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Understanding Note Investing And Dealing With Legal Matters: Notes & Bolts FAQ Part 2

December 8, 2021

chrisseveney

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GDNI 181 | Note Investing

There are a lot of problems and issues that people may encounter when investing. But there are also many opportunities and success awaiting if you know what you are doing. Join Chris Seveney and James Bateman in part 2 of the Notes & Bolts FAQ as they talk about dealing with legal matters and working with different attorneys. In this episode, James shares many of his experiences and knowledge on investing, especially notes. So don’t miss the chance and listen to learn more!

Listen to the podcast here:

Understanding Note Investing And Dealing With Legal Matters: Notes & Bolts FAQ Part 2

Welcome everybody to another episode of the show. I am joined by Mr. James Bateman. How are you?

I’m good, Christopher. How are you?

I’m wonderful. We got to come up with a new intro. We do the same one every time. Maybe we can have dancing monkeys, or I don’t know.

Thankfully, when it comes out, we have the lady who has a much better voice than we do for the intro.

We cut to the chase. I hate listening to shows where they ramble on for twelve minutes about, “The sun is shining, and the birds are chirping.” That’s great. I don’t give a thing. I came to tune in to the content, not what the weather is on a date that is now in the past. With that being said, we are going to do a little follow-up of some of the frequently asked questions in our Facebook group, Notes And Bolts From The Good Deeds Note Investing Podcast. We recorded one episode answering some of the questions people have been posing to the group, but we did have a significant response rate, so we are going to continue to provide questions and answers where Jamie and I will be playing badminton going back and forth with the shuttlecock.

Before we hop in, what’s new with you with your note business?

This has been a wonderful week. I’ve had two payoffs come in. One is on a foreclosure that turned REO, and another was a foreclosure/post-judgment settlement that we negotiated post-settlement after foreclosure with a borrower. On the other front, I’ve got a property that I’ve mentioned in the past that we foreclosed on.

The county still hasn’t ratified the sale, and now, we’ve got a notice that it’s going to tech sale, so we now have to pay the taxes, which we should have gotten paid off on this loan. I asked them like, “I paid this. I assume I can recover these costs,” and he’s like, “Absolutely,” so that’s, I say, a benefit, but make sure you’re checking taxes.

I’m also working on business planning for 2021 and other craziness in the note space. I did have a sad story of a borrower who we converted from a distressed CFD into a new note and mortgage. A week after signing documents, the borrower passed away, so that was unfortunate. When we did rework the documents, we did have her and her son on it.

We knew she was elderly and not in the greatest of health, but I thought she would have had more than a week. I’m still waiting on some cases that we have tied up. I’ve got two of them in state appeals courts and another one that I had to go to trial for. I’m waiting on the judge to render the decision on that one as well, so once we get some responses on those, I can share some of those stories. How about you?

I’ve got a bunch of things going on. I put in a couple of bids on some nonperformers, and I’ve got a borrower who is trying to file an insurance claim. I would have to be the one to do it because it was force-placed insurance, but back from October of 2020, and now, it reminded me because you mentioned your borrower who was in declining health, and it sounds like that’s the situation for this gentleman as well. I’m trying to figure out how that might work as far as it was years ago and now, we’re potentially submitting a claim for hurricane damage. I’m making sure there’s force-placed insurance or at least some level of insurance on every loan. I’m switching more and more loans over to BIFI. There’s nothing too out of the ordinary. It’s a typical week, I guess.

Most of us want the properties to be fixed up, but if it doesn't make sense from a business standpoint, don’t do it. Click To Tweet

I’m going to throw the first question at you. The force-placed insurance claim or the claim who was hurricane damaged, what was the damage that the claimant was saying?

This is part of the issue. Like all of these, there’s more to the story. I’m not 100% sure that the borrower was contacting our servicer, Madison, about this. I’ve not gotten any details on it. It was to, I think, a garage. I don’t think it affected his main living area too much. He was trying to go get some type of local assistance for the damages, and that’s where things left off, so I thought this issue had gone away, and now, it’s resurfaced, but I don’t know the full extent of the damages.

I believe my deductible is on a $5,000, and I let the borrower know. I say, “First off, the deductible is $5,000, so the first $5,000 comes out of your pocket, and then the rest will go to fix it. Is it worth more than $5,000? If it is, do you have the $5,000 to come up with to pay for that? If it’s a garage, I have no interest in it.”

