WARNING: Don't Buy CFD's In Pennsylvania

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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.

Hey, real estate ministers. My name is Scott Carx. I'm known across the country as the note guy. And as somebody who's been a real estate investor living in the Lone Star state for over 20 years now, I often get questions from people looking to invest in Texas, whether they live here in Texas or they live outside of the Lone Star State. Where do we find our distressed leads? Where do we find our foreclosure list? And the number one source is Roddy's List. This list has been around for 20 plus years. George Roddy over here, Smiling Face is a friend and his source for foreclosures on residential or commercial properties, the sheriff's list. The struck off list is second to none because it's just focused on Texas. And if you're looking for Texas deals, which is the fastest state to foreclose in, then you definitely want to check out Roddy's list. You can go to Foreclosure listing service is what it's known for. Flsonline.com if you use the code we close notes. That's right, we close notes. It'll get you $20 off your order. Whether you're ordering a foreclosure list in Dallas county or Harris county or Travis county or Bexar county, whatever county you're looking in, or whatever source list you're trying to buy from them. That'll get you $20 off of the price. Can't beat that. It's a great resource. We use it all the time to find distressed notes, banks with bad debt, private investors who are foreclosing, private individuals who are foreclosing on assets and also potential REOs for us to purchase or our students to buy. So make sure you check it out@flsonline.com that's flsonline.com or foreclosure.info as well. But make sure you tell them at ScottCentra use a discount code. Once again, we close notes to get your $20 off. Good morning, good afternoon and good evening, everybody. Welcome to this episode of the Note Closure show. As always, Scott Carson, Excited to be here with you today and today's episode. I want to go through a unique situation that one of My coaching students just recently experienced. I meant to do this a couple weeks ago, but with travel and cold, finally get around to it now. But it's something I think you guys should all keep in mind if you're buying performing or non performing notes, especially if you're buying contract for deeds specifically in Pennsylvania. Okay. Now I've bought plenty of contract for these. I mean we have bought hundreds and hundreds of contract for deeds over the years. Our students have bought a lot of contract for deeds, performing and non performing. I bought in Pennsylvania before liquidated, we've had there before, sold it off or foreclosed, took the property back, stuff like that. But this situation is an interesting scenario and to set the stage a little bit, what's going on with this, one of my coaching students bought a chunk of performing and some non performing contract for deeds and they included this one asset, this one contract for deed in Pennsylvania. It's performing. Okay. Now if you don't know what a contract for deed is, it's still a lending, it's still a mortgage product basically. But what happens is it's not financed like traditional, like you're not going to jump through hoops filling out a 1003 application. It's not really credit based. Most of them are pretty much 20 or 30 year mortgages at 9.9% approximately. And the deed stays in the name of the seller until the borrower who's on the contract pays off. Right. And what's different about contract for deeds is some states treat them as mortgages, others treat them as like a tenant relationship. And that's kind of the advantage of a contract verdict. In states like Alabama, which has a one year redemption on, you know, on a mortgage versus a contract where you can evict if the borrower doesn't pay, you evict and then take the property back and go forth. Well, in Pennsylvania they treat it, you could also evict it. Okay. But you know, Pennsylvania is a relatively faster foreclosure state anyway. But in this situation, my student, he bought this note from another previous student, another previous coaching student, he's bought 500 notes closing down a fund. Look at him. And they bought this prop, bought this note. It's a contract for deed at 8.99%, 30 years performing note and the bar was escrowing, taxes and insurance. Okay. And my student's pretty excited about it. He was going to pay 17, I believe is what he was finally going to pay. Actually, I've got the information here. Yeah, yeah, he paid basically $17,000 for this note, this performing note with a balance of 38,000. And it was going to be a pretty good yield to him at that. He's buying it less than 50 cents on the dollar. Just under it, the property's worth a whole lot more. It was performing for a period of time. And there's about $6,000 in escrow, taxes, insurance account with a servicer that needed to be paid towards the beginning of the year for the property taxes. Right. So what happened? So my student closes on it. Everything gets transferred. The servicing has a little bit of a hiccup. Like the seller went out of town on a hunting trip, didn't communicate effectively with the servicing company. His servicing