phone, fill out some information and pick the different type of servicing. We'll get to that in a second. But it's not meant to be complicated. You know, I'm gonna tell you right now, all servicing companies suck in some sort of fashion. All right? Not all are created equal. There was a servicing company out there when we were buying a lot of contract for Deeds, was servicing this stuff on behalf of harbor and they were just horrible. The servicing company sucked. I couldn't get a hold of somebody there half the time. The borrowers couldn't get a hold of anybody there at the time. And I knew that if we bought these notes from Harper, these contract for Deeds and moved them to a servicing company, who was even would answer the phone? We would have like a 50 reinstatement rate. And that's exactly what we did. So we knew that. Hey, part of the issue with this portfolio being non performing is that the servicer was just horrible because a good servicer can help, can make or break your portfolio. And we've had both. We've had good ones and we've had bad ones. Okay, so let's go through these five points and I'll probably cover crossover and cover these other things. But these are some things to keep in mind when looking at servicing, buying, hiring. So these are our five keys to servicing success for you guys to keep in mind. Okay? Come on. Oops. That's not what I want. All right. I don't know what's doing. Okay, let's try this again. All right, There we go. Okay, now I've got my slides up here. All right, so like I said, servicing companies struggle. Some are better than others. Now if you're like trying just to use a company, it's like a local guy, especially the owner finance notes. If it's just in a local state, like you're just in Texas. It all depends on the asset class and how difficult that asset. If it's performing, pretty easy. But if it's not performing stuff that takes a little more more outreach.

Okay?

Part of what I like buying institutional debt is it's pretty clean paper and usually with a very professional servicing company that's got licensed people who've gone through fair debt collection practices, it's not the originator of the note trying to service itself there locally or a mom and pop shop that might have one or two people. You don't want to be in a mom and pop shop. Trust me on that. It's difficult if you find out that you're with a servicing company that's experiencing difficulties of keeping staff or you're constantly getting somebody else from home on the phone or it's hard to get somebody on the phone to set up account. It's probably going to be hard for you to get a hold of somebody when you need to talk to them about your portfolio or about your non performing stuff. So let's first talk. The number one key is licensing, all right? Making sure that your servicing company is licensed in the states that you're buying.

Okay.

If you're not buying in all 50 states, you don't need a servicer that's licensed in all 50 states.

Okay.

There are several servicers that we use that aren't licensed in all 50 states. Because I'm not buying in New York where it's difficult to get license. I'm not buying in New Jersey. I'm not buying in Alaska or Hawaii or Puerto Rico.

Okay.

So keep that in mind. Now you're probably going to have two or three servicing companies. You're probably going to have one for stuff that you buy that's about to go to foreclosure and if it's within 90 days of foreclosing, if you can keep it with that servicer and they finish up the foreclosure process, that's great. Keep it with them. There's no but there's no additional cost, stuff like that.

Okay.

And if they're licensed that state, just keep it with their finish the foreclosure out and move on to something else.

Okay.

The licensing key and making sure that they're licensed not as a as but al but as a debt collector in that state. They're not just. There are some servicing companies that try to get around by collecting in other states that they're not licensed in. So keep that in mind. All right? And some won't get licensed until they've got a specific minimum amount. Like we were used to deal with Kobe Financial and they weren't licensed in Arkansas. They were willing to get licensed in Arkansas if they got more than one note, you know, and we had one investor that was buying a note in Arkansas but you know, they ended up on no, we're not going to have more than one note in there. Well then Kobe was Like well, we're not the right fit for you.

Okay.

And that's okay. Kobe Financial is a great servicing company. If a you just have performing stuff now and you've got some minimums, we'll talk about it later on.

Okay.

But licensing, it's very easy. Go to the mls, you know, National Mortgage loan servicing registration thing or whatever it's called out there. Type in the servicing company. It should pop up exactly what states and what type of licenses the servicing company has that you're making. So whether you're dealing with Allied or Select Portfolio Services or Texas Servicing or whoever it might be, you can check it out by seeing it. Like I said, making sure that they're licensed in the states that you're buying notes in.

