GDNIP Ep 24: Keeping An Open Mind On Investment Risks And Precautions
Risks can be part of every investment that we make but this can be avoided or kept to a minimum if we take extra precaution. Chris and Gail talk about possible risks and possible ways on how we can take precaution when getting into deals. They share their knowledge on what we should be looking at when getting into deals. Some topics they touched on are possessions in IRA, matured loans, “non-JV” deals, transferring services, foreclosed properties, state taxes, toxic assets and many more.
Listen to the podcast here:Gail Anthony Greenberg & Chris Seveney Open Mic Night: Keeping An Open Mind On Investment Risks And Precautions Open Mic Night: Keeping An Open Mind On Investment Risks And Precautions
Open Mic Night: Keeping An Open Mind On Investment Risks And Precautions
Welcome to another edition of the open mic night for the Good Deeds Note Investing podcast. I’m with the very entertaining, Gail Greenberg. Gail, how are you?
I’m good. I’ll take whatever you’re dishing out.
Thank you all for joining us and every week we do this. We’d like to try and keep this open for everybody to ask questions on anything related to notes or real estate in general. Answer questions on topics you may have or things you’ve heard or things you’ve seen in the industry. We like to keep it open. Feel free to ask questions. Gail, do you have anything on the, “What just happened to you?”
We recorded a podcast that was about how I took possession of a house in my IRA. I want to own this house and use it in the future, which I can’t do if it’s in my IRA. I was describing the process that you have to go through to take something you own in your IRA and transfer it to yourself. I was upset afterwards because I realized there were a couple of important things that we forgot to talk about. I would love to opine on them now. The crux of the story, which I encourage you all to join to at length because Chris made some very good interjections in my story. The issue was that I owned a contract for deed in my IRA and the house itself was in very poor condition. The borrower was fourteen months behind when I bought the CFD and she had not made a payment in five months. This is not an unusual behavior for a CFD borrower that is delinquent when you buy it. The issue for me that I quickly found out once I owned it and a friend went over to talk to her for me, the house was in terrible shape.
It was in a very hazardous condition. One of the tip-offs to that was as a side by side double and she had an electrical extension cord running from one door to the other or one window to the other. Clearly, one side was being powered by the other side and it was a very old rickety wooden house. That seemed particularly horrendous to me. I started to be scared that not just the borrower was in danger but since she was a young woman, she might also have children living there who would also be in danger. I lost a lot of sleep worrying that there could be a fire, particularly because of this extension cord situation. I did get the house back. It took a long time and it was very challenging. I realized in the aftermath that one of the big things that I was worried about other than the borrower and her family being killed in a fire is because it was owned by my IRA. You always hear about IRAs being untouchable in lawsuits. Like very famously OJ Simpson, after he was criminally acquitted, he was civilly sued by the families of his murdered ex-wife and the young man who came over accidentally.
They want a giant civil judgment against him and the only assets he had were in his IRA. I was shocked. I didn’t know much about finances or IRAs but I was impressed by the fact that they couldn’t get any money from his IRA. He got quite a lot of it. I’ve always thought if something’s in an IRA, nobody can touch it. That’s actually not true. That’s true of independent judgments that are not related to the activities of your IRA. You can kill someone and not have to pay them anything. If your IRA is involved in an activity and there’s a lawsuit related to that, like my IRA owned this house. If there was a house-related liability issue where someone had been hurt in that house, absolutely my IRA could be sued and I could have lost the whole thing. Then the people who want it would have to deal with all my CFDs that are in my IRA.
That’s a very good point because if you have bought with retirement funds an asset and a borrower thinks that you may not own it or just sues you because they want to sue you or whatever the case may be. They can go after what’s in there that’s not protected. What’s interesting is if you run out of money defending it, can you put more money in it to defend yourself and stuff? I was told you can.
Is that more than the normal contribution amount that you’d be allowed to do?
It’s almost like taking a loan off of it, but you’ll definitely need an IRA custodian attorney to explain all that.
Our blanket disclaimer, we are people that know a little about a lot of things.
That’s another word of caution for people with IRAs who are investing in nonperforming. Be careful because you can be at risk.
Had I not at this juncture gotten possession of this and a council land contract from the borrower, what I would have done that I probably should have done all along was put it in a trust where your IRA is the beneficiary of the trust. You don’t have to remove it from your IRA. You have to obscure the relationship between your IRA and the asset. That’s definitely something to look into if you have a situation like this where you’re concerned.Investment Risks And Precautions: Anyone you’re going to potentially partner with should be happy to give you the names of people.
I want to share this story with people because I think it’s relevant to people who have joined us now too. I got a call out of the blue from an investor. I don’t know who this person is. They had gotten into a deal where they were in a JV that they funded like five contract for deeds back in 2016, 2017. The LLC that they funded it with were two individuals and they basically split up. They’re not together anymore. The CFDs are nonperforming and it’s a pretty hairy situation. The sponsor, the individual who originally bought them and took these people under his wing to JV with basically says, “I’m going to deed this back to you and you can have them.” That person was asking me for some opinions and information on is that okay or whatnot and so forth and so on.
