There’s so much more to loan management than just determining whether the borrower is up to date with their payments or not. In specific situations, it often gets tough to know where the line is between letting your servicer handle borrower reach-out and when you should do it yourself. This is especially important when you’re doing workouts you’re your borrower. Following a thread on BiggerPockets, Chris Seveney and Jamie Bateman give their take on the issue in relation to their experience. At the end of the day, your servicer will never care about your loan in the same way that you do. On the other hand, you certainly don’t want to come across as harassing your borrower for collection purposes. Listen in and take a look at the situations where you might just want to take the bull by the horns yourself.
Listen to the podcast here:
Borrower Reach-out And Other Loan Management Issues: When Should You Take The Bull By The Horns?
I’m with Jamie Bateman. Jamie, how are you?
I’m working from home but I’m doing well. How are you?
Not too bad. I had a lot of notes stuff happened, which ties into our startup of trials and tribulations, but I’ll let you go first.
I got a few things I could talk about. I got one borrower. We’ve talked about my CFD borrower in North Carolina. I’ve got a couple of ones paying. That only works for Debbie, not for me. It comes down to it’s tough to know when to work with a borrower and when not to. She’s a single mom, unemployed due to the pandemic and daycare was shut down. I’ve been trying to work with her but at some point, you got to stop. I started contacting an attorney in North Carolina, Brock and Scott, through them. Don’t they outsource some of their stuff?
They do. They have some attorneys in North Carolina though, but North Carolina is one of those states where it’s very attorney-specific.
They gave me the pricing upfront and it’s over $2,000 to get started. It didn’t make sense, so I deferred another three months and that ended that part of the story. The problem is the borrower’s complaining that I’m not working with her this whole time. She’s way behind now. We finally grant three months. We also deferred all the arrears. I want to get her back on track. This is a JV deal. I’d like sending money to my JV partner again, and she goes silent. We’ve finally done what she asked and she goes dark. I can’t get in touch with her. It’s frustrating because part of the reason we’re in this business is to try to help people and come to a win-win scenario. That’s where we are with that one.
One thing I’ll mention because I went through this with Brock and Scott. They sent me the same thing, a $2,000 bill for a demand letter. Some attorneys in Brock and Scott do a lot of large lenders typically. What they’ll do is when they get a case file, they’ll start treating it as a foreclosure. For us as individual investors, we like to send a demand letter, wait and see approach, and then pay $120 for a demand letter. The way they bill is they’ll bill for the first 30% of the Fannie Mae regulations as well. I had that happen where I sent a demand letter, then I got the invoice. I was like, “This doesn’t make sense.” I called them and they’re like, “We billed it upfront.” I’m like, “I don’t want it billed upfront because we may not go to foreclosure or go that far.” They’re like, “We’ll edit that for you. When you reach out to us, let us know to hold off on proceeding with foreclosure until the demand expires and we’ll work with you on that.” That’s a little note and bolt for people.
I’ve got another one in Michigan. We could talk about all kinds of different situations and stories. It amazes me that borrowers don’t respond until you’re ready to take their home. I know we talk about it. I have two borrowers. She had been paying, but the boyfriend is no longer in the picture. COVID caused issues and she stopped paying in September 2020. I couldn’t get ahold of her for many months. Finally, we’ve sent two different demand letters. We had to correct it. She finally comes out of the woodwork and is frantic saying, “I got this demand letter that they’re going to do a forfeiture. It’s a fifteen-day notice. I got it eight days ago.”
It was coming up on the fifteen-day mark, but she claimed she’d got it a week prior. To me, if I get that, I’m reacting quickly. At least we have communication. We’ll head towards to some type of agreement because she has a lot in arrears. We’ll probably do a loan mod of some sort, but at least there’s communication. You can’t get anywhere without communication. Those are two different CFD forfeitures that I’m hoping not to do forfeitures on, but it could be headed that way. There are a couple of things I’ve been dealing with. I do have one that looks positive, 1 of the 10 New York loans. The guy hadn’t paid since 2014 and he agreed to get it boarded with FCI finally. He agreed to a modification.