I did call Beth because I have insurance through J.B. Lloyd on it, but I didn’t have that at the time, but I like to call her. She’s good about providing general insurance advice. She recommended I move forward with the claim because then they would send out an adjuster and determine what the damages are, and then we can go from there. That is a good point. I highly doubt that he has the money sitting there to pay the deductible. I want the property to be fixed up, but if it doesn’t make sense from a business standpoint, I’m not going to do it. I have a court date coming up for the blight issue or the mattress vomiting RVs. We can update everyone on that one.

Did I tell you about the contract for the deed that I settled with the borrower? I did a short payoff, gave him the deed, and then I got a letter to appear in court in two months because he didn’t record the deed, so my name is still on the deed. There’s trash in the yards, so they’ll come after me and tell me to clean it. They found me and asked me to go to court, so I had my attorney work with me to mail out a letter pleading not guilty and gave a copy of the deed and the contract and said, “I’ve got no rights to this property.”

It’s a similar one to what I’m dealing with. I sold the CFD, and it still hasn’t been recorded. The deed and the land contract, or assignment rather. It’s the same thing. There’s a long list of violations, and the property tax bill keeps being sent to me. That’s why you got to be careful who you sell to, especially with these CFDs. In this case, the buyer was fairly new to notes and didn’t understand the process. That’s my problem and your problem to deal with as well.

The first question is, “How does increased inflation impact the note business? Please elaborate more on pricing, expect in returns, and what to look for, etc.”

We may have touched on this briefly before, but anytime you get into these economic questions, it’s pretty complicated, and no one really knows. Now that I’ve gotten my caveat and excuse out of the way, I think to be a long-term lender, it hurts if you’re lending on a performing loan. The value of that loan goes down. In that sense, it could hurt the overall return relative to the value of $1, but I would say, first of all, if you’re buying nonperforming loans, I don’t think it has too much of an effect. The collateral value will keep continuing to rise.

Again, who knows? A lot of this has to do with property supply and demand. Property values could certainly level off or decrease with high inflation. I think assets or owning assets, meaning real estate and other assets, is a good thing to do when inflation increases, so generally speaking, the property and the collateral value will go up. It’s complicated.

I’m going to break this down in simple terms, and this is going to be a good game of badminton. We’re going back and forth now. Have you ever adjusted a bid based on inflation or deflation?

Not at all.

Right then and there, you don’t adjust your bid. If inflation goes up, your dollar is less, but if you’re making 8% on a performing note, you’re still making 8% on a performing note. Correct?

GDNI 181 | Note Investing

Note Investing: Every attorney is different, so part of it is understanding how that attorney and their support staff operate and the systems they have in place.

Sure.

Just your gallon of milk now costs a little more. If you’re invested in the stock market or another type of investment, would it impact it the same way?

Yes.

What I’m getting at is, inflation is something that impacts the entire economy. Inflation could lead to more distressed assets, which may put more in the market. It may give us a better buying opportunity from that perspective, but from a note business, do I track inflation about how it adjusts my price or my business? Not at all.

I agree. We had a gentleman who does hypothecations for 5%, so if you’re okay with getting that return of 5% and inflation is at 5%, and it was at 1%, that’s going to affect your overall return.

It will, but also, you’re at 5% because you’re a very low-risk asset class, and that’s what you bought into. It’s like how banks lend me money. I’m looking at a loan now at 2.5%, and inflation is at 6%. Interest rates go up to 6%. Guess what the banks of made that deal? You’ve got to live with it.

I agree. It’s not part of my bidding process whatsoever, but if I was in a long-term low-interest rate lending situation, long-term high inflation would hurt your overall returns. I agree in general on the note investing space, especially in the nonperforming space. It’s not a factor as far as bidding.

Here’s the next question. Can you talk about the management of working with an attorney?

Yes.

How do you manage your attorneys?

Every attorney is different, so part of it is understanding how that attorney operates, and it’s not just an attorney. It’s their support staff and the systems they have in place. I think that’s one of the things that newer note investors misunderstand, or maybe they’re intimidated by attorneys. We’ve talked about this in previous episodes. You’ve recommended getting, in some cases, like a doctor where you would get multiple opinions, so why not do that?

