Your note investing horror story happens more often than you think. Problems with vendors, deals and other people in the note investing industry can really affect your quality of life. But even the ugliest of stories can contain valuable nuggets of wisdom to be used for next time. Learn how to pick the most effective solutions for common problems in note investing with Chris Seveney of 7E Investments and Gail Greenberg of Win Win Notes. If you’re a borrower in need of multiple options with the opportunity to stay in the home, then Chris Seveney of 7E Investments is your guy. Located in Washington, DC, Chris specializes in the acquisition of first position nonperforming and performing notes. Over the past two years, his company has acquired over 50 assets and have provided their investors with above average returns. Guest host Gail Greenberg is a social media expert. One of the things that Gail did at Note CAMP was running daily promotions to see who puts out the most creative posts. At the end of it, she won the grand prize of having a year membership for the Note Mastermind and came to a Fast Track training, which she leveraged to kick-start her way into the note industry.
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Solutions To Common Problems In Note Investing With Chris Seveney And Gail Greenberg
Our subject on this episode is one I personally have been dying to talk about. Chris and I have these conversations pretty regularly. We call them rant sessions where we talk about problems we’ve had with vendors, deals and other people in our world that really affect your quality of life when you’re a note investor. We’re just here to tell some ugly stories that hopefully have some golden lessons to be learned in them. Though, I don’t know for sure that that’s the case.
I think everyone knows from Note CAMP, I was teetering on the brink of my first losing deal and having a rather tough time with it emotionally. I’m now ready to blame people and talk about exactly what happened and get my revenge. I bought a house, it was a contract for deed. The house was vacant. I knew it would be an easy Cash for Keys situation. I had two people look at the house before I bought it. It was a brick house, which in my mind is like, “A brick house, that’s the best.” That’s the gold standard, what could be wrong with a brick house?
After I bought it, a preservation company went in and photographed it top to bottom. It was on the basis of how great everything looked that I went ahead and started renovating it, thinking I would sell it on within our finance. Put a nice new family in there. My painter, when he was all finished with the inside, he goes outside to see if the window frames need painting and discovers what no one had miraculously seen up until then there was a major structural problem with the house.
You were one of the first people, Chris, who talked to me off the ledge. Maybe you just need to tie the bricks back to the frame and it’s not a big deal. The bricks were slaying out in a way that made the window look like it was falling backwards into the house. Unfortunately, it didn’t turn out to be that simple. That was one of the first really clearly terrible experiences I have. Of all the people that looked at it, I blamed the preservation company the most because they photographed it. The fact that they didn’t see this, when I later put the house up for sale, I waited to see if anyone would notice and everybody saw it.
These stories as you get involved in the industry, I’ll say are constant and continuous. We go back and forth though. We joke that we’re each other’s therapist now in regards to some of these deals we have. We’ve got good stories and then you’ve got some that you want to pull your head out or pull your hair out of your head and stuff. One of the things that I’ll mention about some of these deals and so forth is as you get going and just start JV-ing with people, as you started doing marketing stuff, you’ll pick up some JV partners and you’ll have some funds available, but you don’t want to force the deal. Early on, I forced a deal once where my JV partner really wanted this property because he wanted to take it back. It was a vacant property and there were just a lot of problems with it. We ended up doing well on the property.
Going forward on the next one, the partner was more somebody who was interested in the fixing and flipping of the note versus getting it as an REO and selling it versus looking for the cashflow. That’s really not my strategy. That’s one of the components I want to push the people out there is when you’re meeting with your partners and stuff and talking with them, make sure you’re on the same page and you have the same realistic goals. If they want their money back in six or twelve months and you’re looking for a long-term cashflow or it’s a deal that might be longer than that, you need to be upfront with them.
We should just go ahead and talk about JVs. I’ve generally had very good experiences. I seem to be really attracting people who very much share my values. I think values are another issue. One of the reasons that I’m in this business is because I like the fact that I can make a lot of money actually helping people. I can’t really think of too many situations where that’s the case. Like you, I look for re-performers. I don’t want to foreclose on someone who is truly in a terrible situation. I’ve had opportunities to buy houses where there are elderly people. Then you read the servicing notes and you find out, “This guy’s 80. His wife is 82 and diabetic and blind and all these things. I’m not going to buy that. I had that exact situation in Savannah, Georgia. I looked at a note like that and I think, “These people can’t afford this house anymore. If I buy it, can I make enough ROI to make an investor happy?”
