Every note investor needs to have bulletproof due diligence so that they can go from one note to a thousand. Alex Goldovksy launched his company ProTitleUSA that is geared to helping note investors when they analyze the data on all the titles and reports. This will tell you which assets have kick back or defects so that you know how to use them and act on it. Alex also wants to know more about note investors so that he can generate the proper reports that will benefit them. Learn how this perspective in note investing can be a powerful tool.
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Bulletproof Due Diligence: Go From One To One Thousand Notes with Alex Goldovsky
I’m excited to be here with you, but more excited to have our special guest on with us for this episode. My buddy, Alex Goldovsky, is joining us. He’s got some big stuff going. If you don’t know who Alex Goldovsky is, you aren’t a note investor. Alex Goldovsky is the CEO, the brain and plate spinner over at ProTitleUSA. Right, Alex?
Yes, I am.
Why don’t you tell those that are in real estate field that aren’t note investors, a little bit about what ProTitleUSA does, Alex?
My company, ProTitleUSA, is really geared towards the note investment market. We search title nationwide, both residential and commercial. We create reports and dashboards for investors specifically for the note community. I launched a title company as well called ProTitleOne. The goal for the title company is to help the note investors to run the deed in lieu of foreclosure in 30 days or less. We talk about exit strategies, we talk about, “Who does it? Where do I go?” In the toughest space, New York and New Jersey, I’m now capable of helping note investors to run deed in lieu of foreclosure in 30 days or less. All we do is gear towards the investors. We’re here to help if you have any questions. If you don’t know me, you should probably get to know me.
You pull off a few title reports, a few owner reports. What’s been your claim to fame over the last few years? I know that you churn out a lot for a few big companies. Do you want to talk a little bit about those?
We read in the news about the companies that buy from Fannie Mae, Freddie Mac, HUD, Ginnie Mae, private sales. In many cases, my company has pulled in in some of the due diligence work for folks that buy thousands of loans. When you buy thousands of loans, to read every PDF files, to go page-by-page, it’s impractical when you are given only two to three weeks to do due diligence. Instead, we created a lot of automation around it, where not only we deliver the PDF reports or we deliver the private reports, we analyze them on top of that. For the past two years, my company just doubled and tripled in size just because we are capable of analyzing the data on all the title reports. In other words, if you have thousands of loans, we will give you the reports and the data in a spreadsheet or the API that will tell you which assets to kick back? Which assets have defects? What liens are out there with the totals? How many liens will survive the foreclosure? We will analyze the position of the lien that you’re buying. We will analyze all the vesting issues. We now launched title exams. We do page-by-page review in all those thousands of files to give you exact defects of what we see on the title. It was phenomenal. People need it, people use it, and now people are trying to understand how we use it to negotiate with a seller. All of those things that we bring up are all those defects and liens and judgments that you have to know about as a buyer to act on it. You don’t just buy the report, “I got the report of the title. I’m all set.” No. You have to know what it is. You have to know how to use it.
You have done a great job of helping to automate that and highlight and dumb it down for the new dummies in the field. We all are dummies to begin with. I’m not making fun of anybody. I taught a class which was called Note Buying for Dummies. What I’m trying to get at is it’s such a great service that you do. Nobody else does this. You are out there cranking out. You’ve done a tremendous growth but you are also very customer service-oriented though too. Your staff always responds. You’ve got a very friendly portal where a lot of people go in. Why don’t we talk a little bit about how easy it is to work with ProTitleUSA?
First off, my door is always open. Ask for me. Don’t hesitate to say, “I need to ask for Alex,” and my staff will transfer you to me. A lot of folks call daily to ask for my advice, “What would I do?” Certainly, that’s available. If you are looking for new sources, even that. Who are the new sources in the market? Who is active? We are processing a lot of secondary market trades. The best is I can introduce you to some folks that I think are active. You can use us for that. From the perspective of client support, it’s very important to know who you are to us. Why? If you are online and you’re going through our online portal and you’re placing an order, maybe you’re placing the wrong order, that’s first of all. Second of all, if we know upfront that you are the note buyer and we got what you see on the data tape. The data tape is the Excel that you get from the seller to start the due diligence process. If we know your borrower name, the address, and we know the note date and amount, we can now generate the meaningful reports for you at no additional cost. The more we know about you and what you buy, the more reports we can generate for you that you can benefit from. The more we know, the more we can give back.
