Session 19 - Note Investing 101: The 10 Essential Exit Strategies for Profit & Problem Solving

All right, so let's pull up a presentation on the different exit strategies. Okay. Now one of the great things about note investing is there are multiple ways to make profit on notes. Now obviously, if you're buying performing notes, re performing notes, you're buying at a bit of a discount and your goal of making money on is the cash flow that comes in monthly. Now depending on how you're financing that deal, if you're borrowing money, you're going to give a, a chunk of what you borrow to your money partners and you're going to get the leftover. So here's the thing. If you're getting, if you're buying a note, a performing note that's bringing in, let's just say a thousand bucks a month and you're whatever, however you're financing it, whatever your money partner is doing, if you're giving a money partner and you're giving them $500 and you're getting $500 back to you on that, what's your rate of return on money given to you that you're not using your own money? It's an infinite, right? It's an infinite rate of return. All right, so that's one thing you had to keep in mind, ladies and gentlemen. I think we get so bogged down into looking at stuff like, oh, you know, the one number. Well, the one number. One thing you want to make sure is that, hey, I think your time is worth at least 250 to you on your cut above and all else. Because let's face it, a lot of people deal with toilets, tamps and trash outs or rentals and they're getting 200 or less per month in cash flow, that's not worth my time. Okay, if I can get 250, 300, $400 a month and I was able toilet transits and I got a servicing company handling it and that profit's coming to me on top of whatever is being paid to my funding partner. And the servicing side, that's an infinite rate of return. That's a pretty. You can't beat infinite right now if you use your own money and you get a great return, that's great by all means. Nothing wrong with that either. But there's a variety of different ways to make money and I want to go through the different exit strategies that can go with buying non performing notes because not everybody thinks about this. And I kind of compare this to buy non performing notes. It's not a choose your own adventure, but it is kind of a choose your own adventure. Kind of animal. You being the lender can control this, but the borrower's got some say in how this works. So that's one thing we want to roll with you here is take this from your approach. If you're buying a note, what's your servicing company? What are your attorneys going to do to help you get that next phase and what are the options for the borrower? Because the borrower has some options and that's a beautiful thing. We want to educate our borrowers and the different opportunities that they can do now. Not are they going to qualify for everything? No, you still have the final say on some different things and that's a good thing. But like I said, I think I said this earlier. One of the biggest mistakes I made my first two years in the note business was I was foreclosing on everything. That was a big no, no, I shouldn't have tried to foreclose anything because I'm outlane servicing costs, legal fees, then I, if I, I got to take it to the foreclosure doesn't sell, then I'm rehabbing the property and then time on marketing, closing costs and commissions. Let me wrong some deals, they can be great, but when I look back at what we foreclosed on, especially the owner occupied stuff, if I'd have been willing to do a forbearance or workout or TPP trial payment plan with a borrower, I would have made more money in the long run by keep them in the property and keeping as a performing, turning from a non performing, indoor performing or as I like say, turning a problem property into a profitable solution. So let's talk about profitable solutions, shall we? Okay. All right. So the different exit strategies go with the thing and like I said, I've, I like exit strategies and when you're looking at buying notes, you got to have multiple exit strategies that make sense. Okay. Now if it's occupied, as you saw probably yesterday while we're working out through some deals, if it's occupied, you have to kind of assume, okay, what's the, what's the yield going to be? What's the wheel you're going to look like if they do start to perform again? Because there's a whole variety of things, things that you can do and it all depends on what's going on with the asset. All right? So as a note investor, you really have 10 different things to choose from. From wholesaling to reinstating, to modifying to let them assume it, to short sale to cash your keys to a cash payoff. To a foreclosure, to reselling the note or selling a performing note. And we'll even talk a bit about bankruptcy, how that plays into your exit strategies. Okay, so first and foremost, everybody likes to talk about wholesaling. So I want to get into investing. I want to wholesale notes. And you can, you can totally wholesale notes just like you do wholesaling a piece of property. The thing to keep in mind, if you are wholesaling notes though, you're making the short end of the stick. Okay, well, we wholesale not. Yeah, I got a guy that's bidding on a note in Houston. We're going to make one point off of it because it's a skinny deal. It's still a. That's a $2,000 day for me basically. And putting a deal together for them, that's not bad. That's not bad. I'm buying seven other deals, so making another two, three grand on a note that I wasn't going to buy makes sense. Right. And you can wholesale portfolios, pools of notes, individual assets. You can charge a flat fee, 500 to 1,000 bucks. You can charge a flat percentage if it's a, it's of a Performing note, usually 1%. If it's a non performing, usually 3 points. This is a skinnier deal. So I'm only going to charge one point on the deal for. But whatever the deal can hold is something you do. Like I've made as much as $100,000 wholesaling. I know before at 1.35 50, 100. I mean on a portfolio I think I talked about on Friday, we made a five points on a five million dollar portfolio. We basically made a quarter million dollars on it. It's pretty good, right? Not bad day for where I got 50 grand in my part of the deal. All right, I want to go. This is a. Give you a bit of example on this. This is Clifton. Clifton is a coaching student. He's out of Illinois. All right. And Clifton was looking, came across this portfolio. This is a. I think it's a. Well, no, I know it's. I can't remember the number of units on it. I guess I count them up there. But it was a mobile home park in South Carolina. Clifton doesn't live in South Carolina. Cliff has never been to South Carolina. All right. He got this from a lender who had this note and actually think it was a private seller. I remember correctly on it. And they wanted to dump it. Okay. They want to get rid of the notes. Now the great thing about it is he Got this note under contract for 85 grand. Okay. And it was a non performing note. So he got it really cheap. It was, I think the balance, it was like 250. Seller wanted to get out of it, didn't want to be in the mobile home park. He had bad management on whoever the borrower or whoever the borrower was on. It was bad management and weren't getting paid right. So he marketed it. He went to, you know, he came to me, Scott, I got a, I think a pretty good deal. I was like, yeah, what do you want to make? He goes, man, if I can make 15 to 25 grand on this deal, I'm