Okay.

They're registered as an entity in that state is important thing. Now servicing options by options, most servicing companies will have usually one, two or three different forms of servicing. Like some like you know, loan servicing center only wants to deal with performing notes. They don't want to deal with any non performing and they only want non performing and non judicial states or it's easy to foreclose and got to jump through the hoops and stuff like that. So understand what their options are. They're, you know, you usually have full collection services where the servicing company is doing everything. They're doing the borrower outreach. They're not only collecting and sending out statements but they're picking the phone and calling four or five times.

Okay.

A month to your non performing side. That's okay. A performing note usually is going to cost you about 35 bucks a month. 25 to 35 depending on servicing. Non performing can run you as high as like 95amonth for non performing plus any a la carte fees added on by a la carte fees. I mean if they send out a door knocker that's going to cost like 45 to 85 bucks. If they're going to do double check your taxes and pay the taxes that may cost for tax. You know, monitoring they also and not performing may also get a a fee for every type of workout they get. There may be a fee for them to get that borrow back on track. They may get a flat rate. If it's going to be a deed and loom. If it's going to be like a foreclosure, they will probably get a fee. You also have to make sure and double check your servicing agreements with these that they don't charge you a fee or huge fee to move the assets off to somebody else. All right. A few years ago Madison management changed up their servicing and now we're charging an exit fee for you to transfer notes off to somebody else.

Okay.

You also will want to adjust how you're making payments on the servicing company. If you're buying performing and non performing, it probably makes sense for you to have the servicing fees deducted from the money collected. All right. You don't want money to come into your account and go back out. Just have them take, go and withdraw it from what's being paid and then you're just getting one wire transfer of what's left over or they'll notify when there's a shortfall of something. Okay, but I said usually performing, non performing and then self, you know, self managed is another form that some servicing companies, this is where a, the loan is boarded with the servicing company and their licensing is, is okay, covers that, but they're not doing any borrower outreach. For those of you that start getting above 20, 30 non performing notes, at some point it's going to become more beneficial for you to hire a servicing professional or a VA or somebody else who gets licensed in debt collection or takes the fair election fair debt collection practices class and starts reaching out. That's what we did. It made more sense for us to just pay $20 flat rate a month or $40 flat rate a month to a servicing company. And we had a third party who worked for us independently because she was much more aggressive in borrower outreach. She was able to get a lot more people back on track faster, often in seven to 14 days versus 30 to 60 days, which is what it would take this other servicing company to get. Rock and roll. Okay, so see if they have self managed or not self service, but self manage when it comes to non performing stuff, that will save you a bunch of money. Now if you're a one man band trying to do yourself, trust me, don't try to do that. Just put it in the non performing and give it to the servicing company to do. All right. It may cost you a few more bucks a month, but at least you'll have somebody to reach out to.

Okay.