We’ve had a few people that were ordering the wrong things. They were ordering full title reports versus just title updates. They didn’t take the time to get on the phone and call or ask questions. They just went with what they thought and they thought wrong. They were spending all this extra money on stuff that they really didn’t need. You’ve probably seen that happen quite a bit, Alex?
Absolutely. Everyday somebody orders a full state statute search and paying enormous amount of money. They say, “I just want to be safe and order the kitchen sink.” That’s not giving you all the data that we can give you with less fee and more data back as long as we know who you are. Are you a note buyer? Are you a contract for deed buyer? Are you a seconds buyer? Are you a commercial buyer? The more we know about you, the better we can set up a profile for you. Every client that we bring to our site has a profile based on your email. In other words, if you are the note buyer, we know upfront that you’re a note buyer, we have the unique requirements on what you would get as the report from us.
Besides the title company launch, you talked about some of the new reports that you were rolling out for note investors. It’s so powerful on a lot of great things. Do you want to touch base on each one of those that you have mentioned already?
Yes. We launched two services which are currently used by some of the bigger players. The goal behind those services was to make sure that those services are available for guys that buy a single note, two notes at a time. You get the title report and you don’t know what to do with it. You don’t understand it. We are the experts. How can we deliver our expertise to you as a client? We want to do the best job possible to make sure you are protected. First is we launch something at no cost to the note buyer. No cost, zero cost, zip. We didn’t need to set you up as a note buyer in our system. If we don’t know, you are not getting this report. Some people order from us and say, “Can we get that for free?” No, you can’t. Initially on the order placement, we have to know that you are the note buyer and we will generate something called an asset level lien report where we would group all the liens by type and we will tell you the total amount of liens that will survive the foreclosure. We will also grade the report for you and we will tell you if there any liens that are capable of foreclosing out the mortgage. That’s very important to know.
If you have a utility lien in the City of Baltimore, they can foreclose out of the mortgage. Not a lot of people know that; obviously tax liens do, HOA liens in Nevada and Massachusetts. Those types of things, we can make decisions on and advise you on the asset level dashboard. We need to set you up in the system as a note buyer that you need that information. We can only generate it when you give us the note amount and the note date. Once we have that, now we can place it as the note buyer with the asset level dashboard.
The second thing we launched was the asset level title exam. This is frequently overlooked. It’s really a report with all the title defects based on a page-by-page review of PDF files. You’re getting from us 30 pages. Not only you don’t know the title for the most part, you read the report and say, “I think I get it,” you start reading the documents. You are out there. You have no idea what’s going on there. We are an expert. We can make some determinations and decisions of whether or not we see any issues. Let me give you a simple example. Let’s say that you’re buying a mortgage with two borrowers and only one signed the mortgage. What happens? Mortgage is not enforceable. You cannot foreclose on the property and kick the other person that still lives there. They own the property, they own 50%. You can’t kick them out legally. The mortgage has a defect. You have to do some curative actions. What are those? Maybe you have to file a quiet title action. You have to file a court action to say that the intent was for two people to sign and somehow the title company screwed up. Then you run a title claim maybe through the underwriter. You insured that mortgage and now I can’t enforce it. I suffered a loss. All of those cases will only be known once you look at every page of the mortgage or every page of the assignment.
Let’s say that the common defects, the mortgage was recorded from a different county. That happens. We come back and say, “There’s no mortgage.” They say, “Yes, there is. There’s a recorded copy but it’s recorded from a different county.” It’s not enforceable until it’s recorded in the county of the property. There are so many things that can go wrong. Our title exam covers 250 defects that can happen on the title. 250 defects ranging from simple things as I described to the mobile home conversion issues. It’s not properly converted. It’s still registered at DMV. You think that you are getting your foreclosure on the property and you’re getting the home and the land. No, you’re only getting the land. Mobile home is in the DMV. Now, you have to clear that issue. These types of things happen all the time. We see it all the time. As a novice investor, you just don’t know them. You are putting numbers on the paper without analyzing what you’re getting. Most of the time, you’ll be okay, you’ll be fine, but you have to protect yourself. You have to have a bulletproof diligence to make sure that you don’t stumble and you don’t get hurt.
How many years have you been doing this with ProTitleUSA?
