Note investing can be an adventure, and there are a lot of twists and turns along the way. In this episode, Chris Seveney and Jamie Bateman go over interesting assets, foreclosures, bankruptcies, and judicial processes they encountered. Listen in as they discuss borrower evaluation, loan default, forbearance, modification, and other takeaways. Plus, get valuable insights on the risks and technicalities of note investing!

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What Just Happened?: Revisiting Interesting Assets

Jamie, how are you on this fine day?

I’m doing just fine, sir.

We’ve got a jam-packed episode where we are going to go back in time a little bit and rehash some case studies and some stories that we’ve had going on. If anyone’s part of our Facebook group, we share a lot of those exciting wins and losses in the group. In this episode, we’re going to talk about those on the show. It’s going to be a what just happened episode where I know Jamie’s had some activity with some foreclosures, bankruptcies, and interesting things happening. I’ve had two things happen that were pretty interesting, to say the least. One is good and one, is not so good, which we will share in this episode. Jamie, how are you doing other than that?

I’m good. I’m ready to rock. I told you I was trying to force myself to get fired up, but once I talk to you for an hour, that’ll be good. It’s better than two cups of coffee.

I’m halfway through my first cup listening to Pandora’s Morning. Some GNR came on, Paradise City. If that can’t get your blood boiling a little bit, I don’t know what can.

I feel like we haven’t talked about what just happened. We haven’t talked about our goings-on with our assets so this will be good. I figure I can talk about one and you can ask questions and then we can switch.

Which we’re not going to talk about? That’s the interesting thing. Are you going to go with the mattress pad facility? Are you going to go with your North Carolina borrower or the Texas foreclosure? You got plenty of options. It’s like you’re pulling a pinch hitter off the bench and you’ve got so many that you can bring up to the plate.

The two craziest assets, which basically means my craziest borrowers, are the assets I bought from you and they’re exiting right around the same time. It’s looking good. We’ll pick the North Carolina one because I know I brought that up several times on this show. This is a North Carolina CFD and it’s a joint venture deal. I still have a few JV deals going on. I’m trying to wrap up. This has been going on for two and a half years plus and I did buy it from you, Chris.

There are lots of ups and downs and crazy voicemails over the years and different things. I tried to work with this borrower, especially when the pandemic hit and she just was honestly not reasonable. She was renting out the property and then the tenant who was in the property saw the newspaper ad that we were foreclosing. He then realized, “What the heck? I’m paying her rent. This property is going to be gone soon.”

He had contacted us and tried to buy the property and that didn’t work. Now, we have it listed. We are under contract to sell it for considerably more than I was expecting. We’d listed it for $36,000. We had three offers within the first three days just under the list price and then one came in at $49,000 to close in about a few weeks. It’s looking good. The title search is going to cost me $3,000 which is insane because they’re claiming that there are so many different transactions in the history. I still want to see this happen. There’s no money in my bank account yet, to put it that way, but it’s looking better than it was looking 2, 3 weeks ago.

Do you mind if I ask a few questions?

Go for it and I should say, she came in, stole all the appliances, and threatened to rip off the front porch. I wasn’t sure if this borrower was going to drive up to my house. There were all kinds of threats over the years. I was a little bit worried for the safety of our attorney and the real estate agent, his team, and everything. I haven’t heard from her since her initial interaction with the agent a few weeks ago. It seems to have died down. I guess she’s happy that she was collecting rent and not paying on her contract.

You mentioned it’s been two and a half years since you bought this. Was it a performing or non-performing asset when you bought it from me?

It was definitely more performing. I paid $16,500 which was a good price at the time. She was paying.

The reason I asked that question is that a lot of people talk about the 12 to 18-month exit strategy. It’s very for loans to go much longer than that.

The pandemic and the fact that we had to go through a judicial process. It didn’t end up going through the courts, but North Carolina is tricky.

It’s an interesting state from what I’ve heard.

It wasn’t a quick forfeiture if you put it that way.

You mentioned voicemails the borrowers were making. Where they calling the attorney, were they calling you, or are they calling the servicer? Who were these voicemails directed to?

It was mostly to the attorney and he would share them with me. She may have left a voicemail on our business line as well but there were definitely some things directed at me personally. The attorney at one point met her in person because that was the thing. She was refusing to accept the paperwork so that was delaying things. There was one point when I was worried for my attorney’s safety. One voicemail was from her tenant as well where he said he felt uncomfortable and worried for his life when he was moving out because my borrower had a group of people that was ready to jump in. It was pretty intense.