sitting pretty. I said, okay, well, let's market the note for 110. It's 250. It's still a phenomenal deal. And it gives you a little bit of room. Start a little bit high. If you need to go down to 15 to 20 grand, then you can do it. To make it a concession stuff like they say, let's do it. So we help them market it. We help them find an overhead photo of the property like this. And we helped to post it on meetup groups and some Facebook groups and stuff like that. Well, loan hold. A buyer came to him, was willing to pay him $110,000 to take the note off his hand. He's like, oh no, it's a good deal. So that's what we did. You saw there's a wholesale agreement in our manual. We helped him create one for this. Boom, bada bang. 25 grand is basically what he made in six months at his regular job. All right? And he was like, he was in and out of it. Double clothes, basically, double contract. He didn't. We created two contracts. Cause he didn't know the buyer for his note. And so we structured kind of like I say, a double wholesaling thing where the guy that was buying the note from him wired the money to his escrow account or I don't know if he used an attorney's account. I think it was his escrow account. Because we could proof up, oh, I vouched for the deal. I knew the guy. Ended up knowing the guy after all. And so money came in on the one contract. So the contract showed that buyer was buying the note from Clifton, which the contract was just a duplicate contract of Clifton's contract with the seller. Okay. The seller, the guy bonded New Clifton was making money. All right? But we didn't want to disclose the contract and fear that the guy would go around Clifton. He didn't go around him. He wired the money in. As soon as the money came in, Clifton turned around, wired the money to the fund or the seller on this. He kept the 25 money in escrow. The seller then sent over an assignment of mortgage to Clifton. Clifton created a double, another assignment going from him's entity to the buyer. And then that's when we sent all that stuff. We. So we sent two assignments. One, everything. Of course, a collateral file was there for the guy to review. You got to do all that stuff. He could have seen who the lender was at that point, but him signed the loan sale agreement on the front end and the wholesale agreement. So 25 grand wholesale deal. That's a pretty good day for him. Now, would he have made more money if he took the asset back? Yeah, but he wasn't. Didn't want to own a mobile home park in South Carolina. Right. So, yes, you could do this. We've done this on portfolios. We've done, like I said, individual deals you can get started. But yeah, he made good money on that one deal. But he could have made more cash flow by staying involved in the raising the capital and hiring outside stuff. But you know what? It is what it is. Clifton did a great job and we're excited for what he's going on and done. Okay. Now, when you do actually buy the note, not wholesaling it, but when you do buy the note and servicing gets transferred, or you're now the new owner of it, the first thing the servicing company is going to do, especially your new servicing company, when they out, when they reach out and try to make right party contact. RPC with a borrower is they're first going to offer up and say, hey, can you reinstate the loan? And the borrower starts paying the existing payment. It's not a loan modification, but they start making the existing payment. You could defer back payments to the back of it. You say, okay, you're behind by two years. Let's just put the two years in the back. That's exactly what happened with COVID Most of the time they did deferments to the back end in a lot of cases. Okay. Obviously, reinstating the loan is always going to be an option. It works better when rent is higher. And we all know rent is usually higher across the board. It's cheaper for them to start reinstating and paying versus trying to go out and get a new spot. Okay. And usually, like I said, we want some sort of down payment. If they're a year behind we prefer four months. If they're two years behind, we want to see that double to eight months. So for every year behind, we want to see a third of that trying to come in as a down payment for the most part. Now, do we always stick to that? No, it all depends on what's going on with that bar. You know, if you've been out of work, but start working, don't have a lot of money. Okay, let's start something. You got to get some skin in the game on it. But that's the first thing this seller is going to try to do. Now, I'll give you a great. Sorry. The servicer is going to try to. This is a property in. This is Charlotte, North Carolina. Okay. This is a condo. I was working with a couple coaching students, Lanny and Jamie Harrington, Taylorsville, North Carolina. They now live in Myrtle Beach. And we were working. We got tape in a 75 notes not performing from a hedge fund seller buddy of ours. And they had this one property kind of in their backyard alone in North Carolina. And they liked it. You know, based on it, they found the values was one thing. They were like, oh, I think the value is about 70. The bank was. The lender gave it a lower value, like 50, not 70. They were owed 35 on it. You know, as the unpaid balance. The payoff, I think it was higher, was closer to that 50. So the great thing about it is when the, when they bought, they said, okay, we'll buy it. All right, well, let me go back through the numbers on this. So they paid. They offered $17,500. I said, they should have offered a whole lot less because this was like the bottom of the barrel list of stuff. No, no, it's a pretty good spot. We'll take 17 5. And they offered up with their IRA. Okay. Later on, when I talked after they closed on it, the fund would. Accepted like four grand for the deal. So the, the fund was excited when they got $17,500. Lanny and Jamie were happy they got it at 175 too. I was like, oh, we should have offered less. But anyway, so they went out and sent a door knocker out. The bar was living on the second floor of this condo. And he answered. And the realtor that they sent out there, turned out it was actually Jamie's brother Preston. And Preston's talk with the bar and the bars, like, yeah, I fell behind. I'm a long haul truck driver. I've been out of work for over a year. Over a year behind on this thing. But I just got hired on. I've got a $5,000 sign on bonus with this company. Can I give you four grand of it to help reinstate my loan? I know I'm behind by more than that, but again. And he's like, they're like, yeah, let's do that. So he put four grand to reinstate and started making the monthly payments. It was like 3:50, 400 bucks to him inside their Roth IRA. So it was all tax free growth. A year and a half goes by. Baller shows up at Jamie's office, was about 45 minutes north of there and says, hey, I'm moving to California. I know I still owe on my condo quite a bit more about what it's worth. He didn't know that Jamie and then bought 17 fines. He goes, can I just deed the property over to give it back to you and you forgive me of the debt so I can move on? And they're like, yeah, that's fine. Okay. So they offered that, they turned it into rental. They were getting $800 a month on it for like four or five years all in there in a Roth IRA and then sold it. So pretty good deal on that aspect. Like I said, if the guy kept paying on time, reinstate the loan is great cash flow. They could have sold the note off out of her IRA to back to a bank or hedge fund. There's