ProTitleUSA is eleven years now. Before that, I was the investor, I was the partner in the title company, so it’s been awhile. I accumulated a lot of experience along the way. I’ve seen it all. I’ve seen some crazy things that I wanted to share.
You’ve shared something amazing that has been a labor of love for you over the last two years to get ready. Do you want to talk about that? You have your book that you’ve written and sharing with everybody?
Finally, it’s out. My book that I published weeks ago is called Bulletproof Title Due Diligence: Protecting Your Investments. I wanted to share with everybody who is starting in the business, what things can go wrong and what things you have to watch out for. The goal is not to make any money out of it or it’s not related to money. I wanted to help the note investing community to make sure that they learn from mistakes of others. I wanted to talk about some of the chapters that I put in the book and hopefully it makes sense. I start very, very slow on definitions, the introduction of basic terms in title. Through twenty pages of the book, all you’re doing is learning. You are learning the title terms, you are learning the definitions, you are speaking my language. From that perspective, you get educated first. Then I will guide you through different cases based on the lien type. Go through the tax liens. I even touch on some of our clients who are tax lien investors, guys that buy tax liens at the auctions. I touch on contract for deeds, deed in lieus, foreclosures. The lien priority, how do you define it? How do you determine it? What factors influence it? Then I get into what we do for some of the bigger players, guys that buy thousands of loans. What is the right workflow? How do you build a due diligence platform for second liens, for commercials, for first lien position? What grading should you do? How do you design your system?
Our report is one thing. For you to make a decision on investment based on the title, it requires you to create your own matrix. What can you live with? How much can you translate a defect into the seller discount? What do you charge the seller for it? Who does it? Do you have folks in your ecosystem that can cure the defects? All of those decisions I talk about. Hopefully, folks that are newbies in the market as well as very experienced hedge fund buyers that can find this book useful and they can really take some ideas that I have in the book and implement that in their current workflow, change the workflow, and make adjustments to it. That was the goal behind my book.
You spent a chunk of time basically working for months on this stuff, going through and writing it chapter-by-chapter because it is not the easiest to edit when you are coming from the real estate side. There are a lot of technical issues with the title aspect. You really took a lot of time diving into it and putting these in your words and not through some ghost writer or anything like that.
It took me forever to edit it. That’s why the birth of the book was not two months or three months. It was actually a year and a half to two years. I wrote the book initially and then I said, “Let me give it for editing.” Editors basically gave up after some of the introduction chapters because it was too technical. We had to work with the editor chapter-by-chapter editing to make sure that folks understand what I’m talking about, what I’m writing, with the help of the graphs and tables to explain every little detail on the title. I think we succeeded. I’m hoping that we did a good job and the folks will appreciate it.
I have enjoyed it. I downloaded a digital copy and I’ve been reading through it and I really loved it. I love the fact that more books are coming out from people and I’m really glad you put one out because I think there’s a very big void in that type of information out in the market for the most part. For people that are beginning or into the note game, instead of just their toes, they got their ankles in deep trying to figure things out.
Folks that are going from one note to 1,000, that’s the next step. You buy a note, you buy two, you get a feel for the note game and for the note investment. The next question you’ll have, “How do I go from one note to 1,000?” That book provides some clues on what you need to do from at least a diligence perspective. There are other things, servicing, foreclosure attorneys, the doc prep companies, all of those things are very, very important and you have to know them. At least from my side, I wanted to educate you as a reader and the buyer of the note, where do you go and what you do when you buy one note and what you do when you buy thousands?
You can always reach out to Alex at ProTitleUSA. Do you want to give your email out, Alex?
That is his actual email. He does check his own email. Don’t bombard him with asinine questions but really sought out questions out there. How can people get the book?
It’s on Amazon and Kindle. If you search for my name or if you search for the word bulletproof, the book should be in a mortgages or real estate investment section.
Alex, let’s talk about some of the biggest mistakes you’ve seen people make. What are some of the things that just drives you bonkers a little bit when you see or hear from people about their note deals?
