Getting in Contact with the Borrower: The Hardest Part of the Note Business
A common question we hear from new note buyers is, “Okay, so I just got my note. Now what?” That’s a great question, and knowing a good answer to it can make all the difference in whether you get successfully out of a note deal. In my last two articles I covered where to find notes and the best types of due diligence to do once you find them, but one issue that I find many first time note investors focusing on is how to get in contact with the borrower once they own the note. Before I get into what I think are some of the best strategies to contact the borrower, I have to stress that this is just ONE way to handle a note. Some business models are designed to merely initiate foreclosure (after a RESPA/TILA letter is sent) and wait for the borrower to simply contact them. Others, like mine, are designed to create fewer foreclosures and more homeowner workouts. So, taking some tips from my company’s Borrower Management division, which has successfully resolved thousands of delinquent notes over the years, I thought I’d share with you the three main ways we get in touch with homeowners utilizing our mail, phone, and legal campaigns.
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No one can predict the future, and every borrower is different, so no one knows which method of contacting a borrower will facilitate a response. So as note owners we try to do our best, so we use a series of notices and touches through our mail campaign that seem to do the job of respectfully notifying the borrower that their mortgage still exists and that we own it, and, above all, that we want to help and work something out.
Here are the following steps that have worked for us:
- The first thing we send out is the RESPA letter and/or TILA Letter. "RESPA" stands for Real Estate Settlement Procedures Act Letter, and it is sent when the company that services the loan changes. A RESPA Letter is basically a "goodbye/hello" letter sent from both the prior servicer and the new servicer. "TILA" stands for Truth in Lending Act, this letter is used when the investor behind the loan changes and simply notifies the borrower of such.
- We typically send out a Homeowner Options Letter next, this letter gives some ideas of what types of plans we’ve done with other homeowners whether they want to stay or go and the options for either choice (we’re going to be covering that more specifically next week in our Exit Strategies article). We also send this along with a copy of the original note to prove that we own it.
- Next we send a No Response Letter – This is a “hey we haven’t heard from you, we’re still trying to get in touch” type letter, reiterating what was sent in the past but highlighting that their case is still important to us. Whatever asset manager is assigned specifically to the borrower will usually handwrite the letter to make it more personal, and this usually inclines people to open it rather than seeing the typical computer typed notice they would receive from a business or bank.
- Sending a “No Contact” Postcard is one of the next things we send out. It basically says something along the lines of “Time’s running out, but it’s not too late!” Sometimes we’ll use a postcard that will have an alarm clock on it or something a little tongue-in-cheek or eye-catching so the borrower is more inclined to read it. Keep in mind that what’s said on this must be said carefully because anyone can see it.
- We also send a FTC Facts (Federal Trade Commission) sheet that explains what Foreclosure is as defined by the government, giving the homeowner some perspective of what the process entails and it’s all coming from a verified third party.
Now, as to what we can say, who we can call (neighbors, family, etc.), when we can call, and how much we can call are all things covered by ACA International and the programs and information they offer to stay compliant. We usually call every 2 to 3 days, never saying the same thing (like a bank or automated machine would do) and the entire goal is to come across as and truly be an advocate for the borrower; someone who wants to facilitate the homeowner’s plan.
So how do we get the phone number? Sometimes the phone number is in the collateral file from the bank/servicing company you bought the note from. We also track phone numbers down usually by using sites like 411.com, White Pages, and Spokeo. For loans in bankruptcy, we check PACER for information on a borrower as well. We look up their names and/or we also do a reverse search and pull up the property address and see if there’s a live phone number at the premises. After about two weeks of letters and calls, we sometimes hire a Door Knock Service or P.I. as well.
Door Knock Service and P.I.
Simultaneous to both of these, we also send out a door knock service to do everything from checking out the condition of the property, leaving a note, and of course knocking on the door to see if there is anyone living there. One company that we’ve had a lot of success with doing this has been NCCI. Sometimes we’ll even get a P.I. (Private Investigator) to knock on the door and if the person in the property answers, the P.I. hands them a cell phone with PPR’s asset manager on the other line. This is pretty big psychologically because what Big Bank would go out of their way to do that to talk to a borrower? A great service we use for this is PINow.com. Also, in addition to their other services, they may have access to LexisNexis to get the most accurate phone number available.
After 2-3 weeks, we continue our other campaigns while simultaneously initiating foreclosure. We do this by contacting the proper attorney and having them send out a Demand Letter to the borrower. I would strongly recommend that you pay the attorney for the demand letter PRIOR to sending in a retainer because the demand letter itself can oftentimes be enough for the borrower to respond. On the majority of the loans we buy we send out a demand letter. But this isn’t the only form of legal we rely on, there are also a few other future trigger points utilizing the legal process.
The next step is filing a lis pendens. This is usually where 30 days after the Demand Letter is sent, the attorney would go to the courthouse to file in public record for foreclosure. After that, setting a foreclosure sale date and having a notice for the hearing and the notice of the sale date are both triggers for borrowers to realize foreclosure will happen without a dialogue with the current note owner. Without a response or workout complete, we continue with legal all the way through. Putting a for sale sign on the front lawn or having the sheriff put the ejectment notice on the door has also been really powerful in getting a borrower to finally understand that, first, we can foreclose (yes, even from the 2nd position), but mostly that we’re willing to create a win-win solution.
This final point is really important to understand. In a situation where a borrower has gone months or years without paying on a note, it can take a powerful trigger to get them to take action, and that’s the main purpose behind the legal actions. Sometimes it just takes the reality of a foreclosure notice to get someone to engage with one of our workout specialists. Now, do we ever actually foreclose? Yes, but not that often. It varies from trade to trade, but on average we only initiate foreclosure on about 50% of all the loans we buy, and of that 50% we only foreclose on less than 10%. Above all we use legal as a tool for getting through to the borrower, and at the end of the day, everything we do is focused on keeping someone in his or her home. We find that these favorable workouts are what create the most profit on our end and there’s. Even though all of these steps sound like a lot and this article is called “the hardest part of the business,” the good news is all these steps are done by phone or computer and you never have to leave the office.