some sellers that we have for that that we give our coaching students. So they've got a source to move some stuff if they want to. Okay, but we're going to save the loan. That's the first thing your servicer is going to ask. And honestly, that's the first thing you're going to find. Can you reinstate the loan? Can you bring some money to the table? Let's get rock and rollin now, like I said before, my philosophy on how far behind has changed because of COVID If somebody's still behind and hasn't ever was behind before COVID you're probably just going to foreclose. Okay? If they've gone delinquent since COVID I'm willing to work with them a little bit more. But if they didn't take that, get out of jail, get back on track card. We know they're going to have to foreclose. Of course, if they passed away, you're not going to get a dead borrower to reinstate the loan. Okay. Now number three is maybe they can't afford the existing payments or you need to adjust it. You can modify the loan. Now the thing I always say is, when you're modifying the loan, there's a variety of different things you can do. You can reduce principal, you can reduce the interest rates. You can forgive past due payments, you can do a deferment. You can get some down payment from the borrower and strike it out. You can adjust the rate. There are so many different things you can do. And there's even some state and federal or local programs out there, depending on which state and market you're in, that will help bring the bar back on track or help pay a portion six months a year, three months, all sorts of different stuff that's available on a state by state basis to help you in modifying. Now, I don't like to modify immediately, okay? I do trial payment plans for 12 months, okay, before I adjust anything. Because here's the thing. If you offer a modification and you completely modify the terms of loan, they sign off on it and they fail. Then guess what? You can't go back to the old terms. You got to go off the new terms. So if you're reducing principal and stuff like that, that principle's gone. Sayonara. If you reduce the interest rate form sayonara, it's gone. You can't go back to the higher interest rate. So what we do say, okay, you, we're gonna have, you make a trial payment plan. We're having make 12 months of payments, and then we're going to modify. Because there's also a tax consequence with the IRS that if you immediately modify a loan, guess what, you got to pay taxes on that new modified amount even if you haven't collected the payment. Okay? So the way to get around that is to do a one year trial payment plan and then have the modify take place after a year of payments. All right? And then when you're reducing things and you're adjusting things, then you've got some cash flow to justify the taxes as taxed as income on that stuff. Okay? Now, this is a property in South Beloit, Illinois. Sheila and William Drummond were the borrowers on this thing. Great people. They'd lived in the house for 18 years. They raised their two or three girls in the property. And unfortunately, Charles had a heart attack four years ago, okay? And he'd been out of work for four years when we got the note. It was one of a portfolio 12 that we were looking at buying. It was a small enough like they owed 70. The house is maybe worth about 35 to 40. You know, they were upside down. You know, it's in South. South Illinois, not a very big property. I mean, you look at that, that's like 100. That's a $400,000 house in some places, right? And the fund was willing to sell it to the note at 12 grand. I was like, okay, it's worth 35 as it sits. They owe 70. Let's see what we can do. But they're supposed to be making a $400 payment, so. So when we got the collateral file sent to us, there was all these scanned documents of them trying to do a loan modification. Now, the loan had been sold four times. Okay, four times over four years. And why somebody had modified this loan or worked at the bars, I have no clue. For some folks, it was too small for me. When I saw the same loan modification or for hardship letters, my heart just went out, you know, in the letter, she was talking about how she wanted to try to modify the payment. She couldn't make up these, you know, one year, two year, three year, four years of payments. And the people that held the note kept wanting to bring, like, over a year of payments to the table. And her monthly mortgage payment was, like, 400 bucks a month. She didn't have four years of that. Okay, one year is about five grand. So we said, well, you know what? If she can start making the payment, it could be a pretty good deal. If she brings some skin in the game, it'll be a pretty good day. So we bought it. Like, regardless, we can probably make this happen. Is a borrower that wants to say it's motivated to stay. When you write four hardship letters, you're motivated to stay. And we know based on what she said in the hardship agreement, it would be a good yield for us. So we bought the note, reached out to her, and get her on the phone, And I'm like, Mr. Drummond, this is Scott Carson. She's like, yes. I said, well, we just recently purchased your mortgage. You should have been getting a letter in the mail or over it. She's like, oh, yeah, I got it. Said, listen, it's not a bad day. I know you've been trying to do a modification agreement on this for four years. Let's make this a good day for you. She's like, okay, okay, what? I said, can you bring any money today? Can you pay. Can you bring five grand to the table? She's like, no, I can't pay five grand. I said, what can you bring to the table? Because this is all about modifying and doing a payment plan. You gotta get a little creative sometimes. Well, I can bring 2,500. I'm like, that's great. Did you, you know, just get your tax returns, like first year, February, March, something like that? Yeah, I can bring 2,500 of the day. I said, okay, great. That's awesome. Now, first of all, is your husband working again? He goes, yes. I said, how's his health? You know, so he's great, thank you. Some of you actually read this stuff. I'm like, yes, I actually read it. And he's back working. And that's why we can bring, you know, we could pay the existing mortgage payment. I said, okay, can you do this? You can bring 2,500. Can you pay $200 extra per month on top of the $400 that you're paying? She's like, yeah, we could do that. I said, okay, let's do this. This is what I want you to do. I'm going to have you show up to my attorney's office who's not far from where you're at, but I need you to bring a cashier's check for the 2,500. You're not going to need to make a mortgage payment, but in 45 days, I'm going to want you to make your normal payment plus the 400, plus the $200 a month. Right? Because in my head, if she's paying $200 a month this year, extra each month this year for 12 months, that's $2,400. $2,400 plus the 25, that's 4,900 bucks towards the bank. That's a good chunk of change. I pay 12 grand. Okay? That's almost half of what I paid for the deal the first year. Okay? I said, okay. So, Sheila, if you do that for 12 months of on time payments, that extra $200 at the end of 12 months, we're going to pull a comps appraisal on the value of the property. And I know that you owe 70. I know the house is not worth that right now, but what we're going to do is reduce the balance of the loan down to what the value of the property is so you're not upside down anymore. She says, oh, my God, thank you. I said, no problem. And then what we're going to do