I think there are investors out there who might be willing to take a little less and do impact investing. They want to make a difference in the world. Right now, that isn’t really what any of my current investors are looking at though they’re very nice people. I’m upfront. I bought one recently. It has a very high monthly payment and we know from the tax records that the borrower is on disability. I just said to the investor, “Let’s not buy this if you’re not willing to reduce his monthly payment, if that becomes necessary.” Even if we reduced it, the ROI is going to be 36%. Are you willing to take 36% instead of 42%? I think the answer should be yes to let a disabled man stay in his house that he had been in for twenty years. You have to answer yes to that if you want to be my JV.
There’s a moral aspect of it too of your goal or your business plan is if you’re looking to keep the borrowers in the home, you really got to reinforce that with your JV partners and the returns are the returns. On a lot of my deals, if I market to my inner circle, I won’t publish deals that show 50%, 80%. You see some people who publish things like that because the reality of it is I do think those deals are far few and between, and there are always many different exit strategies and things that can go wrong. I’ve got a property I’ve talked to you about this many times. My property in Ohio has an indoor pool and a basement. If anyone wants a property in Ohio, I’ll give you a great deal on it. The borrower his car in the driveway, had a light on in the property and he moved next door because there was water in the property and the BPO had no idea knowing that it wasn’t occupied. When that did occur, one of the things with the JV partners is I’m upfront with them. I’ll call him and say, “This one’s messy. This one’s ugly.”
You map out the strategy and just talk to them. When you have a lot of conversations before you do a deal with a JV partner, I think that goes a long way in understanding them and having that relationship. If you’re just literally having a five-minute conversation with somebody before you’re working on a JV deal with them, that can lead to a lot of challenges. A lesson learned on that were early on, I had a JV partner who actually I met locally and had a discussion with him but hindsight being 20/20, I probably should have had three or four discussions on them. They want a very high level of reporting. The note was actually a semi performer that we’ve got them on a trial payment plan. They started performing, but they literally were emailing me about once a week asking if we’ve got a payment. I had to explain to them that just like if you have a mortgage, you pay monthly and if it’s due the first, we get a payment on the third or fourth, don’t email me on the 20th to see if we’ve got that other payment.
I just have to say, anyone who complains about the level of reporting you do is already not on our planet because you do more reporting than anyone I know. I’ve talked to numerous investors who have told me they’ve gone a year without really knowing too much about what’s going on with their JV deals. You report every month pretty much.
I report every month. I had somebody create a campaign in Infusionsoft that all that information is ready in Infusionsoft. I literally fill in three buttons and Infusionsoft, hit the button and it goes out to my partner. I’m trying to automate it as much as possible to try and get things going.
I basically finally got my QuickBooks sorted out to the point where I can very easily generate reports that show all the expenses in the reserve fund and what the reserve balance is and also shows the income. I bundle that and send it with a check and so far, so good. I was going to say too the problem with JVs is they come to you and they’re very excited. They decided to take the leap. They’re ready to go. I don’t think many JVs themselves know exactly what they want. They want to be in a deal and they want it to go well, but they’re not really clear at the outset what that looks like.
I think part of it too is as you grow as a note investor, I funded my own deals and had family member do some funding and then when we started to get JV deals, when you get those first few people reaching out to you and stuff, the level of excitement is like a kid on his birthday with the presents. You’ve got to be very careful in your due diligence with regards to and making sure that relationship is a proper relationship because it’s a long-term relationship. It’s not something where you hear from this person once or twice over the next twelve to eighteen months. You’re going to be in constant contact with this individual and you want to make sure that they have the same philosophy, the same morals, the same beliefs that you have.
You and I, interestingly when we’ve compared to us, there have been some JV investors that we’ve both turned down. I don’t really remember what the trigger words were in the conversations that made us feel like, “No.”
I’ve had one who wanted a guaranteed value on the property.
What is a guaranteed value on a property?
They basically wanted a limit set where if it was at a $20,000 note, they would only put in $5,000 and if we had the rehab, the property or anything like that, that would all come out of my pocket. They wanted basically everything set guaranteed in regards to that. I basically told them, “I’m not your person for this. There might be other people out there but I’m not guaranteeing anything or putting anything that is unknown at risk. I take that Ohio property if I would have guaranteed somebody on that property and so forth, it’s not a smart business decision.
I’ve had people who wanted me to pledge that I would put my own money in too for rehab and stuff like that. Every type of real estate has its conventions as far as how people partner. For some people, not a lack of awareness, that’s not really the way it works in.
Do you have a minimum value investment now that you have grown to the level that you’re at?
