GDNIP Ep 40: Surviving CFD, Legal Action, And Risks In Note Investing

Continuing to embody the notion that you can survive it all, Gail and Chris, with a few of their friends, take you into multiple note investing scenarios that will have you prepared for the good, the bad, and the ugly. They talk about the CFD, particularly on paying the water bill, and discuss on taking legal action when a borrower stops paying. Together with Bill Griesmer of Stonegate Capital, Gail and Chris dive into servicing notes and the risks to performing and nonperforming notes. Going in-depth into these scenarios, they remind us that note investing is an apprenticeship business. You only learn by doing it.

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Gail Anthony Greenberg & Chris Seveney Surviving CFD, Legal Action, And Risks In Note Investing with Bill Griesmer Surviving CFD, Legal Action, And Risks In Note Investing with Bill Griesmer

Surviving CFD, Legal Action, And Risks In Note Investing with Bill Griesmer

We are joined by several friends, collectively known as the usual suspects and my lovely co-host, Chris Seveney.

Gail, it’s good to see you. For everyone, thank you for attending. Gail, how was your event?

I tried Chris’ patience once again by almost being late because I went to a bottle feeding and snuggling session with baby goats, lambs and chicks as it turns out. I found out chicks don’t drink milk. Did you know that?

I did not know that.

Have you ever tried to milk a chicken? It does not work at all. If someone has goats, David Chance put my goats up. He tucked these little snuggles in. They were all wearing onesies and diapers. It was very cute, but I have to say the goats and lambs were not particularly into it. I felt bad. I didn’t want to push myself on them, so we actually didn’t snuggle.

I thought it’d be exciting. For me, my excitement was getting a call from the water department saying, “This property that you’re listed as the owner, we read the water meter and it’s been averaging about 5,000 gallons a day.”

It’s not even pool season yet. This is not another one of your build-up basements. Are we hiding this information from that person?

Actually, I got to email them. I then was on the phone with my favorite attorney because this borrower has been on a repayment plan. I said, “Hi.” He goes, “What now?” I said, “There are 5,000 gallons of water coming in somewhere.” He said, “We deal with this all the time. Do you want me to handle this for you?” You can see the lights behind me shining down. I was like, “Yes.” He called the water department and got in touch with them. At first, they said the meter was in the house, so we need to get in the house and I was thinking, “Yes.” For most people who don’t know this, typically water departments take care of any leaks up to the meter and everything on the other side of the meter is taken by the owner. In 99.9% of cases, the meter is usually out in the street or in the right of way and not in the house. My attorney ends up getting a call from the county who says, “No, this borrower is well-aware of the situation. This happened a year they were supposed to repair and didn’t.” Guess what I did? I shut the water off.

Can you do that?

My attorney confirmed that I could. My attorney was calling and emailing the borrower, try to get in touch with her and allegedly she works nights and was sleeping during the day and woke up to all these messages and no water. My attorney was like, “Because there are 5,000 gallons of water pouring out somewhere, you need to fix it.” He also gave her quotes for two people and she noted that she has her own plumber, so we want to make sure that it’s a licensed individual. She’s pretty much forced to have to take care of it quickly if she wants any water.

How can there be 5,000 gallons of water coming out of something in your house and it’s not causing a huge problem?

Allegedly when it happened, there’s a basement but also a crawl space under a portion of the house. I guess it was in the crawl space, but it was also very damp. I don’t know how you wouldn’t notice unless you have gone down to your basement.

Don’t you hear a sound of rushing water?

I have a funny story. I rented a home at one point in time that had an underground water tank because it had the subfloor radiant heating. When we moved in we said, “There’s no water.” A guy went in the closet and turned the valve on. When I turned the valve on, there are two valves, so I turned them both on. One of them was actually for the underground tank that had a leak in the backyard. It was winter time, so I was like, “Why is there so much water collecting?” We got the first water bill and I sent it back to the owner of the property. I was like, “You told me to do this and you’ve got a leak. This isn’t my problem.” It’s a $1,200 water bill. He didn’t hear the water rushing. It was underground. The joys of note investing.

This is so interesting because as I complained to you, I have a vacant house in Anderson, Indiana. It’s a little tiny 700 square foot house. I got an electric bill of $800. That’s not even the heater. The heater is gas and a different company. It’s not funny because I don’t know yet what they’re going to decide. They went to investigate and I haven’t heard back yet. Interestingly in Anderson, it’s the same company, Anderson public utilities that supply electricity and water. I could see on the bill there was zero water usage and then a jillion kilowatts of electricity. It was pretty easy to make the case that nobody’s there water-wise. I don’t even know what could be causing this. It’s one of the great mysteries of note investing.