I’m a little lost already. There was an LLC.
Just like you have a company. Let’s say I was JV-ing with you and you bought five notes with my funds, that’s our JV deal. Your entities were owned by you and your sister. You and your sister split up. The LLC is still valid.
The things were bought in that LLC and there’s a JV agreement with the funder and the person.
The assets are clearly not worth what the investor has put in or has contributed to them. Because these two people who own this company basically split up, they’re like, “We’re going to deed them back to you.” The person was like, “Should I do that?” I said, “Let me see your JV agreement first.”
The person who’s getting them back is the funder. Does he know anything about any of this? He was just counting on the JV.
He’s been calling Madison and calling Franco and stuff because they’re in Ohio and the contract for deed is more than five years old. In most JV agreements, there’s always that terminology that says, “After a certain period of time, you can request your money back at a preferred interest rate.” The first question I asked is, “Did you do that?” He was like, “No.” I sent them on to Brian, the attorney I use, the enforcer who’s a very whizbang attorney if anyone needs a referral. It’s interesting because the person was like, “What do I do?” I said, “First, get an attorney involved because you don’t want to take them back and then lose all your rights to the money that you can potentially lose because it’s a lot of money that will be out on these deals.”
What’s unfortunate is this individual partner with somebody who I don’t believe he did enough due diligence on who he was partnering with. It was people who are inexperienced. Their LLC had been around for a while. He didn’t ask them how many notes are getting references from them. He put himself a little bit in a bad situation. I want to say that to people because there are a lot of people on Facebook or BiggerPockets and these websites who claim that they flip 120 houses a year. I love the pictures of somebody with a beautiful woman up against a Ferrari. They’re like, “Should I buy this?” It’s like, “Come on.”
There are a lot of people out there who overstate sometimes their experience or what they can do. I warn everyone, be cautious and make sure you do proper due diligence whenever you’re dealing with people and make sure it’s somebody who has a track record. People can give you a flyer that says, “I’ve done all these deals.” I can have someone on Fiverr for $25, make 50 of them and tell them to create whatever they want on them. They could look great and you’ll never know the difference and most people won’t. The key is to get references and that’s what I always would say. Ask other note investors around. If somebody wants to question me, I’ll give Gail or Scott or somebody else or somebody in JV. Give them a call and say, “What do about this guy?”
Anyone you’re going to potentially partner with should be happy to give you the names of people. They should be willing to call their current JVs and say, “Would you speak to this person about your general level of satisfaction?” I have a couple of questions for you. First of all, obviously you’re not going to name who this person was, but is he somebody we would all know?
No, the individual who gave the money, I never heard of. The individuals who took the money or were the investors in the deal, I never heard of them.
You don’t know the details, but how did these things end up being worth so much less than this person who put in?
They overpaid. They were paying $20,000 to $25,000 for Ohio CFDs that had $5,000 to $7,000 in taxes on them as well. Typically, in Ohio, CFD a lot of times here probably is in the five to fifteen range. If you’re paying $25,000, you better hope that property has got a UPB of 50 to 60 in Ohio because of foreclosure costs and stuff.
You’ve said the magic word, tax. Before we got on, I was going through all my CFDs that are not escrowed and checking to see who has not paid their taxes and surprisingly that’s a lot of people. I know you lecture me about not having escrow but the big fatal decision was using FCI. I never knew this until I was into deep with them that they will not escrow an account unless it’s current. That means everybody pretty much cannot be escrowed if it’s already been escrowed at the former servicer. They will grandfather that, but only for a short period of time. If you don’t get people paying clockwork fast, they close the escrow and then you’re doing what I’m doing looking to see.
The opposite of that is I have a property that had an outstanding tax balance that I agreed to advance the funds for the taxes because I’m working out something with the borrower. The opposite of that is I sent Madison a quick email saying, “Can you please advance the taxes to the tax collector and add it to the balance on the account for the borrower?” That day, they send that checkout and took an ACH out of my bank.
Give them the green light. Brian Gallagher is in Maryland?
Yes, he’s in Maryland but he handles a lot of business, transactional.
He does general counsel-type stuff for any state. If you’re doing a foreclosure, he would not be able to do that for you outside. Where does he practice other than Maryland?
It’s just Maryland.
Maryland is a good state because there are a lot of things you need a lawyer for in Maryland.
We had someone said they have terrible service from Madison. What I would say is you need to stay on top of your people there. Also, I have close to 70 loans boarding with them. They’re pulling $5,000 to $6,000 out of my account every month. I better get some decent service because I could hire somebody full-time probably for two-thirds of the price.