Three and a half months to get it boarded.
There were boarding issues prior to that. This was one where we’d sent out the inspector to do an exterior inspection. He said, “I want to talk to the lender.” Finally, we were able to talk to them through our servicer. I paid $5,000 and he’s going to put down $1,500 and then make $300 a month payments. It remains to be seen what he does, but I’m counting that as looking like a success. We’ll see where it goes.
I’ve had a lot of pay-offs. I’m closing on a property that we foreclosed on in Oklahoma in December 2020. We put it on the market, had it under the agreement in 2 to 3 weeks. That’s scheduled to close. I have another one that was supposed to close. The title company got everything done ahead of time, so we’ll close this one as well. It looks like I’ll be closing that one. I had a borrower’s estate pay off a loan I bought in November. That was a nice one. That’s a quick turnaround. I had a borrower who was a year behind that’s magically throw up twelve-months of payments, so I had to reinstate the loan.
Throughout the November one, but for the other ones, when did you buy those approximately?
The two that we foreclosed and sold, I bought those on August of ’19. When people say 12 to 18 months, it’s at that time. There are balances that were around $30,000 to $40,000 UPBs paid around $0.35 on the dollar. Let’s say 14 or 15, and to them all in. Some of them did make payments during that time. Overall ROI-wise, we’re probably making around 35% to 40%. Take that as a yield over eighteen months, it’s probably 25% to 30%.
It’s nice because someone might look at this and see, “Chris is getting all this money coming in now from these few deals,” but you put in a lot of work. This is when it’s coming to fruition.
When I see these people who sell courses and stuff that are like, “You can make $100,000 in your first year.” No, you can’t. If you have $1 million maybe, but most people who are starting out, it’s 12 to 18 months. In your first year, you may only be buying 1, 2 or 3 deals. Once you start scaling, which takes 2, 3 or 4 years, then if you start scaling in year three, you’re not reaping those benefits until year five. That’s another whole topic.
What is our topic now?
Our topic is besides managing payments with the borrower, some of the other aspects of management, especially when you’re doing workouts or closing deals and paying off loans. Some of those forbearances and loan mods, the management of that process. In its own, I find that to be more labor-intensive than the regular they’re paying or they’re not paying. We spurred this idea because there’s a discussion going on BiggerPockets about a borrower who had a contract for deed. The borrower is satisfied with the contract for deed. He sent them the deed, which they haven’t recorded because there are taxes owed. He’s a little bit nervous that his name is still on the property.
In Michigan, you can’t record the deed until all the property taxes are paid. I don’t know if there are any other States like that. I’m sure there are. He feels stuck. He’s said, “Should I ignore it and sleep well or what should I do?”
One of the things he didn’t mention is what’s the tax balance. If it’s $50, I’d be like, “Seriously? Pay the $50 and go on your way.” I’ll be honest. There’s a lot of bad advice that’s being tossed out there. On my phone, I have a little photo that says another post with absolutely bad advice because I use that now on BiggerPockets and some of these other Facebook groups. When I see people talking about certain aspects of things like, “You should do this or that,” I take that and post it. There is more bad advice than good advice is what I’m finding, unfortunately.
Either people don’t know what they are talking about or they don’t even take the time to read and understand the situation.
You sent me one that you can share. This one was classic that somebody had posted.
It’s from the same thread on BiggerPockets. The original poster had said why the borrower couldn’t record the deed because the taxes were owed and everybody. We went into detail on this thread about how Michigan does not allow you to record deeds unless there’s a zero tax balance. Somebody posts, “Why don’t you record the deed?” Scroll up and read.
“Why don’t you issue a quitclaim deed?” That’s probably the issue, but it doesn’t matter what type of deed.