We’ve had houses in the past that haven’t had water and people living in them.

It’s true. That happens.

I think it’s a nice little story for people, some of the things that can happen in the note world. I know I was pounding my chest because I had the borrower who made basically two payments to me, one the reinstatement, one on the payoff and that was my good news.

For every borrower like that, there are several, but we only talk about the good ones because that’s a seed of envy among everyone we know.

I like talking about the bad ones because it gives people a perspective. That’s why I think a lot of people enjoy reading our blog. We have some good things happen, but we’ve got some pretty bad things that happen too.

We’re here to embody the notion that you can survive it all. I would like to share something that happened because it involves some buddies of ours, the guys at , Brett Burky and all his colleagues. I put up three notes on Paperstac not knowing what to expect, whether anything would happen because there are a lot of platforms like that where you put stuff up and nothing happens. Somebody got interested in one of them and I had the opportunity to have the full Paperstac experience. I have to say those people are like nannies. They literally take care of everything. They put your jammies on and they make sure everything happens. This was a note and not a CFD, so they create the allonge and the assignment of the mortgage and put it up and you have to sign it. They send you a mailing label and you have to mail it.

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The next thing is going to have them do the power of attorney for you.

I don’t know that they wouldn’t, so I couldn’t. The big thing is we’re all pushing them to do CFDs, which that I see how much responsibility they take for everything, I don’t even know how they would do CFDs because it’s too many.

Especially in Indiana because you have to do the sales disclosure form as well. North Carolina also has a form that must be filled out for taxes.

I did this in Memphis, the Affidavit of Property Value. Michigan has their form too.

It sounds like and David Chance mentioned that he sold one there as well. They cater to people who are newer to the experience and need a little bit of handholding.

If you ever want to know what the steps are at Paperstac, they will literally prompt you to do every single thing. They’ll even have you send the collateral to an independent reviewer person and that person has to sign off, even after you uploaded the collateral files early on so the buyer can decide whether they want to buy it or not. There are a lot of interesting safeguards and safety nets built in. It would give me a lot of confidence if I were new to go ahead and buy something on there.

Why don’t we get into a few of the questions that we have rolled through? We have a question about the CFD and who pays that water bill. That is actually a state by state. You’ve got to be careful in regards to who is responsible. The borrower is on the property, but it will also stay with the property. In most jurisdictions, it’s the borrower but it will end up staying with the property and not go to the borrower. In certain states, water is usually the one that usually ties to the property. Electric usually stays with the borrower, but again, it depends on the state. Indiana starting on July 1st changed their law that it stays with the borrower even on a CFD because I know if it’s a renter it goes to them, but on a CFD it goes to the homeowner. They changed that law and it’s going to be the borrower’s problem at that point in time.

Are you saying that from water or electricity?

All utilities.

Anyone who’s following me more than once has probably known the tale of my $2,500 Flint, delicious extra pure water bill that I had on the CFD. It was on there before I bought it. I think I was a little unclear about that it was actually going to end up in my pocket. I have to say something I tried so maybe people will learn from this experience. They told me that if my borrower had been a tenant, the water bill would have gone with her, but the fact that she had a land contract, it was mine. This to me is completely insane logic. I don’t know if it makes sense to anyone else, but after they knocked me down with that one, I thought about it for a while. I called them back and got a different operator and I said, “By the terms of my land contract when she defaulted, she became a tenant.” They were like, “That’s good. If you had come in at that point and notified us of the change, it would be a clearly different story.” They always get you one way or the other. Maybe this would have worked someplace else too. It’s definitely worth a try. If someone defaults, by all means, call the water company if there’s a big and growing water bill and say, “They are a tenant. I’ll show you the contract.”

We did have a question as we talked about default. How long do you wait to start legal when a borrower who’s been paying then stops?

I have been immersed in selling a bunch of stuff and I’ve not been watching all my notes as closely as I normally do. Normally, I check every Monday to see who’s paid and who hasn’t and people don’t go too long. For three months, I didn’t pay that much attention, so I found out there are a couple of people who haven’t paid. I feel some confusion about what to do because this is the good deeds versus good sense part of our business. I know I should drop the hammer on them, but one lady has cancer, so it’s very difficult. Our mentor was very clear on this. He goes, “If they don’t pay, they don’t stay.” Having given someone one chance to get consistent again, if they stopped being consistent, there’s no mercy, we’re going ahead. What do you do?