as well, because I want you to pay this house off right now. If you stick in your normalized business, it's going to take you like 36 years to get to this thing paid off. I don't want to do that based on your interest rate. So what I'm going to do. And that's the thing on your interest is like 9%. I said we're going to reduce your interest rate down to zero. And then what we're going to do though is we're going to keep your existing 450, 460amonth payment the same. So you're going to pay off your probably $40,000 balance at 0% interest at the 450amonth so that you're paid off in six years, not 33 years. And you can hear like what are you, are you serious? I'm like yes. Why are you doing this? Because I want to help you. Okay, I want to help you. We're going to make money on this, but we can do it and help you stay in your house. So sure enough that's what they did. 12 months on time. Pimps. Anytime she was going to be like a day late or anything like that, she was like calling. I was like you don't have to call me. You get a 30 day grace when it just make it within 30 days and get taken care of. Well she did that six months later. We modified the payment for and everything. It was a win win for and they paid it off in six years. And the great thing is that we, you know, at the first Christmas I got a, you know I got a card in the mail from them with a family photo and their eldest daughter was like 20, 21 and had a baby and they named the baby Carson after me. And you know you, you help a lot of people when you can and I wish everybody would be willing to work it out, modify it, staying up. I mean we've had some people that are great and other people that want to take the inch and try to get a mile right. But those are the kind of stories. Sheila and William's story is a beautiful story. I love it, love sharing it because it's a great way we made money, we made a great return on our investment on it. But it was a win win out there and there are those low balance deals like that. You'll see that quite a bit time. Sterling James, one of our coaching students bought a note. Same thing, worked with the borrower is going to modify the payment after 12 months but he's going to make most of his investment back. It's a 38% cash and cash return year one and then 28% cash and cash return in your. Actually it's not a mod. He offered that up at the borrower filed bankruptcy before he closed. So he stepped into it and he's getting the 38% cash return on the bankruptcy payments. The first, first three, three or four years they're going on with it and stuff like that. So modify. Makes sense. Makes sense because you're buying it at a discount. Okay? Now if they can't make the payments, they don't have somebody to come help them. You can always let them take, have somebody take over the payments. Like let them do a subject to deal or let somebody else assume the loan. Do a loan assumption. Kind of call it the same thing. Okay. You're swapping one borrower out for another. Get a borrower that can't make payments, but you've got separate bar. Maybe it's a family member, maybe it's a son, daughter, aunt, uncle. Maybe it's Jim Bob down the street, okay, Would love to take over the payment. So what you do is you have the new buyer or the new borrower file a mortgage application and now they're on the hook for this deal. And an assumption is pretty easy. Your servicing company can provide that. Do I need them to fill that out? No. If they're telling me somebody's taking over payments, I don't care, as long as we're getting paid on a monthly basis. Okay? I don't care who is paying as long as somebody starts making payments. I'm willing to allow it. Now, I'm not going to modify it to a new borrower. I'm not going to recast the loan into a new loan. No, no, no. You're taking over as is. Yes. I'm going to want you to bring some money to the table to pay, get caught back up. But I'm willing to let you assume a loan and work out a payment plan for you for a new borrower. Okay? If they can't, don't have somebody. Okay? Maybe they owe more than the property's worth. Can I do a short sale? Yeah, I can allow the bar to do a short sale or we call it kind of short papering the deal, all right? Because we own the note, not necessarily the asset, okay? Now you buy the note and you become the bank. Pretty, pretty obvious they owe more. Borrower lists or has the home listed, okay? Now they usually owe more than the property's worth right? Now to list it as a short sale, it's got to be listed, all right? So somebody, if we buy a note and they owe more and they want to sell the house and we know they owe more than the property's worth, there's no bullshit. This is why you pull BPOs, you know the numbers. What's going on at a time. So let me give you an example. Let's say. Let's say the family on that West Palm beach property that we looked at Yesterday, they owe 320 and the house is maybe the condens. Maybe we're 250. 270. Would I allow them to sell the property if it wasn't a reverse mortgage? Yeah, I would say, listen, if you want to list it, let's sell it. You know, let's just get it sold. And I don't have to get paid off. Not paid off in full because they owe more than it's worth. But I can determine the short. If they could get a buyer for 250 to come in and fund it, buy it at 250, where I'm netting that money, I'm in at 200 now. I'm going to make 250 grand. Yeah, I'll forgive the 70 grand that they owe. It's above and beyond Whoopi do. I can write that 70 grand off of. Off of other profits we have. Right. And so the house is then sold below the legal balance or the unpaid balance, depending on how far the gap is. Okay. And. But it's above whatever you net on the HUD is more than what you paid for the note and your cost. So it's going to be a good day. All right. If there's no realtor listed, I like to hire the realtor because I don't want that borrower, especially they're living the property. I don't want that borrower hiring their friend to drag things out. The reason I know this is because when we were doing short sales back in the day, doing a lot of short sale negotiation back Starting in like 2006, 2000, we were doing short sales in 30 states at a period of time. I knew that if they hired the borrower, hired their own realtor, the realtor is going to drag it out. I mean, we had one short sale. Here we were negotiating on behalf of the bar that we drag out for four years. Another one, Salt Lake City in Utah, that we drug out for three years. Back and forth, back and forth, back and forth. That. That was a lot more complicated time back then. These days, short sales kind of move along. It still can take six to nine months in some cases. But the reason we hire the realtor is that we want to know there's foot traffic. We don't want them dragging this out. Okay. And another thing is somebody's just hiring A regular Realtor, most Realtors don't know how to market a short sale. They're going to list it at full value. Well, we don't want. It was a full value. We want that Property listed at 85% of the AS IS, Fair Market value. So we get foot traffic so that people, both people will bid on it because they think they're going to get a little deal. So maybe they bid it up to 90, 95% that we don't have to take as big a short. Okay. And less concessions on that. But if you overprice the asset list of full value, you're going to bring that property value down or price down, you're going to give more concession. Stuff like that limit your buyer. So that's one thing we do. Now this is a great example of exact. A