The written word is proven to come across as more aggressive than face-to-face or verbal. Click To Tweet

How do I manage my attorneys? I treat them as professionals and give them the opportunity to deliver on what they’re supposed to, and then if I’m not seeing results or communication, I will hound them a little bit and bug them to say, “I’m still here.” It does vary based on the particular attorney, though, and also what you’re doing. Is it a foreclosure? Are we talking about drafting a partial agreement?

I assume they meant foreclosure in this.

Honestly, I don’t treat them too much differently than any other vendor or professional I’m working with.

The thing I look at, and we all have friends like this in this instance, there’s the people who reach out to people all the time, and then there are people who never reach out to somebody until they are reached out to. If you never called him, you would never hear from him, but you stay in contact with him by messaging, and they messaged you back, is an example.

That’s how I treat attorneys, and they’re the ones that will never message back. I will send them something, and typically, they respond. There’s that fine line of stalking them by emailing them twice a day or every day, but then in the same token, you don’t want to reach out every three months. You have to understand what the foreclosure process is, so you need to be educated.

For example, I have an attorney who I reached out to because a complaint was filed, and they were going to go try and serve the borrower. Once a complaint is filed, it means it’s filed as a lawsuit in court. The sheriff comes, knocks on your door, and says, “You’ve been sued.” That’s how it happens in some of these states.

That process typically takes 2 to 4 weeks, so the day after it gets filed, I don’t say, “Has the borrower been served?” I’ll wait, then I’d reached out like, “I’m checking up to see if you’ve heard if the borrower has been served.” Then two weeks from now, if they have, then I know they have 30 days to respond, so I’m not going to reach out to an attorney for 30 days. If they haven’t, then two weeks later, I’ll put a tickler to reach back out.

With notes and bolts of what you’re getting at is I’ve started asking different attorneys in different situations and different states, “What do the next six months look like? How do you see this playing out?” I have a case in North Carolina that you’re very familiar with that I probably would have been bugging the attorney, even though he’s very much on the ball and responsive. I probably would have been emailing them once a week or maybe every two weeks.

Now I know that it’s going to be a while in this particular city because I asked the question. I got educated like you were saying, “What do the next six months look like? What do the next two months look like? How is this going to play out?” They’ve been down this road many times, hopefully, and even if you’re an experienced note investor, maybe you’re new to this particular state. Maybe you’ve never done a forfeiture in this county. Ask the question of, “How’s this going to look?” Then you can set that tickler and follow up.

Typically, I like to have that conversation over the phone because if they say something I have questions on, it’s much easier to get them answered than going back and forth on email 27 times. There’s a lot that goes to having a conversation with somebody over the phone if you’ve never physically met them in person compared to by email. If you had only met me by email and not through this, you would hate my guts, but now, you probably love me because you’ve heard me, and you get to see me. We’ll never meet, but that’s okay.

That’s true. The written word is proven to come across as more aggressive than face-to-face or verbal. One of the things I’ll mention is there are companies out there, and there’s one I’m looking to test out. This one is called Hello Solutions. I can’t vouch for them. I haven’t used them, but other companies exist where they will manage the attorney process for you. They work with Daniel Singer. I spoke with him about that.

GDNI 181 | Note Investing

Note Investing: Don’t be annoying, but understand that this is your investment. You’re going to care about it a lot more than the attorney is, so you do need to move the goalposts or the ball down the field.

There are other ways to go about it, so you don’t have to be the person dealing directly with the attorney. Before we move to the next question, I think understanding that the attorney is a human and the attorney has other cases, you got to find that balance. As we said, don’t be annoying, but understand on the flip side that this is your investment. You’re going to care about it a lot more than the attorney is, so you do need to move the goalposts or the ball down the field if you will.

It’s the holiday season. Send your attorney and all your vendors a holiday gift. Ill say this, and 95% of the people that read this will be like, “Whatever,” but when you do that, you get moved up on certain things. People appreciate that because it’s not like you’re paying them off. It’s a sense of appreciation. It’s a thank you. Whether it’s a card that says thank you that’s handwritten, whether it’s some brownies from Brownies.com or Omaha Steaks. Find out what they like. I sent Debbie wine, and you sent her a plant.

