What Happens After Foreclosure: Exploring Vendor & Tenant Rights

Foreign this is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property For Panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close Nodes, Scott Carson 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 noteweekend.com you can register for our 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 the 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 noteweeking.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. Good morning, good afternoon and good evening everybody. Hey, welcome to this episode of the Note Closure Show. As always, Scott Carson, Excited to be here today. I want to go through and answer a question that I got on one of my TikTok videos. I thought it was valuable for you guys to understand this because we get people that are looking to invest in the United States that aren't from here in the United States, like our buddy Phil and friends Cal and stuff like that. Some of our coaching students that are buying notes here in the United States. Sometimes we take for granted what's going on. But if you follow me on YouTube or TikTok, you know that we've been sharing one minute short videos about some of the commercial properties that are going to foreclosure or hitting the foreclosure auction, things like that in Vegas or San Antonio, Dallas, New York, Miami, all over the place that we've been sharing the last few months. And what's very interesting, first of all, first of all, thank you for watching. Thank you for those that leave comments. Thank you for the Follow us But I want to give a shout out to folks who have reached out to that actually are living in some of these properties. That's been the surprising thing is that literally tenants that live in some of these multifamily are reaching out to talk about how bad the properties are or people who live down the street or who are living in another property that's run or owned by the investment company on some of the ones have been reaching out. So thank you for that. I I had somebody reach out though who is a vendor to one of these multifamily and he has filed liens against the property for non payment of services. And so if you're, if you're a vendor or you're not getting paid like we talked about, there was one apartment complex here in Austin, Texas where the management has filed like 100 to $300,000 in liens against the property for non payment of services. Or we've seen in other places where like rehab crews, you know, the general contractors aren't getting paid or the vendors aren't getting paid for delivering, you know, appliances. And now they've got this outstanding bill, it's not paid. So what do they have to do? They have to go file a lien against the property in the hopes that they get paid at some point when the property sells retail. Here's the problem. If a property is going to the foreclosure auction, that means let's, let's break this down. Simplicity, because I think you'll learn something from this. We're talking about what happens before, during and after and the opportunities that are there for it. So the lender, the bank, private lender, equity group, whatever, when they don't get paid at least 90 days or 120 days, that's three to four months of payments, they'll start the foreclosure process. And we all know that process is different whether it's in a judicial or non judicial states. In states like Texas it's fast and states like New York, it takes forever, like three years. So if you're a vendor and you're owed money, you slap a lien, a mechanics lien on the property, you're technically in a second lien position. You're in a, what we call a junior lien position. Maybe secondly, maybe third lien, depends how the property's finance. If a investor or the, you know, person goes out, or the firm goes out and buys the property, they'll get a lien, you know, get a mortgage for 70, 80 cents on the dollar, sometimes more. We've seen some of these things have been ridiculous. On the commercial side, they'll get a loan for a first lien position. They may get a mezzanine lien, a second lien from private equity, or the groups for the rehab and the upkeep or things like that. So if you're a vendor, you may be filing your lien in the second or third lien position, which is a much riskier position. So when you have what's happened recently in the last couple months, months, the last six to 12 months, where the first lien holder, the bank isn't getting paid and they're filing foreclosure actions. You see, these things go to auction. There's a couple of things that can happen. Usually the lender will, you know, they'll file that. They give the opportunity to the borrowers or the investor who holds the property come make it up. Many of them done forbearance agreements, stuff like that. If they can't come to the table and can't stand time, they're going to foreclose. And the number that they're going to look at is, okay, what's their legal balance, what's what's owed on the unpaid principal balance, plus all the legal fees, the late fees, the unpaid interest, that kind of stuff, anything that they've advanced, insurance, taxes paid to avoid a tax foreclosure, all that kind of goes into your legal balance. That's they're going to look at that number and then look at what the relative value of that property is. Now if the value of the property has gone up, they're probably going to submit what's called a full credit bid at the auction. What does that mean? Say 33 million. Oh, the house, the property is worth 40. They're going to bid at $33 million. That's going to be the opening bid of the auction because they know if they get out bid great, let somebody else take it. They'll get paid in full, the 33. So let's go to this example. So they bid 33,000, opening bid, you know, 100 bucks. Somebody bids up to 33 million real fast, the lender, the lender's attorney, if it sells for 33 million and $1, the bank is owed 33 million. They get their 33 million back. That dollar goes to the second lien holder. They don't get paid in full. If there's a $200 or $2 million second lien, they're getting wiped out. They're not getting anything. Now if it bids over that, say it goes to 40 million. Well, if the property's worth 45, okay. In that case, the 33 million gets paid off. And then online bank, they're happy, it's a second lien holder, it's got 2 million do they're happy, there's another 5 million will pay off any vendors, stuff like that. Sometimes you'll have that