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One thing that popped in my head when you mentioned the title was going to cost $3,000, I recall this property, the borrower would argue about the number of parcels because, in the legal description, it says, “Parcel 15, 16, 17,” which is still one lot when you look at GIS. She was complaining that somebody took property or land from her at a point in time and was trying to use that. That’s where I thought you were going to go with a title.

That could still rear its ugly head as well. I don’t think, at the end of the day, she understood what a land contract is. She saw that Labrador lending or whoever bought this from your entity. She thought that meant that the property was sold out from under her. We tried to explain this, but it didn’t go very far.

Have you had conversations with other title companies to see why it’s $3,000?

I am using an REO company. I didn’t have a particular title company in North Carolina to use and my REO company did. This came up yesterday afternoon, as far as the $3,000. The short answer is, no. They’re saying if there was a title policy in place at any point, then it would be significantly reduced in cost. I sent them the title search from my attorney’s firm, which was five or six months ago, but they’re saying that it doesn’t matter if it was done by a title search company versus an attorney’s. I still find it absolutely outrageous.

Reach out to Christina because she uses an attorney who does all the title and everything. I can’t think of the name of them right now. Reach out to her and say, “This seems a little off,” and she’ll be more than happy to help you. I know she was looking at possibly even acquiring that property. She got connections.

She placed one of the bids. They put an offer on it. It is not that I want to pay that, but I would be so happy if we can make a profit and be done with this.

That’d be a good education experience for people to understand in North Carolina because I was having a conversation with our membership group the other night and we were talking about calculators. You can have the greatest calculator on the planet, but if the numbers you input on it aren’t accurate, your calculator is basically worthless from that perspective.

The other thing to point out when you’re looking at a deal is that this did have a co-borrower on it and he was long gone in and out of prison. That can slow things down as well. If you have to go through foreclosure, take a look at that. If this was a land contract or if they held title to the property, how was that title held? I’ve had other deals where it’s tenancy in common and the one borrower was long gone. That can present issues as well. It is something to consider. You may look at it, “There are two borrowers so there’s a higher chance that they’re going to pay this loan back. There are two potential sources of income.” It could go the other way too if you have to go down the foreclosure route.

Why don’t you go back one time to the two and a half years? When did you start the legal on this? From a timeframe, how long is the entire process and did you try and do a modification at any point in time during that process?

I was trying to modify it in 2020 and she was on board supposedly but kept getting delayed. I would say late 2020. It’s probably a little under two years is actually when we started legal. It took a good bit of time. There are a lot of other things we glossed over for two and a half plus years, but ultimately I do think it’s going to be profitable. My main thing is to make sure I make my JV partner whole and then we can move on.

The last question I was going to ask is, what’s your biggest lesson learned from that asset?

I’d say evaluating the borrower more than I did a few years ago. I know people like to say and first, you don’t pay attention to the borrower, but I’d say that’s probably at least one key takeaway. It made sense on paper, but when you look back at the underwriting of the initial deal, I think paying attention to the borrower’s income and their situation would have been smarter.

One thing I’ll mention to everyone which I’m going to be doing over the next few weeks is going through my attorney list, re-evaluating all my attorneys, and set up phone calls with them because what I’ve noticed is pre-pandemic and post-pandemic, there has been a lot of turnovers. There’s been a lot of changes within the space and rightfully so because attorneys, especially on the collection side, pretty much shut down for a year and a half in judicial states. I’ve had attorneys who were excellent pre-pandemic and post-pandemic, it’s been very challenging. I’m in the process of reviewing and analyzing everyone I work with which is a good process as part of any business.

I’ve had a case in Arizona where they borrowed a strategic foreclosure. It was vacant land and it was part of a pool we bought. We foreclosed on the land. It’s a decent size. I think it’s 10 or 20 acres with a value of $50,000 to $75,000. The borrower was a little challenging. We also filed a deficiency judgment against them and we reached a settlement with them.

When I reach agreements, I’m always of the opinion of pigs get fat and happy, and hogs get a slaughtered-type thing. Don’t be too greedy. We reached an agreement in February. We executed the agreement in early March and then everything just goes silent. When I say silent, even my attorney. I’ve been calling, and emailing the attorney every week, “What’s going on?” There was no response. I had sent the wiring instructions. The money never came.