I basically go with $50,000. A lot of people that come to me want to learn this business and I feel if I’m in a mentoring role with them, there are a lot of value to what we do as mentors with our JVs. I’m not in it for someone to spend $12,000 on a contract for deed and learn all my secret sauce and then go. I’m actually really at the point where I don’t want to JV with people who are aspiring note investors. I feel like all I’m really doing is teaching them to invest exactly the way I do, which means every future tape I will be battling with them on the same assets, bidding the same amounts and they’re here and gone. I want long-term JV relationships. I want to build something with people. Are you thinking of enacting some limitations like that too?
I’ve started recently. My threshold is a little lower, I’m at $25,000 that I have for people. We can all find contract for deeds at $7,000, $10,000, $12,000. Honestly, what I have found is the people that have that lower echelon money, there’s nothing wrong with it, but that’s pretty much all they have. I don’t want to take all of somebody’s money is the first component. Secondly, I’ve had several people who get COFI. I had someone basically get COFI twice on me on two deals.
You’re not talking about the same person, you mean two different people?
No, the same person.
You have him a second chance?
First time shame on you, second time, shame on me. I’m not perfect. My wife tells me that every day. One thing too, with the JV that I just wanted to throw out there because we’ve had this discussion and I’m not sure really most people have really talked about at all is the termination agreement on a JV deal, at the end of a deal. A lot of people always talk about the JV agreements and getting that and having your attorney review that and so forth. Then we have the conversation once of, “What do we do at the end of the deal?” I have worked on and we both have now a JV termination agreement that is a quick nugget to people out there watching is as you take your JVs and your work on your joint venture agreement, also make sure that have a termination agreement. Basically, when you cut them that final check that the JV is now a closed out because the last thing you want is six months or a year down the road someone coming back and saying, “Where’s that extra $3,000 you owe me?”
I want to talk about some really bad deals that I’m lucky that I didn’t get into them. I was looking at a really nice tape of CFDs, so many great looking assets and I know you’ve brought a lot from that tape too. I have three or four. It makes me realize why these are still available. I’ll mention the towns because people who were disappointed that they didn’t get them, this will make you feel a lot better. There’s one in Redford, Michigan where there was a deed in lieu three buyers ago. When they did the deed in lieu, they did not record a satisfaction of mortgage. Basically, this house which is probably worth $50,000, still technically has a mortgage on it of $110,000. The lender in that case is the one that gave the deed in lieu to the borrower and then sold a quit claim deed to the property. Technically, they’re never going to come for the money, they’re not expecting the money.
The problem is if you ever have a contract for the borrower in that house who reaches the end of the contract and is now owed the house, you wouldn’t be able to give them clear title to it. It still got this massive loan on it. That’s been a huge problem. We went back and forth. Mostly I find that sellers don’t like to clean up any of their messes. They just really want you to pay them the money and just take the thing away from them. I have multiple ones that I’ve bid on. I have massive, massive liens on them because of communities like St. Louis, Lake County, Indiana where Gary is and the city of Richmond is. The City of Richmond will slap a lien on any property. Let’s say it’s Harbor-owned. They’ll lien every property that Harbor owns in Lake County or the city of Richmond. I was trying to buy something in Gary, Indiana, which I do with great trepidation anyway.
I have three notes in Gary that I bought and these are all performers now. I had a two-year performing history and actually they’ve been doing very well.
There are humble abodes and there are humble abodes with gunfire. I don’t buy one type like $20,000 in liens and I just had the same thing. There’s a sewer lien, it’s a great property in St. Louis. I’m not dying to buy something in St. Louis but it’s a nice property. The return was really good. Someone looked at it for me, a contractor. I don’t really have realtors look at properties anymore. I send Craigslist people for $20 and ideally, a contractor/handyman if possible because I feel like they really notice what’s going on. You have a hard time restraining them though. I had one that actually put a ladder up against the house and was going to go up and look at the roof.
I just got an email from somebody who was a JV partner. I do the same thing. I send Craigslist people out because they’re very brief. He mentioned that he’d send me a thing and he goes, “The person drove into the driveway, got out of the car and started walking around the property.” Even though you tell them, “Don’t talk to the person, just take a few shots from the street. If it’s vacant, then do what you need to do.” I’ve had actually pizza delivered before to a house.
You want to see if anyone was there?
See if anyone was there but also try and get a little bit of a look on the inside. Gail, you mentioned about a lot of the liens and things of that nature. Do you that more often with notes or with contract for deeds or with both?