A couple of takeaways from that is he shouldn’t have sent her the deed. We don’t know all the ins and outs of how that was done. I’ll be honest, the first couple of days that I read his posts, I was following the thread, I’d commented, and then I realized I was in a somewhat similar scenario because we were doing the conversion. In my case, technically, we canceled the land contract. She didn’t pay it off, but converting to a note and mortgage from a CFD. We’d started working on this in October 2020, sent the borrower the documents in November 2020. Because of the holidays and whatever else, we didn’t get them back until late December 2020 and early January 2021.
Since that time, the tax balance has accrued. There’s a whole history to it. We don’t need to go into all the details with prior servicers. They weren’t collecting enough of an escrow. The situation we’re in now is that I have all the documents in hand, ready to be recorded. The loan is boarded with the servicer as a note mortgage, but there’s a $1,400 balance and I’ve already spent $2,000 in paying for taxes previously on this. I’m not motivated to step up and pay those taxes at this point. I got an email from the borrower saying she’s now unemployed. It’s a little bit of a sticky scenario. She’s a good borrower who wants to pay and she was paying all along. We’ll see. My takeaway is to add to our process a step where we check the taxes, not only what’s currently due, but what’s going to be due in the next few months. We’ll see where that one goes, but I can relate to the poster on BiggerPockets.
In your instance, you could advance the taxes and enter that into the balance. The borrower’s the one in a sticky situation because they’ve executed the cancellation land contract. They’ve issued the cancellation. Technically, a candidate will be in this property now. It’s on them. I’ve had this in the past on an asset in Texas. There was about the same thing. It was $1,400 and I advanced it because part of it I felt was, “Shame on me. I should have looked at that ahead of time and either had them come up with a down payment or waited to convert it.”
This goes back to sometimes maybe it’s worth pulling a title report before you convert to make sure you’re in that first position on that property. That can be done. Here’s one that I have or had. This goes to what you mentioned. I’ve got the borrower to sign the documents. There was a title company that took the deed and the mortgage. They went to record it and I guess something was off. The borrower didn’t get the witness or something on the mortgage. They recorded the deed without recording my mortgage. I was going nuts because this was an escrow company.
I’m like, “How could you record the deed without my mortgage?” I was like screaming at them. They’re like, “The borrower missed it and this and that.” I’m like, “You were handling the closing.” In this instance, the borrower had requested that the title company handle the closing. I’m like, “That’s fine.” That’s a few hundred bucks and we worked out. In that instance, I was up in arms because I’ve now had a borrower who owns this house. They have a note but I didn’t have any security on it.
We’ve had that, but not exactly that. It’s gotten a little scary where we’ve had recordings rejected through SimplyFile. There was something wrong with the mortgage but not the deed. Thankfully they’ve sent back and reject the whole thing. It may not have been SimplyFile. It may have been Jackson County or Michigan, where they don’t do SimplyFile or eRecordings. That’s a little nerve-wracking. You no longer have a lien on the property. That got resolved though.It’s tough to know when to work with a buyer and when not to. Click To Tweet
It ended up getting resolved. They went and got the borrower to re-sign the paperwork. It is challenging going through that process of getting borrowers to sign those documents. One of the things that I always run into is send them the documents and, “Do you use a mobile notary? Do you not use a mobile notary?” I’ve had them where they signed one document, but not the other. I’ve had him sign the mortgage, but not sign a note or sign the cancellation but they didn’t get it notarized. You run into a lot of those issues. I have found personally when you let to servicer handle it, they’ve got 300 other loans they’re managing and it takes forever.
It’s something that I truly believe you do have to take the bull by the horns and manage unless the servicer had someone that was dedicated to that or outsource it. I’ve used Orion in the past because I can pay them $250. They’ll create the deed, sign it, and get it recorded. If it’s Indiana, they fill out the SDF or Ohio, they’ll fill out the DST. It’s not cheap, but in the same token now how much time are you going to spend and what’s your time worth to try and get some of that stuff done. If it’s an area where it can’t be eRecorded through SimplyFile, I will turn it over to them because I’m not going to be mailing it to the county anyways.