At about 8:00 at night, I got an email from the attorney, “I want to discuss this case with you. Do you have a moment to talk?” I’m sitting there putting kids to bed and stuff. I’m like, “I do,” because I finally got their attention. He calls me and essentially is, “Is this deal still valid, because I know you mentioned it in an email,” which first he’s like, “I haven’t gotten your emails,” but then he goes, “In your email, you mentioned because they haven’t settled this, you just keep going.”

That’s one story and hopefully, we get that resolved and be a win-win I think for everybody in that instance. On the exact opposite end of things, I have a foreclosure case and this isn’t the attorney’s fault, that took a very long time. There’s a surplus on the funds, which the courts, honestly don’t usually have surplus funds on foreclosure so they almost don’t know how to treat it.

Can you just give us some numbers, whether they’re real or not, but what does that mean?

The total payoff is $170,000. The property sells for $200,000 at foreclosure. The UPB was only $50,000. There’s $110,000 in arrears. It’s been going on for about twelve years with three bankruptcies in the mix during this time. When you think about a loan at 9% of $50,000, that’s $4,500 a year times nine years, that’s $36,000, property taxes of $4,000 a year times nine years. There’s another $36,000. There are $72,000 legal fees.

It’s valid, but these costs spanned over eleven years and the borrower’s making payments during the bankruptcy and this and that so some of that money gets applied to some of those past arrears. When we provide the accounting and it’s been through three different services and the loan’s been sold four different times, we provide everything and the court can’t figure out what is and what isn’t owed. They start asking questions, “Show me they paid this. Show me this was paid.”

 

Three investors ago, they paid this FDI bill or whatever.

They come back and their accounting shows that we’re only owed $150,000 and not $170,000.

Is this the court’s accounting?

Yes, I’ve already gotten the majority of the money. Now all of a sudden, there’s $10,000 being held because at the time the way things were filed, the foreclosure happened a long time ago and the courts took a year to settle it. They give you the money up to the foreclosure date and then the money that was in between which was $6,000 in taxes and everything, they were essentially holding that money. Now all of a sudden I’m looking at them wanting me to cut them a check for $20,000 back to them.

I didn’t know we were headed there.

My attorney calls me yesterday morning and he’s like, “It’s going to be a very uncomfortable phone call we’re going to have.” I thought it was about another asset. I thought it was going to be a bigger deal behind something else and all of a sudden I’m like, “XYZ asset.” He’s like, “No ABC asset.” We’ve been going back and forth to the courts because they asked for some information. I provided it and give him some things. He’s like, “They’ve reconciled their accounting and they came up with their number.” I’m thinking, “If it’s $3,000 or $5,000.” By the way, this note is a grand slam. We made six figures on the deal for over four years.

How much money did you have into it approximately?

$50,000 to $60,000. At $170,000, it’s $100,000 profit.

Still, you don’t want to cut them at a $20,000 check.

Nobody ever wants to especially as you already got it. If you were to just, “Cut me a lesser check,” it’s much different than going back to the well. It was a difficult conversation. I thought it was going in another direction and then he starts bringing this one up. I was on the call. I didn’t yell. I didn’t scream. I was like, “Okay.” My question is, “Can we set up another call? Can we get an understanding of their numbers? Can we maybe reevaluate? Is there something I can do?” I’m trying to find a solution to the problem and this is one of the things I believe I do a very good job at is I’m always a forward thinker, not a backwards thinker.

Where a lot of times people get caught up or hung up on an issue that comes up and they try and reinvent like, “What happened? Why did it happen?” It’s important sometimes to know that to learn, but in certain instances, “I understand the story. Me getting upset about it is not going to change anything.” Me thinking quickly, how can I rectify this or minimize damage is what’s very important.

We had a call and we think we can get that number down substantially based on some of the feedback that was provided. I share the story because there are tapes coming out left and right now that the column for total payoff is in big bold letters. They’re like, “Bid off the total payoff.” With a lot of equity now in these properties, it makes sense that the courts are going to start looking at how much money is going back to these borrowers, is everything accounted for, and can you provide proof?