Really contracts for deeds. These properties. I keep getting sold with quitclaim deeds over and over again and nothing ever gets dealt with. It’s like the box stops with you. As an investor, take the view like, “I will buy it and I’ll do exactly what the seller is doing to me. I will eventually resell it and I won’t deal with any of these things. Are there buyers who buy these with $20,000 liens? I’ll squeeze it for the juice that I’m going to get and then I’ll send it on
My first CFD that I went to go buy, sometimes the best note is the ones you don’t buy. This CFT actually, the Zillow pictures, the house was a mess. I had a note in the area that I had and I had a local handyman who was taking care of the lawn and everything for me. He went by and took some pictures for me and he said, “They put in windows in. The place has been updated. It looks really good.” When I went to go looking into the collateral component of it, first was I tried to get title insurance on it, which was basically a waste of $300 because trying to get title insurance on the CFD is impossible.
What ended up happening is the land contracts, how they’re getting assigned, the land contract was executed before the deed was recorded. When I heard from the attorney, basically it’s an invalid land contract and then the person who had the land contract assigned it to another person who he assigned it to. It was a big circle of mess and the property actually had a lot of value to it and it was one of those things where it’s like, “Do you take the risks?” but there are so many issues with it. At the end of the day, I basically I probably had about $700 into the deal because of the due diligence, the attorney review, the full title report I pulled and everything and I just pulled the plug on it.
What I find difficult too is that different attorneys give you different opinions about things that should be. You’re an attorney, there are laws guiding these things. Why are we disagreeing? Our friend Tonya, who just bought her first two notes. She told me, “I have several contracts for deed in Birmingham.” She told me that to take a contract for deed house back in Birmingham, you have to have all your land contract assignments recorded. I’ve now checked with two other attorneys and they both said they are not aware that that’s the case. What do you do about these things? You’re often in a sales situation. We don’t have months to find out whether you’re going to buy something or not and you get all these conflicting opinions. I don’t know. It’s very baffling. I feel like I’ve definitely lost, missed out on deals because I was overly cautious. On the other hands, you don’t have to be cautious.
It’s like the Maryland debt collectors. I can talk for hours on that whole issue with the license requirements in Maryland based on the many conversations I’ve had with Brian.
Many people that we didn’t give up on.
Brian has more experience and stuff, and I rely on him. That’s really what I have to do is I rely on my attorney. I may get a second opinion on it but at the end of the day, I rely on their judgment. If something happens during that phase of it, I’m going to look back to them for their experience.
You were talking about that land contract being a problem because it was signed before the property transferred. Essentially, somebody who didn’t own the property was selling on a land contract.
Let’s say you’re closing on a note deal and you had somebody for land contract on Monday but you didn’t record that deed and both actually did get recorded. If John Smith was a land contract that you recorded in Lake County and then you record the deed two weeks later, basically it’s an invalid land contract. In some states, that person may be able to have any funds they’ve paid get it back even if they aren’t performing or if they’re not performing, it can just lead to a lot of problems.
There are many places where if land contract is deemed invalid in court, technically you can be required as lender to pay back everything that has ever been paid on that land contract. Even paid to previous lenders before you had it, which sounds horrible. Then there’s usually this mitigating factor where the court will then say, but you are also allowed to collect rent, like market rent for that same period where the land contract wasn’t in place. The general idea is the person doesn’t get to live there for free just because there’s a paperwork snafu. It evens out. Have you been told that?
I’ve been told that and it’s one of those things where I just look at it from, “I’m just not going to take the risk.”
It sounds like a huge hassle. If heaven forbid you have one of these wily borrowers who really knows the laws and the system and how to get the maximum amount of time and squeeze the maximum amount of legal costs out of you, they can just win the war of attrition. You just can’t hang in there long enough to win, even if you’re right. Talking about the invalid thing, I have that right now. Any of you who were bidding on an asset on a street called Liberty Valley in Decatur, Georgia, this is what you missed out on. That property, there was a deed in lieu, three buyers ago and since that time it has transferred three times on a quitclaim deed, but the original deed in lieu borrower is still listed as the owner of the property. Why is that? Those three transfers by a quitclaim deed in the legal description, the lot number is incorrect.
It should be sixteen and they have eighteen. This seems like the smallest thing in the world, but because that happened, it took a tremendous amount of phone calling and digging to even find out why all those deed transfers were listed in the public record as invalid sales. Nobody even knew why that was like. The seller couldn’t explain. I’m not sure they even bothered asking or looking, but I’m concerned. I always liked to find out exactly what’s going on.