Tax is number one. When you receive a report and there’s a little blurb in the tax section stating that the taxes are sold or there’s the real estate tax lien on the property, a red flag for you to go call the treasurer and verify if it’s redeemable. I’ve seen people buying notes with already registered tax sale and the tax deed recorded. They look at the reports, they thought that the report will give them the protection but it doesn’t. It gives you the information to make a decision. Then they come back and say, “Can you read the report and let me know if I bought the note which is enforceable?” I go, “No. You lost the note on the tax sale. What are you doing?” Then people say, “I’m not educated. I didn’t know what to look for.” You have to really watch out for assignment breaks. I know that we are dealing with the secondary markets, we are buying from somebody, let’s say from Scott. We need to verify that the original mortgage that was with Bank of America is assigned to Citi, and Citi to Wells Fargo and then Wells Fargo to Scott. The chain of assignments is very important because it’s the enforceability of the mortgage, things that you need to inspect some of the origination level defects, losing the mortgage in HOA foreclosure, not having the mortgage on title. The mortgage might be released or it’s deed in lieu of foreclosure or it’s foreclosed and you’re not buying a note anymore. You should really understand and read through not only the summary but also through the remaining pages on the title.
Those are all great points especially the tax sale aspect of it. I’ve always been a big proponent that there are three phases of every note that you have to have in mind: protect yourself, protect your investors, and you’re using other people’s money. One is you’ve got to make sure you verify value. You’ve got to double-check taxes, if taxes are owed or taxes have gone to sale, if there’s a redemption, if there’s a tax overage as well out there that a lot of people miss out. Thirdly, title. Checking the title using ProTitleUSA is one of the biggest things you have to use, you have to do before you close. You are pretty fast for the most part if people are ordering reports in most of the major marketplace. The only time it drags on is if it’s a rural area. Is that correct, Alex?
Yeah, that’s right. Typically, it takes about 24 to 48 hours during the business week. Don’t expect your report to come in over the weekend. We have a triple quality control system now. That’s something new as well that we deployed, where each file has been touched by three people: the searcher, the quality control and the final QC. The more time we’ll put in, the more errors we verify, the higher quality it is, the higher accuracy it is. If you want to have the report in four hours, we provide the expedited options as well for some counties and states. You can log in to our site, punch in the address and you might have a four-hour expedited option. If you need something extremely urgent, you have to pay for it but it’s available. That’s something I wanted to mention. Also if it takes 48 hours, don’t push us to deliver to you something in 24 because the lesser people will touch it, you’ll have the product that you wanted, but the more time we have, the better accuracy and quality it is. Rural counties, they take a little longer. Boots on the ground, middle-of-nowhere counties, we will go there once a week. That’s pretty much the time schedule for those counties and you probably know all of them. Vermont is a tough state, West Virginia is a tough state, North and South Dakota. Those are pretty middle-of-nowhere states and counties within, I would expect probably a five-day turn time. All the metro stuff should come back in under 48 hours.
That’s one of the big things we tell people all the time. You may not need to pull O&E on the frontend but the minute you get an accepted offer, that’s when you want to start paying in for either a BPO then start paying for the O&E stuff. A lot of sellers will provide O&E from ProTitleUSA. Somebody asked a question, “If a seller provides an O&E report, how long should we consider it valid?” BPOs a lot of times are 90 days or appraisals are good for 90 days. How long is an O&E or title report good for, Alex?
The title report is only good up through the date it’s completed. It’s not a title insurance. A lot of people don’t understand the difference between a title report and title insurance. Title insurance, if you have it as a part of the collateral, protects the investor from the prior time to the date of the mortgage. That’s it. You don’t expect the title insurance to cover you any date, any liens, any issues after the mortgage. That’s why you buy a title report. If the seller provides you a title report which is a year old, that’s a red flag for you. You are only seeing things, assuming it’s valid and it’s not done by fly-by-night company that’s located somewhere in India or the Philippines, that doesn’t serve judgments and you don’t know it. We’ve seen a lot of those. A common one is PropertyShark. I think it’s a $10-thing but they don’t do judgments. It’s all database scraped and they don’t analyze anything. You get what you pay for. It’s only good to the effective date of the title search. If it’s a year old and the seller gives it to you, you still need to run a title search to make sure that nothing else popped up from the time the last title search is ran to the present time.
Vacant properties, utility bills, weed liens, things like that can add up pretty relatively quickly for vacant properties in areas like Chicago and other things like that that could be a pain in the ass to deal with.
It’s a tough county to deal with. Cook County is very, very tough. They enforce everything. That’s the only county in Illinois that will have water and sewer attached into the property. You will not be able to record the foreclosure deed until you get the municipal order. They’re $45 each. It’s very painful, very bureaucratic but that’s how they do things.