This happened in the past. When people request that I bid off assets like this I’ve asked, “Will you guarantee the total payoff? Do you have copies of all the receipts?” If both are no, my next comment is, “Why should I bid off of it? That’s your accounting record, but a court or somebody else may not agree with it.” UPB is something that’s very easy to prove. The total payoff, “A servicer screwed up adding an extra zero to a number and there’s no invoice.”

It gets quickly into a “he said, she said” scenario.

I’m starting to see that a lot more and I put this in the Facebook group and several other people have mentioned, “I’ve had the same issue.” It’s not a warning but pay attention.

I feel like this is totally anecdotal. I don’t have evidence to back it up, but it seems like the servicers that I use have been a little more wanting proof of certain things. It seems like servicers are on the same page with what you’re saying right now. They’re not going to add a charge to an account without some proof that you paid for it. That’s good to know. I will flip it around on you, “What’s the takeaway?” I know you already said about bidding, but what could you have done differently in this scenario?

I’m paying a lot more attention to the collateral when it comes in the door and not only just the assignments, the mortgages, and that component, but what do they have? What’s the data that they’ve got coming over in the file? Do they have the complete payment history? Do they have copies of the tax bills? What is it that they have? Most lenders and services have a lot of that information, but when they transfer it over, they provide the data tape and the collateral. They don’t provide all that other information.

Certain ones like Rob Hytha who sells USMR products. They’re good with what they provide because that’s P&C paper. That’s one thing that I’ve noticed. He sells first and seconds. Check the title. I bought stuff from him and there have been some issues with the legal descriptions, which you can fix, and so forth. That’s not by any means a knocker against Rob. I enjoy buying from him and his process is smooth. The file itself is in good shape compared to some of these other hedge funds that you and I have bought from. Literally, it’s one file that you can’t even, upside down, trying to figure out what’s actually in there.

Another thing is before you wire the money, the seller is a little more motivated to make the deal happen. Once they get the money, it’s a little late. I remember Matt Kelly making a comment at DME that as far as pay history from years prior or whatever, he said, “It exists. You just don’t have it.” The point being at that point is when you’re about to close on a deal, if you’re a buyer, that’s when you, your seller, are so motivated to help get that information. It likely does exist. It’s just once you close on the deal, that it’s going to be a lot harder to get cooperation from the seller or anyone prior to that seller as far as the payment history or whatever you’re talking about. It’s there. It’s just, “Can you get or obtain it in a reasonable amount of time?”

I will tell one more story of something. I think I mentioned this on a prior episode. I’ve had numerous BK filings. These are all first positions in which a majority of them are trying to cram down. A few of them are manufactured homes, but the homes are secured there on foundations. Even the ones that aren’t and I’ve one right now. I’ve been busy that I haven’t gotten to my email, but one is a single-family residence that they’re trying to cram down. The attorney is asking me, “You need a BPO to confirm the value.” I’m like, “Why do I need a BPO to confirm value if I’m in first?”

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As we come through this pandemic, it seems like there are some shifts in things that we’re seeing. If you saw it once, it’s like, “That’s an oddity.” I’m seeing a lot of similar things happening and I’m wondering if they’re trying to make the shift, which it would be horrible in the minds of lending standards if they allow to cram down at first because no bank is going to give anybody a mortgage knowing that if the housing downturns, they can file bankruptcy to reduce the principal balance.

No lender in their right mind on a first position would do that. You go to buy the house and if it loses value in a year, you’re going to be like, “I’m just going to drop my principal balance by filing bankruptcy.” People would think, ‘That’s a good idea that you could do that.” I’m like, “Good luck trying to get a loan or how much you’d have to put down payment on your house.”

When you were talking, the takeaway for me there is, and speaking to myself just as much as anyone else, as a note investor, it’s important to be plugged in to your membership group, for example, but just plugged into. Because if you’re out on an island doing notes from your house, you may not be aware of these types of shifts. It’s not that Chris has all the information or I have all the information, but it’s important to talk to people and attorneys. Different states are going to be changing in different ways. You can’t just read an article about potential shifts in bankruptcy. It’s important to be networking and talking to other note investors.

That makes a great point. When I talk to my attorneys, one of the questions to ask is, “What are the shifts that you’re seeing?” Now, everything on news is focused on interest rates, inflation, the stock market, and whatever else. It’s not much about some of these minor things or changes that you’re seeing at a microcosmic level so it’s something that you pay attention to.

