GDNIP Ep 46: Ongoing Changes In The Note Business

There are sweeping changes in the note business nowadays that investors should be aware of. Today, Chris and Gail break down some of the shifts they witness in the real estate note business. They go in-depth with the deadlines and demanding paperwork from FCI, the consensus favorite for IRAs with Quest Trust Company, and checkbook IRAs. Find out how long it takes to have reports such as a two-owner in your doorstep and the two loan servicers that provide exemplary expertise.

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Gail Anthony Greenberg & Chris Seveney Ongoing Changes In The Note Business

Ongoing Changes In The Note Business

Gail, how are you?

I’m very well, Chris. I spent all day paying taxes in Indiana because of the deadline. It is not in a great mood, but I’ll muddle, put on a brave front for you.

I’ve got 26 assets in Indiana, so I’m hoping taxes are paid.

You’re not Indiana heavy, so none of them are in your IRA. You’ve got escrow taxes. They’re probably all paid. I don’t think anything terrible happens if you miss the deadline. You’re going to have to pay a little extra.

Is that going to be what just happened? Did you spend it paying taxes?

I didn’t want to introduce it, but that’s what just happened.

I’m dealing with an interesting situation because I’ve had several borrowers on land contracts and they’re the only individual on the land contract. They’re deceased. The wife, spouse, husband, child and family friend are in that property or paying it. I’m trying to figure out the land contract holder is no longer around. Does it have to go through a probate process or how do I get a cancellation to get the other family member on this land contracts? That’s what I’m working on.

Would you have like the executor sign a cancellation or the heirs sign a cancellation? First of all, if it’s a community property state, there’s a spouse, don’t even worry about it because they’re automatically on it whether they signed it or not. I have this property in Louisiana. I was going to put it in a deed. It’s in my name right now. I was going to put it on my husband’s and my name. My attorney said, “Don’t even bother. It’s a community property state. He’s in it whether you want them to or not.”

I’m trying to figure out what I need to do in those situations. That’s what is on my plate.

What is your approach to solving this? We would all love a little insight into how your mind works. What’s your next move?

Mr. Attorney, what do I do?

We were talking about this, how you make fun of me for being such a do-it-yourselfer. My original career was journalism, and I believe in retrospect the total reason that I became a journalist was there were two. One, I won a writing contest when I was in fifth grade and people were like, “You should be a writer.” The other one is that I’m insatiably curious. For me, the rise of the internet has been both euphoric and probably the worst thing that could have happened because I am such a research demon. I can fall into a hole and just keep falling on the internet because it’s bottomless. I love the fact that everything is findable. The answers are findable, but not for you, Chris. You like to make a phone call to somebody like me who likes to find stuff out.

Let me hit rewind on this and when you asked me what my next step is, I’m going to say, “If you only have one person on the land contract and that person is deceased, what happens in Mississippi, Montana, Michigan and Indiana?”

Now that you’ve said that, I will find myself maybe even in my sleep looking this up.

It’s interesting because these are things that happen all the time in notes. You get these random one-off things. It’s like, “What do you do?” That’s why I enjoy sharing these stories. Once we figure it out, I will be happy to share that with everybody.

Sometimes people say to us like, “You know everything at this point.” The amazing thing about this line of work, I don’t think it’s possible for every note and everything. Even if you know everything about one state, there are still 49 other states that are going to be a whole new ball of wax.

The rise of the internet has been both euphoric and probably the worst thing that could have happened. Click To Tweet

I was having coffee with somebody. I built their house for them. This a woman and I thought it was comical in a sense because she remembers us walking her through and making selections on her unit. She was like, “I always remember what I thought was the funniest thing is you made a comment to me that you physically can’t build any of this stuff, but that doesn’t matter because you’re good at what you do. You know who to go to, to get the right stuff done.” It’s similar to this situation. I don’t know everything, but I know where I can go to get that information. That’s 90% of the battle. The other half is understanding that information once it’s transferred to you.

That’s you. You know which buttons to push and which cranks to turn. The difference for me is that it’s like I do utilize the people. It makes it sound like I churn my own butter here. I have the mind that I do, I am trying to learn almost everything myself as a mental exercise. Your mind can only hold so much. If I learn any more, I’m going to forget my children’s names. At a certain point, you have to stop. That’s what’s up.