That’s a good point, and approach it like it’s a long-term relationship. It should be. I had an attorney do a complimentary collateral review for me, and that’s because we’ve worked on a bunch of different cases together, and she knows most likely there’s repeat business there. The flip side is don’t nickel and dime the attorney over something minor either, so take the long-term view.

The next question is from DJ. Talk about your borrower outreach strategies to turn nonperformers into performers. Discuss your strategies for finding missing or incomplete collateral. There are two questions. First, we’ll do borrower outreach. Don’t show up at the door and start yelling at them is what I would not do in any way, shape, or form. Do you do any communication now with your borrowers, or do you leave it all up there with your servicer?

I try not. It’s sometimes unavoidable. Let’s say I bought a nonperforming loan, and I boarded it with a servicer. I normally would like to give the servicer a month or two at least to see if they can, first of all, make contact. I like to give the servicer a chance first. That is their job, so we could not go down the legal route, and typically, you are advised to wait 60 days before pursuing legal anyway. I’ll give that servicer a chance and see if they can make any progress. I might help them and send them a skip trace information, but I do my best not to reach out to borrowers directly.

Then with that said, if you’re on the fence about, “Should I send the demand letter?” Send it. I would start that process for several different reasons. I’ve had numerous borrowers who don’t open the mail from the servicer. It’s numerous borrowers who reinstate because they got a demand letter or many take more than that, but I would give my servicer a month or two, and then I would send a demand letter and start that clock.

The other thing I’ll say is I will do a carrot and stick approach at the same time, so all of this, you should ask your attorney. I’m not an attorney, but there’s no reason you can’t have the threat of legal action going on while you’re also offering some short payoff for Cash for Keys or whatever the scenario might be. I’ve said this several times, but it’s like parenting. It’s like, “If you do well, borrower, there’s this reward for you. If you don’t, there’s this whatever the PC term for punishment is now.” Don’t your borrower. How about you? Do you have anything to add there?

It’s similar. I don’t reach out to the borrowers, and again, like the prior question of managing the attorney, I’ll manage my servicer to make sure, “If I’m paying you extra money this month and my contract says you’re going to do this for reach out, I will hold them to it,” and they’ll be like, “I can’t get in touch with them.” I’m like, “Keep trying. Skip trace them. Keep looking from that perspective.” If I find the phone number and get an active number, it doesn’t go over well because I get a little more fired up.

What I’ll do is I’ll ride them, and I check my loans a minimum of once a month. I’ve got about 257 active loans now, so I will check each one at least a minimum of once a month. I’ll go through it, and I go through the service comments, and I’ll whack the servicer and be like, “You’re managing this one. How come you’re not doing the reach out? How come you’re not doing this? What’s going on with this? Why am I being charged if you’re not doing it?”

If you’re buying or selling notes, put yourself in the counterparty’s position and understand what their need is and how you might be able to solve that need. Click To Tweet

I’m not afraid to ask and mention that. There was a point in time where I used to do a little more of the reach out, and then it got to a point where it wasn’t worth it because, again, focus on your time. As your business grows, you find things that go back and forth where you do that badminton match of going back from one side of the net to the other.

The other thing I was going to say is that I know DJ knows this well because he’s well-versed in wholesaling, flipping, buying properties, as well as notes. I think we even talked about this on the show, but it’s understanding the borrower’s position. As far as what I said earlier, this is more important. It’s understanding what their need is and what their position is. Put yourself in their shoes. If you’re buying notes or selling notes, put yourself in the counterparty’s position and understand what their need is and how you might be able to solve that need.

At the end of the day, that’s where the profit lies as adding value, so provide options. Provide them with three options that still work within your business model. We had a mediation hearing, and that finally got their attention. There was no communication for a year, and finally, they said, “We thought we could fix this on our own. Now, we realize this is serious. We want to come to the table.” We’re providing them with multiple options.

We provide them a short payoff, which would be well over what I paid for it, or Cash for Keys. This is a rental property they maintain very well, so I’d be happy with that. I know we provide at least three options for them, and I know DJ’s question specifically talked about getting loans reperforming. At the end of the day, that’s ideal in my world, but you can’t control what the borrower wants to do.

It’s a workout. I’ve got one now where I have a borrower who’s got multiple assets that I own the loans on, and both are nonperforming. They made a payment on one, then stopped paying, and made a payment on the other. They’ve got one that’s on the market now for sale that’s completely overpriced. If he sold one of the two properties, they could pay off both loans, but the borrow is trying to keep both.