short sale example that we bought for our own business and our own stuff here in Austin. This is in Colin Field Drive, 9016 Colin Field Drive, about a few years ago. And actually we came across this on the foreclosure list that we were sharing with you guys on day one. And so there's a company called Wells Fargo Financial back in the day, which was like Wells Fargo, little like neighborhood subprime lender on the corner. Right, right. And we've been buying notes from Wells Fargo Financial for quite a while. So I was looking at the foreclosure list, I see Wells Fargo Financial pops up and it says previous posting. I'm like, oh, huh. And I look and I get my realtor friend to pull it up, and it's been listed for two years. All right? And the bar had passed away. It was a probate deal, but the estate was trying to sell it. All right? It was just dragging on. So I contact my asset manager at Wells Fargo, that financial say, hey, listen. And his name was Steve. I got Steve. You know, he goes, oh, hey, Scott, what's going on? You know, I said, well, I got a question for you. I came across here locally that you've got. You guys have this note that you're foreclosing on. It's been on the market for two years. I think it's drug out for a while because of probate deals. Would you be willing to sell me that note? And he goes, well, let me check into it. So the bank was owed 195,000 plus back payments. Okay. Now, I made an offer originally at 50k. House was only worth about 150, as it set was worth 150k. Okay. So we offered 50c, came back the next day, said, no, I need to get 75 for it. I'm like, okay, sure. So the nice thing, since it was listed on the mls, we could see what kind of condition it was in. So Realtor and I go out there, she's got a lockbox code. We walk in it, it's in pretty good condition. The three bay car garage, this first one here on the far right was just furniture. Was just all furniture. The rouse was stacked all the way to the ceiling, some nice stuff. Second one was full of all these display cases and boxes, stuff like that. I guess the bar had been into gems, you know, and rocks and stuff like that. But she had all these, he or she had all these cases, stuff there. And then the third bay was this 2001 white Chevy Suburban that was packed full of boxes as well too. And they had new appliances that it had no carpet, you know, it needed a little bit updating and stuff like that. You know, need a little bit of work. You can't really tell here the side, but it was a corn lot. So the big corn lot and the tree kind of come down. That's what that, that is right there. But so knowing we abide at 75. Now, the listing agent, I had my agent call her and say, hey, do you have an offer on this? Not knowing that we were going to buy the note. All right, and the listing came in, oh, no, I don't need an offer on it. We've got a pretty strong buyer at, right about 150, you know, stuff like that. So we knew they had a buyer for this note. So when Steve told me we could buy 675, we knew we could buy the note, then reach out to the realtor and approve the sale and get this thing closed. And that's exactly what we did. So Once I got 75 approved, I called my private investor, Aubrey here in town. And Aubrey came out and we walked the property. We shared the email exchanges, back and forth, the comps, stuff like that. He said, let's do it. Okay, so me being the bank, once we funded the note purchase, I called the listing agent the next day and said, hey, my name is Scott Carson University Assets Fund. We just purchased the note from Wells Fargo Financial on your listing at 9016 Colin Field. And you could hear the Lego. Ah. I was like, no, no, no, it's okay. I know you've had this for a while. I think you have it. Do you have a, an existing buyer on the dish? Like, yeah, I got a very strong buyer, wants to Close quickly and say 30, 45, 30 days, like, okay, let's do it. So we approved it, you know, so technically we took over a $50,000 short. Really? Because they owed more than 200 grand on the deal. We approved it at 150. It sold. We netted the bank, netted 135 on the final HUD. That's what was wired to me. We turned around and paid our investor off this 75,000. Aubrey's happy for that, got his return. So we basically made about 60k profits in 30 days and something like that. So that's why I brought up the fact on the foreclosure list, you look at previous listings, look at it, it might be a listed short sale, might be vacant, might be an opportunity for you to reach out and say, hey, it's been on here for a while. It might be more motivated to move, depending on where you're at. Okay? Deed in lieu, cash for keys are kind of the same thing. Basically, when you're willing to accept a deed in lieu of foreclosure, this is where the borrower basically signs the property back to you. Okay? Now one thing you gotta be very careful of before you accept a deed loan or give cash for keys on a friendly foreclosure is make sure there's no outstanding liens on the property. Okay? The literally, we can give the borrower cash to walk away. You know, we've done five grand, we've done ten grand. We didn't send you five grand. Depending on how much equity or how much, what's the difference between what we bought for the note and the value of the property and the condition of the property, we're forgiving the debt. You can send a 1099 out to the bar for the forgiveness S. They should pay taxes on it, but they're insolvent. IRS form 928. They're not going to pay any taxes on it. Okay? But the minute the borrower signs that deed in lieu, it becomes an reo, it becomes your own property, you're responsible for it. So you're going to want to make sure and put insurance on the property, go out and secure it and stuff like that, okay? Now, if there is a second lien in place, what you do not want to sign is a dean loom. You would have the borrower sign a consent to judgment. All right? That way you can take that towards the courts and the judge, say, hey, they signed the consent judgment. Let's go and expedite the foreclosure to wipe out the second, okay? The bank, which is us, the investor, you can then sell the asset. You can rent it, you can own or finance it, whatever. Once you take the asset back, it's up to you, whatever you want to do with it, okay? You're letting the bar basically walk scott free to start over. Now some lenders in the past have said, okay, well for you know, there's a second lien or we're forgiving, we want you to pay a, you know, loan amount what's not collected, I don't waste my time with it. I'll just take the write off of my profits on that stuff. Okay. Take a discount, offset profits. So I'm sitting there, fine, you know the bar. Do I send them a 1090? No, not all the time. If they're willing to work with me, great. The only second liens I buy are behind my first. And if the seconds won't play ball, we offer them fifteen hundred dollars to go away. If they won't play ball, then we'll foreclose. Okay? And this can be a really good win win here for can expedite the stuff. We've done this quite a few times. We're not going after a judgment, we're not putting any late pays or credit flaws on the borrower. And then we'll tell them like listen, if you can't afford it, instead of us foreclosing and dragging it, let's work to solve this. Let's have you just deed the property to us in 24 months. You can go pretropily, get another new loan to Basel. What your credit score and stuff like is that. Then if you have a foreclosure, we take this to foreclosure and don't work with us, it's going