Investing in Notes with Scott Carson from the Crustin Debt Podcast Featuring Shawn Yesner

On this week's episode of the podcast, Scott Carson with We Close Notes.

Welcome to the Crushing Debt podcast with your host, Florida attorney Shawn Yesner, where our goal is to help you get rid of the financial bullies in your life.

So welcome back to this week's episode of the Crushing Debt podcast. My name is Sean Yesner with Yesner Law, and as you know, the the podcast is sponsored by my law firm, Yesner Law. But I'd also love for you all to go to Amazon and check out now the Crushing Debt book, which has been out for a few months now. And my guest, those of you watching on video, my guest has given it a couple of thumbs up. So let me introduce my guest. I met Scott, what about a year ago at PodFest 2018. His company is We Close Notes. And so me being in the real estate space and Scott being in the real estate space, we instantly hit it off. He was very, very gracious to have me on his show on his We Closed Notes show. And so I wanted to return the favor and introduce to all of you my friend, Scott Carson. How you doing, Scott?

I'm doing great, Shawn, man, thanks for having me. Excited to be here. Happy New Year to you as well. Congratulates on all the success, man. I just been seeing. You've just been busy, man. So congratulations on everything.

Yeah, thank you. I appreciate that. But for all my success, I think you're zooming way ahead of me here with. With We Close Notes. And where are you right now?

I'm actually in Austin, Texas. I travel a ton, as you know, but I'm actually home in Austin. Austin's been home since 2001 for the most part. There's about a four year hiatus where I was traveling the country basically nonstop. But I love, as we like to say, the capital of Texas. Keep Austin weird and you can find me here most of the time on.

The road you're in. I've heard it, the great nation of.

Texas, or some people would say, depending on what part of Austin you're in. California east.

Weren't you though? You were just in the Bahamas though, weren't you?

I was. This last weekend I actually had the good fortune to travel out to the Atlantis resort in Nassau and actually speak at a landlording convention with about 170, 160 plus landlords. And while I was there, I mean, I spoke twice. Once on marketing, one on distressed debt, which is my expertise. I also spoke virtually via zoom, kind of like we're doing to a couple hundred apartment investors. And then I also Spoke virtually to a couple hundred IRA investors on Sunday as well. So I was doing triple duty from the Bahamas.

Wow, that's interesting. I've gotten involved in a couple of apartment buyer groups here in Tampa. So we'll definitely have to see if I can make some, some connections for you to get you to speak to those guys as well.

Totally awesome.

So the website iswe close notes.com and your email address scottclosenotes.com if anybody wants to get ahold of you. So I know what you do, but I want you to explain to the audience what is it? We close notes. What does we close notes do?

We specialize in buying distressed debt from banks and different real estate hedge funds on residential and commercial properties. And I've been doing this since, since 2008. So I've been through the downturn and the upturn doing this. I've been an active real estate investor since 2002. I buy in about 30 different states across the United States. And our biggest goal is to buy debt that's owner occupied. And then we like to try, we buy that debt at a substantial discount for the banks. 40, 50, 60 cents of what's owed or the value of the property. And then once we buy that, our whole goal is then to reach out to the homeowners, the borrowers, and try to create some sort of loan modification, trial payment plan and really try to keep them in the house. I make the running joke that we're trying to make America great again, one defaulted mortgage at a time. There you go.

So distressed debt, non performing debt. What we're talking about is debt that is not being paid currently, debt that is not current. So a mortgage that's fallen behind, something like that.

Yeah, that's correct. I mean, we usually buy stuff where the borrower has not made at least six months or longer in default where they've made a payment. And like the one that we bought the most from was they were seven years behind. Wow. And they were way upside down on that seven year one. Even today we often buy stuff that's the borrower owes 20% more on their mortgage than what the house is worth, or they're upside down dramatically when you figure in their balance plus the back payments. So we're buying, I mean, it's still the case today. In 2010, there was 15 million homeowners that were underwater in America. You know, Florida was a big part of that. You're aware of that as well. Florida was ground zero, almost pretty close to besides Flint. Yeah. Tampa was a big part of that. But to this day, this may surprise some of your listeners. There's still roughly about 3 million homeowners in the world, or not in the world in the United States that are still upside down. There is basically one out of every 11Americans are behind on their mortgage. And there's over 700,000 borrowers that own twice on their house than what it's worth. So while it's been a decade since we've had this great, you know, the big short taking place, there's still a lot of people struggling out there with their mortgages. And I love your show, I love the podcast. I listen to it on a regular basis.

Thank you.