I would say all services are terrible on some level. They’re more like teenagers who won’t do anything unless you yell at them.
Servicing is, and I mentioned this on a prior podcast and I will hammer this into everyone, is when you get your loan transferred from one service to the next, ask for that transfer file to make sure they carried all those costs over because a lot of times they don’t. There are some past balances that the prior lender may have paid in taxes or insurance that are above and beyond the UPB but added to the total payoff. You want to make sure those get incorporated. I had an asset in Florida that had an unpaid balance of $24,000 but $20,000 is in other payments from HOA fees and taxes that initially didn’t get transferred over. Then when they sent an attorney to pay off for the foreclosure, I was like, “Hold on, time out. The payoff is $40,000 something, not $24,000.” I literally got on a conference call and it took about an hour and a half to explain it to them, but they finally got it.
David said, “I have to keep sending emails to Madison and they never returned them or return calls.” I’ve heard that actually, borrowers have told me that about FCI. That’s upsetting when someone’s trying to pay something and the servicer doesn’t call them back. That gets me. Do you have any tips on how to get a call back from Madison, Chris?
I don’t call them too often. Typically, what I find is I’ll either email early in the morning or in the evening. I always do the three-email rule. I’ll email them on Monday, then I’ll follow up on Wednesday. If I don’t hear anything on Thursday, either in Thursday or Friday, it’s like the big bold email, “PLEASE RESPOND.” I get obnoxious at times.
I’m a big fan of the all caps subject line. I find that that tends to get seen.
Any other questions that anyone has out there at this point in time?
Is anyone doing their first deal or one of their first five deals?
Let me ask this question and I apologize if everyone’s got ten broken fingers and can’t type. I’m going to ask them another question as well. Has anyone never seen a tape or have experienced looking at tapes?
Did everyone receive the direct source tape that came out? There are 494 assets on it.
Average UPB, $50,000. What I’m going to do is if people want to, I’m going to walk through what’s on the tape for people.
Only 34% of those from that new tape are owner-occupied.Investment Risks And Precautions: If a property is occupied and they don’t have payments in the last 24, 36 months or something and it’s been five to six years, don’t go there.
That’s low but also look at the last pay date. I had somebody email me and said, “Can you take a look at this asset? I’m thinking of bidding on it.” The loan matured in 2014 and the last payment was in 2011. My comment back is, “Pick up the phone and call an attorney really quick and ask because the statute of limitations in Pennsylvania is six years.” These assets were from Granite. Granite’s no longer around, so American Home Preservation or AHP, Jorge Newbery bought them and he’s using John to sell them. In the past, I’ve had issues with some of those assets because it’s usually very hairy assets and the statute of limitations issues. You’ve got to be very careful to make sure you can get that it’s an enforceable leave like I got to put my agreements.
We have a question, “How did you vet your accountants? Tax season is scary,” and he mentioned he received the tape. There are two things that I’ll mention. One is there’s your accountant and I have a bookkeeper. The bookkeeper, I find more important than the accountant because the bookkeeper is the one that does all your books for you and makes sure it keeps everything honest. Then the accountant from that side basically takes the P&L report that my bookkeeper does and sticks that into my taxes every year. I’ve been using the same accountant for several years because my wife has the most complex taxes that you can imagine. She works for a tax-exempt foreign world entity. She gets a paycheck but ends up having to basically pay her own taxes in a way or she gets a stipend. It’s crazy. We have to use somebody that knows specifically how to deal with that.
If they make one payment, the statute of limitation resets and then somebody said, “What is the statute of limitations in most states?” Five years. It’s very variable.
It’s four, five, six, ten. Here’s the other thing that’s interesting. In some states, you may not be able to collect the debt, but the property is still secured by the mortgage. It’s similar to a chapter seven bankruptcy. In chapter seven bankruptcy, they wipe out your debt. They’re no longer responsible for paying you the mortgage and the note on that property, but you still have rights to foreclose on that property because of the mortgage. It can be like that as well but typically, in a lot of these older ones it gets tied up and caught in legal. What they may do is go hire an attorney and say, “I paid this off,” and then you’re chasing down pay histories from banks from 2010 and 2012 that aren’t around or like the Ocwen or some of these other banks who are lenders who didn’t keep good records. For me, I learned my lesson the hard way on buying some of that stuff. If it’s occupied and they don’t have payments in the last 24, 36 months or something and it’s been five, six years, I’m not going there.
As far as the statute of limitations, if you’re past that, now it is five years or six years. You can sometimes forgive that first year way back when. Bring them within the statute of limitations period.
Let’s say the loan matures in 2025 and they haven’t paid since 2012 and it’s a five-year statute of limitations. They owe you seven years of payments. Instead of seven years of payments from 2012, you make it four years of payments and run it back to 2015. From 2012 to 2015 you basically wiped those clean and then looking to collect the past due within that statute.