And that'll get. That goes into further on with point number four being services. We'll talk about that a second. But so we talked about license estates, the different options that they have available. Full client, you know, full managed client, managed performing, non performing. Ask out what they have the special. Now minimums, this is a big thing. Okay, We've run into it where a servicing company has specific minimum notes required for Us to have them for business. Like I'll give you example, we were getting ready to buy some notes in Halo was a servicing company at Dallas. And Halo required 100 notes minimum. If you had less than 100 notes, they didn't want to deal with you or they would penalize you monthly to have them as your servicing company. Because it comes to, you know, charging 25, 35, 45, 95 month isn't making a lot of money. And sometimes these smaller accounts, when you've got somebody who's on the phone talking to them about your account, it just doesn't become profitable. You get what I'm talking about, right? So look and see if they have any minimums. Now when you're a brand new investor, I'm not gonna lie, it's gonna be hard for you to find good servicing companies that will allow you to have one or a small portfolio notes. But there's a few out there that will allow you to do that to get the ball rolling. The idea is to go not just to hold one, two or three notes, but to buy more notes. And what we see, especially with our coaching students, they're going from 1 to note to 3 to notes to 5 to 20 notes pretty rapidly and growing their portfolio. Some people have closed on hundreds of notes and gone that route and self managed them or brought somebody on board to help them manage the portfolio. We have even one person who started a servicing company, he's not doing a very good job because he's micromanaging. And I wouldn't use a servicing company just because it's hard to get anybody on the phone there. But he decided to do that. Totally dead set against it. I would not want to own a servicing company at all. All right. It's hard to make a lot of money, like I said, when you're making 35 to 40amonth and that's it per month per loan. Okay, but the minimum side, we also ran into this with a company called BSI. They want a minimum bill of $5,000 per month. But when you're buying two notes from them, it doesn't make sense to keep that with them. To get charged five grand when we would get to pay, you know, charged 180 for two non performing notes somewhere else. This keep in mind, and that's, you know, that's important thing, you know, minimum up, you know, we're about 90 days from foreclosure. No, it does make more sense for us to transfer that and get them somewhere cheaper for that. So that just keep that in mind. So that's what I mean by minimums, minimum number of loans, minimum bill monthly. Okay? So ask those questions. What do you charge monthly? What do you charge for your a la carte fees, your minimum stuff. All right, Service and support.

Okay.

I can't tell you how many times I've like wanted to cuss out somebody on the phone from the servicing company. And here's one thing, pick up the phone and call the servicing company before you hire them. If it's easy to get a hold of somebody, it's going to be easy for your borrowers to get a hold of somebody to make a payment. That's the first thing, making sure they can get a hold of somebody in a timely fashion.

Okay?

I'm not a fan of FCI because they take forever to get a response back. And it's always you got to fill out more forms, more paperwork. When I've already filled out forms. There should be a way to automate a lot of that stuff.

Okay?

But they're one of the few companies out there that will work with one off investors. Doesn't mean you're gonna get a lot of service.

Okay?

And that's the thing, it's finding out when you board your loan with a servicing company who is gonna be your asset manager and how often can I reach out to them? Not daily. And that's another thing too. Do not bother the servicing companies on a day in, day out basis. Yes, you are entitled to get an answer back to your questions, but don't try scheduling a phone call every day with the asset manager. He or she is not only dealing with your notes, they're dealing with other people's notes.

Okay?

So keep it in mind if it's a non performing note, a lot of times in the note investment space it's a hurry up and wait. Of course, if you don't get an answer in a week or don't get something done like you're trying to get a payoff or bidding instructions on to the attorney, that's important. You gotta expedite that. And some servicing companies are glad to allow you to communicate. Communicate directly with the attorneys or the legal side of it. Others want you to go through them directly. This is why I don't usually like to hire the attorneys from the servicing companies. I want to hire mine individually or have them, you know, bored to work with the servicing company. But I'm still going to commute directly, especially when it comes to attorneys. I've had several times where I get an email and it's two days after the email was sent in for requiring forbidding instructions. And the foreclosure auctions gone through and I wasn't able to give my bids in directly.

Okay.

My bid instructions, attorney to bid it up to that. Okay. Same thing with support. When you talk with servicing companies, talk to the asset manager. They should give you some options. I know as a brand new investor, unless you've gone through our coaching or classes, you may not know which way the wind's going to blow on a non performing or the options that are available. I'll give you an example. I had a phone call on but Thursday with one of my coaching students, Cal Ewan. He's buying a note in Pennsylvania. The borrower filed a, the plaintiff who he's foreclosing on filed something with the courts to try to delay the foreclosure. And his attorney asked him, well, what do you want to do? Well Cal's like what can I do? You know? And the attorney's like, well $500, we can defend this, you'll need to send us all the documents. And he's like, haven't you already gotten all the documents since it's a judicial foreclosure that to be able to enable it. And so he's not getting a lot of service from the attorney and the servicing company on that. He feels kind of hung out when they should have picked up the phone and talked with him about it. Here's the option, here's what your options A, B and C are. Here's what we need. We already have these things. That's not a lot of service when he's calling me. And so I was like, you need to call them back. Have him walk you through exactly what you need. If it's a payoff, this huge payoff, you need to be able to give an example what the payoff needs and be able to justify those with receipts or other statements and things like that.