And it is, we like the fact that we can come in. And since we are not the originator of the mortgage, oftentimes we're buying the mortgage. We're the third or fourth person to buy the debt. We love trying to help out homeowners. And so I'm not opposed that when we buy the debt from a bank or a hedge fund coming in, figuring out what the country western song is with the borrower and trying to create a true win win situation, a win where we can take the fear of them losing their house or being foreclosed upon or any of those things from the bigger bad banks and say, listen, let's create something that makes sense here. You owe this much. Let's start you on some sort of trial payment plan and then we'll modify it to make something that makes sense of where the market's at today versus stuff that doesn't make sense.

And that was, and there's a couple different things that I want to circle back around and talk to you about. But one of the questions that I had was some people believe, are you buying these from the bank of Americas and the Wells Fargo's and the regions, are you buying them one at a time or are you buying them in pools? Can you talk about that for a little bit?

I'm so glad you brought that up. I'll tell you right now, we don't buy from the bigger, like 4 to 5 or top 10 banks like bank of America, Chase, Citibank, Wells Fargo. I mean, I'll buy some commercials from Wells Fargo, but for the most part those bigger institutions, they're not going to sell a one off note to me. They want to sell like a 10 million or a 25 million or a $50 million portfolio of debt. And it, you know, it just doesn't make sense for us at the price they want. Now, I do buy from regions I've bought several stuff from Regions bank, commercial and residential. And but what most, most of the time we're buying from like regional banks that are in three or four different states or five that have maybe 50 to 100 branches and they're not the big, big guys, but they're smaller and they have stuff in their book. So we'll buy, you know, whether a one off note and then we buy, you know, like last year I bought 300 plus assets, year before that about 400. We'll buy them in 5, 10, 20, 60. I mean the largest individual trade I took down was 175 individual notes from that was from a real estate hedge fund that was looking to move the portfolio.

Okay. Because I know that we get. Sometimes I'll have a borrower approach me. We'll be in a situation with a Bank of America and they'll say, well, I'll just buy the note. And I keep thinking to myself, it's not that bank of America isn't going to sell one note and they're not going to sell one note to an.

Individual and they're not going to sell you your own note back to you either.

That's the big thing, right? Or maybe if, you know, I have, my brother just came into a bunch of money. So my brother's going to buy the note or my dad has a bunch of money or Uncle Joe has a ton of money and so they're going to buy the note. And I keep telling them if it gets to a person like you or if it gets to a hedge fund or a smaller bank, maybe that's a possibility. But at the bank of America level, so to speak, it's just not happening. They're not, they're not doing that.

You are 100% accurate on that, Sean. I get phone calls that, hey, I get my mortgage with bank of America, you help. I'm sorry, they just don't talk to me. I'm too small a guy. Honestly, bank of America wouldn't know who to send you to inside. They're such a mess anyway. Okay, Citibank, I know who would sell that stuff. But they're still gonna sell. Unless you can write a 50 million dollar check. They're really not going to take their time. You're too small fish. And they don't really care.

Okay. One of the other things you brought up, and I was in the center of the mortgage meltdown as well. I've been doing this now since, from the bank side, since 2001 and then from the homeowner side, since 2004, since before it was popular to be a foreclosure defense attorney. I've been doing it. But I do think just from an economic level there is some level of bad notes that are healthy for the economy. There has to be some level of that that helps fund people like you, that helps fund other others of those types of things, that helps with that kind of stuff so that the market can recover, so that we can maybe help some of those borrowers out. So you know, I don't like people to be in foreclosure, but I think foreclosure is the end result. You know, if we want to stop foreclosures, let's stop divorces. If we want to stop foreclosures, let's stop people from losing their jobs. Unfortunately that stuff's going to happen and then that's where we can come in and help.

Yeah, everybody goes through their own country western song or as we say the big D. And I don't mean Dallas divorce and things like that. But you look at the national default rate right now, still about three and a quarter percent when it comes to homeowners and mortgages and banks, still about three and a quarter. You know, that's well below what it was in the peak when it hit 12, 15% in 2010. But there's other factors that evolve around that. It's the type of loan that the borrower has and there are some good loan. And I'm still the big believer if you're buying a primary resident, hey, a 30 year fixed mortgage is the best thing for your primary resident. I'm a big believer in that. If you're an investor, hey, there's a lot of other creative loans out there. What really caused a lot of the meltdown years ago was not just the subprime loans. It was a lot of the pick a pays and negative ams and then the values dropping really led to kind of a perfect storm for a lot of these banks to go out of business and all these people to start losing their homes. You look at what's going on today in the economy today, I have to tell you, subprime is back. It's been back for a couple years now. They got really creative on the new name to call it. They just now call it Non prime. Alright. There's hundreds of lenders that are doing this in all 50 states now. They're doing loans for as little, you know, people that can put 100% down with like a 520 FICO. It's kind of sad. And so you see that stuff, you have all these individuals or wealthy firms getting back into the origination game. They're not a licensed bank, but they're still originating these loans, these risky loans, packaging up and then selling off to Wall Street. And if you want to see what's gonna happen probably next 12 to 18 months, just go watch the big short. Cause you're gonna see it happening all over again. And then that's just one facet. We also have a record default rates on used cars. You know, our used car loans, credit card debt, student loan debt is all time. And also medical bills are outrageous.