The point is not all is lost, but definitely consult an attorney when you have a borderline situation. Sometimes you buy something, the statute of limitations isn’t up but it might be up during that period of time when you’re trying to get them to make a payment.
The other thing I found too is if you tried to buy an asset with your IRA and the loan has matured, they won’t let you buy it. I’ve had this issue once with somebody with Quest and equity where I’ve had loans that have matured and we’re working on new modifications. They basically like getting ready to find me or find the person because the loan had matured and so forth. When I was talking to them once, they made a comment that typically they won’t allow you to buy a loan that’s already matured. We have a question, “I don’t buy notes that have not made a payment within the last three years.” Correct, unless it was a vacant property that I was looking to take that property which happens every blue moon typically. If there’s somebody living in that property and they haven’t paid in three, four years, something’s up. If they’ve been able to fight the system for the last three, four years, there’s probably a good chance that they’re going to continue to figure out a way to finagle the system. Do you want me to pop it up and we can walk through some of the stuff on that tape?
Yes, I don’t know if everyone gets these tapes. If not, you should definitely sign up for them. They’re enormous. They’re a true test of your ability to separate the good from the bad.
I literally haven’t had a chance to look at this so I don’t know what is on it, but I saw the cover page. The offer had 494 assets, $25 million UPB, 80% loan-to-value, 30% owner-occupied. I just put a quick formula. $51,000 is the average UPB and bids are due Tuesday. This looks like it’s the highest bid situation that’s first come first serve. There are some assets I saw because there’s one next to the town I grew up in that was a Granite asset a couple of months ago. These assets have been around awhile. Typically, when you run through these, of course, you’re going to have the city, state, address and zip code. The original amount for people, that’s the original amount of the original loan. UPB is the unpaid principal balance.
That’s one of the two kickers for what your bid should be off of the lower of that or the fair market value of BPO value. You see the interest rate and the original term. One thing to note when they say the remaining term, that is a remaining term on the original loan. If they’re three years behind, now it says nineteen months. That’s not meaning there are only nineteen payments left. That’s how many months were remaining on that original loan if they would have been paying from the beginning of time. That’s why you see this one’s negative nineteen months. There’s another one, negative 28. These loans had matured over a year ago. This one right here over five years ago is matured and it’s still owner-occupied. That would scare the living hell out of me.
Your IRA will let you buy it anyway so probably a good thing.
Be careful when you look at loan types too because sometimes it could be a HELOC or an equity line. One time I didn’t realize once I got the collateral that it was an equity line. I’m like, “I’m not dealing with this.”
I don’t know anything about how to deal with an inequity line.
This don’t make the payments. The problem is they could become whole again and then they could start holding money back out of it and then you have to keep giving them money. You have to have the cash. Property types, SFR, single-family residential, manufactured townhouse, condos. When you’re dealing with condos and townhouses, make sure to check HOAs. There are people familiar with super lien states with HOAs. In Madison’s website, they have thirteen states where an HOA lien supersedes a first position lien. It’s on their website, underinvestment information. It’s pretty handy.
I have a question for you, Chris. I know in some states, the HOA is capped how much that they can actually go after you for. Those ten probably I’m guessing are not to be the super lien states because the super lien states seem to have the bravest rights.
Florida is a priority lien or super lien, whatever you call it but it’s capped. It falls under that calculation but it can be kept. You have your attorney now. PI PMT, that’s your principal payment. That’s how much their principal and interest payment is per month. Total payment would be the escrow. You can see if they were taking escrow or not. I think the calculated LTV, I actually put in. That’s their BPO value. Take a grain of salt and the reason why is I know. I grew up right next to the asset on row 34 in Palmer, Mass and I lived the next town over. UPB is 216 and 255 is their BPO value. I can tell you right now, this house is vacant, is trashed out, and would not sell for more than $65,000. Just to give you an idea and taking it with a grain of salt. What you typically notice is the BPO value is usually very close to the UPB or the total payoff.
Imagine, it’s like when you go to buy a house and the appraiser comes by and it magically appraises for what your value is. That’s why I also knew these were Granite because if anyone’s ever seen Granite assets in the past, I don’t know who does their BPO. I was looking at asset once that they had it listed as a four-bedroom, three-bath, single-family house and it was a two-bedroom, one-bath townhouse. The townhouse was in the area and this neighborhood was selling it for between 50 to 70 updated and they had one other REO that sold for 29. They had a BPO of 105. I didn’t know what currency they meant, but it had the dollar signs. I think it was some other currency that exchanges about a four to one rate.
I see a lot of very old last payment received dates here.
Last payment received 2008, 2010, 2011, 2013. You can start to see how many assets on this tape, 28 assets that haven’t made a payment in over four years. That’s a lot.
Those are probably not going to reperform though. I do have a friend who bought one where there hadn’t been a payment or there had only been one payment in ten years. She got them to reperform. I haven’t asked her whether they kept reperforming.