to haunt you for seven years and you're not going to be able to get a property. Okay? So we like helping people. Now here's another story on a condo in South Florida, Fort Lauderdale. This is Tony. Tony is a airline pilot for American Airlines. Okay. And he likes South Florida. We had this note on this condo, two bedroom, two bath condo we bought. The note at 30, was worth about 100 as it sat. And Tony was interested. He's like, I like the deal. I said okay, we'll sell it to you for 60. We'll leave some meat on the bone for you. So we made 30 grand and went from there. Now Tony was happy with it, was worth about 100. There was also about 10 grand in back HOA fees, kind of association fees. While the bar it was vacant. The bar lived in San Francisco Bay area somewhere. So he reached out to the condo association to find out what kind of rent rates and stuff like that. And usually what happens in condos in Florida when you foreclose, you don't have to pay the full HOA fees. You get to pay something called safe harbor, which is either 1% of the original sales price of the property or 1, 1 year of HOA fees. Well, the original sales price was $160,000. So Tony would have paid 1600 bucks if we took it to foreclosure. Now at this time, it was taking over a year to foreclose on Florida condo. So what he did, because it was vacant, the HoA wasn't getting any money on this condo. It was just sitting there vacant. But it was, it was in pretty good spots. So Tony reached out to the hoa, said, listen, I own the note. I got the borrower willing to do dean lieu. But if I accept the deed and lieu, it's going to violate. It's going to cease the safe harbor law. If I can, I agree with you guys to accept the deed loom. I'll give you your safe harbor fees of 1600 bucks and then I'll put a renter in it immediately and start paying you HOA fees on it. But if you're not going to accept that, then I'm just going to foreclose and it's going to take another year and you'll be in another year. Now, the HOA was willing to work with them, and most of the time I found HOAs are willing to do this. We've done this, I don't know, 20, 30 times with HOAS said instead of going through the long foreclosure process, borrowers will deed it over to us. We'll give you the fee, but instead of a waiting year, we'll get to you now and turn it into a thing. So that's what happened. So he got a deed alone from the borrower. I think he paid him a grand for the aspect of it, immediately was able to turn around and rent the property for about a thousand dollars per month. Okay, got a question from somebody. So are you able to show us how to spot each one of these exits? Stretch? I'm not sure how to spot. Yeah, that's the thing when you look at. And that's the thing when you're looking at a spreadsheet. If it's occupied. Well, that's going to be potentially a modification, a trial payment plan, a reinstatement you're, you know, if somebody's made some payments in the last year, they've had some hit and miss payments. You know, a borrower's trying to stay in the property. A lot of times the sellers will send you over like a payment stream of 12 to 24 months on their. On the spreadsheet. You're evaluating so you can see what's going on. Doing a little bit of the due diligence to the bar to see if they're alive, what's going on, Job loss. When you're looking at the servicing notes during due diligence, you can see what's happened a lot of times. So yeah, we like to hold your hand through that, Jay, for sure. And make sure you're buying a deal that makes sense. Not dragging out stuff. Not like. I'll give you an example. When we bought a note in Florida, the borrower hadn't paid in four years. When we talked to the seller and he's like, yeah, you're gonna probably have this for 12 plus months of foreclosure. They tried every trick in the book and they're paying. Yeah. So we knew that going in, but we got a bigger discount for that. So, yes, you. This is a great thing in looking at collateral. File the servicing notes. Okay. Yeah. You know, you're not going to know every strategy just by looking at the tape. But that comes in the due diligence of what you find from the servicing notes, from the, the attorney fee, the training notes. They've already started the foreclosure process. And then payment history. There's a lot of great things you can do by looking further than just the property address. Okay. Is Dee Lou. The bank pays the borrower some money. Move out money or how much the payment borrower paid. Okay. So no deed. Lou is there signing over the property to walk away. There's no cash given. Now, a cash for keys is a cash for keys where. Okay, we'll give you three grand or five grand to sign the property, walk away. That can vary. Okay. In Texas, my cash for keys is I start at 1500 bucks. That's about as high as I'll go unless there's a ton of equity behind. And I don't want the actual asset to go to foreclosure and get outbid on. And I'd actually like to take the property back. So if I want to take the property back because there's a big amount of equity, then I'll talk cash or keys. And then it'll vary on a case by Case basis, you know, if they owe, you know, more than the property's worth, I might do 1500 bucks just, you know, speed up here in Texas. But they're not going to. They want more than $59. I'm just going to foreclose because it's faster. But if it's in like a state like Florida, which can take a year to foreclose, yeah, I might give them ten grand to speed this up. It just varies on a case by case basis. Shantae. And does that make sense a little bit more for you? Did my answer for you, Jay, make sense as well? Yeah, I mean, there's, there's some different opportunities, but the way we run our numbers. Okay, can they just start reinstating? Can they bring four months to the table? All right, what's it going to cost if we foreclose? Foreclose? Cash for keys. We kind of figured it's about the same thing in a lot of cases. All right. Because we'll basically say the five grand that we figure in foreclosure costs, that could be cash for keys to expedite it. If it's not going to set five grand, then we foreclose that, you know, jet experience comes with, you know, like I said, buying more stuff and going that route. But we're here to help answer those questions for you. And that's why I say if you got a deal you're working on, pick up the phone and talk with me. I'm glad to say, well, here's the opportunity. Can you do this? Can you do that? Some servicers want you to go straight to a modification like, no, no, no, let's not modify because that's a tax complications. Let's do a trial payment plan. Or like I'll give you an example, Laura, Laura Miller was buying a note where the borrower was only four months behind. His note was in Topeka. Well, it was an attorney and it was the borrower. And he'd been on time pretty much, but he fallen on hard times, gotten sick and stuff like that. I didn't have a lot of work. I don't remember exactly what the reason was. And he wanted to modify the loan. I was like, no, no, no, he's only four months behind. If you modify the loan, then you can't go after the four months. He could delay this even more. Right now, with him being four months behind, you have the right to foreclose. So let's do a trial payment plan where if he makes his existing payment, plus I think $300 a month or $200 a month, he'll be caught up by the end of the year, in 12 months, and then you don't have to modify, you don't have to forgive anything. And they did that. So otherwise if they'd have modified