company bought the note being sold. So it took a little while long for servicing be transferred. It gets transferred, but the tax and insurance going to get transferred over in a timely fashion to pay the taxes, insurance. So it now shows that the borrower's behind on this. And my students like, well, do I pay the taxes? You know, I mean, told by my servicing company, which is fci, which is just not the easiest to deal with, that I need to get this over there. You know, they're not gonna give you credit for it. It's like, no, they'll give you credit for it. You should probably go ahead and advance the 6,000 to pay the taxes, insurance, because if the bar is paid, it, it'll, you know, advance now. It'll get taken care of in the transfer, you know, sure enough, it's supposed to. Well, what happens is that the new FCI sends a statement to the borrower saying, hey, you're behind on your escrow. Well, they know that they've paid their escrow, so they get upset. They contact the previous seller. He's kind of MIA for about a month, hunting, doing other things, not really timely about responding. Well, this borrower goes and files a complaint with the attorney general that, hey, my $6,000 is missing. I paid this. It didn't help that my student, my current student was like. I was like, you need to pay. Well, he didn't pay it in a timely fashion. Plus, turns out that There was a $1,500 fee too that is now grandfathered in. It needs to be paid to the city for the septic inspection. Okay. And we also find, you know, know that the previous seller didn't pay that when he bought it beforehand. Well, you know, when he bought it, it may have not been required. Let's just let me clarify that he held onto this for a couple years in the last Couple years state of Pennsylvania is required, or the state of Philadelphia, where this is nearby, has required this septic inspection and this fee to go. So anytime the property is transferred ownership, $15 fee. So we argued first with the city that hey, this fee, it's not really changing ownership because it's the same borrower in the property. It is changing LLCs. Well, they said, nope, it's got to be paid regardless. Well, then my student reaches out and says, well, we need you to pay this because you're the owner of the property and it needs inspection by the state. Which I told him, you're going to have to pay. He still went ahead. It's okay. Not a big deal. Still going to be a great deal for him. Right? I think she gets a little upset about that too. In the contract for Gita, literally reads that the borrower will be responsible for your fee. So he's not outside his right to ask that borrower to pay. That right. Totally makes sense. You've been living in the house for a few years. You're responsible for the septic tank, you've been paying the sewage and stuff like that. It is unfortunate transferred and it's due to this cause, but it is what it is. Well, she's upset. She contacts the attorney general. The attorney general looks into it and finds out that since it's a lower balance, right. $38,000 balance is what's technically load right now. Oh, wait a second. This is a contract for deed. And since it's below, it was below a $50,000amount. It violates, get this. It violates the specific law that Philadelphia or Pennsylvania has for balances mortgages below 50,000. Okay, let me read this specifically to you. So I'm not misquoting. Okay. Basically it violates the loan interest and protection law. Okay, Basically stating that there is a maximum lawful interest rate that you can charge borrowers on mortgages below 50,000. At $50,000 and below. Okay, so I'm not going to read through the whole law with you. Okay? But this dates back to October 5th in 1978 when it first came out. Okay. And if you think about 1978, interest rates were a lot higher. So I don't know how this got passed and been voted down. But anyway, and maximum lawful interest rate states in here is section 201 of the law. Maximum lawful interest rate is, except as Provided In Article 3 of this act, the maximum lawful rate of interest for this loan or for the loan or use of money in an amount of $50,000 or less in all cases where no express contract shall have been made for a less rate shall be 6% per annum. That's the highest you can charge is 6%. Now the maximum lawful rate of interest set forth in this section shall not apply to an obligation to pay a sum of money in an original bona fide principal amount of more than $50,000. It was $50,000 and $1. Okay. An unsecured non collateralized loan in excess of 35,000 or business loans of any principal amount. Okay. All right. Exceptions and it's going to roll down to Article 3, the exceptions to maximize the lawful interest rate. Residential mortgage interest rate. The General assembly hereby finds that it is necessary and appropriate to establish a flexible maximum lawful interest rate for residential mortgages as defined in this act and further finds that the monthly index of long term United States Government bond yield is the appropriate basis in which such a maximum rate of interest may be established. Okay, It's. It's ridiculous. So here's what. No consideration of the investor. No consideration that this is probably a subprime borrower for the most part. When it bought that the investor is at the