It’s case by case. It goes back to the borrower communicating with you. Let me step back and tell my process. I’m going through this. The loans get boarded with Madison. The hello letter went out. There had been no contact, so I had Madison sent doorknockers out. I was waiting for the door knocker reports. It was five assets that I had sent out. I’m guessing the doorknockers showed up because two of them called and made payments and sometimes there’s a transition period where they didn’t open the mail to see who the servicer was and the check may have been sent to the old servicers. Sometimes that happens, but typically after the doorknocker, if there’s still no communication, the doorknocker will go in two occasions. If there’s still nothing, I’ll start sending the demand letter to get the ball rolling to force them to communicate.

How much do you pay for a doorknocker for each visit?

It’s on Madison’s website, so I think for two visits it might be $75.

It’s pretty close to what a demand letter would cost in a lot of places. Why don’t you just send the demand letter? Isn’t that more galvanizing than a nice guy knocking at the door?

Sometimes, the demand letter goes ignored. Do you have to send a doorknocker? No, I just do it as a courtesy to give them that one last chance because sometimes a doorknocker will actually get them on the phone with Madison so they can get the right phone number and stuff. You can tell with a doorknocker if they’re going to play ball with you or not.

I think I told you when I was new in this business, there are not many note investors that I know in the Philadelphia area, but there is one. We were talking about tactics and he said, “I’ll start legal immediately whenever I get an underperformer.” I was like, “That’s so harsh.” I get it because you’d spend an awfully long time waiting for someone to respond. Obviously a lot of people who owe money, they don’t send money to us. They owe money to a lot of people and they’re trying to deny. They’re in their fort with the drawbridge up and they’re not opening the mail, answering the phone, anything that might be bad news, they’re not going to take that chance, so I agree. Sending a demand letter might not get opened, but I feel it has a lot of gravitas. For someone who is going to try and fix their situation, they do generally speak in response to a demand letter and it gets things moving a lot faster maybe not in the friendliest way. We can be friends after they start paying again. We’ll be very good friends.

I’m going to answer the question, it depends. One thing that depends on your attorney, some people will read it once the loan is boarded if it’s past due to send the demand letter. I don’t and the reason why is the hello letter, if you read what the hello letter states, it talks about there’s this much owed and if you have any dispute of this debt, you have 30 days to comment on it. Trying to send a demand while they have the option to still dispute it if you sent a demand letter and on the 29th day they disputed the debt, then your demand letter is technically void. Some borrower could get an attorney and even comment that that could be a violation.

I think the question asked is after someone has been paying. You get them to start paying again and then they stopped. I find that tricky because by then, we’ve got some history together. It’s like someone you weren’t sure you should trust them and you decided to trust them and then they betrayed your trust.

For me, it’s case by case. I’ve got some borrowers that have called me and said, “I can’t make the payment but I’ll try and catch up.” I’m fine with that. I have others that say, “I’m mailing it out on Monday.” Two weeks later and nothing shows up and then the person goes dark and then he called back again and said, “I’m going to mail it out this day.” When that happens and it’s been a repeat offender on that, that’s when sometimes I’m just like, ”I’m sorry, you have to do a full reinstatement and I can’t accept partial payments.”

Risks In Note Investing: In most jurisdictions, it’s the borrower that will end up staying with the property.

I have to confess I’m a massive coward. I have sold things where I knew I couldn’t make it work. It was probably going to end up in foreclosure and with some people, I don’t have a taste for a foreclosure, so I’d rather sell it.

What I’ll say is those types of deals where you have the borrower who starts and stops payment all the time typically are the ones that make the least amount of money. The reason why is they’ll make a payment or two, then you’ll start foreclosure or forfeiture process, which will cost you $400 or $500. They’ll reinstate the loan, but then you racked up new legal fees, then all of a sudden, they didn’t have enough escrow and you pay the taxes. You may take a $40,000 CFD that say you paid $18,400, but then you paid another two in taxes, you get two in legal. All of a sudden you’re into this thing for $25,000. Granted, the borrower may owe $45,000, but if you try and liquidate it, you’re not making any money on it because you’ve had to put that cash-out and if you’re trying to sell it. Somebody wants it for $0.55 on the dollar, that’s what you’re into that thing for. With the borrowers, what I found the ones that I have where they’ve been like that where they big pay, they stopped and they pay again. I’ve got one that literally misses three months. I file this stuff and then he reinstates and it’s like this constant cycle and then you’re racking up $40 a month with the special servicing and everything. Your cost can roll up pretty quickly.

I’m doing a foreclosure in Pennsylvania for someone who would consistently pay every three months. He was supposed to get on a payment plan with taxes, back taxes. He doesn’t pay for his insurance. They throw out enough crumbs that they think you’ll be satisfied. I don’t like to put anyone out of their house, but I think there are two things to consider. One is sometimes people can’t afford their houses. You’re enabling it in a way and participating in the fantasy that they can afford this. I don’t know that it is doing anybody any favors. People have to come to terms with their reality and they have to live in reality and us artificially supporting them in some unsustainable situation is not particularly helpful. I would certainly make for disabled people, elderly people, very ill people.