I was thinking of going with the mattress vomiting RV situation. I can briefly touch on the estimate. I ended up having to do an eviction, unfortunately. This was a CFD in Michigan. I had a Zoom hearing with the co-borrower who was no longer in the picture but he showed up for the hearing. It was my attorney and the judge. We got the land contract canceled at that point, but there’s a 90-day redemption period. For 90 days, we’re just waiting. Eventually, we had to do an eviction and it’s sad the situation. It’s one of those where I’m actually happy we did the eviction because the borrower had kids living in a really bad environment.

Child Protective Services had to come in on the day of the eviction. I don’t know what the latest is with that, but the estimate I got on the trash out so far is $9,200, but it’s taken a lot longer than they expected for a lot of different reasons. I still think this will be profitable, believe it or not, but we’ll see where it goes. The expenses are adding up quickly. That one has also had a ton of ups and downs over the years and we did a modification, but then she never paid anything after that. That one we’re also exiting and I’m happy to put in the rearview mirror here shortly.

The one I wanted to mention was that when I first got into notes, which was right around when you and I did the nightmare on Elm street JV deal. In the same week, I also closed on a deal in Jackson, Mississippi. It’s a long story and again, I’ve learned a lot in the last few years. What I had heard was that 85% of investors who worked with this group of people in Jackson, 85% of them lost all of their money or close to all of it. I was one of the lucky ones who didn’t. What we ended up doing, and I mentioned this in previous episodes, was it was a five-year interest-only loan on a rental property where there’s a balloon after five years. The borrower kept asking me to amortize it and for a while I said, no, but I eventually did.

He’s been making payments pretty much on time the whole time. He did a refi and I got the payoff. It’s not a huge win. It’s not something that I paid $5,000 and I got a $45,000 check or something, but I collected all that money over four years and then got to pay off. When he did the amortization, he put down $5,000 to make that happen. The point is it is a profitable deal and it could have gone much worse.

The takeaway and this is going to sound like I’m tooting my own horn, but I was very active in this situation and said, “What’s the best scenario here?” As opposed to sitting back and letting things happen to me, it was like, “What should we do here?” We redid the loan in 2020 and it’s turning out well. I’m happy to get an infusion of cash and again, I’m focused more on the fund model. These are deals that I’m wrapping up and putting in the rearview mirror. That one turned out well.

I think you’re underselling that one a little. Let me tell people a little bit more of a story. A company down in Jackson, Mississippi was buying REOs, saying they will fix them up, get renters in there and sell them off to you or sell them to them and you’re the lender.

There was also a broker who brought those two parties together.

It’s almost similar to what was happening with the Fox & Friends guy in Indiana or whatever. Correct me if I’m wrong but a lot of these houses, they were saying we’re getting renovated and so forth. They were not. This wasn’t just one or two people. There are 25 to 50 people.

As you mentioned, the majority of them were more passive and thought they were going to be passive investing, “This will be a performing loan.” What you have is that experience though, when this happened to understand two things. One is to work towards a solution, but nowhere to go if you didn’t. You also offered to help a lot of people that were going through this and some of them didn’t want the help. Is that correct?

At some point but I did have a bunch of phone calls with people who were caught up in this situation and on some of these, there wasn’t a lot you could do because the property value was gone. There was nothing there or they’d already signed over the property to this other company and said, “What are you doing? Why didn’t you call an attorney?” I did spend literally hours with people trying to help them out. I don’t know if it was fruitful, but yeah. This was something where somebody on BiggerPockets was directing people. I don’t think he meant anything by it. I don’t think he’s a bad person or anything.

It’s on our BiggerPockets tax lien and notes forum. A lot of people trusted, “He knows what he’s talking about and myself included.” Again, I don’t think it was malicious from his standpoint, but doing your due diligence on who you’re working with, I guess that’s the other takeaway for me.

That and if you think things don’t look right, take action. There was somebody in our group who was trying to reach another note investor and hasn’t been able to. They’ve gone dark on them. They put it in the Facebook group and this is the second, third, or fourth time this has happened. The person reached out to me. I put them in touch with an attorney and the attorney replied, “We know this person very well. We’ve assisted other people in regards to these issues.”

A lot of people are hesitant to spend money to file a lawsuit or file something but send that initial demand. It’s like one of your borrowers. They owe you money and they are not paying you. Send that demand or that contract. It’s not big money to do that but if you don’t, they’re going to continue to ignore you. They’ve got no incentive to reach back out to you.