Basically, all three of those sales have been considered invalid and the deed has been called unworkable. What that actually means is that the seller who is endeavoring to sell that property to me doesn’t even own it technically. I’m right now trying to get them. It turns out that although this is the smallest issue in the world, one digit in three deeds and the GIS person at the county told me at DeKalb county said all I have to do is file an affidavit correcting it. It turns out in talking to two different attorneys that that isn’t all you have to do. The only thing that will resolve this is a quiet title action, which will cost either $5,000 on the low-end or $15,000.
I’ve had similar deals and borrowers. One lesson learned is if there’s a long history of foreclosure on the property and it extended for a year and then gets this semester, or the person likes to fight and that’s a sign that they like to fight and they’ll fight you as well. The $3,000, $4,000 that you thought you were going to spend, it turns into $7,000, $8,000, or $9,000. The first note I bought, it’s been since November of 2017 and this note is still active. It had $10,000 and the house was worth like $45,000. I didn’t listen to Scott and I bought one with equity. It was nonperforming but this borrower has fought the foreclosure. They send a letter every month basically saying the servicer isn’t following RESPA in truth and lending by answering questions and providing information.
They’ve had several foreclosure dates that had been postponed. I’m not going to name the state or a city or anything like that because it’s still active, but it’s slowly coming to fruition. It’s one of those where the UPB was $10,000. I get paid around $3,000 for it and my legal costs have probably been double what I actually paid on it but unfortunately, you can tack them on. I looked back and they’ve probably spent about the same amount fighting this thing. We tried to reach out to them and work out a short payoff and stuff and they wouldn’t bite. They wanted to fight. I’ve had many deals since then. I’ve have come and gone and this is one that constantly lingers.
I had a similar situation. I actually didn’t buy this one but Condor was trying to sell this very nice three-bedroom house in Philadelphia right near St. Joe’s, which is a big college that’s actually not too far from me. It was in walking distance of the campus. Three bedrooms that would have cashflowed like crazy. They told me when they were discussing it with me that it was actually an REO at this point. They have been through this long and totally exhausting process. Crazily they say to me, “You would not believe how much it costs us to foreclose on this,” apparently because the borrower fought them tooth and nail.
I look up the borrower, it turns out he’s an attorney now, which means that he can fight all day long. Their whole point was, “All you have to do is eject the guy, do an ejectment procedure,” which in Philadelphia it can be as expensive and long as the foreclosure itself. They basically told me that they spent upwards of $80,000 foreclosing on this thing because he had the tools and ability, they were paying real lawyers. He was defending himself. I spoke to an attorney about what the ejectment could conceivably cost, like worst case scenario, someone fights and fights, and they were like $50,000. At the end having lost his eight-year battle, what he would do to the house on the way out?
Note to self, that’s why I always check who the borrower is. I’ve had multiple that with attorneys and I’m like, “I’m not going to deal with an attorney on the other end.” Adam Adams said a bunch are deceased borrowers. I know early on I’ve had a bunch like that and actually have indecent deals for me in the sense in partly because at some point in time we were actually listed for sale. I had some recent interior photos on the properties or their family members that want to work with you, when you read the servicing notes. That’s a good point you bring up. We’re in this industry, you are looking at the property and you’re focused on the property and what the value of the property is, but there is that soft skills side of doing that, Facebook stalking and whether it’s Spokeo or the white pages to find out a little about that borrower. Then when she gets the servicing and comments, if you get it under agreement, you definitely want to check what those are to see if the person’s hostile or not because you’re going to know if the person is going to fight. If the person’s going to fight, your legal bills run up quickly.
Have you been successful getting servicing notes on Contracts for Deed?
Yes. I’ve asked that last group of the ones I recently closed on. I asked John to get the servicing comments on them and he sent them over. I also did ask for current payoffs right before closing because I’ve had an issue in the past where the due diligence period, may have had a note on agreement and the due diligence and there were some issues and so forth so it might not have closed. In that time on one of those notes, it was actually done at the time five notes and one of the borrowers made a large payment. I think it was because they get tax money back and four of the other notes also made some pretty decent payments. If it was short money, I wouldn’t bring it up or have discussion, but it was to the tune of over $3,000. I think it might have been even closer to $5,000. Actually, it was where the closing date was actually earlier in the payments had come after. I ended up having to get legal involved in this issue with your favorite servicer again. I’ve got two favorites, but I had to get the legal involved because at the contract it says any payments after X date, come to me and they were fighting that.