I had a little old lady living in a house for ten months for free because she doesn’t need a lot of time to figure out what she was going to do next. It looks I might even lose money on that house because it’s in such bad shape. That’s the house with the mysterious $800 electric bill. With pressing forward legally though is that a lot of people won’t solve their problem until they literally have one foot over the cliff. I feel in a way and maybe parents will understand this too. Some people can’t commit to a course of action or even put serious thought into it until they feel incredibly pressured. They are at the absolute wall. For people like that, it’s actually helpful that they get themselves into these situations because if it is possible for them to find a way, they will find the way. If they can’t do it even under very threatening conditions, then they’re not capable. They don’t have the resources. They’re not going to be successful long-term.

It’s getting them to acknowledge what people can’t afford. I’ve got a property in a high tax state that there’s $14,000 in past due to taxes. The borrower had a payment plan with the county. It’s $600 a month as a payment plan plus his regular taxes are $300 a month, so he’s paying the county $900 a month. His principal and interest payments are another $500 and all a sudden he was like, “I’ll get on these payments plans, I can start paying.” I was like, “You haven’t paid in four months. What makes us think you’re going to start?” He was like, “I made a payment to the county,” but then the server went back and said, “Does this borrower realize your payment’s going to be $1,500 plus when you tack on insurance and everything?” All of a sudden it was dead silence because I thought like, “This is $1,500 plus a month. That’s a lot of money.”

You and I have both had situations where they could come up with a chunk of money in order to get themselves a chance to be on a plan like that. We’re both like, “This is not something you’re going to be able to do for more than a few months. I don’t want to take your upfront money.” Use your upfront money that you’re going to give me to get yourself into the situation that’s going to work for you because this is not the one.

We did that with the asset up in the northeast where a guy was trying to come up with some money and he filled out the credit application and he looked at everything. I think this is where lenders and debt collectors get a bad reputation because they don’t care. They just want their money and one of the things that I look for is I’m trying to be an advocate for borrowers as much as I can. When I see things like, “This person wants to give me $2,500, but I know they’re going to default in two months because they can’t afford this payment.” I’ll tell the servicer, “Please tell this person. Explain to them that I don’t want their $2,500 only for them to fail in two months.” I’d rather give them maybe Cash for Keys or something or let them stay for an extra three months and then turn the house over to get squared away versus taking that money and let them start fresh. A lot of times you can see where this is going and look at it.

That’s what the part of a good deed comes in. Do the right thing.

Servicing comments come in handy to see what it’s like for borrowers pulling teeth. One thing I’ll mention about servicing notes is sometimes I do go through them thoroughly. One thing that I’ve learned is if you have a borrower who let’s say they have more bankruptcies than children or if there has been a foreclosure and they’ve fought the foreclosure or it’s been a really long dragged out foreclosure, or sometimes they’d been able to stay in the house for five years without paying. They’ve got something going and there’s something in that issue. You have to look into that and decide, “Is this something I want to step into?”

It’s funny that you’re saying that because Condor wanted to sell me a note in Philadelphia. I live in Philadelphia but I avoid investing here because it is notoriously, incredibly borrower-friendly and tenant-friendly. To the point where if someone breaks into your vacant apartment and is squatting in there, you have to go through a long, expensive eviction process with them as if they were actual tenants who paid money at some point. It’s insane. This house was right near Saint Joseph’s College. It’s student housing. It’s a nice three bedroom house and walking distance from the school. Student housing is very lucrative. I used to do student housing at another university here.

It looks amazing, but for some reason, the guy who was trying to sell this to me thought he should be honest about the fact that the house was already foreclosed on. All I had to do was eject the guy. The seller starts telling me that it costs them over $100,000 to do the foreclosure because this guy fought it every inch of the way and I left the guy up. I thought, “You must be out of money by now because he fought in every inch of the way.” He’s an attorney and he’s his only client. That means he could fight forever. You have to watch out for this wily foxes who show signs of being incredibly clever about fighting and extending their time in places because it happens. It’s like someone’s who’s been divorced a bunch of times.

I had one where somebody brought a deal to me that they want to partner on, but they wanted me to manage it for them. It was in Florida. The house was worth probably $800,000 to $1 million. I think the balance was in that range. The borrower was an attorney and I looked him up and he was a litigator. I told this guy, “You are not nuts if you think of wanting to buy this. You’re going against a guy who is in $1 million houses.” It’s his own house and he’s a litigator. I was like, “It’s a red flag.” It’s interesting that you always want to try and figure out who you’re dealing with. What other questions do we have out there? Bill, what can we assist you on?