Student loans is going to be a big one. Student loans. I think I agree with you that subprimes are back. I agree with you that there is a small real estate bubble starting to form again. I don't perceive that it'll be as bad as 2009, 10 and 11 because there are enough of us old guard around that will say, hey, here's what's going on and maybe try to prevent it. Maybe, maybe. I think the next biggest bubble coming before that happens is probably student loans.

I would agree it's not going to be as extreme. But unfortunately what you have happening is you had all the old guard that were around for 2008, 9 and 10 at these big institutions, they've all retired with their golden parachutes. Right. They're out of the business now. The people that were young, they've taken their places. They're looking at what their bottom line is, what type of returns they need to offer their investors. And that's why they're offering up these loans again. They're starting to agree they got to start showing good returns. Their investors to gobble that up because they don't really think long term. They think about six months, 12 months of where they're at. Oh, it's going to be five. And that's never going to happen again. Well, it's going to happen again. We see recessions take place really once every 10 to 20 years now. Well, it's been 10 years. We're, we've seen the market appreciate. We've seen kind of the market recover to where it was in other places. It's way overpriced. You look at what's going on in the housing markets like Miami beach or Miami or Aspen or San Francisco or even San Diego for places. It's so unaffordable in areas. There's got to be a correction somewhere. I think it is going to start with a student loan debt. Because you look at so many people going to college and working or moving back in with mom and dad because they can't afford it, you know, they can't afford their student loan debt. And so there's gonna have to be something that happens along the way here. And we're on a house of cards basically.

Well, and then the other thing that you've got going on back in 2009, 10, 11, 12, even into 14, 15, even now, I consult with clients all the time that say I want to modify my loan. And so all of those subprimes that got modified, we didn't reduce principal balance on a lot of them. So you, you got a loan modification, your house is still upside down. What I keep telling people is what are your long term plans if you say they're going to roll me out of this house on a stretcher and bury me in the backyard? Modify your loan, who cares, you're going to be there forever. But if you say, you know, once the kids move out, we're going to be empty nesters, we're going to want to downsize or we're having kids, we want to upsize and you modified your loan, you just kicked the short sale 5, 7, 8, 9, 10 years down the road. And so those are feeding back into the system as well. Those are feeding back into this bubble that may or may not be forming as well. So I think we got some of that stuff going on. But again that's where you come in. So I want to shift gears a little bit and talk about when I meet with a client, I say to them, hey, here's all the things the bank can do. They can adjust the interest rate, they can drop the principal balance, they can forgive principal balance, they can re amortize the loan, they can re amortize it over 40 and balloon it after 30. They can do a deed in lieu, they can do a short sale, they can, there's all these things they can do. The question is, what will they do? And when you're dealing with a Bank of America and a Wells Fargo in a Citi and those guys, there's very limited things, options that they will offer. But when we're dealing with somebody like you, we may have more opportunities there to come to a resolution.

Yeah, you totally hit that on the head there, Sean. The biggest thing when I look at buying a note and the first thing we do when we hire a servicing company to reach out, to make right party contact or attorneys to reach out to the borrowers is we just want to Know, hey, can you start making your existing payment on time again? And we're not opposed to modifying the loan or adjusting things, but if you've not been paying for six to 12 or 24 months, you've got to take some action as a borrower to make us trust you, if that makes sense. Right. And so our whole goal is like, listen, let's start a trial payment plan for six to 12 months, start making a payment either whether it's the existing payments, plus a little bit extra, a little extra skin in the game, or if you bring a little bit extra to the table, you know, we usually like to see about three to four months brought to the table to keep them in the, you know, keep them in the property. And depending, you know, if rent rates are a lot higher than their mortgage payment, we expect them to pay that mortgage payment. If their payment is a lot higher than rent, then we're willing to kind of drop that initial payment down to kind of what market rent is so that we don't lose them. Because I would rather have them living in the property, taking care of the property. I don't like vacant houses. When I have a vacant house, if it's been vacant for more than a month or two, the air conditioner has a habit of walking off and the copper problems show up.