it, the bar could have dragged it out another 90 days. If they did a trial payment plan and the bar didn't follow up and make the next payment on that, then they have the right to start the foreclosure process because the borrower didn't falter. But once the, once you modify that resets the statute of limitations and starts to clock all over to foreclose again. Okay, the borrower makes one payment but then doesn't make a second one, then what you just basically do is refund that first payment, send it back to say, hey, you didn't follow through the payment plan. We're going to foreclose. Most people when they start making extra payments, they're going to stick with the plan for the most part. All right, and go from there. All right. Moving a cash payoff. This happens from time to time where borrow come in and make a payoff. Obviously if you have smaller loan amounts, it happens a little bit more than $1 million thing, but that's the thing. You're not going to get somebody that goes out and refinances you out with a traditional 30 year mortgage once they're behind. It's just not going to happen. But what we see is that we'll even structure payments. We've had people come to us or family members come to say, hey, we'd like to pay this off. Can we set this up over, you know, can we do a lump sum and you'll accept less or can we do it over three months where we pay a third? A third or third? Or can we, you know, if it's an investment property, can we go get a hard money loan? Or if they're selling it to a, you know, family member so it's not an owner occupant to them, they can go get a investment hard money loan to sell it off. You know, a hard money layer is not going to make if it's an owner occupied, but if it's an investment property, you can go get 65, 70 cents a dollar. So we're glad to do that. You know, like I said, lower balances have a much higher hit rate. You can understand that. Leslie Shift, another one of our coaching students, she was buying this note in Nashville, Tennessee, this little house. The guy owed about 75 grand, but hadn't paid in over a year. Now Nashville, I'm sorry, Tennessee is a relatively faster foreclosure process. Once they get 120 days late, you can foreclose in about 30 days, right? So when he hadn't paid in a while, she sent out certified letter, sent a letter out to the mailing address and sent out a door knocker to deliver it to the house because the mailing address was different. It was a business address for the statement. So she thought, well, maybe he's not getting it because maybe he's no longer of that work address, right? So they're in a service, they sent out a door knocker, knocked on the door, guess who opened up? The borrower's wife. Okay. And the borrower's wife was very surprised that the house was going to foreclosure. Okay. Was set to go to foreclosure. Well, the next day, lo and behold, the borrower called the servicer, got it, he got a payoff amount for it and a week later, full payoff came in from. He took out an IRA, a 401k loan to pay it off. Never offered, never offered to do a short sale or anything like that. I guarantee there was some paint peeling that night in the household. It would have been a fly on the wall, but turned out pretty good because I think she paid 35 for it. Got a full payoff of like 80 after all the late fees and stuff like that. That was a pretty good six month deal for her being in and out. Okay? Now if you buy a note and you own the note and you want, you're buying for your own portfolio, you want to go be a performing note and the bar turns out not to be willing to work with you and they're dragging things out. Guess what, you can resell the note if you bought it cheap enough, turn around and sell it to somebody else. Make a quick 5, 10%, you know, if it's a non performing note and you bought it cheap enough, sell it, make a quick money. If it's performing up, eh, and you want to get rid of it, you've had it for six months or you need to bring some, you know, bring some money back in to pay for something else. You can sell a performing note, semi performing note, you know, if you've bought it cheap enough, you can turn around, make a 5, 10, 20% return on it. But you've added value to the deal by actually servicing the note and knowing which workout way it's going to go. The bar is willing to play ball if they're not willing to play ball. Or maybe you wanted to take the asset back and suddenly the bar is paying on time again and pulled a rabbit out of the hat. Okay, fine. William Bonatti is another coaching student of ours. He bought this note in the panhandle of Florida and you can actually see the bar walking there. And so he bought the Note for about 75. I remember on this one, borrower's hit and miss. Hit and miss, hit and miss. Okay, so he bought it at a. Oh, I think he paid 54. He sold it for 75, owed 130. The house was worth like 150, something like not a very big house. But he got six months of on time payments from the borrower and then the borrower started missing. So he turned around, sold the note to somebody else, got his investment back plus some profit. Not as much as he would have if the guy would made it all the way to 12 months of on time payments. But he was able to take it, get enough back, make it a good profit margin. Somebody else can deal with the asset and go from there. You don't want to go through the foreclosure process if you had to do that. Okay, now foreclosure is going to happen. It is just an exit strategy that's going to happen about 25, 30% of the time. This is a property lean high acres that we bought the note on. And it was a mom, mom and two kids in there. Now I don't like foreclosing on moms, but it literally is probably the last option for investors for you. I don't like to foreclose, but we still do it a chunk of the time. I got a question here from somebody. If the borrower made the payment plan, it means that the lender lowered the monthly payments? Not always. No, no, no. A payment plan could be if they're five grand behind, five grand behind their monthly payment. Say it's 4, 400, or let's just say $500 a month, make it easy math. Okay, they're a year behind, that's six grand that they're behind. All right, I can tell somebody like, listen, bring in four months of payments, that's two grand and make a monthly payment of 500 plus $200 a month to get caught off on the remaining balance. You can get creative in how you want it, but you always want to get some skin in the game for the borrower and make the existing payment plus a little bit extra. Doesn't mean you're lowering the monthly payment. Okay. In these days when rent rates are higher than mortgage payments, I'm not going to lower payments down. Most of the time. I'm going to keep it as it is because that's going to be the cheapest payment they're going to have. Now, in the rare situation where rent is lower than a mortgage payment, I might then adjust it, provided it's the same type of house. Okay. It's going to be same for same. If somebody's living in a 500,000 square foot or $500,000 house, I'm not going to give them $800 monthly payment. Just doesn't make sense. Then that's when we need to talk about cash or keys, deed, loan. All right, it's got to make sense. Okay, so like with this example, their monthly payment was like fifteen hundred dollars a month. Rent would have been like 2,500 in some place for the same type of house, if I remember correctly. Well, I'm not going to drop her payment to 800. And this is what she wanted. I want to drop my payment to 800. It doesn't make any