The borrower is using both the rentals. He’s like, “I wasn’t getting paid because of COVID. Now, I’ve got rents coming in.” The excuses continued to mount. I had given him three options back in June 2021, and I gave him until October 1st, 2021. We pushed it now to December 1st, 2021, and it hasn’t come to a resolution. Unfortunately, his three options are gone, and now the options are moving forward in a different fashion.

That hits on a key point as well, which is don’t start legal if you’re not going to follow through. Again, it’s like parenting. You’re not going to have technology tomorrow if you don’t take out the trash, and then your child doesn’t take the trash, and you’re like, “Whatever.” You need to follow through. Otherwise, they’re going to learn you’re not serious, and they’re just going to ignore you.

The other thing is a lot of these nonperformers have been threatened with demand letters for years, and it has never come to anything because other large lenders get it lost in the shuffle, so they think you’re just another one of them. People don’t realize you’re a one-man shop, one-woman shop, or whatever the case may be.

I’m paying much more attention to this loan. This means a lot more to me, and on the flip side, I may have more flexibility than the big hedge fund.

The second half of that question is, discuss your strategies for finding missing or incomplete collateral.

Do you want to approach this like it’s during the due diligence phase?

I’ll answer in both. During due diligence, you tell a seller, “This is missing. Please provide it. If you want me to go hunt it down, I’m going to fade my bid,” or if it’s something that is detrimental, for example, like the note is lost and a lost note affidavit doesn’t work, then you walk from the deal. One of the things that get missed a lot is when somebody has a power of attorney, and the power of attorney document wasn’t recorded, and you have to go hunt it down.

I’ve had issues with this before. The best thing is to ask. There are companies out there like MetaSource, KC Wilson, or an attorney that have typically worked with somebody from one of these entities. Stewardship fund is one that pops in my head. There was a company many years ago that I think the owners are in prison for moving money from one fund to the other. It got into receivership, and there was a lot of contract for deeds, but with the contract for deeds, they were also issuing notes. With the note, and then you get the loan, so it creates havoc. There’s nobody to sign.

I’d reach out to the attorney that represented the receiver. The firm said, “You got to reach out to this person who’s no longer with the firm.” I reached out to him, and he’s like, “This is closed. I can’t do anything.” There are a lot of notes and paper out there that’s locked in stewardship fund that you can’t do anything with. The way out would be to convert it from a CFD, but I’ve spun this completely digressed. Again, ask other note investors. Ask MetaSource/Orion, KC Wilson, your servicer or your attorney in that state.

GDNI 181 | Note Investing

Note Investing: The checklist is key because if you’re buying a bunch of loans, it’s very easy to mix them up or forget to order an inspection report.

To piggyback on that. What you need to determine is whether it’s curable or not. I bought a loan that there are issues with the assignment chain. First of all, it’s performing like clockwork, so I’m not anticipating foreclosure in the near future. You never know, but it likely wouldn’t be a major issue if I had to foreclose.

In this case, we’re sending this to KC Wilson to fix these assignment issues, but as you said, I faded my bid. I went back to the seller and said, “These four assignments have issues. I need to get them all resigned, re-witnessed, re-notarized, and re-recorded.” That’s a lot of work and time involved, so I faded my bid to $2,000, and the seller agreed. That’s one way.

I’ve also had a deal where it sat there for four months, and we were under contract to buy it. I ended up backing out because we needed a gap assignment, and the note seller tried with an affidavit from a different note holder. In other words, he tried to rectify the situation by getting a different company to sign than what we needed. At the end of the four months, I should say, I was like, “If this is irreconcilable, there’s nothing I can do here.” On the flip side, I had one I was attempting to sell. This is another thing for new brand-new note investors. When do this due diligence and collateral file paper issues surface?

It’s when you’re filing for closure, and your attorney’s like, “Where is this? Where is that? What’s missing?” That’s where I see it the most, and that’s where you got the oh fudge moment.