All right, well, and, you know, it's interesting because a lot of times when I'm working with an investor, I will say, if you're going to buy a piece of property from somebody who is in danger of foreclosure or in foreclosure, it's not really a good idea to leave that person in the house. And the reason is because we don't want the. Even though the investor. For the investors that treat the homeowners fairly, the investors that take advantage of homeowners, I'm just as willing to get those guys out of the market as anybody else. But the ones that are treating people right, you run the danger of the borrower then taking advantage of that situation. And you bought my house, you didn't give me any equity. Now you're trying to kick me out. You're the big, bad, evil investor. But with you, that argument doesn't exist because you're not the owner of the house, you're the bank.

That's correct. We have all the same rights as the bank, and that's why we want to keep them in the house. Less work I have to do to rehab the property, the less attorney fees I have to pay to foreclose, the happier I am. I'll literally. If somebody can't make payments, then we'll literally go to them, said, listen, we'll give you three to five grand to do a deed in lieu of foreclosure or a consent to judgment or there's junior liens or things like that and let you walk.

Right.

If you're willing to work with me, I'm not gonna come after you for that debt. I'd rather just take the property that was the basis of our investment anyway and really create a win win. And, you know, we're not bad guys. We'll give you some time to get out. I mean, I've paid moving fees, I've paid deposits on apartments. I've done a lot of things for our borrowers to create win wins for them so that they can leave, you know, with their head held high in a dignified approach. Right. The same thing goes if they've got kids, if they want to stay. Let's just figure something out, tell me what's going on, you know, give you a little bit time. But I also don't run a charity, so that's the biggest thing too, is to share with these people. Like, listen, I'm a business owner here. We're willing to help you, but you've got to do some things before we go. Give you the mile. And I've forgiven thousands and thousands of dollars in debt. Like our typical trial payment plan. Sean, say, start making your existing payment at 100 or $200 a month. To that they get caught up. For every extra hundred bucks you Pay, will forgive 200. We'll reduce, after 12 months, we'll reduce the balance down to the value of the property.

Well, I think that's where a lot of times I'll tell clients the benefit is that you have the opportunity to think outside the box. The big banks, they don't have that opportunity. They got to follow the script. And a lot of times people will say to me, well, that doesn't make sense. Well, I get it, it doesn't make sense. But that's how they work versus someone like you that has the ability to think outside the box and do that. I think that's fantastic.

Well, what it is also too, is you have these employees at banks making 17, 18 bucks an hour. And they don't really care about the bar. They're more worried, especially if they're dealing with the short sale departments. They don't care. They got these huge files in their desk. They're just trying to clear it. They've been Abused by borrowers. They don't make the decisions. They gotta run out there. And they're just as frustrated often as the borrowers are. And one of the great things that we hear on a regular basis, they just. The borrowers just want somebody to talk to. They can actually give them answers.

Right?

You know, hey, what can I do? What are my options? Because let's face it, the banks aren't really telling them their options.

No, no, I'm starting to actually use that as a defense in some of the foreclosure cases is some of the stuff that the bank is telling people that are in danger of going into default and then when they actually do fall into default, well, the bank told me to stop making payments to qualify for the loan mod. The bank told me to stop making payments to do this, that, the other thing. So those are. We'll see how some of those affirmative defenses get treated by the various judges. But those are some of the defenses that are coming down the pipeline now as well.

And we have to provide that stuff. A lot of times, like in Florida, a lot of times we, the judges in different counties have said, hey, have you offered up a loan modification of the borrower? Right. We're like, yeah, here's the terms we offered up. They just didn't follow through. They didn't comply, or they drug it out.

Interestingly, settlement agreements are not discoverable in litigation. So you don't have to discuss settlement agreements with the borrowers. But I get it. I get why you would want to. To say to the judge, yeah, we did everything. We did this, we did that, we did the other thing. So that makes sense to me. So I also wanted to talk a little bit about, because I know I do have, like you, a segment of the listenership here that want to invest in notes. And I know that you provide some of that education, some of that training. You do a lot of speaking. So again, if you're listening and you're interested in doing this as an investment, help buying notes as an investment, go to weclosenotes.com exactly like it's spelled weclosenotes.com, notes being plural, right?

Yep.

And then if you want to contact scott@scotteeclosenotes.com anything that we might have missed, anything that you wanted to talk about before we wrap up.

You know, I would just simply say it's a different. It's a different animal being a note investor versus a fix and flip investor. So there's a, there's a little bit more learning about it. You just can't go to a listen to a podcast to go start buying notes.

Right.