risk aspect of this when this was created. Because they didn't. Do you know when this was created from harbor portfolio originally the bar bought it as is. They financed in 20% at 8.99% interest. Right? That does not seem high considering where rates are at now. But also consider when rates were back then. You know what I mean? It just seems ridiculous. Anyway, so here is what they said. Okay, I'm going to read the exact email that the Attorney General's rep sent my student. Dear Blank, we have completed the initial initial evaluation of the situation related to the property in Greenville, Pennsylvania and have been concluded that the agreement for the promissory note originally between a property management and the borrower that you purchased from a blank company with respect to the address contain an interest rate of 8.99% which violates the Pennsylvania loan interest and protection law. Copy which is attached. The interest rate for this loan should be no higher. Get this, no higher than 4.75%. Okay? The maximum rate in which rate in the month of in which it was instituted in accordance with a loan interest and protection law. Isn't that freaking ridiculous? That's just stupid. Okay. The Attorney General PA's authority to enforce the loan interest and protection law attached our two decisions. Okay? That they. If you require further information we have to provide it. But the contract you purchase with respect contains interest rates that are in a blatant violation of loan interest law. We recommend that in future you check with a lawyer conversant to Pennsylvania law before purchasing notes relating to properties located in Pennsylvania. See, I don't get that. That just doesn't make any sense on that aspect of things. Okay. If the maximum lawful rate of 4.75 has been used instead of 8.99, then the outstanding principal balance on the loan right now would be approximately six grand. Doesn't talk about the fact that she was behind at one point and didn't pay for a while. Instead of the documents right by the seller indicate that it's approximately 38,000. Now they reached out, the attorney general reached out to the previous seller as well, said hey, you're the owner of this. We need to see all the service. Well, it's unfortunate too that the servicing company that they were with went out of business a couple years back. So he had to move it to a different company. But back in 2023 their his servicing company went out of business and screwed a lot of stuff up. Like there's years missing. They just literally overnight went out of business. The loans got transferred out of but there's not a lot of payment history for a period like 12 to 24 months. Okay, let's go through this. Okay, let's see here. There may be other violations of Pennsylvania law in connection with the promissory note. We'll raise them in a leader date if necessary. The borrower reported to us today they have contacted that you have contacted her seeking to require her to pay certain local annual fees assessed against property owners in the county. We cannot find anywhere in the agreement for deed of promise or not which is a. A blatant lie. There's a complete section on there that the borrower is responsible for fees. Okay. Any fee that you seek to charge under this loan must be specified the loan documents or as it should or should not be charged. What was that line? Any other thing was a general thing on that. Well, this new septic system thing inspection fee by the city was actually added just a few a couple of years ago. Was it? When it was originally unknown was created the bar. Now here's a great thing. The borrower has reported to us that she wishes to sell the property. This might be a way to solve the situation. Is our understanding that you purchased the agreement for 17,000 from the seller if you would agree to compete cooperate with her efforts to sell the property and agree to a payoff amount of no more than 22,000. We're just going to take 38,000 and drop it down to 22,000. We know you paid 17 and so Satan here, this amount is the 17,000 you paid for plus $5,000 for transaction costs. We would be comfortable to not pursue the matter relating to this borrower. This will allow her to sell the property and you to recoup your investment in the property without litigation. We're also interested in another note that you bought so from the same seller for a different amount as well. Okay. This is just crazy. It's just ridiculously stupid that. Oh, you we're going to drop it down to. You know, they did ask for servicing and he provided what he had all. There's some time missing. Well, yeah, she was once non performing. She didn't pay on time the entire time. I know this because I know that the seller, when he bought it, I went back and found what he paid for it. And she wasn't behind, she's behind by like two or three years. And he, the seller was able to modify keep it. Now what would solve this issue? Well a, if the seller had converted this to a mortgage above $50,000, that would would have solved it. You know what I mean? Maybe given a little money, converted to $51,000 mortgage because the value is, I think it's 70 if I remember correctly on this. So the greatest house. But that would offset this since it falls above that $50,000 mark. Dropping the interest rate down, changing it from 8.99% to probably 6% would have solved it because it would have eliminated the contract for deed and turned it into a mortgage. And that would have been a different thing and a different balance. You know, selling the property, the bar sells the property, he gets paid. He's still going to make money. 