The second one, I would say, is if you’re selling a loan and the buyer may find something either you didn’t find or you bought 50 loans in a package, and you were fine with taking on that risk. Those are the two times, at least in my experience, where it’s like, “How did I miss this?” Then a new issue arose after you purchased it

Figuring out whether it’s curable or not. If it is curable, fade your bid depending on the situation, and then go from there. We’ve alluded that you can do all the curative work on your own and hunt down somebody from the bank that signed in 2012 and try to get that document re-signed, or you can hire a company to do it for you.

I’m throwing two notes and bolts in here on this one. Months ago, there was a seller who was selling low-balance first seconds. They were the second line of credits that turned into first, and I bought twenty of them. Someone got paid off, but everyone that I’ve gone to foreclose on had a title issue. It wasn’t picked up during the due diligence period.

Most of them where the title issue existed was in the mortgage, so the legal description was off or wrong, and that’s not something a lot of times that gets picked up or thoroughly reviewed during due diligence. Typically, you’re looking at, “I’ve got the note. I’ve got the mortgage. The borrower and address match, that’s great. Do I have the assignments he loans?”

That’s typically what you get in due diligence, but when you go to foreclosure, there’s another level of stress test being put to it. My attorney’s laughing because my attorney’s done 6 in 1 state, and he’s like, “Quiet title,” in every single one, which they add up. Thankfully, I got a steep discount. That’s the one. The second thing about the whole due diligence, and I’ll say, the collateral is, if you’re buying in Maine and the loan went to MERS, there’s a green something case, so make sure you understand buying notes in Maine that have MERS.

MERS is Mortgage Electronic Registry System. There was a court decision that said they didn’t acknowledge a MERS assignment. It had to be from the actual entity, and you’d have to go back and get them, but unfortunately, most of those entities are out of business, so you don’t have a chain of assignments.

MERS was very commonly used in 2003 or 2005. In most states, it’s not an issue. Here’s a note and bolt. I’m sure we’ve said this one before, but check your hard collateral file for original signatures when you get it. It’s easy for me to sit here and say that, but it’s another thing entirely to have someone do it. Make sure it’s checked.

As an example, I had a loan that we got reperforming, so DJ’s first question. It was a sub performer that we got reperforming. I sold it as a performer. This is a good one for both of his questions. When I sold the loan on Paperstac and went through the audit, I realized that I didn’t have the original note. I had looked at the note, but when you look, it was a really good copy. It was like a blue signature, but when you looked more closely, at the top, there were two-hole punch copy marks. It was a copy.

Don't start legal if you're not going to follow through. Click To Tweet

I got an attorney’s opinion, and in this particular state, it didn’t matter. This was in Alabama, but if this was Florida, it might be a big problem. That’s another one. It’s to check for original signatures, particularly on a note in a judicial state. It was a lot of good information. I did have one other note and bolt if we’re wrapping up.

I’ve got two more questions. What are the most important elements in due diligence?

It’s the taxes, title, and property. I like to throw the borrower in there as well.

It answers all of it, and what I mean by all, there are plenty of checklists. I’ve got a checklist to reach out. We’ve got a checklist up the yin yang. It’s all-important. It’s like making a pie. You need to put all the ingredients in and make sure it’s the right ingredients, and you do everything the proper way. If you screw one thing up, your pie is going to taste like crap.

It depends if you’re buying first nonperformers. In the first space, the collateral value is critical. That’s your hedge or your risk mitigator, presuming that the paper is all in alignment. When I say the title, that’s not just the title to the property. That’s the whole assignment chain. It’s taxes, title, which is all the paper, and the property and the borrower.

We use Podio. We’ve got a checklist in there that goes through everything, and that checklist is critical because if you’re buying a bunch of loans, it’s very easy to mix them up or forget to order an inspection report. The checklist is key there. I know Matt Kelly calls it underwriting versus due diligence. To me, underwriting is when you’re initiating a loan, and I’m not going against Matt, and due diligence is typically more in real estate on a property, so I think on either one, the note space crosses into both.

Here’s the last question, and then we’ll wrap up this episode. How do you determine how much money to keep aside in foreclosure or other circumstances?

I think the answer I gave a while back in the group was $5,000 for a nonperformer and maybe $1,000 for a performing loan. It varies based on the dollar amount. How performing is the state? Then the other thing is, how many loans do you own? That number would go significantly down for me per loan. I’m not intentionally holding $300,000 for foreclosure. That doesn’t make any sense.