It’s similar to a borrower that if you’re not calling them or chasing them for money and they’re living in the property or in this instance, that person potentially may be collecting money or they may not do something. You can also find an investor to look into it because they had me look into it and it looks like the properties that this person was participating in were sold last year. They’re CFDs that they already liquidated.

This investor had already apparently liquidated. There are no assets there but the JV partner never got a penny.

It’s very unfortunate that people do things like that. I don’t even want to speculate that. I and you found out as well because I sent you the email that a large fund that we used to buy from filed for bankruptcy. Bankruptcies are a public record, but Home Opportunity, which back in the day, we all bought CFDs from. Jamie and I were helping somebody who bought an asset from us to try and get a document resigned. I reached out to the people I know there and all of a sudden they come back and say, “You’re going to have to ask the trustee. We can’t sign it because we filed bankruptcy.” I was like, “Okay.”

 

He’s still going to go to the trustee and get it taken care of but that was surprising. I don’t want to get off into what we have going on with our businesses too much, but you haven’t been buying a whole lot other than we’re bidding on some assets for our integrity fund, but have you been not buying as much this year so far?

No. This year is the first quarter and this is a typical first quarter. I try and get taxes, books, and all that fun stuff done, which everybody is struggling with at this point in time. We don’t need to go down and beat the dead horse on that. Also from a business perspective, we are planning the next six months of what we’re doing. We’re looking to scale. I’ve got new people starting and bringing new people on board. I had somebody start this week who’s going to help me with my existing portfolio.

I got somebody starting next week who’s going to be working on the next venture that we’ve got going on. There is a lot of training and bringing people up to speed on that. For the most part, I haven’t done a lot of buying. I’d say a little bit here and there, but also the values of assets I bought have increased. I may have closed out some notes that I bought for $20,000, $30,000, and $40,000. I got two of them at $40,000 back. That’s $80,000. I’ll turn around and buy one asset for $75,000 or whatever the case may be. We do have two funds that are closing later this year. We’ll be liquidating some assets as well. Are you seeing more products? Do you feel there’s more product coming down the pipeline?

It does seem like there’s been an uptick. It feels like I’ve seen more tapes coming across, but the pricing is crazy still. Somebody who’s been in this space for years would agree with that and I don’t if that’s the new normal. We did an analysis on the NPLS that we bought in our fund and largely because you got some good deals. We closed at 53% of UPB overall in our fund. These are for the NPLS and not the whole portfolio. I’m not seeing any pricing anywhere near that now.

It’s hard to pull the trigger. We did bid on a couple of these HUD HECM loans. People can look that up. It’s the reverse mortgages where the borrowers are deceased and likely there’s only one exit strategy and that’s to foreclose. Because they’re non-recourse loans, you do have to deal with probate potentially, but there’s not going to be a bankruptcy filed or anything like that. It’s a fairly straightforward play from an exit standpoint. You got to get your property value right. That’s the thing. If you get that wrong, you’re going to lose money.

That’s very important because some of them have a $200,000 value. Some of them want $175,000 and it makes zero sense at $0.80 or almost $0.90 on the dollar where if you get it, your foreclosure and liquidation costs, you’re going to spend $10,000 to foreclose, and then 10% liquidation. You’re at $30,000 something thousand. You’re already underwater.

Even if you make $5,000, was that worth it?

It’s not worth the risk.

The risk, your time, and the work involved, we’ve been very careful. Frankly, we’re sitting on a little too much cash from an ideal standpoint, but it’s still better than losing money.

I’m thinking to work with Elon on his Neuralink and basically be able to link to people’s brains to understand the risk involved with the pricing of assets. It’s $5,000, but what’s your risk involved and make it a calculator that’s automatically in your head that not only analyzes the amount you’re going to make but the risk involved with it as well.

Yeah, because people get so hung up on the upside, but undervalue the risks.

That is my next venture. I’m going to start picking people’s brains.

Is there anything else? Any other highlights or recent interesting things that have happened?

Here are some interesting ones. Here are the creative juices flowing. I have two borrowers with who I have multiple loans with both borrowers. One of them is a first and second on a single property. One of them is two first on two different properties. We’re working on forbearances for both and the loans or lines of credit. I don’t know why, but some servicers struggle with lines of credit. They don’t understand that once the line is closed, it has an amortization schedule and it goes down that path. I’m not going to go down that. That’s a whole vent session for another month that we could talk about.

