EP NC 02 – Bulletproof Your Due Diligence with Alex Goldovsky

NCamp 2 | Bulletproof Your Due Diligence

Running your numbers at the front end is critical for note investors, because the industry is all about numbers that will let you learn how to better scale and grow your business. For a better scaleability, Alex Goldovsky of ProTitleUSA helps you bulletproof your due diligence and help you spend time on buying one good loan and move on to the next deal. He has the ability to analyze and present data that tells note investors how to survive foreclosure. Alex shares that this is especially helpful when you buy two loans where one starts to help pay off the other.

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Bulletproof Your Due Diligence with Alex Goldovsky

Our first speaker of the day is the man, the myth, the title and due diligence legend, Mr. Alex Goldovsky from ProTitleUSA joining us all the way from a Philadelphia. We’re glad you’re here. You want to share a little bit of stuff with people before they get rock and rolling?

Let me first tell you about what we’re going to talk about. If you have attended my prior seminars with Scott, I delve into educating people on some of the basics, title 101, what to look for. There are videos available. I wanted to spend some time on how do you go from buying one loan to scaling to buying ten, hundreds, thousands of loans, and how you utilize us to have a better scalability for growing your business.

First of all, a little bit about ProTitle, who we are, and what we do. For the audience, I hope that we’re going to be a company of choice when it comes to title due diligence. When you listen to Scott, he always says, “Title is very important. BPO is very important.” You got to run the numbers. You got to know your risk level. You got to know your liens that survive the foreclosure and attached to the property, and you have to know what you’re getting from us and what you’re not getting from us. We have a few interesting emails, which highlight some of the dangers that you have to be aware of as the note investor. You have to know upfront before you say, “I got my BPO. I got my title, I’m done,” you’ll know you’re not.

What you are getting from us as the commodity product is the O&E report current owner search, the prelim report if you’re in California. We do all that nationwide and we have an ability to analyze the data and present in a format where we massage the data and we’ll tell you which names will survive the foreclosure, which names you have to worry about, which liens that you don’t care about. All of that, we message for you. We present in a form where you can understand. What we don’t give you, and that’s a separate service, is something called a Township Level Search, which searches the code violations, environmental liens, code enforcement liens, permit violations. All of that data is located in the townships.

In the few cases where an unexperienced note investor ordered an O&E report, ordered BPO, everything looked clean. The property was in Michigan. They called me and said, “Alex, you just missed the $5,000 lien.” I go, “That’s unlikely.” We’re 99% accurate. We start talking and the investor figured out that the lien is posted by a township, never recorded. It’s kept at the township level as well. You have to remember that what we cover for are all the names recorded at the county level, sometimes some townships. They record or keep the names in their own departments, code enforcement departments or permit violation department. You have to have a separate call made to the township to find out, “Are there any active code violation names? Are there any permit violations?” which might not carry any monetary value.

Let’s say that the borrower who you bought the mortgage for build a deck without the permit. The township will say, “There’s a permit violation. He built a deck without a permit. They have 120 days to fix this,” or, “Get the inspector there and inspect the deck and get a permit.” If this is not done, the township has the right to demolish the structure without the permit. It’s attached to the property, so you have various issues to deal with. All of a sudden, the permit violation, which carries $0 on the face of the violation, creates a beheading for you. You want to be sure that when you buy one note or two notes at the time, you call the township and you go through department by department and you figure out which department has code violations, which department has permit violations, and you ask for the water and sewer account balance if it’s available for you. Sometimes they ask for authorization or the last four digits of the social for the borrower, which you may or may not have, but those things stick to the property that are held within the township itself and not available in title search.

I want to mention to you that BPO and the title search will give you 90% of things that you need to know about. The 10% are township searches, water and sewer balance, HOA balance, which will survive the foreclosure and can be significant. I’ve seen investors buying properties, as an example in the City of Philadelphia, and not worrying about the utilities and them getting a bill for $20,000 in utilities, gas, water, and sewer. They didn’t know they had to pay off and they do whether the sewer and utility charges in the City of Philadelphia, or Philadelphia counties, attached to the property from the prior owner to the new owner. That’s the same for 50% of the United States. If you’re in second market, you have to do bankruptcy scrubs. That’s a part of your workflow.