Why don’t we now get rolling into the topic, which is some of the changes that we see in the note business or real estate business? This business is very fluid and ever-changing. Nothing ever stays constant. There are always many multiple changes. I’ve started to see a lot of changes. I know you have, Gail, as well. I’ll let you go first on some of the things that you’re seeing.

For purposes of titling the blog, we could call it annoying or maybe just inconvenient changes that we’re experiencing in terms of our partners in this world. By that, I don’t mean JVs, but the institutions that we interact with all the time. I talked about this on comparing servicers, but I’m going to say that FCI, and I haven’t seen this with the other services that I use. FCI is in the grip of some madness where their requirements in terms of documentation and being included in everything that’s going on are over the top at this point. Whenever I questioned something that they asked me for, they blame it on the audits. My understanding of servicers being audited is that I don’t think this happens routinely. It’s something that might happen at some point like the relationship we all have with the IRS. Some overseeing agency comes in and looks at their files. It used to be when you bought either a loan or a contract for deed.

If it was a contract for deed, they wanted to have that assignment of mortgage as quickly as possible. With a contract for deed with a note, they want the assignment of mortgage. With a contract for deed, they want the deed and the assignment of land contract ASAP. You and I both know it’s very normal to wait a month to six weeks even for those to arrive from the seller after you buy something. FCI wants them in a week. You tell them, “I bought this thing. It’s coming to you.” They’re like, “We need this right now.” I’m like, “I don’t have it.” They’re like, “If we don’t have it within a week, we’re going to have to de-board the loan.” These are loans that were already at their place. This is the case where I’ve sold my loans that were at FCI. They were like, “I need this right away.”

Luckily, I am able to generate my own transfer documents for the buyers of my loans. I have moved heaven and earth to meet FCI’s deadlines. I don’t know how people who are new and trying to board loans at FCI are possibly meeting these insane deadlines. There have been other evil trends. If one of your borrowers declared bankruptcy, FCI would immediately no longer allow you to have a customer-managed outreach. Most servicers give you the option of like full handling or they’ll say, “We’re not going to do anything. We’re just going to keep the books for you.” It’s client-managed or servicer-managed relationships. Usually, those huge cost difference may be the dance between $30 at FCI for a “you-manage-it-yourself,” or $95 for a full collection. When you have a borrower declare bankruptcy, you immediately go to the full collection so your servicing cost more than triples. They start inserting themselves in ways that don’t add any value at all. You have your attorney handling your representation in the bankruptcy. FCI is demanding paperwork.

First of all, they require that any attorney use be one of their vetted and approved attorneys, which in some states they have almost no one to choose from. Specifically, myself, if I have a lawyer that I like and they’re not approved and we have to go through this process, I get the attorney to go through the approval process so that I can use them. With foreclosures, first of all, they used to consider a land contract, not a foreclosure. You didn’t have to even tell them anything about it. Now, not only is it a full foreclosure in their terms, maybe the legal process is not a foreclosure, but in service or terms, they want every document. They want the timelines. They want copies of everything. They charge you $250 right out of the gate for basically complicating things a lot. I don’t know what’s going on. I don’t know what’s driving this change where they’re now up in our grill about everything. I’m not happy.

That’s probably because somebody audited them and found some issues that now, they need to take care of or may have been fined or who knows what. That’s one of the things. When I use Madison, fortunately in bankruptcy, you can go to the client, manage with them and not have to pay the $95 or whatever it is a month. You can knock it down to $40. One of the ones that I’ve been struggling with has been, which is for most investors, it’s the consensus favorite for IRA’s with . I found their paperwork used to be quick to get funding on things. I’m not sure if it’s sometimes lack of experience by the investor filling out the right paperwork or they’ve tightened their belt as well. I’ve noticed and seen the requests on paperwork to be a lot more than what I’m used to seeing in the past.

Change In Note Business: Your mind can only hold so much. At a certain point, you have to stop.