happen. A lot of times though, when a property goes to auction, there's not going to be a lot of bidders because people aren't just going to go bid blindly on a commercial property because they don't know the cash flows, don't know the occupancy, the noi expenses, condition the property. That's why you see a lot of these multifamily apartments or commercial buildings getting bid at auction at what's called a credit bid, because the bank's going to know kind of roughly what the value of the property is they're going to be appraised by, which really doesn't mean a hill of beans when it comes to multifamily commercial stuff, but it's a number to look at. And so you'll see someone will just bid it up, bid it at auction, and there's not a higher bid. They'll just go ahead and say, okay, we'll take it back, and now they own the asset. Now let's, let's talk about that process now. If you're in a second lien position, it's important for you to know the value of the property. It may make sense for you may, in some cases, you do have the right. In a second lien position, if you're not getting paid to foreclose, to start the foreclosure process to take the property back, you're not going to wipe out anything that's senior to you. You're not going to wipe out that first lien. You have to be prepared if you're going to foreclose, to foreclose from julien position to start making payments on that first lien position. They could be on time with the first lien, but if they're not on time to your second mortgage, you can foreclose and just start taking over payments on the 1st. This is why you'll often see they'll go ahead and pay off the second or stuff like. Or banks will sometimes pay off and buy that second lien. So they're in the first lien position. They don't have that aspect of not being in control. Okay, if it doesn't, if, if you're in a junior lien position behind the first and it doesn't, it doesn't sell the part doesn't sell at auction, guess what? Or the bank just takes it back via credit bid, or it doesn't get bid up beyond what's owed on the first lien position, you get zilch, zero, nada. The only thing you could do to try to collect on your thing is to file a judgment, try to get a judgment against that entity, the llc. You're not gonna be able to slap another lien on the property because the foreclosure auction is wiped it out. That's why banks are doing these foreclosures, because it clears up title, gets rid of any liens except tax liens and the taxes have to get paid. You could, you know, go after them personally. That's not gonna work very well because most of these companies are an llc. So you're going after basically defunct LLC to see what kind of assets they have. And not really a lot you're gonna get on there unless it's personally guaranteed. That's a different story. But you're not gonna see. So what do you do? I'm sorry, you write it off. You see if they own any other real estate maybe and slap it against that other real estate. Maybe you could try to sue them in federal court. A lot of this is just going to basically have to write that debt off and say and move on. That's what it comes down to more so than anything else. Try to make some sort of arrangement to maybe go in and repossess the fixtures. You know, that's hard to do when it's occupied. You really can't do that. So if you're in a second lien position, I'm sorry, junior lien position, and you've. The property's been foreclosed out from underneath it, you don't really have any type of action. Now if you're a tenant in one of these properties and it goes to auction, it'll depend on a state by state basis of what the tenant laws are. A lot of times many of the new owners will want to keep you in the property because the last thing they want is now to be a vacant property. They don't want that. They want to get that cash flow of that monthly rents coming in to keep it afloat based on what they find. So they'll often, many times go to you and say, listen, hey, we'd like to keep you on it. Let's extend your lease or let's look at your rent. What they will to look at is when they buy the property. Anybody who's got a rental lease or lease that's below market value. I know, I don't want to piss anybody else off here. I got enough comments on one of the posts about all these properties are crap. Like all the tides properties. Oh, I don't have ac. There's water damage, it's fire. Horrible management. I get it. They jacked your rent up on a lot of these places when they took over two years ago and they've never been able to follow through in the promises of rehabbing most of the Tides Equities Group plan on putting 6 to 10k in rehab into every unit that they bought on the thousands of years they bought across the Sunbelt. If you're a tenant, this is your opportunity to maybe say, let me get that guy Dodge. I'll tell you right now, you're probably not going to get your deposit back. Your deposit is probably going to be cash flow from that first owner. Your deposit's probably gone, right? You might be able to get something back or some sort of credit, I don't know. It all depends on a case by case basis. But you might as well just kiss that deposit goodbye. It is your opportunity though. If it does change hands and you're in a lease that you're not happy with, that's the time to look at leaving them. That's the time to get the heck out of Dodge, break your lease and move the heck out of there. Okay, that's. That's your opportunity at that. I get it. It's difficult, especially if you've lived in an area, stayed in an area for a while, got friends. But you've got to do the smart thing. And sometimes a smart thing isn't going to make your heart the happiest. But it's the most fiscally responsibility. If you're living in a roach motel, get the hell out of Dodge. Because it's. Here's the thing, that new owner, maybe not may not be quick to solving your issues. There's probably management issues. There's probably a lot of things they've got to review. They may not know the full extent of what the property's issues are and they may need to go raise some capital or put capital into it. It's not an overnight fix, ladies and gentlemen. So it's your opportunity. If you're one of those things, get out and move on to something else. If you're in a rough area of section 8 and you don't like it or you don't like it, here's the things to do. You could be the tenant that goes to the news associations or the newspapers and complains. Many of these organizations