It is tough to know where that line is between letting your servicer handle, borrower reach out, and when you should do it yourself. A lot of times, I’ll give the servicer a chance and oftentimes, it doesn’t work. It depends on the state and the servicer. You might get the servicer upset with you sometimes, but at a minimum, you got to keep them in the loop. That’s why we’ve started to pull in a lot of the FPI processes internally. I feel like we can do a better job. At the end of the day, the servicer is managing a lot of loans. They don’t care about my loan like I do.
That hits one point that we’ll briefly touch about is contact the borrower because I know some people hear different attorneys that will say different things. I’ve had an attorney says, “You can’t contact the borrower. Show me where it says you can contact the borrower.” I talked to three other attorneys and say, “If it’s your debt, you can contact the borrower. You’ve got to follow specific rules and guidelines.” For example, I’ve got one CFD that’s getting ready to get paid off. The borrower is an elderly woman. She wants the house in her son’s name. I say, “Contractually, you pay this off. I have to issue the deed to you. I could sell the land contract and the property to your son,” who she wants it in.
I’m sitting here going through my head like, “Can the servicer explain all of this to the borrower?” The payoff is $600 left on this thing. I’ll sell you the loan for $600 and then you get a deed to the property, then you can have your grandma, your mother or whoever it is sign a cancellation of land contracts or whatnot. It was unrecorded, then there you go. From that perspective, what you do on the backside after I sell it to you, I want no interest in that. I’ll sell you the house with the land contract. I’m going to call the borrower and ironically it is in Virginia, which I do hold a mortgage. I do hold a license in Virginia already because I’m also in Virginia.
Are they are getting ready to pay it off, you said?
They are getting ready to pay off. She wants the deed to the son for some reason I’m sure. It doesn’t make a difference to me what the reason is.
Why not deed her the property and have her it deed to her son?
If she deeds it to her son, then she’d have to sell it to him for a price. If he sells it later, there are tax issues. They want it in the son’s name. I’m like, “The simplest way for me to do that is I will sell you the house with the land contract for what the payoff is, then you deal with grandma after that.” It’s a non-recorded land contract. From reaching out to borrowers, the first thing I always tell people is, “You don’t talk to your attorney.” If you’re trying to discuss no payment options or things on those lines, and you’re not demanding letters like let’s say, you want to send a borrower your own hello letter saying, “We bought the loan. It’s going to be serviced here.” I’ve had attorneys telling me, “You don’t need to include any debt collection at the bottom because you’re not collecting a debt.” All you’re doing is you’re notifying them what’s going on.
Do you do that, Chris?
I haven’t from that perspective. In certain times I used to but I stopped. It’s not a bad thing to do, but in the same token, I haven’t had the time to do that from a borrower’s perspective. North Carolina is the only state that I would say be careful because there are rules in North Carolina that are specific to reaching out from whatever servicers. In other states, what are the rules? I’ll tell a servicer, “Have the borrower call me.” If somebody’s a year behind and I tell servicer, “I want $1,500 minimum,” then the person says, “I can come up with $1,200.” Right off the bat, I can make that decision versus them telling the servicer. The servicer is putting in the notes, waiting two days to send me the email, then I respond, then it’s not on their daily schedule. They hit that loan on that date of the week. I’ve wasted three weeks. Another payment goes by without getting paid.
That is a good point to try to get them to contact you because then you can’t be viewed as harassing them or anything like that. First, check with your attorney. It’s state-dependent. Every servicer operates differently, but it will come down to, “What’s your intent? Are you harassing them for collection purposes or not?” It can be tricky though.
It’s funny because I have a borrower who wants to connect with me. I’m working with the attorney and the attorney refuses. I told him, “I’m not talking to this guy,” because the guy can’t grasp that a company could own a mortgage that’s not a bank. The guy is behind and he’s in legal right now. He keeps going to the attorney, “I want to talk to the lender.” The attorney’s like, “No. I represent him.” He went and got an attorney. The attorney sent an email to my attorney saying, “Can I get the information for the lender so we can request QWR?” The attorney is like, “No. You send it to me and we’ll handle it. We represent the lender on this.”