The question I would ask is if you had a house that hasn’t paid, let’s take one of these from 2008 that is vacant. Do you think that house is still worth $108,000 that’s been sitting vacant for ten years?Investment Risks And Precautions: When the seller is feeling highly motivated, they not only put their dealer clause in, they will also give you an entire side letter with all pay off and all kinds of things as long as you’ll buy the thing.
I never thought about the fact that houses are almost like organic living beings in the sense that when they’re not cared for at all, they fall apart surprisingly fast. Even beyond the normal pipes freezing that we all worry about. There are so many bad effects. It is scary.
I work full-time in construction development. I can tell you between humidity and cold, what humidity and that can do to wood, drywall and things that are organic is pretty amazing. It can get a crack pretty quickly.
That’s why you told me if I was going to go spend my winters in some warm sunny climb that I should set my thermostat at 60. Was that the lowest you would go?
Some of these other things are nursing days past due. I don’t know if it’s occupied, but it’s still worth $480,000. I hope it’s in California. It is in California. We can justify that maybe. One thing to check, the escrow balance. Some of these things, the escrow balances, doesn’t transfer sometimes your servicer that you want to make. One thing also to check is when you sort this, the escrow balance. Actually, let me do the smallest of the negative. They have spent the $36,000. This one in five years had spent $15,000. They have spent some considerable money between taxes and probably legal fees and everything. There’s the legal fee column. Legal fee balance is something I like to look at. This person dropped $6,500 in legal and hopefully it’s Ohio. It’s Connecticut and just as bad, PA, Ohio, you can see judicial response initially here.
I once had Condor tell me about a property in Philadelphia that they foreclosed on. The broker at Condor said to me like, “You would not believe how much it costs to foreclose on this state,” because they spent $100,000. He goes, “All you’re going to have to do is evict him.” In Philadelphia, if someone knows the rules and how to game the system, an eviction in Philadelphia can cost $50,000.”
This is why Pennsylvania and New York, New Jersey, Connecticut, Virginia’s in here. There’s a column here called Other Fee Balance. I’m hoping this isn’t other fees that they’ve accumulated because they’ve put $200,000 in this $50,000. I’m not sure what this other fee balance is.
It’s possible that that was transferred from the previous owner. While we’re musing about this, our audience wants to know if Direct Source will let us put the redeemable clause in the contract since they’re brokering and do we have the clause available? It’s not John Keith who runs Direct Source, who decides whether you can put that clause into the contract or not. It’s going to be the seller. When the seller is feeling highly motivated, they not only put their dealer clause in. They’ll give you an entire side letter with all pay off and all kinds of things as long as you’ll buy the thing. Sometimes you can and sometimes you can’t, you just have to ask.
I did post a language on the Good Deeds Note Investing Podcast Facebook page. There’s a Facebook page for the podcast that I did post. It’s a Google document of what the language was prior to what I’ve seen and what is after. The other thing too is these are mortgage notes. That’s something you have to deal with. A lot of times, Direct Source has contract for deeds, which you don’t need that language because you’re getting a deed but notes that especially on some of these that have old dates or something I would push for it to have.
Our audience wants to know, “What about Colorado is negative?” Did you say something is negative about Colorado?
I don’t know anything about Colorado except I know it’s got a lot of mountains and they’re rocky too. For me, I rarely look west of the Mississippi. I’ve done a little bit in Oklahoma. Typically, up in the Greater Pacific Northwest, I hear it’s trouble up there. California typically is I don’t see much, just a lot on this tape in Texas, which was surprising to see but those typically go for so much. I probably won’t even touch them because I don’t have a base there. Arizona, Nevada, Colorado, Nebraska. A lot of those states from Nebraska and start moving west I typically shy away from those. The reason why too is there are 500 assets on this tape. There are some in Virginia, there are some in Michigan or North Carolina, Florida. The states I invest in, I’ll probably pull 150 assets and I’ll probably toss Ohio.
Our audience said there was a Colorado asset where the UPB was negative. Can you go back?
I got foreclosure sale dates. Delinquent interest principle. I’m not sure what this delinquent interest and principal is because it doesn’t line up with the total pay off of the UPB. ILS is usually illegal payoff on the asset, which some sellers will try and convince you that’s what you should be buying off of. What I always tell them is if you put that number in a contract and guarantee that number is the true enforceable number on it, sure I’ll bet off of it. You’ll never get anyone to agree to that because then they’re admitting that in every legal fee and everything they paid, they have to basically itemize and prove that if you ever were to fight it. They’ll all say, “It’s great this way. This is where I went to pay off,” but they’ll never be able to prove it to you if they want it to.
A lot of times, the house is never going to get for that anyway or anything close to it. It’s not like you can get it.
