All Forum Posts by: Doug Smith

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!

Hey Don,

We listed a couple to test it and got no response at all. There are times when some notes in our portfolio don't fit out goals and we want to sell them. There are other times that we need to pick up a handful of notes to fill in one of our portfolios. After going through a few of the notes on that site, however, I found it the quality of those notes listed really wasn't there, so I didn't go back. It looks like it could be a good service, but I question whether real buyers are visiting. It's too bad. It would be nice to have a source to buy and sell on-offs. Good luck, Don.

Doug

I'm not sure that I would start my note buying career in OH. It's a tough State to foreclose in and you'll have several regulatory hurdles to clear in order to do business there. Please do not think I am trying to insult you (I'm trying to keep you from loosing money), but based on the questions you are asking, I would suggest that you may not be ready to jump into the non-performing loan business. For instance, you asking about what due diligence should be done. NPNs are very complex and are not a place for a novice to jump in...particularly in a tough State like OH.

On an off note, one common thing I see is the term "X cents on the dollar." Please clarify. Are you talking about unpaid balance or underlying value of the collateral? On non-performing notes such as these, the collateral value is much more relevant than unpaid balance.

Please take the advice from a Fund Manager that manages non-performing notes for a living and been in the business for over 20 years. Based on the questions you are asking, I implore you to not do this transaction. My suggestion would be to find a partner that really knows their stuff and work in tandem with them.

It's not easy. We do have banks and institutional investors that do provide some leverage for us to purchase notes, but it was really hard starting out to get that financing. We started by getting a couple of very deep-pocketed investors to buy into our experience and system. Once we put together a couple of good years, it became time to consider a Reg D 506 (c) offering. Leverage was hard to come by and we needed a strong track record of putting together verifiable strong returns over many, many deals over a period of time. Start small and don't try to run before you crawl. There is no magic answer other than a rich uncle. It takes time.

Hello @Jaxi West Good question. Virginia is a deed theory State, so a deed of trust is used as opposed to a mortgage, but a promissory note and deed of trust are different legal instruments used in lending. A promissory note (or note) is simply the instrument that states that he owes you money and it lays out the terms of the loan. The deed of trust serves as the security instrument that refers to the note. In other words, the note is the promise to pay while the deed of trust allows you to foreclose on a property to collect the money you are owed under the note. In either instance, you will use a promissory note. You just have to decide whether you want collateral or not. Personally, I would not lend money on a note with no security. I would get a deed of trust AND promissory note drawn up as well by a good, local real estate/lending attorney. Let the attorney close the deal as well. Without getting the deed of trust, the borrower could go out and borrow even more against the house and they would be first in line to collect against the house. Do yourself a favor and secure the loan now. On another note, you probably will get a couple of people piling on about Dodd Frank. If this is a one-time shot, you will be OK with regard to getting a lending license. If this will be something you do a lot, you'll need to get on in the State and comply with all lending laws. Good luck!