I could almost tell when I talk to the attorney that it is driving this guy bonkers. His whole goal is to figure out who owns the loan, which company is there. It says the company who owns it and stuff. A loan is a loan, but he’s trying to reach out, which if they Google it, there’s a name and number that would pop up. That’s where I use Ooma Office which is a toll-free number and it records all the calls that come in. From that perspective, the attorney is somewhat comical because the guy should be more worried about losing his home, not who the lender is because we’ve got a date coming up quickly. We made an offer that I thought was very generous to the borrower. He or she doesn’t want to play ball. I called the attorney and I’m like, “We’re this close. There’s not much I can do.”
Borrower reach-out is one reason I am trying to move more of my assets or buy more assets in a different entity because they can find me.
Here’s a horror story though. I am very explicit with the servicer. If you give my personal cell phone away, I will find you and I will hunt you down. The borrower calls and they told the servicer, “The number we have isn’t working. It’s a toll-free number. I need to contact them immediately.” A servicer gives them my cell phone number. This person called seventeen times in a half-hour timeframe one day. I blocked the number. I go back to the servicer and they’re like, “They said your number wasn’t working.” I’m like, “Did you try it? Because it works perfectly fine.” I come to find out the borrower didn’t want to leave a voice message.
The issue is the borrower is trying to get some funds from the local jurisdiction. They had questions which my attorney has been handling. It was in their court. I don’t even know. I refuse to take the call because if somebody calls me that many times, they are not rational. They got the attorney’s name and number, and then they left a message for the attorney. Lo and behold, they called the 1-800 number I have seven times because I can see every call coming in. The attorney is like, “I got a barrage of calls. I finally spoke to the individual and let them know what the status is.”
This borrower is trying to say that we’re not doing our part to allow them to get the public funding, which we’ve done our part. It’s now being held up. I can sense from the attorney that they’ll come back and say, “I didn’t get this because of you.” They are three years behind and it’s COVID. It’s like, “You’re behind before COVID.” They’ll use that as an excuse why we shouldn’t. I’m hoping they get the funds. I don’t want anyone to suffer.
We’ve talked a little bit about the legal angle of reaching out to borrowers. This does go back to what we’ve already spoken about, but it’s also a business decision. How effective can you be at scaling if you’re constantly on the phone with borrowers? At some point, you only have so much time and energy to deal with borrowers, but the flip side is a lot of these servicers are not that great at borrower workouts and reach out.
I’ve got about 250 active loans. Once a week, I’m maybe on a phone with the borrower. I’ve had one call with a borrower. This was a borrower who I was converting from the main contract to a note. She left a message because she hadn’t seen the paperwork. I don’t have her email address. I went in USPS and saw, “It’s supposed to be delivered this weekend. If you don’t have it now, reach back on Monday.” That’s the only communication we’ve had. A lot of the negotiations now depends on where it’s at. If I’ve started legal and the demand has expired, a lot of times I will have the attorney start doing some of that as well, and having the attorney because it goes back to scalability.
Some of these borrowers can be irrational when they call seventeen times in a 30-minute timeframe. Others are impossible to get with, so I’ll reach out to the attorney and say, “Here’s what I’m willing to do.” Most attorneys are much more responsive than servicers. I’ve got one that’s a case that’s active. The borrower had been offered several forbearance plans. They didn’t accept any. We filed a complaint and they disputed the complaint. We went back and said, “We’ll re-offer the forbearance, but it’s good to a certain date.” Their attorney was like, “I want to see all the original documents.”
