What Is Your Biggest Struggle In The Note Business?

Question

What is your biggest struggle in the Note business? Whether you are just getting started or have been investing in mortgage notes for decades, we all have our struggles. What are yours and what are you doing to improve upon it?

Mine has been vendor management recently. Some vendors I have used for a long time now seem overloaded which has caused delays. Especially on the legal side. Another good reason to have a stable of vendors in case you need to make a move

Logan Hassinger · Answer

I wouldn’t say it’s a struggle but continuing to build our deal funnel. It’s easy to get complacent and rely on a few good sources for today’s deals, but where will tomorrow’s come from.

Don Konipol · Answer

Maintaining quality deal flow.  Finding an effective and efficient way to weed through the notes that are dressed up to APPEAR to meet our criteria, but fail to do so when a light is shined on their dark areas.   The biggest frustration is brokers or sellers who purposely omit any negatives as if we would only base our decision on what they decide to disclose.

Jordan Blackwell · Answer

My current struggle is finding reputable buyers for my re-performing assets. I've been hearing horror stories about Joker Brokers re-sending out assets, even if posted in a closed Facebook group. Since I'm new to the space, I don't have a huge Rolodex of investors which would probably solve my problem.

And I 3rd the vendors. Since I don't have a reference point past the fall of last year, what I've found is many of the vendors that came recommended haven't totally met the mark. I guess it's a sign of a growing number of players in the space.

Patrick Desjardins · Answer

The US legal system is too unpredictable and slow. It makes it so note investing in NPNs is almost like gambling at times.

Judges just do whatever they want. I told you guys about that note where my appraiser with 25 years experience said the value of the house was 200,000. Their joker appraiser (who used a torn down house as a comp and other provable wrong things) said it was worth less. And judge still sided with the defense. His arguement was something like.. your appraiser is probably right, but the house needs repairs because it hasn't been maintained, so it would sell for less. Well duh.. let's reward the borrower for letting their house rot. And completely disregard that property condition is already included in the appraisal.

Anyway.. we've had a few cases like those the past 2 years.

Andy Mirza · Answer

Raising capital has been the greatest struggle. We've learned a lot over the last couple of years and I expect that we'll have a great 2019 as we focus more on our networking and establishing a lengthier track record as a Fund manager to attract more capital.

Chad U. · Answer

I 2nd your struggle with vendors. It seems what used to take days now seems to be weeks.

Another struggle I have is weeding through the toxic assets out there currently as there are a lot of them. However there are some diamonds in the rough to be had that most others overlook as they seem too risky.

Andy Mirza · Answer

I feel your pain on BK's. The system seems so broken yet I don't see any hope that it will change. Granted, I am biased and only see things from the limited perspective involving the borrowers of non-performing notes that I buy. I have no idea of the big picture and what percentage of BK 13 filers successfully complete their plans.

With one exception, the BK filers for our notes use it as a stall tactic and most have no intention of completely the plan or underestimate their ability to do so.

The BK system does not seem fair at all to the creditor and the various players have either no or little incentive to try to dismiss a borrower's plan resulting in that borrowers get 9 lives and the benefit of the doubt beyond belief. The judge has extremely wide latitude to rule as they see fit. The trustee gets 10% of the borrower's payments so killing a plan, even if it is severely underperforming, is killing their paycheck. Attorneys get paid by borrowers that file and get priority over us secured creditors. It's frustrating!

My solutions: 1) Get highly competent attorneys to represent you and that have a better shot at getting things to go your way. They will be more efficient by using your money in the most effective manner i.e. filing motions when they have a high chance of success, 2) Get a bigger pipeline of deals and understand that some of your deals will stall like this so be patient. You'll eventually get paid

Liz Brumer-Smith · Answer

I'd have to agree with both @Logan Hassinger and @Chris Seveney here on vendor management and deal flow. I've started new sources of lead funnels, but it takes a lot of active management and I have to consistently work on it right now. I'm also not super pleased with some of my vendors as of lately. I just fired one company, and I feel like my legal in FL hasn't been handling a foreclosure well at all. Also, BK is really challenging as you're kind of in Limbo when the borrower, who has no ability or interest in paying, uses it as a stall tactic. We have two very friendly judges that have now prolonged our foreclosure for over 8 months in PA, and 14 months in FL (she filed twice there). Not a dime has been paid to the trustee or us, yet we haven't been granted motion for relief. It baffles and frustrates me.

Patrick Desjardins · Answer

I'm not concerned with the government as much as the judges. Those guys go rogue and have no accountability. Your only remedy is to appeal and spend thousands and thousands in legal fees.

I'm limited in what I can say since this case has been going on for 3 years and isn't over, but a judge signed off on cancelling a foreclosure auction that sold to a 3rd party bidder, 6 months after the sale proceeds had been disbursed. In secret, while I was in Canada. We (or our attorneys) were never notified of the hearing, and so we had no legal representation at the hearing.

Stuff like that is why I cooled off a lot on note investing. I don't mean to sound all negative about notes, it's possible to be successful, but there's a lot of gambling involved. I would prefer if it was more predictable.

Chris Seveney · Answer

@Patrick Desjardins

This is a major frustration as the government does a typical Knee jerk reaction to an alleged issue that effects a small percentage of people who scream the loudest and hurts those it helps the most.

Example is Ohio looking to pass a law where land contracts would essentially become extinct since you cannot charge more than 2% above 90day T rate (so right now 5%), you have to get the house inspected and you as the lender are still responsible for taxes, insurance and maintenance on the property. The kicker is you have to provide an appraisal as well. You will actually lose money on these deals as your paying out of pocket their high tax rates and price must be based on appraisal.

What Is Your Biggest Struggle In The Note Business?

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