All Forum Posts by: Patrick Desjardins

Again, I think it would be a great niche but I see two issues that make it so I'm not personally getting involved with it:

1- Low margin so you need to spend as little $ possible on fixed costs (boarding, servicing, legal) and basically do everything yourself or build a team. Which leads into..

2- Volume. Since the margin is lower and you're going to lose on many of them, you need to deal in volume and that means you have to do it full time (since you can't afford to put 100 FC notes in 3rd party collections)

I'd love to get other people's input on this. 

Those notes don't all end up in foreclosure. Afaik the main play is helping the homeowner do a short sale, which requires approval from the second mortgage holder (you). They also often end up getting into an agreement and not foreclosing. If there's equity they can also just outright sell it.

I don't think there's really great value in seeking these out unless you can buy them dirt cheap and you know how to work them. It's more a case of bigger volume buyers getting them as part of pools and then trying to unload them.

I actually think it would be a great business model, same as credit card debt etc. The only problem is it takes a different set of skills than what we're used to. Managing a NPN 2nd with current 1st is pretty straightforward and everyone understands it. Not a lot of people understand the concept of buying the lowest of the lowest inventory, literally one step above unsecured debt.

I hate to be vague but it really depends on a lot of factors. 

What's your strategy? What's your goal?

Are you looking for cash flow or capital growth?

Do you only want cash flow (workout agreements) or you don't care if you get the house back (FC, DIL => sale or rental)?

Are you looking for singles, homeruns, or a little of both?

Do you only want inventory with equity or you don't care?

Do you have $10,000 to deploy or $250,000? (that'll obviously impact what strategies are available to you)

There really is no one size fits all. It depends on your own goals and the resources you have. If your question is "how do I go through a tape of note without spending 40 hours on it" then I recommend breaking it down by categories. For example I don't look at any manufactured housing, I don't look at anything from New York, I don't look at 2nds where the 1st is in foreclosure unless I think there's a mistake.. etc. Filter out everything you know you don't want and the tape shrinks down by 80%.

The downsides are:

- It's a cash intensive investment with little to no leverage and generally more difficult to raise money than house flippers / landlords. Everyone understands the concept of "we buy a house cheap, repair it and sell it for more". A lot of people fear lending money on a NPN because they don't understand it.

- It's very difficult predicting the results & timeline. It happens all the time that you buy a note thinking you're going to get a quick workout agreement, and 2 years later you're still working on it. Or you think you'll finish a foreclosure in 4 months and it takes 8.

- It's the Far West out there. A lot of sellers don't know what they're selling - it's only numbers on a spreadsheet for them. Sometimes it goes in your favor (ie you buy a 2nd and it's a 1st) and sometimes it's against you (you find negative things after purchasing it). At times it feels like a lottery, which is the opposite of investing. The ROI is what saves it. If you make 100% return on one note, it makes up for not doing as well on another.

And as far as foreclosures and keeping the money goes.. there is theory and reality. Some posters on this forum talk about theory while others talk about what really happens. In reality lenders foreclose, sell the house and pocket the money.

Hi Bob,

Does FCI require you to do this? Couldn't you just keep the current attorney since he already has the process started and he's already talking to the borrower?

There isn't much you can do to avoid litigation but make sure your attorney knows what he's talking about.

Charge off and release are two different concepts. They aren't even arguing that it was paid off (where you'd simply ask them for proof).

You'll most likely win the case but as you mentioned, litigation fees and wasted time will hurt.

Did PNC own both mortgages? That seems to confuse a lot of borrowers / attorneys.

Don't forget to take into consideration the seller. A reputable seller that stands behind the notes they sell has more credibility than some random unknown seller on one of the exchanges.

Just my opinion here but follow Joe's advice and use as little of your own money as possible. Keep your cash as reserves and as a backup so you can close if investors flake out. 

I self funded many deals myself and it just ends up hurting you - you have 100% of the deal but quickly run out of money to invest then struggle to recapitalize. 

With 100k+ as reserves you're golden because you can basically weather through the storm. ie you make a mistake and the deal turns bad, expenses are higher than expected etc well you have money to pay your investor and you don't destroy your reputation.

Bill, you seem to have good intentions but I've said it before and agree with Wayne that you're not adding anything constructive to the conversations.

You point out theoretical issues that rarely ever come into play, scaring people into not investing.

1 - Everyone that I know "gives notice to a borrower of a note transfer". It's not like you pulled out something big and you just stumped people or something. Are you kidding?

2 - I haven't run once into the issue of the note not being collectable based on lack of collections efforts. Can it happen in the future? Possibly. Who cares? These kind of issues are baked into the prices that we pay for inventory. We tried to explain to you before that it's a numbers game, a statistical play. One note doesn't reflect the performance of your portfolio. It only affects the guy that will buy ONE terrible note and call it a day.

I'm working on a 2nd mortgage right now that has terrible collateral. It's embarassing. The mortgage is missing 2 pages. One of the sellers used a Lost Assignment Affidavit that's invalid and messes up the chain of assignments. Is it frustrating? Yes. Does it cause delays? Yes. Is it fixable? Yes, we're pulling out the assignments that we need to fix the chain of AoMs and clean up the collateral. So instead of taking 4 months to foreclose it might take 6. Again, so what?

 About education it depends for which class of notes. I started with 2nds and then moved on to 1sts, but know very little if anything about seller financed so I couldn't tell you what the good courses are.

And they pretty much all do sell notes as the education aspect is a lead generation tool. I don't see a problem with it IF they're not suckering in newbies and unloading crap. ie many of them try to sell a lot of "newbie trap" notes: New York notes, underwater Florida notes when they could be stripped in chapter 7 BK etc. I mean, those notes can be fine if you balance them with more premium notes.

As for the last aspect of your question regarding safe and good practices, we both know no one in the industry is fully compliant - even those with compliance officers. The idea is to use vetted vendors who do their best to stay compliant and err on the side of the borrowers to avoid litigation whenever possible. All courses I've seen encourage this behavior as well as relying on licensed professionals.

PS: but it's America, I don't think you can 100% protect yourself from getting sued. I had one attorney threaten to sue us for an agreement the borrower's own previous attorney drafted. We're not dealing with very sophisticated people most of the time.