Here’s that other one of corporate advanced balances. Sometimes taxes go here versus escrow maybe. You’ve got these companies, they dump $67,000 into this lien which is a vacant property in New York. Notice at the top what all these are again, New York, New Jersey. When people say, “New York, New Jersey, it takes a long time to foreclose, but it’s great and stuff.” Look at what these people were putting out of their pockets. Lien fees, other fees. Then in chapter thirteen, better corporate advances. That’s a lot to me.
I remember a friend of ours from Scott Carson’s Mastermind who bought a pretty little house in New Jersey. He didn’t realize how high the taxes were. While he was waiting for this long process to take place, he was paying and paying taxes.
$8,000 a year and you’re at $5,000 and forecloses, that’s $40,000. The reality of it is you’re not getting that money back. Gail, when you get this, what’s the first thing you’re going to do? Are you going 500 assets or what are you going to do?
I wish I had your fabulous new toxic asset identifier. Did you want to introduce that?
Yeah, I can. We can find it.
I assume everyone is aware that on the Notes and Bolts Facebook page, we have a crowdsource toxic asset tape that we hope all of you will continue to add to as you find more and more toxic assets. This was born of frustration when we found that we had all bought title reports on assets that other people had already rejected. Had we only known that there were major problems or major liens or whatever, we never would have spent the money on the title report. This reminds me of when I took back a toy that was totally non-functioning after Christmas. I explained in great detail to the person at the desk why I was bringing it back and it didn’t work at all. I watched that person put it in a bin for someone to restock onto the shelf. It’s worse here because you have to spend $150 on the title report. If you haven’t signed up to see the toxic assets, this is exactly the tape you want to know ahead of time, which ones to avoid.
I’m going to show it on a tape of one.
These are different. I don’t think we have much knowledge about these guys. Direct Source who puts out big tapes from a company called Window Rock that trades under names like Camelback, Home Opportunity, Flat Iron Holdings. They have ten different names altogether. Siphon Draw is another one. Those are also huge tapes. They’re all contracts for deed, generally speaking. We actually bought one that isn’t a contract for deed in Bamberg, South Carolina. Every once in a while they throw in a note to mess you up. These are enormous tapes and some of the assets, if you’ve been looking at tapes for six months or more, you will already have seen the same assets over and over again on these tapes. They keep circling the drain and they keep hoping someone new will come along.
Gail and I were trying to open it up. I think you mentioned in basically about the toxic assets. It’s a nifty little thing. I had somebody create that highlights all of these toxic assets. Right now, most of the assets are CFDs, because that’s what I’ve been looking at. People start adding notes or others to the categories then keep adding to it. Here’s the list. We’ve got about 40 or so assets. On here, close to 40 and explaining what the items and issues are. We also ask people if they have their own, just add it. There’s a link or an attorney review so someone else can take a look at it. What we try and do also isn’t limited to more of it being toxic in somebody. It’s not somebody’s full-blown opinion on something if that makes sense. There’s one that says, “Nearby paper mill emits a constant stench.” That’s technically toxic but that’s not something that kills the fact that it doesn’t have $30,000 in sewer lines or something like that.Investment Risks And Precautions: Alabama has a twelve-month redemption period. If you foreclose on a property in Alabama, you have to wait a year before you can do anything with that property.
I disagree with you there. Anything that’s going to make it difficult to make a profit from it. I think that’s a legitimate thing to flag in our little community.
I think about it. If I found that out later on, I’d probably be like, “Damn it.”
How about the places where people have been murdered? That’s a relevant piece of information.
We have to add that one that Dan had also posted as well. Here’s a little trick. I didn’t realize this. If you hit control A twice on Excel, it selects everything. You don’t have to drag everything across 47 columns and down 400 rows. You hit control A twice. I paste everything in here. Then I got a little menu tab. Then I will update reference which is updating takes that Google sheet that I added a few minutes ago. That update reference pulls everything into this reference tab, which pulls everything to Google Doc. Then if I click this validate button, it highlights all the toxic assets. Basically, it pulls everything. We got the one in Birmingham, one indicator. If somebody added ten assets in the meantime and we got the tape, it would pull all those, which always pulling the most up to date. I can filter by color. When I click the color, they’re the ones.
That Liberty Valley one, I almost bought that one. I put it on the toxic asset list.
I had these ones under agreement. I think I looked at that one.
I’ve had Garth Avenue, the bottom too and put this under agreement.
Our audience asked a question and she sees one in Hawaii. She used to live there, “Where do you live now and why did you leave Hawaii?” That’s really the question. She said the issues with condos being on ground rent that may have been expired are going to expire. I’d never seen assets in Hawaii. I’d love to have them. That’s a good thing but I do know. For example, I’m in the Washington DC area and in Arlington, Virginia, literally right at the foot of the bridge to get into DC, there’s a condo complex that has that same thing. They have ground lease that expires in 2027, so people now can’t sell their condos there. People are Airbnb-ing and renting them and because the owner of the property is going to want to redevelop it.