I’ve learned now if the closing date is the date I am basically funding which 99% of the times it is and it’s been a while, I will ask for a most up to date pay off the day before closing. It’s similar when you’re closing on a house in some senses, which we’re doing on a CFD. “What were the taxes where everything else?” Which actually popped in my head and leads me to a note I have going on, these horror story notes. I have a note in Virginia that was actually on the market for sale of the property, first position lien basically picked it up for about 35% of what the asking price was for sale. Basically, the prior lender to agree to a short sale. No bites because the agent who listed it I believe is a friend of the borrower. I think it’s a rental. It’s actually multiple units where they’re collecting the paychecks and listing it for sale, but never answering phone calls. Basically, we agreed to a deed in lieu with them. We went through the process, had the attorney draft it up, it takes a few days, weeks to do that.
You mail it out, they hold it for two to three weeks. I bought the note back. They signed the deed in lieu. Before I went to go record things, I’m like, “Let’s pull another O&E report from ProTitle, from the last time to now, to make sure.” $50 well spent because previously they had a property manager on the property that slapped a $12,000 lien on the property in between that time. If I would have signed the deed in lieu, I would have a property with a $12,000 lien on it. The property is worth about $30,000. Think of having that lean on it basically that would have wiped out anything I would have ever made on the deal. I actually called the property management company. Basically, they noted they had an offer from the borrower allegedly for $8,000. I said, “I’m not giving the $8,000 in Virginia to foreclose. It’s a few thousand bucks and it will be done in 45, 60 days. I’ll give you the cost that’s going to cost me to foreclose so I can get this resolved.”
They flat out rejected it, so we’re now in the foreclosure process stage and now I’m guessing that probably once they get the notice, they’re probably going to call me and try and work something out. If I’ve already expended that money with the attorney, I’m going to basically say it’s easier for me to foreclose at this point in time because I’ve already spent it. Why am I going to give up anymore? I have no problem waiting the extra 30, 60 days. I was also negotiating with one of the tenants in the property to sell it to them, write a note for them and basically have the note be what their rental payment was so they actually would have ownership on it. I’ve been trying to work that aspect of it but I don’t think the borrower wants to own it. They want the flexibility. As we talk about notes from how and stuff, that was a little tidbit for people. If you’re taking deed in lieus and stuff and it’s been a few months, spend the extra $35 to $50 ProTitle charges for an updated O&E report because you never know.
It makes me sad actually when you put all that effort into trying to work things out with people, then they’re completely unrealistic. My only note in Pennsylvania near me is in a big rental area outside of Philly called Norristown. It’s a rental property and it’s in terrible shape. In fact, when I was buying the note from Automation Solutions Financing, I sent them a photograph of the property. After chasing the borrower, he hasn’t made a single payment in six years. I knew it was a foreclosure situation and this guy has declared bankruptcy five times in six years in order to not pay the taxes and get away with all kinds of stuff.
He bought a whole bunch of properties in that area, rental properties right before the crash. He’s buried in all these problems, trying to crawl out from underneath all of it. For some reason he likes this property and wants to keep it. This property owed $13,000 in back taxes. There are code enforcement fines of like $3,000 or $4,000. There are other things that are on it as liens. He owes me $60,000. Reinstatement is $20,000 something because he hasn’t made a payment in six years. After we’re putting up the notices, the demand letters and the notice of foreclosure, he calls me and he tells me all these things. He sounds like an elderly dude. I find that quite often people turn out to be a lot younger than they sound on the phone, but we were like, “Send a proposal for how you’re going to turn this whole situation around.”
He literally sends me a text that says, “I, so and so, will do such and such. I will rent out this property for $900 a month. I have $6,000 to get it going again. I own nine other properties. I’m selling two of them on short sales.” First of all, he thinks that a proposal means swearing an oath of some kind. “I promise I will pay you.” The $6,000 he’s got to get this going, it needs a minimum of $12,000 to renovate it to be rent ready, the best-case scenario if you find a reasonable contractor. He doesn’t like, “I will pay the taxes.” He doesn’t have any money, like the $900 even gets to that point. He’s not going to cover what he owes me plus current taxes plus his payment on his delinquent taxes. A $13,000 balance is going to be a huge payment. He just keeps calling me and saying, “What do you think?” I’m like, “That’s not a proposal. That’s a statement of intention. That will work with your personal development coach, but that’s not something that we work with.”
I have a good friend, Andy, at Polaris who I know you use. I had a note in a location where they have water issues. I actually got the foreclosure date on this property. This one had a borrower who had it as a rental and had it with nine others that they own. This one was actually listed for rent. I had somebody reach out to see if it’s still available and it’s like, “We just rented that one but I got another one somewhere else and they’re getting $400 a month for it.” I had Andy call and basically say, “Let’s offer them $275 a month,” or whatever it was because I literally basically paid almost nothing for this at the time.
