All Forum Posts by: Doug Smith

Edwardsville! I grew up on a farm about 60 miles North of you! That being said, we don't do business in Illinois, so I would double check this with a local attorney friend that you might have that has experience in Joint Ventures. If you are only working with the one investor, it sounds as if a JV (joint venture) is all you would need. In situations like this, we typically set up as LLC to hold the assets with the investor as the primary, but passive, owner with us having a small, token ownership ($100). We then have a management agreement (separate document) between our firm and the JV entity for us to manage the JV entity. It outlays our powers, investment parameters, our compensation for managing, etc. With only the one investor, I don't think you would need a PPM, but I am unfamiliar with Illinois law. Illinois regulatory law is quite onerous, so certainly chat with your attorney. Regarding your investment strategy, am I reading it right that you will be lending? With lending, we tend to stay away from consumer lending and we stick with commercial lending. There is less regulation and licensing requirements. Let me know if you have more questions. I'm happy to help.

JP, I happen to know the founder of Bay National personally through my dealings with them. I've never known them to not resolve a legitimate concern. Our company, Castle Rock, works with them and we've never had an issue. In fact, we just sold a property in IN through them on Friday. Perhaps you could reach out to me off line with your concern. I will personally elevate that concern and introduce you to the head of Bay National. We're both in the same city and see each other more than once per week. Unless there is something missing from your post, I can't imagine them not taking care of an issue. 

@Erin Legler , reach out to Steve Dorsett over at Clear Title America in Tampa. We do all of our closings through them and they have helped us quite a bit when title has clouds. They do have attorney's that they use in many instances. Drop my name when you call.

@Edith TenBroek As an Illinois Wesleyan grad that grew up in Central Illinois, I felt compelled to chime in to help an "El Paso-ite" with their new venture. It really is a simple process that you will get down as you do one or two. We insist on using a particular closing agent nationwide, but in many areas the seller chooses the closing agent. In any case, your real estate agent can help you escrow funds for the downstroke. Don't get overwhelmed. They key is to do your due diligence up front, don't use emotion to buy or sell, and make sure you have a great mentor to help you through the process. I'm sure you'll do well.

Dion's post made me giggle. I get all unhinged too when it comes to daisy-chainers. He's totally dead on, so I can't add much to it. There are only a tiny percentage of brokers that I would even remotely consider for selling our assets. If we sell, it's usually going to be direct and it's going to be to someone we have a comfort level with. Keep in mind that, unlike real estate, a prospective buyer gets to see a lot of really personal information about our borrowers. They get to see the original application that contains income, ss#s, etc. I still remember the story where I had a few assets to sell, so I shared it with only 3 sources, 2 guys that I knew well and one guy that had been hounding me because he saw my profile on a business networking site. Within a couple of hours, one of the 2 other guys I had shared it with informed me that the third guy had already bombed it all over the internet...including to my 2 other guys. I also had another instance where a broker sent me a tape with assets that I had purchased 4 months earlier from a fund. They had simply recycled an old tape and claimed to own all the assets. I had fun with that one as the guy swore up and down he owned the assets. Bottom line: most brokers are worthless, dishonest piles of goo (with a few exceptions, sorry to some of my good broker friends).

I agree with Dion on this one. In May I was on a panel at a conference where we discussed structuring JVs. First of all, I am not a securities attorney and the only advice I am offering is to get a great securities attorney to help you. If you are going to be accepting money from investors, you probably want to find a good one in your area. We only take money from accredited investors and form Special Purpose Entities where we manage the entity and keep a portion of the profits. In all cases, a very experienced, well-regarded securities attorney prepares all docs and advises us. Options such as a Reg D offering can prove to be too expensive for a smaller operator. Good attorneys aren't cheap, but they are a lot cheaper than dealing with regulators over offering securities improperly.

I actually served on a panel with Eddie a couple of weeks ago at the IMN REO to Rental Conference in South Florida. I've known Eddie for a couple of years and he is a very stand-up guy with a lot of knowledge. We cross paths from time to time and, after spending time chatting about the note world, I consider him a friend. As for the cost and the value you get from a course, only you can answer that. I will say, however, that reading threads on any web site will not take the place of experience. If you are new to note investing, you MUST have a mentor that knows what they are doing or you are setting yourself up to lose a ton. Choose your mentors wisely, but Eddie does know his stuff.

James, we buy 1st mortgage notes on a national level and have for some time, but we have had no success in doing it the way you describe. I'm not saying it can't be done, just that we had no luck and moved on. We have lenders/servicers that come to us offering pools of notes where we can get a reasonable discount. What we have found in going to them and asking for the note on "123 Main Street" (meaning a specific property) is that they all of a sudden want a lot more money than it makes sense to buy it at. Lenders tend to not think from a solid business perspective, but there are taxation and "book balance" reasons they sometimes do illogical things.

It would take all day to cover some of your questions. For instance, in 23 years I have never seen a GSE note state that you can not pursue a DIL.

My advice to you is to find a really good partner that knows what they are doing. Decide what you bring to the table and what you lack (do an honest assessment). Find someone that knows notes well, brings those things to the table that you lack, and needs what you bring to the table. Notes can be a lucrative field to be in, but it can also be a train wreck and it is not easy to learn in a short time.

Good Luck!

Normally, the answer is no. I am unfamiliar with Oregon law as we do not do business in that state, but in states such as GA you do need a license (for owner occupied consumer loans...not non-owner occupied or commercial). In most states, you do not. Bottom line: each state is different. You'll need to research each one before you buy in that state. You will need to have a servicer do the lion's share of the collection work for you, however. New regulations make it so, in most cases, you can't collect without a specific license. For instance, NC is that way. If I may offer advice, find a partner that really knows what they are doing (soapbox moment: Many on here say to find a note broker or mortgage broker...I have found most haven't a clue about what they are doing in this arena). I only know a couple of the "Gurus" that will put you through a 2 day course and mentor you for several thousand dollars. I was invited to sit through a course when one was in my town to see how they could partner with my company and came away feeling as if he was only leading lambs to slaughter (no, I will not insult the person by listing his name on here). The loan business is a different animal from real estate with tons of pitfalls. I'm still learning every day after many, many years. I hope this helps you. Good luck.

This is kind of a fun question. I had to run over to pull the file to refresh my memory, but we had a note come across my desk for this very rural home that was falling down in the Midwest. The seller was a California Hedge Fund that had a BPO agent drive 60 miles from the nearest "big city" to do the BPO. Of course, the agent used urban "war zone" comps. I bought the note for $4200. You see...being an Illinois farm boy in my childhood, I knew enough about rural property to recognize that the house sat on several acres of prime farm land. The BPO agent didn't recognize that and focused on the little shack. Before buying the note, I found the borrower living two States away. Once I had the note, we called and got him to sign a Deed In Lieu of Foreclosure. I sold the property shortly after that for over $30,000 without touching it. Of course, we did quite a bit more due diligence than I am listing here, but it's a good story about paying attention to opportunities, doing your homework, and trusting what you know. Good luck deal hunting!