Bill is talking about something, “What do you recommend with a lumpy payer?

What is a lumpy payer? It’s someone who pays every few months. These are painful ones. I’ve got two of them now.

They fill you with such confusion. I’m like, “What do I feel about this person? Do I believe in them? Do I not believe in them?” Welcome to the show, Bill.

How are you guys doing?

How are you?

I’m doing great.

I think probably a lot of people know Bill. Bill’s from Columbus, Ohio. Is it?

Yes, Columbus area, the suburb.

That’s a hot little area except for the fact that everyone is fleeing Ohio with their investing.

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With note investing, the people are fleeing Ohio.

You’ll be the last one there. Turn the lights off on your way out.

I love my state. I’ll still be buying and investing here.

I’ll pass everything I have on to you, Bill.

Do you have service CFDs in Ohio, Bill?

I thought we could possibly talk about this note and I’m looking for it. It was funny you guys were talking about this because I got sent this file and I’m trying to work out if I even want this. This note belongs to a friend of mine who thought notes were going to be absolutely no work. He’s in this situation with this note and exactly that. This guy is a lumpy payer. That’s the phrase that I was taught. He pays every three or four months and then he doesn’t pay for several months and then that practice continues. I was a little hesitant because I haven’t even looked through the whole file yet, but that was the background that he told me. It was awkward because I don’t know if I’m going to be able to give him exactly what he wants.

Does he want to sell this to you?

Yes, he wants to sell it to me.

What state is it in, Bill?

It’s in Cincinnati, Ohio.

Is it a note or a CFD?

It’s a CFD, a land contract.

Is it over five years old?

I’m trying to look that up.

The one that I had with a borrower like this, what ended up happening was, the perfect storm somewhat hit because the borrower was four months behind the payments for $500 a month. They’re over $2,000 due there. The forfeiture fees from Franco were $1,000 plus we had paid the taxes, which were $1,500. We advanced the taxes and that bumped the number up to $4,500. I had told the servicer, “It’s full reinstate. Let it go to forfeiture.” Lo and behold, the guy came up with the $4,500, which is good only to again, not pay for the next three months. It’s been a constant struggle. This is why I was talking about trying to get to them. About getting the borrower on an ACH, you can’t force a borrower to get on the ACH. You can’t say, “I’m going to give you a mod if you get on an ACH.” According to my attorney, you can’t. They’re the ones that I struggle with the most because you keep racking up these fees of the servicing costs and everything else. It’s like you’re putting money only to get it back, but you are never making any money on these deals. They’re very difficult.

That was my thought process also. The rough value of the house is $75,000. The unpaid balance on this note is $51,500. He is asking $38,500. He’s trying to sell it. He’s saying the yield if performing would be 13%. However, it’s not performing and that’s why he’s looking to sell it. I literally received this whole packet, so I’m certainly not an expert in this file yet, but right off the top of my head, I think that sounds like it’s probably two-thirds or more than value there.

He wants 75%.

I thought it was around 70%. Right off the bat, I thought that’s awfully rich for a sub performer at best would be the best way to put this. I would like to help him out but not in my expense. I don’t want to have his problem become my problem, at least not at that price. Do you guys have any questions or any suggestions other than offering him a lot less money?

Do you know how much he has in it?

No, he didn’t tell me that. We’re very casual friends, not good friends.

Do you want to know a secret and how to get an idea?

Risks In Note Investing: Some people can’t commit to a course of action or even put serious thought into it until they feel incredibly pressured.

Yes.

Look at the deed that’s recorded in his name. It usually says what he paid for it. My Notes and Bolts for everyone are land contracts are transferred deeds, which you typically put what your purchase price was for it on the land contract. You do have to be careful because I had someone say, “You only paid $4,000 for this.” I was like, “Yes, because there was $11,000 in taxes that I paid off on it as well.” There’s that component to it, but you can get a sense sometimes to see. Here’s the thing, Bill, if he paid $35,000 for it when it was a performing note, then there’s nothing you can probably do to help this guy because I don’t think you’re going to bail him out and pay more to bail him out on the deal. I’ve seen what people pay for things and I’ll go and look and I’m like, “It looks you paid roughly around this price for it,” and unless you’re going to take a big haircut and you’re like, “Why do I want to get a haircut?” I’m like, “I’m not going to waste my time on it.”

That was my thought. There was a letter sent out on March 4th for the borrower to remit here $3,000, $6 short of that. It looks like his next scheduled payment due date is November 1st of 2018, so he’s a few months behind now. It’s not terrible but not for 75% of UPB.