Basically, the first phone conversation once got on the phone was basically told her, she basically hung up on him. We tried to reach out to this person and be like, “You’re getting paid for this. Let you cashflow, let’s make it a win-win deal.” The person was completely adamant. “No, I want nothing to do with you. I don’t want anything to do with it.” Lo and behold, we come to find out during the downturn, basically she had a lot of these houses with a fund that she owned them and was a lender and basically wiped the debt on a bunch of them. Some of them were worth so little, they basically said, “We’re going to write it off and basically be a lender.” I thought this one would be a nice, simple one. Unfortunately, this one’s been a very challenging struggle in regards to getting payments in. Foreclosure is coming up and we’ll see what happens. I have a question for you too in regards to some of these. Have you ever gone after a deficiency judgment on any of your borrowers?
I actually never foreclosed on anyone. How many have you done?
Foreclosed on four or five, full gone through. I’ve got one right now, I think number six, which is in Wyoming. I have done everything possible to not foreclose on this person. It’s a small town in Wyoming that was thrown in on a small pool I bought and I have an agent in the area who’s knocking on the door, knows a family member who works at a local diner. I’m trying to be like, “Will you please just pick up the phone and call somebody?” They refuse to. We must’ve sent twenty letters, had five door knockers. The agent’s gone to the house and stuff and basically left me no option but to foreclose. There’s a 90-day basically take back period that they have because it was also a second on the property that they have that now we’re waiting to our process. I’m still actually trying to reach out to them to work it out. I’ve never done a deficiency judgment and I was curious if you had ever done any.
I certainly know people who have. There’s someone well-known to both of us, it’s a part of his personal style. He loves to do the detective work to find out what else they own and to go slap a deficiency judgment. Most of ours I have, they don’t own multiple properties like this one and PI would be the first one. Every one of his properties is in trouble. They’re all going to go for less. Probably all the lenders, they’re not like me. They’re going to foreclose, but they’re not going to keep the property either. Definitely go sell it for whatever they can get for it.
In my foreclosures, through my notes that I’ve done, most of the ones who’ve been where the borrower is deceased. There’s one in Wyoming, this other one I talked about earlier that’s been going on forever. Those are the only two that the borrowers haven’t been able to get a workout, involved with them. The reason has been a communication that they can’t get anybody on the other end to respond, pick up the phone call and call because we’ve reached out and said let’s try and work something out. Unfortunately, nobody has.
Do you think the problem is they’ve been undisturbed by previous lenders for so long that they don’t think anything’s going to happen?
There are two scenarios that I’ve seen. One is the borrower has an attorney that is not looking out in their best interest. I think I’ve talked to you about this one with the bankruptcies, where the person filed bankruptcy got dismissed. Their attorney basically is charging $4,500 and they just refiled a bankruptcy again a week after the first one got dismissed. They paid their attorney for $5,000 to refile this bankruptcy and it’s been months now, haven’t made a payment and the trustee filed a motion to dismiss. I feel for this borrower because we were trying to work something out with them and their attorney intervened and not looking out their best interest because the property actually has equity in it.
The borrower unfortunately can’t afford the property. The best avenue would be wanting to work with him, saying, “We’ll work with you. Find an agent to try and list the property and sell it so you can get top value because if we have to foreclose on the property, and you’re not going to get top value for it.” Unfortunately, borrower doesn’t have an income so it’s not like I can work any modification out with him in that sense. He could take the cash that he gets from the sale, which would be significant, and then roll that into a new thing and do whatever you need to do.
Attorneys are one. The other is what you mentioned where people have to dangle that carrot of threatening to foreclose, threatening foreclose. Nobody’s ever done it and they’re like, “I’m not going to have to pay because they’ll probably go down the same path.” When I was talking to somebody basically about the fact that there are a lot of note investors out there too who won’t go down that path foreclosing. There are certain hedge funds that won’t foreclose, that’s why they sell them. At some point in time I don’t like to foreclose. It’s not my primary strategy. I definitely want to work something out, but there comes a point in time where if the person basically doesn’t step up to the plate, then you’ve got to do something.
Sometime I feel like we’re the clean-up crew. Pushing on the little trashcan along and sweeping.
On the flip side we talked about some of the deals gone awry, gone wrong, or not well, but I had one that borrower basically wouldn’t respond to anybody, the door knocker sent them a notice of intent to foreclose, basically had $15,000 to get caught up and cut me a check for %15,000. Now they’re all cut up. That one’s nice. I truly believe they were thinking that it’s basically a call to threat that is never going to come to fruition.