5,000 on a $17,000 investment. Investment is a pretty good day, you know, especially if it takes less than a year. He really was buying it for the cash flow. That was going to be about an 18 to 19 cash flow to him. But that's not going to work out now. So yeah, my, my suit's a little irritated with it there. He's just like, I'm not going to buy contract for deeds in Pennsylvania more. I would agree to the same thing, especially the low balance stuff. He used his own money, didn't use somebody else's money. So that's the, that's the nice thing with that aspect of things. But this happens every once in a while. I mean you're going to have things. I've had the CFPB reach out to me before when we were foreclosing on a couple borrowers who weren't making payments or they made a payment and we returned it and they said we accepted it, which we didn't. We just returned it to them because they were so far behind. We didn't want to accept just one month of payment to reset the statute of limitations. I just think it's, it's, it's outdated law in there, especially when you look at interest rates and 4.87. That's just ridiculous. Even back in, whenever the, the loan was originating. I don't remember when the loan was originating. I think it was like early 2000s, I think 2009, 10 if I remember correctly. But still, to just completely cut him out from that. I told my students, well, you could always return it back to the seller. And the seller's like, no, no, no, I'm not going to do that. So it is what it is. Making 5017 is better than nothing other than stick in the eye if the lady sells it. And that's what I said. I said reach out to the borrower, see if she'd be willing to find out if she's looking to sell it, figure out that situation. Or you could always say about refinancing it, putting it into a traditional mortgage and even a little cash. But then he would have to come out of pocket some money to do that, to give her like a cash out refi. But the house is not in bad condition. It's not the greatest, but trying to sell it, trying to move it, it's probably the best thing that he could do on that aspect of things. So if you're an investor out there looking at contract for deeds in Pennsylvania that are below $50,000 when they originated, I would just say no to them. Okay. Stick to higher valued assets. I mean this house is over 38, over $50,000. It's you know, three bedroom, one bath, two story house, brick house, not a bad looking house. You know, the unfortunate thing is a, the taxes did get paid, that finally the taxes transferred over and those got paid. That took a little bit of while, but that's one of the things you got to watch out for. If the taxes had transferred over appropriately or they've been paid in advance in a timely fashion. Could my student have gone, kept getting payments on this with the Attorney General? Never stepped in? Yeah, the Attorney General's too busy to be going after individual deals. But what happens when somebody gets mad, gets upset and raises a flag about some things? And there was obviously like, hey, I paid 6,000. Where's my $6,000? Of course the Attorney General's gonna step in. I'm not saying they did anything wrong in that aspect of things. You know, the seller should have been a lot more responsive, should have made sure that 6,000 got transferred over in the servicing transfer. But it is what it is. So it's one thing. You may want to just put that in your list not to buy or something to watch out for when you're buying. Contract for deeds in Pennsylvania. Take a look at those things, make sure it doesn't violate anything. Last thing you want is some bar getting mad and reporting you to the attorney general. And then now they come and have to look at everything in your portfolio, look at doing a deeper dive on stuff. I mean, years ago, I mean, Harbor Portfolio did get kicked out of the state of Pennsylvania for creating these things, although I don't understand why they would get kicked out. They're actually doing the county favorite, 8.9 9.99%. Not a bad rate for a subprime borrower to own or finance a property. But this is where this is the Commonwealth of Pennsylvania. I find the thing that's frustrating is them determining what your value is, what your interest rate is. That's something that pisses me off, and that's probably my biggest cause for not wanting to buy Pennsylvania. It is what it is. That's my opinion. That and the cup of coffee might. $4 might get you a cup of coffee somewhere. But as you guys out there, you know, this is not the only time I've heard this happening to somebody as well, too. Doing a little deeper dive. So just avoid it. Or if you're going to buy it, just look to convert it to a mortgage, especially if it's over $50,000, it's under 50. Just say no to it and move on to something else. All right, so keep that in mind when you're buying a contract for deed or originating a contract for deeds in Pennsylvania. You don't want to be violating state