Okay.

So by support you gotta have an asset manager that you can reach out to who's going to communicate with you. Now of course most servicing companies are going to look at you by a number of loans. The guy with 100 loans is going to get more service and support than the person with one note.

Okay.

If you've got a bunch of non performing notes, that's going to be more service. You need more updates. I would highly recommend, especially with non performing notes, that you have a conversation with your asset manager at least once a month. All right. And then find out what's going on with each Note and expect updates on it and follow up with your asset manager. Hey, we talked two weeks ago, where are we on this one? I mean most of these servicing companies should have some sort of portal for you to log into and be able to see the notes back and forth from that. That's key. That's part of having good service, having a good portal that's easy to get in and understand what's going on with the asset. Of course, as also with the portal, it's key looking at what you're getting charged. I've never found a servicing company that was 100% accurate on their billing and that goes to costs. We talked previously how a non performing may run you $95 a month performing note, maybe 25, 35 self managed, maybe $40 a month. Take a look at what they're charging you. Many, many times they're overcharging or they're not accurate or they're giving you costs on things that may not be associated with it and they do not make it easy to understand what's going through as far as cost. A lot of times when you look at the statement of what's being paid, what's being credited, what you know, sometimes it's like reading Latin. So don't be afraid to pick up the phone and ask to talk to the servicing company to go through the bills. What's correct, what's not correct, what's outstanding, what they need to get paid and going from there, making sure their costs match up with what you're being provided with as far as service and support. Okay, the most important thing I can ask you is ask questions, reach out, talk to somebody there, somebody who will get on the phone with you. That's one of the most important things out there. And if you're not getting the answers you expect or not getting a timely phone call, don't be afraid to be a pain in the ass. But give people time. If you send an email to them on Friday night over the weekend, they're probably not going to get back to you until late Monday or Tuesday. It's just what happens, all right? If you've got a something you're foreclosing on, get a hold of the attorney and speak to the attorney's office directly. Because if you got to go through the servicing company and then they got to go through the attorney's office, it's going to delay things. So always try to hire outside counsel and have them sign up. But that way you've got a direct line of support. Look, if you're buying performing notes. A monkey can collect on performing notes. Every servicing company out there wants performing notes because they're getting paid for doing the least amount of work. If you're buying non performing notes, that's where the more costs are going to come in. That's where more of the fees will workouts and strategy and structure and things like that come in mind. So just be prepared to have to follow up with these people. Double check what's going on and make sure you are not an absent party when it comes to your portfolio. All right, so the five keys to loan servicing Successful loan servicing Making sure they're licensed so you don't get in trouble for have them service alone. They're not licensed to state they can't support you that way. Look at the different servicing options, different product options they have available for performing or non performing or self managed. 3. Make sure you're not screwing up anything when it comes minimum wise, you know, minimum bill, minimum numbers, things like that. Make sure you can get a hold of somebody in service and support to help answer your questions to help guide you in the process. Some servicing companies will want to modify immediately. Well modifying immediately triggers a taxable event you may not want to have. So don't be afraid to push back. If your servicing company is offering one thing, it's important to let them know like hey I'm buying these non performing notes. I'm willing to do A B or C for these or D E, F for these. Your servicing company, your attorneys work for you, you don't work for them. And that's why make sure that your costs are up to date and accurate with the bills and making sure things are getting credited properly. Making sure that if you do have to advance something on behalf of the bar with his taxes or insurance or some sort of city fee, making