What we did on both loans is we did modifications where we essentially combine the loans. We are on the one that’s two separate properties. I had it in two different entities. I had to sell it to the other entity and that one’s a little more difficult based on how we’re working that. It’s going to end up being still two separate loans, but the mods and the attorney is finalizing that arrangement. We didn’t want to combine the loans to do a new loan because there are other liens on the properties that we want to use or have our positions superseded. On the other one, it was much cleaner where it’s first and second. We basically modified the loan and said, “Your payments can be $400 a month and $200 of each payment is going to be applied to loan A and $200 to loan B.”

I haven’t done that before.

When you think about it and in that case, the other one’s a little more complex on how that one’s going to work. We are still working out the details but on this one where it’s first and second, it’s one mod. Some people will charge you for two mods instead of modifying both loans, wrap them in one, reference both of them in the same package and essentially, you are saving some money.

You’re not getting into the ability to repay issues or anything there, right?

Nope.

You have to think outside the box. You don’t have to treat it as first and second still. Take a step back and look at the whole picture. That’s good. We could do a whole episode on modifications. I’m curious about how people treat it. You said forbearance, do you always do forbearance or trial payment plans before you do a modification?

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Yes.

Is that a formal thing? Do you have an agreement? It’s not just an email. Is it always a formal agreement?

Yes, and let me tell you why. I have a loan that a prior entity and prior servicer wrote. It wasn’t a modification. I forgot what they called it, but essentially it was an agreement that they reduce the UPB from $25,000 down to $13,000 at 0% interest. If the borrower defaulted, it would kick back. The borrower was never signed though by the servicer who was assigning authority, but in the system, they acknowledge it and they changed all the data.

What a servicer, in my understanding, should do is when they put this in the system, there’s a way they can put in forbearance, but still track if it fails the old numbers. Because if somebody is in a forbearance where the payment goes to $300 from $600 at 9% interest, the payment plan is, “Your payment is this much, but if you fail, it goes back to the old.” The servicer was not set up or could not transfer back to the old but we can’t do that. That is why you probably should use licensed servicers.

The borrower defaulted. We went to go back and change it. We notified the service or to send them the information but they never did. The borrower ended up reinstating by making ten payments. The issue was and they commented, “I never got my payment coupon book sent to me and I never got monthly statements. I never got anything.” That’s why they didn’t know where to pay. Now, I’m caught in this conundrum of, “What do you do?” We allowed them to go back to this agreement.

The servicer sends this long-winded email blaming me as the lender and they did nothing wrong. I forwarded it to my attorney and they’re like, “They’re just CYA because when they changed the amount, they didn’t put it as 0% interest. They kept it at the 9%.” When the borrower made the payments was paying also some of the interest. It got transferred and the borrower gets their statement and was arguing about it, and rightfully so because the interest should have been moved to the principal, but also there are some charges that were old that were supposed to be wiped out as well. I could have fought it and/or I could have gone after the servicer. $2,800 is what it essentially costs me.

It’s not the borrower’s fault in that sense. We corrected everything, but my current servicer is pulling her hair out. She was writing everything on the whiteboard trying to figure out what was going on and on calls which we got figured out. They readjusted everything to show all that interest. They went over the principal and wiped the charges. They got everything cleaned up and now the question was, “For that much, do you go back after somebody?”

It would cost me more to go after them but sometimes I would still do that. It’s also somebody who I have a relationship with and potential use in the future so you also have to be careful of which battles you have to pick over $2,800, and my business size is seven figures to eight figures or whatever number is. The damage I do by doing something like that would be more than just swallowing my pride and letting it go.

In a sense, that’s evaluating the risk from a business standpoint. We’re a little short on time here but haven’t always favored doing a trial payment plan or forbearance. I get the point of it. Whether this is good or bad, I don’t know, but I’ve been quick to jump to a modification because if a borrower makes 3, 4, or 6 payments, it doesn’t prove that much to me.

I understand that modification is final and it’s much more permanent than forbearance or a trial payment plan, but for whatever reason in the scenarios I’ve been in, I’ve generally favored, “Here are two or three modification options,” to the borrower. “Pick one and let’s modify this.” Sometimes it’s to clean up maturity date issues or other things so it makes sense. It seems like everybody defaults to forbearance and trial payment plan before you do a mod. I guess I didn’t always see the logic in that.