You’re such a nice guy. Who would think you would actually do it?
Everybody gets in trouble at some point in your life, no matter whether it’s financially or whatever. Nobody’s life is perfect. If it is, then you should be writing books and be very famous. We all have hardships in life and we’ve all been through them. When you’re dealing with some of these borrowers sometimes, think of your hardship that you went through and think of how stressful that is. I had a foreclosure recently that the borrower has been with the property for fifteen years. I was like, “I’m not going to sit there and file the eviction notice the day after I had the deed signed.” I found a real estate agent that reached out to them and we got on the phone with them and said, “How can we help you to make this transition as smooth as possible?”
I can’t let you stay in for a year, but if you need a place until the end of the month or for two months. From my perspective, if I’m going to list the house for sale, depending on where it’s located, I would rather have somebody living in the house than have a vacant property. Depending on where it is, things could happen to it. Whereas I work out a deal with them where, “I’ll let you stay for 30, 60 days and instead giving you Cash for Keys, I’ll give you 60 days to stay in the property without paying me or give me a $100 or whatever it is. I’ll cut you a check if you leave after 100 days for $100.” You’re not losing anything because you’ve got the property as an REO, but it’s not generating any income. You’re helping somebody out while you’re also helping yourself out because your insurance costs are a little lower because it’s still occupied and you’re less risk to have it be vandalized.
Chris, I feel bad for everyone who only has an hour with you. I get your drive time almost every day.
It’s been a pleasure as always, Gail, and always good chatting with you. Every time I talk with you, of course I learn something new as well. Why don’t you tell people how they can reach out to you if they are looking to chat or get more information or look at some opportunities you have?
You can find me at Gail@WinWinNotes.com. I’ve been talking to a lot of people, you and I and everyone else on the podcasts. I’m sure is hearing from a lot of people. Feel free to reach out if you have any questions or have any interest in doing any work together and we’re always available.
If you’re looking to reach out to me, it’s Chris@7EInvestments.com or visit us on the web at www.7EInvestments.com. My contact information and phone number are all available to you. It’s been a pleasure as always. I’m sure we will keep in touch and for everybody out there, thank you.
About Chris Seveney
A Senior Level Executive with 20 years’ of progressive leadership experience in managing complex real estate projects. I have had the opportunity during my career to be fiscally responsible for over $1B of new construction and renovation projects. The project types were from a balanced portfolio of Residential (Multi-Family); Office; Retail; Mixed-Use; Government; Higher Education and Hospitality.
My responsibilities include:
• Develop & Implement new construction project SOP’s on all aspects of operations including
Budgeting/Forecast/Financial Management; Quality Control; Contract Management; Project
• Collaborate with project team, interface with clients and deploy technology and green building
• Coordinate & implement construction methodologies (BIM, LEED).
• Provide leadership, mentor subordinates and project team members through communication,
expertise and lessons learned.
• Work with local jurisdictions, Property Owners and Design Team members in development and
Real Estate has always been my passion. Being a self-driven entrepreneur and leader, I am continually looking to enhance my skills and abilities. My area of focus has been on Real Estate Development. To pursue my goal and further my career development I am enrolled at Georgetown University to obtain my Masters in Real Estate. I have also continued to grow my passive income investments for my personal portfolio through the acquisition of buy and hold properties and Non-Performing Notes as a note investor.
• Construction Management
• Planning & Scheduling
• People/Resource Management
• New Construction & Renovation
• LEED & Sustainability
• Financial Analysis & Modeling
• Training & Development
• Contract Negotations
• Buy & Hold Properties (BRRR)
• Note Investing
• Distressed Debt Acquisition
• Luxury Apartments
About Gail Greenberg
On March 10, 2015, the stock market plunged 332 points. Why? Because the economy was SO GOOD that Wall Street players were worried that the Federal Reserve might raise interest rates.
Does it drive you crazy that your net worth can be slashed at any time by such ridiculous thinking? Me too. That’s why I started investing in real estate myself and why I’m now giving others the chance to do it by Joint-Venturing with me.
I invest in distressed or non-performing mortgage notes. How can you make money investing in a mortgage that no one is paying? I’m glad you asked – I did a video explaining it. See it at http://WinWinNotes.com
Notes pay a much higher rate of interest than a bank, but offer far more security than the stock market. And unlike a stock, the value of a note is never going to plummet overnight because some Wall Street people got nervous.
If you are interested in learning more, please email me at Gail@WinWinNotes.com or call 215.805.1796.