What’s also happening is they are also not taking care of the building. It’s pretty interesting stuff like that. She lives in Virginia, my neck of the woods. Long story, at least you’re in Virginia. Any other questions? “Feel free to delete three assets in Illinois, two in Crook County. In Rockford, too hot either.” Yes, Illinois. I’m just going to pop back that other tape. The first thing that I do is I sort it by state and then Alabama. I’m not buying notes in Alabama because I don’t want to wait a year to redeem. Arkansas, I’ve never invested in. Arizona, I never invested in. California, no, thank you. Colorado, no. Connecticut, stay away from Connecticut. Delaware, Wilmington is not the best place. Florida, I’d probably look at. Georgia, I may look at. Idaho, Iowa, probably not.
Did you see that Lavanda Lane in Cantonment, Florida or whatever it was? This is a mixed tape. I’ve been on that one. This one in St. Petersburg, row 45. That one at 33rd street that has a $20,000 municipal lien on it. That’s on our toxic asset list.
We couldn’t use it for this.
There is Liberty Valley, the 53 we saw that’s highlighted in red. That has a terminal title. That needs a quiet title that would probably cost upwards of $6,000. That’s the problem there. If they would sell it at a price where it made sense to spend that amount of money, it looks like a nice house. The issue with it is sellers. Maybe I’ll do like a low-ball offer on that one. They know it has problems and we know it has problems.
Indiana, I would invest in. Kentucky, you need to have basically $1 million net worth to buy notes in Kentucky. I don’t invest in Louisiana. Minnesota, I don’t know enough about. Mississippi is a good state. North Carolina is a decent state. New Jersey, no. New Mexico, I don’t go out that way. One audience mentioned, “Why don’t I like Alabama?” Alabama has a twelve-month redemption period. If you foreclose on a property in Alabama, you have to wait a year before you can do anything with that property. You can wait to try to Cash for Keys or things like that. The worst case is you have to wait a year. That’s a long time for Alabama. “Is the Saint Pete toxic because of the lien or something else? Is there a lien from code or taxes?”
I don’t remember. It was a municipal lien for something and actually, I didn’t even discover it. John Keith told me about it.
Twelve cans city liens. It’s what it says.
That is a lot less, but at the time the price that they were demanding for it, the numbers didn’t work.
It is funny because I know Texas, Arizona, New Mexico, those states typically are fast foreclosure states and so forth and people again. The East Coast, when you were up and down the East Coast, I don’t go typically above the Mason Dixon line, which is Pennsylvania up. I do have investments in Pennsylvania, but very specific. Once you get above that, it’s very rare because of just foreclosure timeframes and costs. As you start heading down, you got Virginia. Maryland is an extremely difficult state, but I have a lot of connections there. The Carolinas aren’t too bad. South Carolina, I think for notes can have some foreclosure timeframes and are pretty lengthy. Florida’s a lengthy state to foreclose in. You’re probably going to be a year in foreclosure in Florida.
I would say about Pennsylvania. Avoid Philadelphia like the plague. I live right here, but it is very borrower friendly.
I’ve heard stories of after you foreclose on a property in Philadelphia, it’s taking up to a year for the sheriff to approve it or basically give you the deed.
It’s amazing. I have a very good friend who is the investigative reporter at Philadelphia Inquirer. He did this amazing series of articles about a guy who was stealing properties with the help of a corrupt notary. He was stealing properties from people who were deceased or the family didn’t even realize anything was going on and selling them to flippers in hot areas. These houses have ended up being renovated. I don’t know why the investors or the flippers bought them. The paperwork did look legitimate because the deed transferring it to the bad guy looked real and was accepted by the city. It’s a weird combination of when you’re legitimate and trying to do legitimate things, it’s difficult. Yet somebody who was able to steal ten houses from people with the help of a crooked notary.
It just gives me an idea. There are 88 Ohio assets and 73 Pennsylvania assets. If you want to go through a challenging foreclosure where you might get somebody fighting with it, a third of this tape is there for you. Not to include New York and New Jersey that are on here. There’s a lot in Texas. That surprised me, which Texas is a very fast foreclosure state. Again, I’ll look at this and granted what I want to make sure is I don’t get the shiny object syndrome. I would bet between the states I invest in. There are probably 150 assets on this list. Do I want to look at the extra 75 in Texas? Probably not because there are plenty already in there.
You can pay borrowers to waive their redemption period, though some states don’t allow them. You got to be careful.Investment Risks And Precautions: Be careful on some of the well-balanced ones because you might find out that the money you spend on them is just your upfront fees between collateral view and stuff.
Nina said, “I’d be interested in St. Pete note if you’re opening to work something out on that.” David, “Do you let MetaSource do all your recording or do you do it yourself?” If that’s for me, yes. If that’s for Gail, she does it herself.