There's different departments in the banks. There's a lot that goes into it. So yeah, check us out. We've been teaching investors how to invest in debt since 2010. I was the educator of the year. I've been honored a few different places for the educator of the year as well the periodicals. But I will tell people this is the bank. You've heard that where the pen is mightier than the sword. Well, that's definitely the case. The bank is always going to get paid no matter what. We see deals 6 to 12 months on the note investing side, well before and well cheaper before than what somebody would see it as an REO or a pending foreclosure and things like that. So it's a really. I love what I do. Every day is a little bit different. But the beautiful thing is I'm not going out and rehabbing properties or picking out paint or carpet, things like that. I'm literally, it's all a numbers game with what I do. And so when I look at spreadsheets from hedge funds or banks, you know, we're either buying one or couple and then literally working back and forth with the asset managers to really create not only win, win for the bar, you know, the borrowers, like I talk about after we buy the asset, but a win for the bank because they get the bad debt off their books. You know, we then have a lot more flexibility what we can do to offer up the borrowers and then that's our whole goal. See if we can't, like I said, try to work with the homeowners to keep them in the property. If they work with us, great. If they don't, hey, we're just going to end up foreclosing and taking the property and going that route. But that's our least favorite exit strategy. You might think otherwise, but to foreclose, I hate doing it, but it still happens about 35, 40% of the time.

Well, and no, I want to highlight that because a lot of times, a lot of borrowers will say to me, the bank wants my house. And I say to them, no, the bank doesn't want your house. They want their money. If they're not getting paid their money, their only remedy is to foreclose on the house. But they don't know you as Joe Smith and Mary Jones and they know you as loan number 1, 2, 3, 4, 5. And that's they don't care about your house. They don't want your house. They want money.

Totally the truth, man. Totally the truth. And unfortunately, we don't have. I think that we spent more time educating our society. We do a lot better off across the board. Not just on the mortgage default rates, but the other things we talked about earlier on in this episode. The most, the best thing you can do, go out, get educated, learn. Spend some time learning about what goes on the mortgage. Read your mortgage. Never sign on a mortgage until you've read it to see what the clauses are.

Exactly. I read mine. I made everyone sit at the closing table while I read it. And they said, you're reading it. I said, yeah, I'm a real estate attorney that deals with foreclosures. Of course I'm reading my note and mortgage.

You should have expected that. Go get you a cup of coffee, come back in a couple hours.

I mean, granted, a lot of the clauses, I'm like, yeah, boilerplate, boilerplate, boilerplate. I still reviewed them to make sure that they were all in there. So at the risk of, you know, we always want to stay evergreen with our content that can be listened to at any time. And so at the risk of doing that, I also do want to say that Scott and I will both be at PodFest as we record this towards the end of January 2019. We'll both be at PodFest 2019 here at the beginning of March over in Orlando, Florida. So, Scott, we definitely need to hook up for either a meal or coffee or adult beverages or all three. And you're speaking at PodFest, right?

Yep. I got a breakout session on how he took our podcast called the Nutcloser show and got to over 100,000 downloads in our first year.

And then I'll be speaking about legal issues, legal issues that podcasters may face. So if you're listening, this episode will be out before PodFest 2019. And so if you're listening, definitely check out PodFest. I think it's podfestexpo.com, i think, is the website. If you're listening to this episode, after March of 2019, still search Podfest on the Internet. I am sure that there will be a PodFest 2020 and beyond. So definitely. And if you're there, look up me, look up Scott, Say hello. We'd love to say hi. And so with that, Scott, thank you. I really, really appreciate you being an episode on this week's show.

Hey, man, thanks for having me. And everybody, if you're listening to this, do us a favor, go out, subscribe to the show, share it and leave a review. Trust me, it can't go wrong with it. We love it. Sean's provides us great content. The more you can help him out that the bigger the show, the more he can help other people out there crush their debt.

And I appreciate that. And I'm gonna turn it right back on you, Scott, and say absolutely. The content that you're providing is, is equally as informative as fantastic. So definitely check out Scott. He's got, I know he's got the podcast, he's got the YouTube channel. I know you do all kinds of lives, live streaming and all that kind of stuff. So definitely check out Scott and his content. And with that, I think I'm going to wrap up this week's episode of the Crushing Debt podcast and we look forward to talking to you in next week's episode.

If you have questions that you think would make a great topic for a future episode, please email Sean or connect with us on social media. Shawn Yesner and Yesner Law Pl are Florida licensed attorneys. The information the information contained in this week's episode is not a substitute for legal advice. Your situation may differ, especially if you are located somewhere other than the state of Florida. If you have questions, please contact our office or contact a local attorney. Thank you for listening to this week's episode of the Crushing Debt podcast.