Did you say this guy bought this as a performer and then it stops performing, or it’s always been a lumpy payer?

He bought his as a performer. That’s the thing I’ve realized actually and this is for everybody. In some ways, people think a performing note is automatically a “safer investment.” I’ve come to realize some performing notes. It’s like buying a stock at the top of its value. If it stops paying, then you overpaid for a nonperforming note. There are risks to performing notes and there are risks to nonperforming notes both ways. That’s a risk that this guy had on this one that didn’t appear to work out.

I actually prefer performing CFDs versus performing notes, and the reason why is you have more upside because you step back performing CFDs with equity. With this one, yes, there’s equity in it and he could try and go after that, but one thing I’ll tell you within Ohio is when you go that first forfeiture hearing, the guy shows up. He’s going to have something and typically the case will get continued because they’ll say, “I need some more time.” Most courts aren’t going to throw somebody out who appears for the first time who’s only five months behind on their mortgage.

They’re going to say try and work with them or get them on a mod, did you offer him a mod? When people think forfeiture, you can get it in and out and done in two, three months. In certain states like Ohio, because I’m dealing with one there, it’s going to probably take six to nine months. You’re right, buying performing notes can sometimes be at the top. The other thing that’s interesting with notes and CFDs is sometimes the exit strategy is if the borrower actually turns around and becomes performing, that can provide the lowest return sometimes than a monthly payment is. We have a question if there’s any way for you to work a deal to maybe manage it for him and take a piece of it.

It’s certainly something worth looking into. I’ve got this file now. He even asked me about it. That could be, but I get the sense he wants his money. He looked at this as a glorified bank account that pays 11% instead of 1%.

I don’t know what he paid for it and how much income he’s gotten from it, but to me, it feels a little bit like he’s eating the ice cream bar. He’s handing you the stick and he wants two-thirds of what he paid for it.

That’s probably a good way to put it. He’s a good guy. I like him. It’s a bad situation and I don’t want it to become my bad situation.

If you’re a more experienced investor than he is, why don’t you coach him through it? As much as we would all love to dump a profit, the deals that don’t go well, the reality is the only way to exit without losing money is often see it through. You have to stay in it.

You could call him a motivated seller, at least partly. Maybe he’s not motivated to come down on price yet.

Not at 70%.

He’s probably looking at it saying, “You foreclose, you’re getting it at $0.50 on the dollar.” That’s probably what he’s trying to say.

That’s exactly what he’s saying. Even said, like Gail was saying, he doesn’t want to foreclose and go through the process. He wants to essentially be done with it. I’m glad you told me this. It’s not like going there would be quick and easy to get them out the first forfeiture hearing.

It’s not a quick process.

This contract for deed was effective on December 16th, 2013. That’s going to be a full foreclosure, isn’t it?

The most you can get is a payoff. You don’t get the equity.

The most I would get is the $51,000 UPB.

That’s going to cost you a lot more than the $38,000 you’re paying for it.

I’d be looking at what half of that, maybe $25,000 minus $5,000 or so for foreclosure, right?

If the borrower turns around and becomes performing, that can actually provide the lowest return than a monthly payment. Click To Tweet

Yeah, and my guess is he probably paid unfortunately in the $30,000s for it and now it’s only in the $20,000s. It’s interesting sometimes, the one I had in Ohio. That was one where it’s tough to cut your losses, but sometimes it’s the best thing. It’s one or two things. If this is in an IRA and he doesn’t need the money at any point in time, maybe he tries to see it through and take it a little longer or something. If it’s something where people have cash that they need immediately, then sometimes you’re better to bite it and take the loss.

Bill, do you know who he bought it from?

You probably know who, Gail.

I was going to say the same people you bought your first one from.

Yeah.

They’re famous for the exploding performing note.

At least I got smarter and learned some more. This wasn’t me.

Do you want to share who that is?

Why are we protecting people? I feel shy about saying these things too.

It’s a seller. You didn’t say anything negative about him. There might be some connotation in there.

It’s someone in Texas. It’s been around a long time.

I’ll say it. It was bought from Colonial note group.

Do you want to share, Bill your experience on your first note?

Not now.

Let’s say Bill has been there and back. You worked it up but it took a lot of time and a lot of patience.

It’s a performing note now. They paid on time every single month.

Maybe this one could be as well.

I had to get a whole new borrower. That worked out differently, but I think foreclosure is going to be by far his best option. It’s going to take him a year or so to work it out. Even if he bought it in the $30,000s, he might end up making a little bit of money if it goes to foreclosure.

You can’t pay a premium for it.

With that little bit of information, probably around $20,000 or so is going to be my top price and I expect him to say no and he should so maybe I can help him through foreclosure.