Quest isn’t the only one with this, but in certain cities like Detroit, you can’t buy property in the Quest Trust name because what’s been happening is either there are fines, taxes or whatever on the property. The city is going after the owners. The owner says, “Quest Trust for the benefit of John Doe.” They’re suing Quest Trust. Quest is now having to defend this and basically saying, “We’re just a holding company. We’re a trust. We’re not the actual owners,” but cities don’t care. They sue everybody, anyone and Quest is the one who has a lot of money. You’re starting to see that come into play, which makes it either you’ve got to put it in an LLC or whatnot, but it’s a lot more processes and you see things get a lot more process-intensive, which when that happens, it adds cost to everything.

The time is big too because you’re trying to close on these Detroit assets. Our sellers are used in a pretty quick turnaround. People who aren’t set up to buy in these places will lose a competitive advantage if they can’t close a deal.

I had a contract for deed in Detroit and somebody bought a partial from me. I had to get Quest on the phone to explain because they didn’t want to fund the deal. I was like, “You have the contract. It stays in my name. It’s not in their name. There’s no evidence anywhere in public records that Quest has ownership. It’s like a JV agreement.” It doesn’t get recorded. What’s the difference if somebody JVs on a deal and buys a note partial? They finally got it. It still took a little bit of teeth pulling because they see Detroit. When they see Detroit though, they go, “Nope, timeout. Stop the press.”

This is what I don’t understand. You, I and everybody else buy contracts for deed all the time where there are liens and taxes owing on the property. I don’t even understand how Quest was ever sued if that’s the right word. What happens when you owe taxes? If the deadline arrives where they’re going to put your house up for tax sale, we all reluctantly pay those taxes. Whoever was the Quest customer in this situation, why didn’t they just pay the tax or lien or whatever it was due? Why did Quest become the defendant?

In a lot of some of these jurisdictions now, if there are fines, you have to go to court and have hearings and all these things. Maybe it was that and they’re basically the one getting notified that they had to appear in court. I don’t know.

They probably got a letter as you did about your dumpster in Indiana. They got all frazzled. Is that the right word?

I don’t know the backstory. I’m not going to claim I know the back story. It’s a business decision, which is their right to make that decision. I’m not going to protest or argue it. I’m letting people aware of it. We’re stating that it’s taking a longer period of time.

Note investors beware. We’re not ridiculing or criticizing them. The takeaway is if you’re dealing, if you’re buying in these places, if you’re dealing with these companies, these are the things you have to be prepared for.

You have to know the rules and you have to obey them. Click To Tweet

If a seller wants you to close in three to five days and you have somebody using IRA companies, most cases you’re not going to be able to. In the past, there are certain ones you could use. With a lot of things come from government and everything else, regulations and things in place, it just takes time. Be aware. It’s starting to take a little more time from that. I was going to roll into my next one unless you wanted to go next.

I don’t know what proportion of people buying in Detroit was people buying with their IRAs, but this can be a real opportunity if you’ve been wanting things to clear out a little there competition-wise. I am proud of a friend of ours who is a newer note investor who got caught in the grip of this Detroit thing when they had two contracts for deed under contract. They were struggling to get them closed and this major roadblock happened with Quest. They called me to ask what they could do. They asked me if I knew anything about checkbook IRAs. Isn’t that like so fun that they asked me that?

You know one or two things about it, don’t you?

I’m the queen of this topic. Though I have no legal background and I’m not qualified to say anything, I was able to describe my experience and how I do it. That person, on the strength of my delighted feeling about my checkbook IRAs, did call my IRA set up person, who was both an attorney and a CPA and was able to quick as a wink get one set up and closed a little overdue within an acceptable timeframe on these. I felt like a Marvel superhero at that point in the intellectual realm, which is all you and I ever have as superpowers.

With checkbook IRAs from looking at certain things and I have my little notes here, it’s like, “Talk to Gail.”

The people who come out and talk about Quest IRA who work there are always trashing checkbook IRAs, but they are essentially driving a certain coterie of their investors into them by their ways in Detroit.

Checkbook IRAs aren’t for everybody. That’s the other thing too as we talk about this. For certain people who may not manage your money as well, a checkbook IRA may not be the best thing.