It’s much easier to manage as a portfolio, in honesty, because it’s like owning a bunch of rentals. You’re not going to have to replace a roof on every single rental each year, but you may have to replace one, so you hold enough for one. It’s similar if you’ve got a bunch of foreclosures. You hold money, but if you spread those out over time, one gets finished, so you get paid. You can take some of those funds and pay for the next one.

When you only have 1 or 2 notes, it’s a question of how much you set aside, but do you have money to set aside? If it’s coming from, “This is the only money I have. How much do I need?” If you don’t have enough, then you’re got to sell the note, but if you’ve got, let’s say, a line of credit of $50,000 on your house that you’re like, “I don’t want to use it for notes, but I had a rainy day fund if I did have to throw a few grand in,” it’s very different. If you’re going to have to foreclose or clean out and everything else, I will guesstimate you’re going to spend about $7,500. Some say $5,000, but I’d say between $5,000 and $7,500.

It’s probably higher. You’re probably paying for taxes at some point. Those are all good points. That’s another reason I like to buy performing loans as well because you’re not normally hit with a $10,000 attorney bill in one invoice. It’s normally spread out a little bit, so if you’ve got cashflow for your business, you’re like, “I see this coming. I can allocate some of this cashflow for this attorney bill.” It is one of those hurdles that does get easier as you grow.

It’s interesting because I had a workshop on my membership group, and we’re going through my calculator. In my calculator, it doesn’t automatically spit out the foreclosure cost based on a state, and someone asks the question why. I said that it’s because it’s something that you need to truly think about.

Let’s take Florida, for example. If you are in Florida and you have a borrower who is deceased and has twenty heirs, you have to notify and sue every single one of them. Your foreclosure costs are going to be pretty expensive, whereas if you have 1 person or 2 people where they got divorced and they both moved out of the house and they don’t care, that’s a standard foreclosure.

I don’t like to just generate a number. I want that investor to think about what they know about the note to put that information in there because I don’t want the calculator to be spitting out numbers to tell you. The calculator should be a tool that you use through the process to wage the risk or weigh the different risks to give you an answer based on certain scenarios on what your returns would be. If it spits out that number, it’s not giving you different scenarios.

That’s a good point. You don’t promote your stuff enough on here. Talk about your membership group for a minute.

GDNI 181 | Note Investing

Note Investing: There’s no reason you can’t have the threat of legal action going on while also offering some short payoff for Cash for Keys or whatever the scenario might be.

I’ve finally launched after a long period of time the Seveney Note Syndicate, which is a membership group that, through the month of December 2021, I’ve given people free access to, and then in January 2022, people will be paid members. We have two membership levels. It’s the professional and executive. The professional is for people who are scratching the surface and just heard about notes and want to get a glimpse. The executive is for people who want to be in notes or want to learn about notes.

We have a monthly workshop where I’ll provide a workshop which might be on bidding on assets, due diligence, or reviewing collateral. It’s more of understanding of the note space, and then we’ll also have a monthly webinar where we’re going to bring on special guests. For example, like what we talked about in this episode with attorneys, we’re going to go into a true deep dive and walk through the entire process. It’s not the high-level generic stuff that you see on a lot of the stuff that’s out there now.

As you know, I like to roll up my sleeves and dive in deep and understand the questions of, “On this contract for deed, which has foreclosed or not foreclosed? Do I need a note? What do I do with the note?” I’ll answer a lot of those questions that come up. Those are two avenues, and then also a once a week, I have a Coffee with Chris where 30 minutes every week, we host a Zoom meeting where people can ask me anything in advance, or I’ll talk about a certain topic from that perspective.

When you look at it, there are roughly four hours a month that you have of my time minimum between two one-hour workshops, a webinar, and then the coffees. You get access to every single document that I’ve used, like my JV agreements, my contracts, my loan sale agreements, and my calculator. You get everything, and it’s $100 a month or $1,000 a year. When you look at it, you’re paying $25 an hour for my time, which if you consult with me, I charge $250.

If you go to another gurus training, you may be paying $25,000 upfront.

I’ll mention there was a Facebook post about a guru that we both know, and this person was touting like, “I know this guru,” and somebody made a comment of, “It’s not something that you probably should be proud of.” Then someone may have commented about some lawsuits and stuff and so forth, but the person came back noting that, “This person settled their lawsuits and paid everyone off of money out of their own pocket,” and I’m sitting and reading being like, “What planet is this person on?” Check your facts.