My attorney is like, “Sure. We got them. Come see them. Here are the scans of them and here are the originals. You want to come to look at them.” It kept getting delayed. Finally, I went back and said, “You’re playing the game where if we have all the originals, they’ll accept the forbearance, but if we don’t have the originals, they going to tell us to go pound sand and fight it? Give it one more day. If they don’t show up, keep moving forward.” Now I said, “Did they accept?” She was like, “No.” I’m like, “We filed an answer and we’ll keep moving forward.” Those are the things that I feel sorry about, but this is also a borrower who claims to collect federal subsidies and disability. The borrower is on Facebook traveling the world, all over the place, has a motorcycle and driving around all over the country.
I’m moving forward with the one we spoke before. It’s the most expensive note I’ve purchased and it was a performer when I bought it. The guy in Florida stopped paying and now he’s using this third-party company to try to negotiate. He’d been out of work for a month or two because of back issues in April 2020, but he’s been working since then. He had one payment already in the works as I was buying the loan. That’s the only one I’ve even seen. This third-party company is trying to delay it. That’s what made me think of it as they’re resubmitting the same paperwork over and over, trying to get a request for mortgage assistance and it’s the same paperwork. You think this company is inept, but they’re delaying. We’ll file suit for foreclosure because what else are we supposed to do? We love to help people out. I’m open to modification if it makes sense, but this guy’s already had a modification previously. He’s working. He never missed a payment with the note seller and then he stops paying.
I’ve got one that the borrower reached out to in October 2020. The due date is at some point in 2019. The reinstatement is $12,000. It’s not owner-occupied. It’s been used as a rental and they would like to keep it. I spoke with them to work out and made an offer to them of, “Here’s what you would need to do.” I said, “Get back to me.” They’ve never gotten back to me. We’ve got a date now for a sale date. They now reached out to the attorney and the same thing, requested the assistance. The note’s on there. It’s not owner-occupied. Essentially what they want to do is they’re noting that the tenant who’s living there isn’t paying. They’re asking us to carry the loan for another six months, no payments, and then they’ll start paying again from scratch.
The attorney asks, “What type of offer would we offer them?” I’m like, “Offer them a forbearance plan. They never responded and they’ve never provided any documentation. They haven’t provided income statements.” All they did is make a phone call and say, “This is what we want. We requested a bunch of information.” I said, “We’re good.” We’ve got another one like that as well where a borrower is telling the servicer that they owner occupy it. He told the attorney where we have in the servicing notes that he doesn’t occupy it. We know he doesn’t occupy it because we know the name of the tenant in there and the same thing. He’s collecting rent or has somebody living there who’s not paying because of COVID.
He was like, “I don’t want to pay my mortgage until I start collecting rent again and start cashflowing positively.” Unfortunately, that’s not how things work. In this instance, this guy was offered a forbearance plan. It was a $1,000 down payment and the guy kept saying, “I’ll make it,” and never did. It came to a point in time. Those are the ones where I did have a conversation with the borrower initially. Once they meet the expectation or come to the table, at that point in time, if they do reach out to me, I tell them that it’s been turned over to the counsel and they’ll have to deal with the attorney because what they’ll do is start playing you with the servicer against the attorney. The last thing you want is them communicating with all three because they’re getting told different stories.
That’s happened to me. When you do workouts and I’m wondering if you’ve changed this over the years or what do you think is most effective and normally the answer is, “It depends.” If you’re trying to work toward some kind of modification or workout like that where you’re going to keep the borrower to keep the loan, do you do a formal trial payment plan? I don’t because I see that as more work, more charges with the servicer. I want to see something down for sure to show that they have skin in the game, but I don’t normally do 3 or 6-month formal trial payment plan. How do you approach that?
I do. I call them forbearance plans, but it’s the same thing. Here’s the reason why I typically will do them because if they do fail and it ever goes to court, then you have an executed document that outlines certain things in there which, “Here are a few things that typically you’ll put in there. What the UPB is and what the arrearages are.” In that document, you’re having them restate that they agree those are the numbers. That way, if they also do get an attorney later on because they failed and they’re like, “I want to go back. I want to fight the pay history or some of those other things,” that forbearance plan, loan mod, the same thing sets the stone. That’s where the borrower is set moving forward.