sense. No, I'm not dropping at 800 at all. For you. I'm willing to allow you to get some creative payment plan, but we're not dropping the paint. We're going to keep it at 1200. And you need to bring some skin in the game. Well, she wouldn't do it. We even offered up the mod to drop her interest rate a little bit, but she played ball, wouldn't respond, and at that point was taking about 18 months to foreclose in Florida. Well, we finally get to the a month before the foreclosure auction. Suddenly she wants to do a modification, wants to respond like, no, we foreclosed. Okay, We've given you plenty of time, plenty of opportunity. Unless you can bring a sizable amount to the table, we're not going to allow you to stay in the property. You know, we're not. Your time for being friendly has gone. You should have worked with me a year ago. Now that you, you know, screw this around, we're going to foreclose. All right? Like I said, it's a different process where there's a judicial foreclose or non judicial. Texas, Georgia, North Carolina, Virginia, Michigan, Missouri, Arizona, Nevada. Those are non judicial foreclosure states. It's usually around 90 to 120 days. Let's not forget Tennessee is in there as well. Judicial states like Florida, Illinois, South Carolina, Ohio can be nine, six months at the fastest. Nine to 12 months or longer, depending what's going on. I don't buy in Illinois, especially Cook county, because Cook county is corrupt and they'll drag shit out longer. They give the borrower every stupid excuse in the book to drag stuff out other areas of Illinois, fine, okay, if it's a vacant property in New Jersey, that's one exception. In New Jersey usually it takes two years to foreclose. If it's occupied but it's vacant, you can foreclose in as fast as six months. Okay? So you got to keep that in mind too. 21 days, like 36 months in new York. I don't buy in New York. Everybody tells me they want to buy. Non performing nuts in New York has never bought there. Okay? And the great thing is if I want to, we're going to foreclosure. The borrower does come to the payment plan, I can always stop or suspend the foreclosure for a month or two while the borrower is coming back on track. Now the thing that will stop a foreclosure debtors track is a bankruptcy. Okay? That'll drag it out and that's fine. It's gonna be a chapter 13 which is gonna be a payment plan. If they can't follow through the payment plan, guess what? We discharge the bankruptcy and we foreclose. Or it's a chapter seven liquidation of debt. And we'll talk about that in a second. Anyway. But anyway, you determine the bidding instructions of the foreclosure auction. How high you wanna go up to whether you wanna take the property back. In a lot of cases, provided that they owe more than the property's worth. So if you wanna take the property back and own and they owe more than the property's worth, that's so like I'll give you an example like that the West Palm beach, if I want to move West Palm beach and I want to own that property, move into it and I'm buying at 200. I would just list the sale price to be 319 above and beyond. Nobody's going to pay that. The auction, I'm gonna take it back as an reo. I can then move into it if I wanted to, right? If I want to sell it, I'd want to sell it. Like you know, if it is worth 300, sell it. You know, no longer. I'd say, oh, I'm buying at 200. Let's sell it at 275 or 250 and bid up from there and see what happens to the auction and give the, my attorney, the bidding instructions. Okay, so that's a great thing. But the thing is if you're buying a non performing note and the borrower's not responsive, has not been responsive with right party contact in the circusing notes, don't sit around and wait to foreclose. Start the foreclosure process, you can always suspend it and stop it and going from there. Okay. Now bankruptcy happens a chunk of the time. Like I said, Chapter 7 and 13, every BK on a residential loan is going to be a chapter 13. To start off with, the judge has to point into chapter 713 is a restructuring of debt over 60 months, 5 year payment plan. Basically chapter 7 is the liquidation of debt. I love BK's. BKs are pretty good cash flow. You have an attorney to talk to, which works out really well. The borrower has to file, petition the courts to file bankruptcy, stuff like this. So we're going to submit like a nine page due diligence aspect listing everything they own, the debts, how much income they have, what kind of retirement accounts, whether their assets have. That's the best due diligence you can buy is a BK filing. Okay. It's either going to be a five year payment plan where they're paying their normal payment plus 1/60 of what they're behind on. All right? Or you can take the asset back. Now if they're paying the mortgage on time, they want to keep paying the mortgage on, maybe they're filing bankruptcy for medical bills or credit card debt. You can actually keep the mortgage out, they keep paying you on time. Okay? It can be removed from the bk. All right, but if it doesn't, if they don't follow through on their payment plan, then you petition the court to kick it out and go from there. Now the great thing about BK is a lot of times, especially if it's an existing bk, there may be money sitting already at the bankruptcy trustee for you to collect them. That's what happened with Sterling. He got an extra five grand sitting at the BK trustee waiting to collect on it when the existing lender didn't do anything. My buddy Jack Krupy used to own a company called Gemini Capital Partners and he basically had a bankruptcy fund. You know, he started buying non performing notes and these guys that did BK loans came to him and started 150 million. $150 million fund just to target BK Chapter 13 loans because the cash flow. All right, any questions about the different exit strategies? All right. Now yes, if a note is re performing, you can sell it off after 12 months of on time payments. That's a great thing. You know, 80, 85% of the UPB you know, depend on or the value of the property, whichever is less for the most part. So keep that in mind and you know, find out what it is. We talked about some of the strategies for, you know, if you get a Note performing for 12 months around selling it, the cash flow and getting, you know, 80, 85, you bought it at 70 cents on the dollar. You know, you just really need to have 12 months of on time payments for it to turn around and be able to sell it as a re performing note for you. Okay. And that's why having a servicing company is important. They collect the payments, they're able to document this. If somebody brings me an owner finance notes and they're self servicing, I devalue that note right then and there because there's not really a true third party servicer who can verify the ins and outs. Now I would need a copy of the person's bank statement that's selling the note to see where the payments came in. They don't want to provide it a lot of times and so it's important and they need to collect it from a third party using a Zel or something like that to collect on. We've had people try to do that. I, I just don't like that. It's not the same thing as collecting from a third party servicer. All right, all right, Any other questions about that? Exit strategies clear as mud for you. There's multiple ways to say skin the proverbial cat when it comes to note investing. All right, let's see. Any questions online here, Cincinnati, Ohio. Okay, Goodman says they're out C. Okay, awesome. All right, well let's do this, let's move on.