I thought you meant pets should not have them or whatever. You do have to know the rules and you do have to obey them to the letter. If you’re not good with detail, it may not be for you. Your next is what?

Change In Note Business: If a seller wants you to close in three to five days and you have somebody using IRA companies, in most cases you’re not going to be able to.

It goes back to time. I’ve found that the time it’s also taking to get O&E reports has been lengthy as well. I had one that I had requested also the utility lines and everything else. Typically, I would get them in three to four days. You get them over to the attorney so he’d be able to close a deal on a week. Now I order them and it’s like a week plus to get them.

You’re still getting the basic report.

I get the two-owner. There’s a basic, which is a current owner. I get the Two Owner Report, which is still basic and they’re still taking longer than it used to.

Are you talking about the add-on stuff?

No, I’m talking about the regular. I order a Two Owner Report. I used to get them in three to four days. Now they’re taking seven to ten days.

I didn’t realize that. I’ve been renovating and selling properties and dealing with my own renovation and start the tax credit application. I have not been buying in the volume that you have. I have not experienced that. Obviously, it varies depending on whether it’s a city or an outlying area, and whether their records are online or not online. I always pictured these earnest young people going to the recorder’s office and doing all this manually. A lot of it is done online. If it happens to be a municipality that has good records online, that may be old. You could still get one like the good old days in three to four days.

What else have you noticed, Gail?

If that’s our litany of complaints about changes, we haven’t been happy. To end on a lighter, happy note, I took Chad Urbshott’s suggestion and contacted Safeguard Properties about a lockout that I need to do. I’m thinking about all the different things I need to be done all over the country. True to form, they are a massive company. They have customers who have hundreds and hundreds of property and yet little me calling about my one little lockout issue, the vice president called me back. She was on the road. She was not even in the office, but she answered my email asking for questions within like an hour and a half. When I had a follow-up question and she was no longer in the office, she called me from the road and acted like I was a big deal to her, even though I am 100th of 1% of their total customer base.

It would be nice to have everything in one system. Click To Tweet

You’re Gail Greenberg.

She did not know that I hold the key to all their future growth with as an influencer in this world. Through me, she can get absolute dozens of people perhaps, each of whom has one property for them to work on. The big thing was I told them I would tell you about them. You’re the king of needing all kinds of stuff done.

I’m a needy person.

You are indeed. I’m so happy that you’ve had that a-ha moment.

My goal is to eventually be like Adam Adams. I’m so jealous of him. It’s one of those things. I was going to reach out to them because I do have a property that I need to get it secured and get some interior inspections on. It’s a condo. I was going to reach out to them, but I ran out of time.

I’ll let you know once they do something, but so far so good. Shall we move into Notes and Bolts?

I’ll let you go first on our Notes and Bolts section.

The Safeguard Properties is my hot tip. Unfortunately, there’s nothing we can do about all these other people, who are getting on our last nerve. I recommend deep breathing when interacting with all of these people and not letting it get to you.

Change In Note Business: If you have your systems in place, you just put everything on an Excel sheet and work off of that. You can save yourself a lot of aggravation and time.

For mine, and this is for people, I’d say specifically who use as a servicer. It could work for anybody. One of the things I do, I have my own software that manages my notes so I have information spread out. For those who are getting started and want to stay on top of their portfolio, one of the things that you can do in Madison is when you are at your main investor portal, on the right-hand side, there’s an export to CSV, which you can export all that loan data over to a CSV, which is an Excel file. Add a column that says, “To-do item,” and put stuff in there to manage as well versus having others different systems or if you haven’t figured out what type of system. I know some people use or or whatever it is, as you get started and trying to work through those systems.

That is a very basic and simple thing. If you had three, four or five notes every month, you could export it because it does have the updated principal balance, the payments, the last pay date, and information on the status, whether it’s current or overdue, as whether what program you’re in, performing or full collection. All that information is there, along with the loan number. It’s my little Note Bolt tip for those who are getting going. You’re working with your servicer, a lot of that stuff you can download into an Excel file and work off of that until you get to a point where maybe you’re looking to use some other system. That is my Notes and Bolts.