We’ve got a question, “I found a vacant home that is owned by a hedge fund.” I guess it’s an REO of some sort. “They will only do a quitclaim and no financing. Which report should I use or pull?”
You have to get a full/foreclosure title report which is in essence a Two Owner Search. Getting a true quit claim deed, which means it’s uninsurable, you will not get the title insurance. Ask them to see if they can give you a special warranty deed or a limited warranty deed. You have a better chance of getting the title insurance. That’s the first comment. The second comment is if they got it at the foreclosure sale and they are the hedge fund, I don’t know if they did anything to the property to pay off the prior liens from the borrower. Your second question, what liens will survive the foreclosure? That’s why you need to go back to the time when the borrower lost the property in a foreclosure sale, acquired it in the first place. You really need to check which liens from that borrower will survive a foreclosure. Don’t assume that all of them will be wiped out. That’s a wrong assumption. Some will survive and hurt you. Do hedge fund cure them? I don’t know. Did they get a title insurance after REO? If they did, then you are better off. You are safer. Title insurance will cover for any losses that are from private owner up through the date of the title insurance. Question number three, do they have the title insurance post-REO? If they do, you’re better off.
When people buy a note and they foreclose on it and then they look to sell, I’m a big believer that it makes really good sense, especially in the secondary market, to go ahead and purchase an updated O&E report to help speed the closing on that stuff. Do you see that happening quite a bit or no?
Post-REO, your buyer, if he owned the property now, will want to have a title insurance. Not only would I recommend to do an updated title which is called an update. In other words, you did a title report when you purchased a note and hopefully you foreclose within the year and we can do something called an update, which is probably around $35. The update will tell you if there are any other liens that popped up during your ownership as the owner of the property, as the owner of that REO, as well as any new liens that popped up when you were foreclosing and you owned the note. Ideally, the attorney that you selected to foreclose on the property does the title himself because they need to service people. If something new popped up, the attorney is supposed to run a title update right before the foreclosure deed is recorded. Check with your attorney if they’re doing it already so you don’t have to do it yourself. I want to make sure that you save money. When you foreclose on the property and it becomes REO, I can help you in two states right now and we have pending PA and Florida, in New York and New Jersey. I can issue a title insurance on the REO property. Then that will help you to sell it without going through the quitclaim deed. Typically a quitclaim deed, you’ll probably have a cash transaction. Nobody will loan you money for it unless it’s a private investor to loan you money, hard money lender, to purchase the property or you will do a seller assistance, all the options that you have. Title insurance would be my recommendation for post-REOs.
What’s your schedule like for those that are out there traveling?
The next conference, we haven’t decided yet but probably it’s going to be SFIG Conference in Las Vegas. That’s the biggest conference with 6,000 people attending, some of the bigger names in the market, Bank of America, Citi, Nomura and so on. It’s the conference that IMN joins with somebody else and it’s the Capital Markets Conference, one of the biggest ones. It’s comparable to MBA Annual Conference.
You’ll be at the Paper Source in Vegas in April as well?
I’m not sure yet. I might or somebody else will go.
You will be at Note CAMP 5.0 on April 5th through the 8th, right?
That will be online rock and rolling. You’ll also be speaking in the next Virtual Workshop in March 9, 10 and 11 too though. Alex, I want to say thank you again for coming on to the Note Closers Show and sharing as always valuable information. I would love to do a Vulcan mind meld with you and learn as much with you. That’s the beautiful thing about having eleven-plus years experience running ProTitleUSA and how many years’ experience before in the title business. You have one of the biggest hearts in the industry because you’re always giving, giving, giving. Part of what has helped make you so successful is that you’ve just got a great heart and a true passion for helping people succeed. We love what you do.
Scott, I appreciate it. Thanks and I enjoyed talking. Don’t hesitate to call me. I will be answering all your questions, trying to help in any way I can.
If you have not bought the book, go to Amazon.
Thank you for joining us on the Note Closers Show.
Thanks, Scott. Take care.
Go out, have an amazing day. Go rock it off. If you’re on iTunes and Stitcher, thank you. As always, if you’ve enjoyed this episode, make sure to leave a five-star review. Make sure to drop us an email at Scott@WeCloseNotes.com. Please give us any feedback. Anything you’d love to see, we love to see. Once again, Alex, thanks. We’ll see you all at the top.