law. I actually talked to a couple attorneys about that, and they hadn't heard anything about this, which is kind of funny. So one of those obscure laws written 1978 that sometimes pops up when people not accuse anybody of doing anything wrong, it just dragged out and people should have been a little bit more responsive. That's all. Been there, done that, had that happen as well. So hope you find that episode interesting. Keep in mind, buying mortgages, hey, that's totally different. But stick to mortgages that are above $50,000. Most of the time you're not going to see a mortgage anyway. Traditional mortgage originate below 100,000 anyway. It just becomes too costly. That's another thing that is aggravating is it's, it's completely consumer driven. It's not anything about business driven. Originating a note under a hundred thousand dollars is costly enough. Those low interest rates make it even more harder to make money on those load balance and they're really harming honest, honestly the community there because there is a lower value assets that people don't want to touch for this reason alone. Okay. If you're an originator and you're wanting to own or finance stuff there based on the costs and, and then the oh, Fannie Mae regulations when it comes that you're originating, if you're originating a mortgage you can only be like up to 4% of the original sales price. That's hard to make money in that neck of the wood, especially if you're going to run everybody through an rmlo even though there's a flat fee with that. But it still cuts into a lot of stuff when it comes to when you're ordering title and taxes and all that other good stuff there for you. So hopefully you guys learn don't buy in. The Pennsylvania state contract for D is a low balance. That's what we want to take away from this episode. And if you have any questions, feel free to reach out to me at talkwithscott carson.com as always, you can book a call there at talkwithscottcarson.com if you're looking at a deal. Always glad to kind of help you, walk you through that process. And always guys, don't forget we do have our monthly membership at $97 a month. That's very, very valuable to get you looking at new deals as well. So go out, take some extra break and we'll see you at the top. Thanks everybody. Bye. Hey real estate investors, this is Scott Carson. I'm known across the country as the note guy and I've been an active note investor focused primarily on the niche of non performing notes, distressed mortgage notes on residential commercial properties for almost 20 years now. My company is we close notes.com and I know there's a lot of different things when it comes to the note world. Are you buying performing notes? Are you buying owner finance notes? Are you buying institutional debt? Like I would focus on, Are you buying first seconds contract for each. There's a lot of questions and it can be very confusing about what you can or cannot do. So one of the great things that we've hosted for the last couple of years that we do on just about a regular monthly basis is we host our one day class called Note Weekend. If you go to noteweekin.com you can register for a free three and a half hour class. We'll talk to you and share with you how you find fun and flip non performing notes. And yes, you can buy non performing notes from banks, hedge funds and a variety of different hard money lenders out there for your own portfolio. No, you don't have to have millions of dollars to dive into the non performing note game. We've got students that have bought plenty of deals with 2530 grand getting their ball rolling using their self directed IRA who are tired of dealing with toilets, tennis trash desks, tired of battling contractors and GCs to get properties rehabbed. We all know the market is changing and while it may not be like 2008, 9 and 10 again, it we do see a lot of distressed debt out there on both the residential and the commercial side. So if you're thinking about diving into the note game, becoming a note investor, a lean lord as you'd like to say, versus a landlord, or you just want to figure out what it is about the sexy side of real estate in the note space, well check it out. Noteweekend.com doesn't cost you anything. We host it live usually the first or second Saturday of each month. You can go today. Register at the website noteweekend.com Register for the next live class we host. You'll get sent a replay to the previous class so you can start learning about the note business today. No questions asked, no credit card needed. This is a great way for you to dip your toes in the water and see if it's warm because I guarantee going through Art three one day class. You want to dive into the deep end and become a note investor. So check it out. Noteweekend.com you can also go to our website. We close notes.com check out our podcast. Check out our YouTube number one YouTube channel. We are here to help support you whether you're experienced investor or you're brand new investing. Note weekend is a great place for you to get the ball rolling. People often say we cover more in our three hour class than most people cover in their three day class. So check it out. Love to have you be part of our note family but get signed up today@noteweekend.com thanks and have a great day. Sam.