His best bet would be to offer that guy $7,500 to walk.

Risks In Note Investing: In some ways, people think a performing note is automatically a safer investment.

To do Cash for Keys.

When you look at what he’s probably paying in taxes a year, I bet taxes are probably $2,500 to $3,000 on the place, and when it’s going to cost him for foreclosure and the time, he’s going to rack up $10,000.

If the guy is paying at times and he hasn’t been nonperforming for that long, the guy may not be emotionally ready to go. The important thing for you, Bill is don’t you do it.

Bill, we haven’t spoken in a while. I know you have your Sunday at 8:00 PM, your Facebook Live, which are very educational. What else do you have going on and why don’t you tell our audience a little bit about you, what you’ve got going on in your company?

I’m Bill Griesmer. My company is Stonegate Capital. I’ve been a note investor for a few years. I’m similar to Chris and Gail, I buy both performing and nonperforming actually so that I guess makes me a little bit different. I’m not afraid to buy a performing note. I check it out very carefully if it’s performing. I’ll even buy it in a state that I don’t necessarily want to buy. I bought a couple of performing notes in Missouri and Alabama of all places. They were yielding 15%. One of them had a long-term pay history of paying their mortgage one month early every single month. I bought it. They were one month prepaid.

The other one I’ve written very oddly. It’s a fixed mortgage, but they pay a little bit more over time. Their payment does go up, although it is a fixed mortgage. I thought that was odd, but they’re paying and I’m happy with it. I do Sunday 8:00 PM, I go on and do about five to ten-minute video about note investing. That’s my own mini version of what you have going here. I’ve worked with investors and go after tapes and everything. It’s very similar to you guys. I love your approach to this. I’ve been following. You have a little bit different twist than some other podcast people. Chris touched on this, it’s great that you guys can do that.

By the way, Bill, I’ve got assets in Montana and had one in Wyoming.

I was going to double check with Gail, this was one of the reasons I got in touch with you. I want to make sure I’m on your buyers’ list. I filled out the form, but I don’t think I’ve gotten any tapes from you, so if you can double check them on there, that’d be great.

I think everyone on here who’s a follower certainly knows, but if you go to and sign up for our mailing list, that is the way to get on the buyer’s list.

Bill, thanks for joining us.

You’re very welcome. Thank you for having me on. It was very impromptu. I wasn’t prepared. I got back from the gym literally but I knew I had to jump on. Normally, I’d make myself look more glammed.

I was actually going to say you should run away from this one like you do your Spartan races, but I couldn’t remember if it was Spartan or Tough Mudder because you’ve done both.

Now that we’ve nailed down that this is a similar situation, I feel there’s a part of you that wants to probably rescue this guy. As you two would have loved to have been saved from your impossible situation, but we have to put our clear thinking hats on in these situations. You’ve got to have his adventure the way you did.

I hear you’re saying it and I had some choice language at times, but I learned so much more through that process than I could have in any other possible way.

Didn’t it make you less afraid? You already had a lot of things happen to you that everyone is afraid of.

I already had the Amityville horror of notes. I know what it’s like to buy a note thinking it’s performing and having it go nonperforming. I did doorknocker as what Chris said and then we tried to modify and they were stringing us along. We moved to the notice of demand. They said they would leave and then they didn’t leave. They finally left again and I went through two contractors and the whole seller finance process.

We have to add this detail since you’ve opened the door here. When they left, we discovered what else went with them. It was no furnace, right?

There was no furnace.

It brings that point that I’ve mentioned for people who have $5,000 or $10,000. Sometimes just buying a low dollar performing note for $5,000 or $10,000, the experience you get from that. Learning the boarding process and all the collateral and that understanding is huge. I’m not sure there’s anybody out there that does any type of training on what to expect once that occurred because you can’t miss this. I always say this is an apprenticeship business where you learn by doing and similar to my whole work career has been in construction management. There’s no book that tells you, “This is what’s going to go wrong when the contractor is building a building.” Every job is different, every project’s different. You learn from those issues and mistakes and this business is identical to that, would you agree?

The point is you can come out fine. I have a fairly high quality and I even sold it with a note and mortgage. I worked to design the best possible value of a note. I could go and sell it and I’d only lose a little bit of money, less than $1,000.

10% down, 10% interest in your note.

The only way to exit without losing money is often to see it through. Click To Tweet

That would have been perfect. He was close. I think he had 9% down. I did have to do a twenty-year mortgage.

You have to do that to make the payment affordable.

For an owner occupant in Ohio is was 8%, but I did get 8%. It’s reasonably close to 10% down.