sure that that is getting paid and getting credited and either to the lender it you know, the lender advanced or escrow accounts to make sure that you're getting paid back and the full payoff is taken care of when either it's sold or sold off. That's another thing to keep in mind. Like I said, if you're going to sell notes off, a lot of times servicers are not going to release those loans for sale until your bills are paid up on the specific loans. So keep that in mind. We ran into that as well. We were trying to we bought a portfolio notes and servicing transfer is going beyond 30 days. What's going on? Found out that the seller hadn't paid their servicing bills and that led to an ugly email on those to get those loans released. So keep in mind, servicing can take 30 to 45 days before workouts start. That's one thing that we like to expedite too is if we're buying non performing notes, we don't wait for the 30 to 45 day hello and goodbye letters. We'll go ahead and send out our own hello letter in seven days. If it's a performing portfolio and it makes sense to keep it with the existing servicer so that you're getting payments on time, nothing is a hiccup. That's great. Anytime you have any change, new servicing, new payment history, you're going to experience some hiccups. So keep that in mind. Sometimes it's good. Like I said earlier, where the previous servicing company is horrible and borrowers will looking for somebody to talk to. We bought 70 notes and out of 70 notes we got 49 of the borrowers to communicate with us in the first seven days and they were just looking for somebody to talk to and that helped us skyrocket. A servicing company can be your best friend. It can also be one thing that drags your portfolio out if you can't get answers and can't get resolutions on things. So don't be afraid to fire your servicer if they do a shitty job and move it somewhere else. There's a bunch out there. If you want my personal opinion, feel free to reach out to me. I gladly recommend 1, 2 or 3, 4, depending on what you're buying and help you get the ball. Rock and roll. And this episode is not sponsored by anybody, okay? It's sponsored by me. This is my opinion. Some of the things we've had good success with, others have had bad success with. So just keep it in mind. Not all servicers are created equal. Most of them do a pretty good job. There's going to be hiccups along the way. It just is what it is in this line of work, especially as a small note investor, you know, you can't hire sometimes a full staff or part time staff to help manage it. Yes, you can hire virtual assistants to help some of this stuff, but you usually do need to hire somebody personally. If you're going to be beyond that 50 note, 100 notes, it's going to make more sense for you to hire somebody, pay them a decent hourly wage versus getting cut, you know, bleeding to death by a million different paper cuts. So go out there, take some action. Feel free to reach out to me at talkwithscottcarson.com to book a phone call and we'll see at the top everybody. Bye. Foreign hey real estate investors. If you have ever wanted to dive into the sexy side of real estate and become a note investor. And not just somebody that owner finances properties or buys and sells on terms, but somebody who's actually buying debt from lenders, mortgage bankers, hedge funds on distressed real estate on both residential and commercial properties, now is the perfect time. And guess what? We have our upcoming three day workshop here in just a few days on July 25th, 26th and 27th. That's right, that's a Friday. Saturday, Sunday. You can join me live on Zoom on our Note Buying for Dummies workshop. We'll go through the Fs of how to find fund and flip non performing notes at huge discounts without having to use your own money. And we'll show you all the different ways that you can make money being a note investor. Day one's all about how we find these deals from banks, hedge funds and how you can automate the process of connecting with these people and get tapes and listen to you over and over again. Day two is all about raising capital and marketing and we'll show you how to tap into thousands of IRA investors who are looking for deals to fund and how to communicate and how to contact them and get them to fund your deals. And day three is all about the flip the exit strategies. Putting deals together will mix in due diligence. We'll mix in the marketing side along with the structure side. So much stuff in three days Live on Zoom with yours truly, the note guy, Scott Carson. Make sure you get signed up by going to Note buying for dummies.com or click on the three day workshop tab on our Workshop. Get signed up today as we're still running discounts and you too can soon become a no buyer.