or the newspapers or news channels will have a community outreach expert. If they get enough complaints, they'll go inspect a property. They'll go inspect an apartment complex. That's not following through on their promises. If there's no ac, no power, horrible smelling, it's in disarray. Roaches. Rat. Rats. You get what I'm saying? Unless you rent, moved into a roach motel and planned on that. Unless you plan on being a good thing. Like if the marketing of the property looks pristine and it turns out it's not, that's your sign. You may want to reach out to your fellow neighbors and go to the news and talk about what's going on in the issue. Here's the thing. I would highly recommend that if your property is sold underneath of you or you're in a tenant in one of these apartment complexes and sold, don't call bitching out the new owner immediately. They took over a bad situation, they're going to work through it. But it's good to reach out to them, say, hey, I have these issues, I need some help, I need these to be fixed. I've asked for these to be fixed. What's your time frame on getting these fixed? If it's going to be longer than 60 or 90 days, then I need to look at moving out of the property. Is there any chance of me getting any bit of my deposit back? Which is probably not. So that's kind of what I want to go to. If you're a borrower in a property and they foreclose on you, they're going to file evictions. You're usually going to have a realtor, somebody show up immediately to file the eviction notice. You know it's going to follow a company, a sheriff, to evict you or to evict the management. Now some places, some people may want to keep the management on the team or on staff for a 30 day period to figure out what's going on, what's going on, where's the money coming, who owes what, that kind of stuff. And that may happen pretty easy. Usually what happens though is a lot of times these lenders that are foreclosing, they may actually go ahead and take over the property and receivership if a court appoints it, until the foreclosure process is finished out. So that way that the landlord or the investment company is operating the apartment, can't run off with all the money and say sign our. But you still see that happening quite a bit. Here's the biggest thing I understand you're frustrated. You're pissed off if you've lost money because you're not getting paid. If you're in a roach motel or in a bad situation. I get it. I feel for you. You have got to make a difficult decision though about of a get the heck out of Dodge or do something else. And if they're going to go and crank up rents like that's one of the big plays of multifamily investors is if it's undervalued, the average rent is below. A lot of them want to increase rents. You have to expect that coming because of your couple things. If you're in a non rent controlled property, non rent controlled, state or city, expenses are basically going to come hit you. It costs more for repairs, it costs more for insurance, it costs more for taxes, it costs more for labor. For those of you that want a higher dollar hourly wage, guess what? It's got to come back to somebody to pay. So if you're a tenant and your rent is well below market and it stayed that same way for a while, you have to expect the new property manager to come in and increase your rents. They've got expenses to pay, we've all got expenses to pay. Doesn't mean they're bad individuals. They're just trying to cover expenses and everybody's got to do their part to do that. And I apologize, I'm sorry. If you're on a fixed income or you're just barely getting by, it's a tough, tough situation. It's a big sandwich and sometimes we've all got to take a bite out of it. Now if you're living in an area and they've increased rents and never provided anything in, you know, any type of repairs or still a horrible aspect, that's where I would get your consumer advocates involved in the local media and go from there. A foreclosure, it's not a fun thing. It does happen. You're having that happen all across the country on multi families, office space, stuff like that. If you're a vendor, you're going to get wiped out and unfortunately you just have to write that, write that stuff off. So. But if you're a, you know, the great thing too is if it's going to foreclosure and you're a note investor, you might want to reach out to the bank or the lender who's foreclosing the stuff. As for opportunities for you to buy that debt on other properties that they have, it's Super Tuesday here in Texas. Me contacting a bank or the lender to buy a note that went to foreclosure auction today isn't going to be effective. But it will be effective if I can get the right person to talk about other things they have across the state or across the country that are going to buy. And that's why foreclosure lists are a great way to find hot deals. Distressed Deals that maybe you can buy the debt and step into the bank, modify, work with the borrowers or the tenants. You're buying that on a distressed debt basis. You're just going to need some cash to do that. So hopefully that was helpful for you guys. Look, foreclosure is not fun. It can be advantageous to some people, it can be very disadvantaged to others. The banks, they don't want to take over these properties as is with all this bad debt and luggage from the bad operations. That's why they're going to foreclose, to wipe out those junior liens, anything else out there so that they can kind of start over fresh. And yeah, they may lose money. They may have lent 50, 60 million dollars on a property and now they can only get 20, 30, 40, 40 million. So they're taking a big loss as well. So keep that in mind depending on what your situation is in what market you're in. So hopefully this is helpful. As always, feel free to hit that subscribe button. Feel free to share it, as always, if you have any questions, feel free to reach out to me at talkwithscottcarson.com or shoot me a message. I'm always glad to help answer your questions or help check out anything. I gotta thank the lady from Las Vegas that reached out to me. She goes, I live in this bad property. My son or friend lives just down the street. Another bad property. Can you take a look at it? I'm glad to look and find what what I can, but in both those situations, doesn't look like the lenders in foreclosure yet on what I can find on public records. So go out, take some action, everybody, and we'll see at the top. Bye.