I want to point out to me the most significant thing about your story and Chad’s. All these people are still in the game. They didn’t let it hurt them or scare them away. You become a superhero after a while. You feel very powerful when you would stand things and you get through them. Very little scares you after that. We actually did a whole podcast about fear and things that stop people from doing this. It’s a shame because it is a fun business and you take your lumps sometimes.

You mentioned Bill, you sell it this or you lose $1,000, but I would bet the education you’ve got from that has allowed you to make a lot more money on other deals.

He would have paid a lot for that education.

It’s that education that taught you and it’s also taught you what deals not to maybe go after as well.

Do you need us to tell you maybe not this one at that price?

Some of the information I told you, I literally saw it before I told you. I didn’t realize that it was more than five years old already. All I knew when I got on here was the UPB and the value and what he wanted. That’s all I knew.

If he wants to try and maximize value, one thing you could mention to him is to have him offer the borrower instead of offering him a mod, say, “We’ll give you a new land contract and reset the loan.” Basically, from that standpoint, the borrower would be current, but then he’d be in a new land contract at 100% of UPB. If the borrower defaults, he’s got recourse of the equity versus not.

We said before, you can’t force someone to be on ACH. Can you make it a condition of allowing them to stay that they have to sign a new land contract or no?

You can offer them either say, “We’ll offer you to reset the payment and do a land cancellation and a new one.” The other option is to go through the price. I think that most borrowers, if you offer them to reset the loan and put all those payments, the end of the loan that nine out of ten of them will accept that.

Do they tend to know what your bigger agenda is?

My agenda is to try and get them back on paying. We’ll get it in two ways. You’re resetting the clock on the borrower. They get that benefit and then you’re giving them a brand new start, but if they fail, again, you always tell them they maybe should seek legal advice to review things. If they fail, then there’s no retribution that comes with that. If you try and work with them, but you also want to try and maximize value on your asset too. I don’t think it’s anything that’s I’ll say doing something that is unethical in any way, shape or form. Instead of doing a mod, it’s a new land contract. You’re doing the same exact thing, but it gives you more protection.

On the whole thing about advising them to get a lawyer. I was in the final stages of working it out for someone to leave my dream house that I kept. We strongly advise you to get an attorney. My attorney was like, “Do we have to put that in the letter?” He was like, “We’re telling her, go get a lawyer and fight with us. The vast majority of people are not going to go get a lawyer.” If this comes in front of a judge, you want to be able to show that you told them they should go get a lawyer. It reflects well.

Gail, any last thoughts?

Thank you. I want to say quickly. Roy made a reference to a bullfighter that hides the sword in the cape. Is that your illusion for our lovely Christopher for bearing a new contract?

All this information relate to the borrower as well. It’s not trying to undermine anything. All the information is explained to them and discussed with them on what all of these options are and what they mean. It’s something that from that standpoint. I say that tongue-in-cheek, but I do reiterate that certain thing. It’s like in certain areas, I’m transferring a land contract to note and I’ve had a conversation with the borrowers because he’s had some violations on the property and so forth that keep getting put in my company. I have other assets in that area and basically told him, “I can’t cover these anymore. They are eventually yours anyways. We’re going to transfer this into your name at this point in time,” and the borrower agreed. It goes back to communication and being open about the discussions that you have with these people. The only state that I’d say it truly benefits is Ohio, in that sense. Indiana, actually I think a 20% rule as well, but for the most part, it’s Ohio. The only headache in Ohio is my new saying. This is what it stands for. Bill, if you need any assets in Ohio, let me know.

I’m not saying I’m going to buy everything. There are issues, but it is my home state. There are advantages to having it in your own state.

People hate Maryland and I love Maryland because I have so much advantage over everyone else because of the team I have in place and it’s the same thing with Ohio. If I see stuff, I’ll start putting stuff your way because I don’t have interest in it, but it might be in your backyard or in your wheelhouse.

I have very extensive networking in Ohio. I’m working on a lot of things actually in Ohio. I know a lot of contractors.

Risks In Note Investing: Note investing is an apprenticeship business where you learn by doing.

I’m unlike you two. I hate Pennsylvania. The only reason it looks good is that it’s next to Ohio.

I’ve had good luck in Pennsylvania.

I’m glad to hear it.

Thank you for having me on. It was fun.

It was great to have you, Bill. Do come back and share more stories with us and let us know what happens with this one. I think we’re all involved and for all of you out there, thanks so much for joining us for another fun conversation. It’s always great to have you. Please remember to join us at . Sign up for our mailing list. Did you sign up on there Bill or did you sign something else?

I signed the form but I’ve never gotten them. Maybe there was a glitch, so just look and if not, send me whatever. I’ll fill it out.

That’s it for me. See you next time.

Thank you for joining and go out and do some good deeds.