I’ve heard people talk about Excel in such a disparaging way. People use spreadsheets to do things. I personally love spreadsheets. I’m doing a big shopping list right now for when I have to furnish my Airbnb. It’s everything from major appliances down to what sheets and towels am I buying and what kitchen equipment. In the past, I would’ve made a big shopping list in Word because I’m a Word person. I put it in an Excel doc and it’s awesome. Putting in one column how many do you need, what are the price, putting in the formula and everything and the whole thing keeps updating itself. I’m not happy about the total. I love the ease of the whole thing and simplicity.

I see people a lot of times post, “Once you get to twenty loans, you need to work full-time or hire somebody.” I have my system, which basically I manage my notes through that. What happens is every month I download it into Excel. It’s a master spreadsheet. It has data that I put into my software system included in there, which is also the reports I send to my JV. It’s all in one. That includes most of the information that’s in Madison as well. It’s 11×17. It’s two-sided. I color-code everything by red, yellow and green. Red is, “I need to take immediate action on it.” Yellow is, “There is something that needs to be done, but it’s not immediate like when I need to send a demand letter or something like that. It’s more checking to see if the loan mod was signed,” things along those lines. There’s green, which is the performing notes, which are those I don’t need to focus on and I check on them once a month to make sure the payment comes in. People say at twenty, you need full-time.

I’ve got more than twenty. I spend probably on average fifteen hours a week, maybe not even, on notes but focus strictly on my deal and take away marketing and everything else. It’s probably ten to fifteen hours a week, no little over an hour a day. You go through five to ten notes a day or what it is. You spend ten minutes on ten notes or five minutes on ten notes. It’s an hour. A lot of times it’s more, “I’ve got to shoot an email off or do something.” You have your systems in place and they don’t have to be complex, you don’t have to have some complex thing, have everything on Excel sheet and to work off of that. You can save yourself a lot of aggravation and time.

I think there’s a lot to be said too for having data where you can see everything. This is one of the reasons that now that I’ve trashed FCI, I have to say that their portal and the way of generating reports in there where you can see everything, all your loans or anything, it’s very much superior to everything that everyone else has.

The one that I’ve seen that is good too was NAA. Their portal was awesome. Madison, their portals is not anything special compared to the others where it’s like, “Can I find certain things?” It’d be nice to see a place in the portal where they scan the tax bill or they scan the borrower’s insurance so you can go in and see when it expires or things along those lines so you can check on it. If you have forced-place insurance, granted I send them a copy of the policy, but it’d be nice that if you log into one system, you could see everything in there and not have to go back into your system and say, “Do I have this?” and look on your system. It would be nice to have everything in one system.

This is a big one for me. To be able to see your total earnings in an entity for the year, the quarter or everything. What is the total investor disbursements that I received in this entity? I have multiple entities. Two of them are my IRAs. Particularly when you’re new at this, it is so motivating and exciting to run a report showing how much money you’ve made so far. How did you invest your IRA?

Go out and do some good deeds. Click To Tweet

Madison has a report that has a rolling history, but the history I believe includes the escrow payment. It’s not technically accurate.

What I’m saying is all loans, all in. As far as I know, because I tried to get one from Madison, they don’t make that available. You can’t see the total earnings.

You see every month what they collected, but it’s not broken up by principle interest versus escrow.

I’m going to have to check because I don’t think we’re talking about the same thing unless they’ve changed it.

Under the reports, if you go to portfolio rolling pay history, it will show every single loan with the loan number, the name and the property. It will show how much borrowers paid for the last year. Vertically, it shows how much has been paid every month by every month.

What I’m saying is, can you see every loan you have at one time?

Yeah. What you’re looking at is the collections by the lender that they have, which is you pick a month. That one actually has every loan number, but that one breaks every single one up. That one’s got the interest principle late charge.

Notes and Bolts is starting into another main topic here. I give them my blessing for what they allow us to do. I did find the URL for Safeguard Properties. It is SGPNow.com. Anyone who needs anything, I highly recommend you give them a whirl because I’ve never gotten such a great response from a vendor of any type, as I did from them. I told them I would let you all know.

Thank you all for joining us. Thank you, Gail. As always, go out and do some good deeds. Gail, would you like to add anything else?

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