All Forum Posts by: Doug Smith

George, I know we spoke about this before, but you have to think twice about buying GA notes. The GA Dept of Banking and Finance has a different take on the SAFE Act than other States. If any of the notes you buy on residential property are on owner occupied property, they make you get a license. They are very aggressive at looking for violators and will shut you down if they catch you. I implore you to rethink that strategy. I don't want to see you get hurt. Now that I have said my peace about that subject, you will have a tough time finding marketable notes at the courthouse. You're probably better off finding a reputable note seller that can provide you with product. We sell notes, but we only handle the non-performing stuff. You are a good man and I really want to see you do well, George, but again you may want to look for a partner that really knows the note business. There is just so much to know and simply reading books and taking courses will only give you enough knowledge to lose a lot of money. Please, please, please be careful.

Is anyone on BP heading out to the IMN REO to Rent Conference in Scottsdale, AZ the first week of December? I'm on a panel on Friday the 6th and I was wondering if anyone else would be out there. It would be nice to grab coffee, put a face with a name and meet other kindred spirits out there. Just curious.

It's probably a local bank that will hold it in their portfolio rather than securitize it. That means that they will be very sensitive to interest rate risk. In a low interest rate environment, banks usually won't portfolio a loan with a term for much more than 60 months because they are concerned that the interest rate will rise and they will be locked into a low rate killing their yields. If that is what is giving them heartburn, they may be able to balloon it with a longer amortization (if it doesn't fall under the new Dodd Frank rules) or go variable to extend the term. If their heartburn is over building equity quickly to secure their investment (meaning the loan amortizes down quickly to protect their lien position more quickly), then that is a different story. Have they expressed their reasoning for the short amortization and term? Amortization and term are different. Amortization is the length of time the payments are calculated for. Term is when you must pay if off. If they Term is shorter than the Amortization, then the term is said to be a "Balloon" or "Bullet". A fully amortizing loan would be one where the term and amortization are for the same time period. They might do a 15 year amortization with a 5 year term/balloon. Ask them for reasoning. It might help you solve the issue.

I remember when my grandfather, a farmer, passed away. I was out at the house with my grandmother the next day and a man pulled into the drive and began walking up to the house. He said he wanted to talk to my grandmother about buying the farm as he knew she couldn't run it without him. I chased him off of "our land" and am thankful that he seemed to be faster than me. I was really, really angry. My family settled that land in 1831 and my father farms it to this day. The moral of the story is be careful when you reach out to people. Some investors may not care if they hurt someone or not. I implore you to be sensitive. I still remember that day in 1993 and it ticks me off to this day.

Jeff, I did the smart thing...I married an interior designer and got the heck out of the way.

Thanks, Jeff. I'm speaking on a panel in early December in Scottsdale with Larry Muck, the Chairman of AAPL. I'm hoping to grab a cup of coffee or a "frosty adult beverage" while we're out there. I'll have to make it a point to go next year. Thanks again for the update.

@Account Closed If someone contacts them about a specific note, a bank is going to want closer to "book value" for the note (something a bit lower than the appraised market value of the underlying collateral). If you buy the note, you are going to have to complete the foreclosure process (attorney fees), pay back taxes, and worry about the current owner pouring concrete down the shower drain. You may not get enough of a discount to make it worth your while. You can try calling the institution that filed the Lis Pendens or, in some cases, the attorney that his handling the foreclosure, but I wouldn't count on a return call or even finding the right person to chat with. In most cases with FNMA or Freddit Mac loans, a large servicer is handling the file. They tend to be a bureaucracy and they don't really have an interest in helping you or the borrower. It's not their money. I've found more success in letting the seller come to us with files they would be willing to sell rather than going to the bank for a specific note. If you go to the bank to buy a specific note, you might as well start with the actual homeowner and get a short sale contract to present. That way, at least you avoid the foreclosure/collection process. It can be done, it's just tough (with a lot of luck sprinkled in).

I could write a book on that subject. I was a banker for 20 years before leaving to form Castle Rock. We buy non-performing loans from banks and hedge funds. Rarely did a day go by when my phone didn't ring with someone that was going to solve all of my problems as a banker by buying my distressed debt at 30% of it's value. At the peak, I was getting 4 or 5 calls every day. It got to be really, really annoying. Bankers aren't stupid. They know what they are doing, but their motivations are different than yours. Don't expect to get anywhere with the branch manager. They have no authority to sell and probably wouldn't know where to begin or who to even call.

Many will call loss mitigation/special assets officers and ask to buy debt. Now, think about their motivation for a moment. Seasoned bankers know that banks will preach loyalty, loyalty, loyalty, but will lay you off as soon as it is convenient for them. A special assets officer is given a handful of assets to manage and work-out. The bank wants the problem solved, but does the special assets officer? What happens when they do a bang-up job and solve all of the problem assets? You guessed it...they get shown the door as there is no more work to do.

We were successful because we knew many of the people we bought from from our former banker days. The first deal I bought was on commercial strip center in my area (Tampa) from my old boss. Later, we moved into residential and we started buying from funds that had bought large traunches of loans but didn't really want the non-performers. There again, we had an in as one of the other Castle Rock principals also is a principal of a large, National title company that works with a lot of hedge funds.

My best advice would be to find an established form that will be willing to sell one-off loans and prove to them that you can be a reliable, trustworthy buyer. We are scared to death to sell to people we haven't worked with because, 9 out of 10 times, they say they are a buyer, but are in fact a broker/wholesaler that takes confidential information on our borrowers and blasts is out all over social networking sites trying to find a buyer to flip it to. Unlike real estate, a loan package includes personal borrower information that must be protected.

You may struggle to find discounts if you are targeting specific properties or neighborhoods. We found it helpful to be open to buying in other States. The best discounts are gotten when institutions have lists of loans they are willing to part with rather than you going to a lender and saying "I want the note on 123 Main Street." You probably won't find much of a discount from the current market value of the collateral property.

I hope that helps. It takes a lot of work and isn't as easy as one might think, but it can be done. Good Luck!

Hi from Florida, Mary Joe. From the title it appears that the property is in Florida. Keep in mind that, in addition to the transfer from the C-corp to you, you may encounter Florida's doc stamps tax. That is 0.007% of the deed transfer amount. In such a non-arms-length transaction, I am not sure how the State will want you to calculate it. I know loans, not tax law, so certainly chat with a CPA that knows what kind of tax hit you will take. I know several solid title agents down here that can also help. Let me know and I can refer you to someone that is Florida-based.

I used to also own a pizza place in a Tampa suburb. Believe it or not, there was an ordinance in that suburb against door hangers. We ended up doing "Every Door Direct Mail" through the post office. It worked for pizza, perhaps it will work for you. I'm in the note business and not direct real estate, so I really don't know. Just a thought.