I’ll give you my logic, right, wrong, or indifferent because I’m not always right. If you ask my wife, I’m never right. The forbearance, the way I’ve looked at them, and I will tell people if you do something, try and get it in paper because in these times if it does ever end up in legal, you can show proof that you’ve tried to work with them in the past. Whereas you don’t put anything on paper and say, “If you just make five payments, we’ll reset the loan.” If that’s not in writing, that might be challenging. The forbearance is a pause on any legal action to see if the borrower can fulfill a short-term obligation, which could lead to a modification. It doesn’t change the terms of the overall agreement but the modification does.

If you do a mod, you’re basically resetting that loan based on the mod that date. If a borrower borrowers two years behind and starts making payments in forbearance and fails, they’re still two years behind, you can continue with your legal action. If you do a mod and there was legal action, you have to cancel the legal action because of the mod and then they’re starting at day zero again, so then you have to wait for the 90 to 120 days before you can start your legal and start that process over.

That is true. In this one in Michigan that we had to evict, her reinstatement amount was quite low. There was a very high chance that she would reinstate and reset this entire thing and that’s because we did a modification. There was probably a little more risk than I should have taken on. To your point, that’s got to that issue. It comes back to it depends. If the borrower can put down $5,000 as a down payment for a mod, to me that speaks just as much as six payments or whatever. It depends. I think we’ve provided a lot here. We’re all a little all over the map, but I think people like these kinds of what just happened stories and crazy stories with our assets. Do you have anything to add as we move toward wrapping up?

I will mention it again for people who haven’t read the prior episodes. At first, I thought this episode might be Jamie’s last episode with us, but we will keep Jaime on for a few more. A little encore presentation. Jamie has launched his new podcast where you’ve got a half dozen episodes briefly out there.

It’s From Adversity to Abundance. We’ve got five episodes out now, but I’ve got a bunch more recorded. I’m excited about it.

This show is not going anywhere. We are going to do a little bit of rebranding. We’re going to be changing the name. It’s going to be called Creating Wealth Simplified. We will focus on notes, but we’re also going to bring on other guests for other types of real estate from multifamily syndications, and talk with people using IRAs and infinite banking. It’s going to be focused on real estate, but we want to broaden it a little bit more.

We’ve been talking notes for 200-plus episodes. I think we brought on other people. Notes never get old and Lauren Wells will be joining me on that as well as the co-host. We are bringing back the female side of things to keep me in check and so forth. I’m alternating from Gail to Jamie. I am curious why people just don’t ever want to work with me.

We are still working together. Gail even said the other day in the Facebook group, “I can’t quit you guys.” She’s still following everything.

We did joke about that in the last episode. People joke like, “Jamie’s got a fund and they are breaking up and stuff.” I’m like, “Jamie, I got a few hundred thousand reasons why.”

We’ve got BiFi and Integrity Mortgage Note Fund. It’s been awesome. This is where we’re going to find out who actually follows our show.

 

In six months, they are like, “What happened? Why is Jamie no longer on?” You don’t follow us so why does it matter?” We’re both juggling a lot of different things and I’m very grateful to have been a part of the show. It’s not goodbye. It’s, see you later. I don’t know what the phrase is, but I’ll be around. You know where to find me.

Do you have any final thoughts? I think we did drop a lot of nuts and bolts during this episode for people to learn from. For those, thank you for reading. Make sure to leave us a review. Now, I’m going to have to come up with a new catchline instead of saying, “Go out and do some good deeds.” That’s the one thing we haven’t figured out because we have our intro, outro, and everything, but “What do I say at the end,” but I think I can still keep that by the way. I’m going to talk to Lauren and see if that can still hold.

I recorded an episode for my podcast and I almost said, “Welcome to the Good Deeds Investing Podcast.” Old habits die hard, I guess.

Lauren’s definitely going to have to do the intros as a start because she’s not brainwashed into the name from that perspective.

I’m excited for the future for both of us.

You’ve got your new fund launching on June 1st, 2022.

It’s Integrity Income Fund. I’m excited about that. Credited investors, check it out and LabradorLending.com. Go out and do some good deeds.

Thank you, everybody.

Take care.

 

Important Links

• From Adversity to Abundance
• LabradorLending.com