A lot of times from what I’m told with attorneys, and again talk to your attorney, is that document is etched in time. If there was a valid error, yes, but if there’s something missing like you were missing an area of pay history, it’s very difficult for them to go back and fight that because they’ve signed a document stating that, “We agree that those are the right numbers.” Later on, you’re going to argue with them that they’re different. Courts would look at that from the fact that you’re trying to fight something.
I have used an estoppel agreement for something similar to that before. I bought a seller finance loan that wasn’t with a servicer. We did estoppel to say, “This is where we are with all the numbers moving forward.” We’re all on the same page. She’d been paying, but we don’t want her ever to have any discrepancy.It is really tough to know where that line is between letting your servicer handle borrower reach-out and when you should do it yourself. Click To Tweet
I’m curious because this show is gone all over different directions, but if somebody’s self-servicing and they get an estoppel letter, would you consider that valid, and would you consider buying that loan?
We did the estoppel in this case after I purchased it and boarded it with a servicer. The truth is there are no bad loans. It’s bad prices. I would still buy it depending on other factors.
I usually do shy away from loans that were self-service, even with estoppel. Something about them doesn’t make me feel comfortable.
Here’s where I’ll say it depends.
I buy loans that are hairy. I bought bottom-of-the-barrel stuff, but it depends, too on the state.
A lot of these fix and flippers and seller financing originators don’t use the servicer. I’ve bought some that I think were good deals where they’re paying and they’ve paid for 7 or 8 months. It’s almost a true performer, but I’m getting at a sub-performing price. With some of the stuff you buy, this scarier to me.
I saw on a website, there are six assets for sale in a rural area in Michigan. It’s a broker selling them. I reached out. The person was a local guy who bought them all REO, got borrowers in there, did no credit check on them, no approvals and no BPO or appraisal on the property. They turned around, sold them owner finance and self-serviced. For me that checked off too many red flags. They never even took a credit application from the person through no process. It had broken every law you could break on an owner-occupied to get something set up and stuff. In that instance, I was like, “No. Sorry.”
I have bought a seller finance one where we immediately lowered the interest rate and it was right after the whole COVID thing happened. We got a good deal on it because there were a lot of panics out there, but the interest rate was 14.385%. We lowered it to 10% to meet the Missouri Usury Law. Another factor is how many loans the seller is originating.
That’s a good point because people think, “I don’t need RMO because I’m only originating a certain number of loans,” but it’s still a consumer loan. You still have to meet certain criteria that are all outside of that component. I believe you still need to confirm, there is some ability to repay or you still have to take information from them. You don’t need to have a mortgage loan originator do it if you’re originating under a certain number of loans. It’s a consumer loan. You still need to come to consumer loan laws in that perspective. People sometimes get mixed up like, “I’m only originating one. I don’t have to do anything.”
We’ve had Russ O’Donnell on a couple of times. It’s different, the whole CFPB Dodd-Frank thing. It’s not one set of laws that you need to look at. It can be a little tricky. I was going to save this for my Note and Bolt. I stole it from you anyway. You posted on Facebook in the group about Georgia. You and I have our Georgia lending separate licenses, but a lot of note investors try to fly under the radar. I think you posted some section of the code that said that you couldn’t technically buy a note from someone who’s not licensed. Is that what it was?
You can’t sell to somebody that’s not licensed. That’s where it also gets hairy of, I’m supposed to check if this person’s licensed because I don’t even know if it’s available online to check the license or not, but I’m sure it is on MLS. One of the other things that I posted on one of the sites as I went and I searched. For everyone reading, I’ve searched a lot of your companies that I know, especially people I know who have bought 100-plus notes. I’ve searched funds that I bought from. I’ve searched everybody and I can’t find anybody. For example, your company has a Georgia license. I can’t find anybody that has an Ohio license. I can’t find anybody that has a Pennsylvania license. I’m sitting there and that’s what I posted. If people say, “Screw it” because I know certain people who are pushing like, “You need to follow the rules. You need to get licensed. You need to do this. You need to do that.” I’m like, “Are they even licensed?”