Can somebody cancel if they’re like, “This is bad?”

Yes. You get the whole month free. If you’re like, “This is bad,” I’d be like, “I’ll give you your money back. Wait a second. You didn’t pay anything.” People can cancel at any time from that perspective. When people sign up, they get access to the documents that they have. The calculator is the only document that is, I’ll say, licensed, so when you do cancel the membership, the calculator does go with it, but all the other documents, they’re theirs.

Are you going to drink coffee every time it’s coffee with Chris?

The first one was done at noontime, which I had meetings in the morning, so it was my first cup of coffee. The next one I have is at 12:30 PM, and I will have coffee because I usually do have an afternoon cup of coffee. If I’m doing it at 9:00 PM, then it won’t be a coffee. It’ll have to be something else. It may be Kamikaze with Chris. We can move to late night.

Since we’re wrapping up, my note and bolt are if you’re buying or selling a note, be professional and be honest, because I had a deal, and it’s the same one I talked about where there was an assignment chain challenge, and we faded our bid, but even before I faded my bid, the note seller said, “Your offer is not the highest, but you’re the best to work with, so I want to sell it to you.”

If there are issues and you do have to fade your bid, come back with an attorney’s opinion versus some BS. I’m throwing in a bunch of notes and bolts here. Hopefully, you’ll have time to come up with one. The point is it’s not always the highest bidder who wins in a transaction. There are other factors. Can you close quickly? Are you going to be a royal pain even after the sale? Again, we bought this loan, and I wasn’t that high bidder, but we got it because the seller said she liked us.

That’s important to know because I was talking with somebody, and they lost out on a bid by $15,000, but the seller was going back and forth because it was a broker, and the person who was buying it for the extra money hadn’t bought from them before. The person wanted to close before the end of the year, and it’s at, “This person has closed before, and I’m a broker. My reputation is on the line if I go to the higher bid and they don’t close, and then I don’t close this thing by the end of the year.” That comes into serious play that brokers do not want to look bad, and they want to make sure the person’s going to close the deal. My note and bolt are to take some more training through Mindvalley, which is a website.

I was going to ask you that if you’d been doing that stuff.

I’ve been doing it, and I’ve turned it up a notch. It’s interesting because the one I’m learning now is from a guy named Jim Kwik. It’s called Super Brain on techniques to remember.

Is he the Asian guy?

Yes. It’s interesting because two quotes that caught my eye are a lot of people know what to do but don’t do what they know. I relate that to notes. We talk about gurus and training, or we talk about due diligence. You know how to do due diligence, but a lot of times, people will not do what they should be doing from that perspective, or they take shortcuts. I want to reiterate that’s such a powerful quote. A lot of people know what to do but don’t do what they know.

The other one is the difference that makes the difference is always by taking action, and I say this because as part of my membership group, I’ve got a group of people who like to ask questions, and then I have few people in the group who sit there quietly. I know there are certain things they don’t understand. When I throw my calculator at you for the first time, there’s not a snowball’s chance in hell you’re going to understand everything.

If you don’t have a question, it means like, “I’m completely overwhelmed,” but raise your hand when I say, “Can you understand certain parts?” That’s where I think with investors out there that you have the opportunity to reach out to others. We provide content for the show. People email me, email you, or email other people who know certain things. Take advantage of that. Ask the questions. There’s no such thing as a stupid question. Just make sure you do a little bit of research before asking that question.

I like the action one. People will say taking action can be risky. Note investing can be risky, but there’s an opportunity cost if you don’t take action. I’ve used this one before. At the end of your life, do you want to rust out or wear out? I’d rather rust out, and based on my current state, I feel like I am rusting out. Take action because there is a risk in not taking action. That’s all.

I’ll add one more. You don’t have anything. You do everything, and when you think about it, it’s like, you don’t have focus. You do focus. Focus is an action. You don’t have creativity. You do creativity. You don’t have memory. You do memory. It’s all about training yourself, and it’s all about doing. Again, the next steps of anything go back to taking action. People can take action by voting for Notes and Bolts as note investors’ best podcast. Leave us a review on iTunes or your favorite listening station. What else can they take action on, Jamie?

Go out and do some good deeds.

Thank you.

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