I use Simplifile. You can do almost everything on there. Some counties don’t participate.
I use MetaSource for everything. A lot of times honestly, I just have the collateral sent directly to them, the hard files, before having them even sent to me, because they scan everything in anyway. Typically, there’s not much in those files compared to what I’ve gotten anyway. I’ll have it sent to them and let them know they’re on their way and the moment they get to record them.
What did they charge you to scan the whole file?
For me, typically I have them do a soft collateral review. They’ll review the collateral for me that I have. Then they get the hard-collateral review and scan everything. It’s $40 and that includes the review title chain history and provide what’s called an exceptions report, which is a report that says this is missing and that’s missing. That whole process is $40. If you use Richmond Monroe, they charge you $50, but they charge you $100 for every exception. If you’re missing three assignments, they’ll charge you $300. That $300 fee is not actually fixing it. They just put it on a piece of paper to know that needs to get resolved. I learned the hard way. I thought they will take care of them for me. They’re like, “We don’t do that. We only put them on a piece of paper.” I’m like, “You’re going to charge me $500, puts this on a piece of paper and then mark it off at some point in time?” They’re like, “Yes.” Yes, David, they hold all my collateral. It’s a minimum of $10 a month for holding the collateral. If you have one file, it’s $10 a month but I’ve got 75 with them, so it’s basically $1 per file essentially.
I can top that. I bought these four parcels at a commissioner sale in Indiana. Now, I have to notify the people who have any interest in this that it’s going to the sale and they have only a short time to redeem it. The attorney who does that wanted $750 per parcel. Some of them are just vacant land and he’s writing to all the same people on all four of them. It’s the same letter.
Few people ask about MetaSource, which is the company Orion is the division. Depending on if you have one or ten, if you only got one-offs here and there, Gail and I can give you the name of a woman by the name of Erica who can do one-offs for you as well. It’s like Orion or MetaSource, same company. They’re like, “We only have one, I’m not going to do that for you.” We’ve got somebody else who handles all of that as well that can do all those recordings. Somebody who actually used to do them all for Harbor Portfolio, who is getting out of the CFD world, for the time being. That can also handle this for you. A $659 UPB, do not buy that. Here’s the reason why. You’re going to spend $300 in due diligence on it. You’re going to spend $40 aboard the loan and then you’re going to collect two payments over two months that he paid $30 to your servicer or whatever it is. You’re going to spend $600 to buy a $600 asset. What can you offer them? If anything, it would be one that would be thrown in for free. The thing that people don’t realize too is, let’s say it was a $2,000 asset or $2,000 UPB that was paying $400 a month and it had five payments left. Let say, you paid 70% of that. You paid $1,400 thinking, “I’m still going to make good money over a short time.” You’re paying 70%.
They make one payment down to $1,600, you’re still paying 70%. Now you’re paying $1,000 to get $1,600 but then the money you’ve put into it. They make a payment in between. Your returns probably were cut in half. Be careful on some of these well-balanced ones because you find out that the money you spend on them is just your upfront fees between collateral view and everything and stuff. I typically have at least about $500 per file. I would spend $500 for $650 UPB. Let me go back. The total payoff is $2,500. Still not worth it. If that total payoff is $20,000, then I’ll give you $600 for it in that instance but in most instance, it’s not worth your time. I like to thank everyone for joining us. Gail, any final thoughts?
No, but I think everybody wants to get off and pour over this massive tape.
Two things I’ll mention to people. If you’re not part of the Facebook Notes and Bolts Group, I recommend you go join it. Also, a lot of documents that we’re talking about, I’m going to start putting on the Good Deeds Note Investing Podcast Facebook page and eventually we’ll roll them onto our website. Make sure you go like the Facebook page as well so you can have access to documents. I did upload the enforceable lien language for notes, which will be very handy if you bid on these and get it awarded to try and negotiate.
Try to get them into the contract on these. It’s very worthwhile.
I’ve never had a seller basically say no to it because I looked on and said, “You’re selling this asset. I’m paying for this based off of what you’re telling me. How do you get access to the Facebook pages?” If you’re on Facebook. Go to Good Deeds and Note Investing Podcast or in the search bar. It’s basically a business page. If you click like and follow, you’ll be able to see all the posts that we have on there. There was a post from now that has that file to it. Then on the Notes and Bolts website. It’s on private so if you searched Notes and Bolts, it will pop up and you can ask to join and I’ll make sure you’ve joined. Thank you all for joining. By the way, if anyone has questions on some of these assets like, “Maybe I should bid on this,” or interested in one, let us know. We’ll help you. Make sure your number is good. That’s the other thing that will work with you on is if you’re interested in one and say, “Should I bid $10,000 on this?” We’ll help you with that. Don’t feel afraid to ask or call us. We’re more than happy to help you. That’s what we’re here for.