A Georgia attorney told me that the state was investigating somebody who was not licensed in Georgia. They wanted all the previous trail of everybody who had owned that note. Whether you should get the license or not, it’s not cheap. That’s more of a business decision, but if you’re going to operate in Georgia specifically, I would at least try to get the license.
Without getting into a political discussion, not only political but a fact that the Democratic party now controls everything, they are more pro-consumer with the CFPB and a lot of these laws. The last administration tried to strip some of that. I’m not getting into what’s right or wrong or indifferent. Everyone has their own opinions on different things, but it’s a fact that you’re going to start seeing CFPB start taking a bigger role. Regional Home in Massachusetts is big into the finance industry. It’s not going to happen overnight by anyway, shape or form. Over time, you’re going to start seeing a little more teeth into certain things.
The other reason in a lot of the licensing is even though it’s state-related, states are getting crushed for money. How can they find a way to get the money? It’s local jurisdictions. When they come to budget season, more people get pulled over with speeding tickets. It’s a fact. Look at the data. It’s because they need to fill those coffers. What’s another way? Let’s take these big, bad banks, which we’re considered in that same category. Let’s make sure they’re doing what they’re supposed to be doing. Is it going to get all the way down to URI? It could or it couldn’t. Who knows? Do you want to take that risk? That’s a good business decision.
I have to get my car to do the emissions testing in Maryland. Not a political statement, but it’s a joke because I went the other day and on MLK day, there’s this huge line of cars because all they have is a kiosk running because of COVID. All these cars are sitting there polluting the air. Most of them are new cars. To me, it’s great to protect the environment, but that’s one more way for the state to make some money and they need money. Don’t get me wrong. They’re hurting. They’re strapped for cash. I agree that regulations are only going to increase and licensing issues are only going to go up. It’s better to be safe than sorry as a note investor.
I have a Note and Bolt. I gave one off in the show in that perspective. It’s a brand new year. The one thing I would make to people is you got to issue 1099s or K-1s or any of those. Make sure your books are now getting in order and stuff. One of the things that I highly recommend you do, which is always the most painful, is making sure that you crosscheck the 1099 or the document you get from your servicer with your books because they’ll never match especially if you buy contract for deeds because in some of those instances, these get paid before principal or interest. The servicer has to go back and they audit that to make sure everything’s paid correctly or they may have changed something a month later.
You still may have gotten your $500, but what it was attributed to might have changed slightly. They usually won’t send you an updated statement at that point in time. You pick it up at the end of year in that perspective. You want to make sure that the interest that you’ve received from the servicer matches your books. When you go to do your taxes, they match. If you do all of that yourself, then you aren’t going to care or your books aren’t going to be complete. It’s something I know people do like, “I do my books and I fudge a number.” Also, you fudge it to an investor and you’re telling them they made more interest when they didn’t. At the end of the day, they’re paying more in taxes on things. That’s why I always recommend if you have JVs to use a third party, but that’s a topic for another day.
I’m going to make my Note and Bolt be as readers, we would appreciate your input on different topics and guests. We have some good guests lined up still. What do you want us to talk about? Let us know either in the Facebook group or comments on the different platforms. Chris and I will do our best to try to cater to what people want to learn.
Leave us a review.
Yeah, five stars. That’s my Note and Bolt. Let us know. We do take input. We’ve had a good line of guests and we’re only going to have better guests and good solid guests. They’ve all been good but we’re looking to plan out the rest of the year for the show. I know I’m enjoying it and hopefully, everyone is getting some value out of it.
- Ooma Office
- Russ O’Donnell – Past episode on Apple Podcasts
- Notes and Bolts – Facebook group
- YouTube – 7E Investments
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