NC 02 | Bulletproof Your Due Diligence

Bulletproof Your Due Diligence: BPO and the title search will give you 90% of things that you need to know about.

We have a service that’s called Mobile Home Validation. If you are buying in rural areas where mobile homes are popular, you want to make sure that you are checking for correct mobile home conversions. We have various services as an add-on for water, sewer and HOA payoffs, but if you’re just ordering the O&E report or current owner search from us, you’re not getting the add-on service. Some people got punished for not doing that. Somebody will ask what’s the price for the township search. We charge $35 for it. $35 is our time on the phone. Calling all the departments from the township to figure out if the property is free or clear of anything that can potentially hurt you.

When you’re scaling to buy ten to twenty loans at a time, we start helping you with an analysis of the data. We have something called Portfolio Level Title Exam and the dashboard where we check for mortgage enforceability. We check for lien positioning. We check for all the names capable of foreclosure per state. Some names you probably didn’t even expect. As an example, the City of Baltimore utility lien can foreclose out the mortgage. This is something that you’ll probably learn for the first time, about the 22 HOA Super Liens states where a HOA can foreclose on the property and then two states, Nevada and Massachusetts, you can write off the mortgage altogether; otherwise, it’s subject to the first position lien.

I found out that at least three large servicers are losing enormous amount of money in Texas on HOA foreclosures. Texas, even though it’s not a HOA Super Lien state, has previsions in selected communities such as The Woodlands. Based on the by-laws and the declaration, the HOA is only junior to purchase money mortgage and not the re-fin mortgage. They make the distinction where they say, “If you refinance your home and you no longer have a purchase money mortgage, you purchased a refinanced mortgage, our HOA lien will be superior to your mortgage in the higher position and we’ll write you off.” I did not believe it, but two servicers saying that for the selected communities in Texas, there’s a provision in by-laws that will allow them to foreclose out the mortgage and they write it off. The attorneys are not capable to recover them, so you have to be very careful on not just the HOAs in 22 Super Lien states, but also HOAs in Texas.

We have the logic to pinpoint those HOA communities and tell you, “You got to take care of the HOA lien. Otherwise, they have a power to foreclose out the mortgage.” Personally, I didn’t not know that as of two weeks ago, so I’m hoping that you’re learning at the same time as me. You have to watch out for the assignment breaks and vesting issues. We do that work when you’re scaling up. We have something called a Title Exam and Underwriting. We charge $35 for it and we’ll go page by page with you, but we have to know what exactly you need upfront before you placed the order with us. Some folks said “We have an O&E with you and we placed a year ago. Can you do all those services?” The answer is yes, but we don’t like doing this. We have to jump through many hoops to place orders and that’s the right way. We prefer folks telling us, “We need an O&E. We need a township search. We need the asset level dashboard. Also, we need the title exam with page by page reviews.”

We have products for the second position market. I wanted to touch on reverse mortgage as the out of box thinking opportunity for every investor. It’s not popular, but I see such a momentum for reverse mortgages in the market today. The first position means they are being snatched from Fannie, Freddie, and HUD fails by Credit Suisse and Goldman Sachs. You’re not going to see those loans. Where do you find product? There’re contract for deeds, there are second position liens, and I’m seeing more and more momentum on the reverse mortgage front as well.

I’ll tell you a little bit about the market aspect of the reverse mortgages and education on what those mortgages entail, why they’re interesting from the investor perspective and where to get them. We launched the asset level dashboard at the last Note CAMP and we have the apes, so anybody can tap into our system, placing order with a push of a button, and get all the metadata back to you if you are using somebody’s system. Let us say you’re building your own servicing system or platform or how you approach winning the bids. You can have a lot of our data over the API, which is server to server, secured communications, so everything is done through the internet rather than emails, faxes, with spreadsheets.

We also launched something called ProTitle1. It’s a title insurance currently licensed in New York, New Jersey, PA, and Florida. We’re capable of doing the mobile notary nationwide for mods. If you’re working out the loans and you need to send a mobile notary to sign with the borrower, we have a capability to do that. We are Inc. 5000 company for three consecutive years and it’s going to be fourth year this year. We’ll probably announce it within about two months.

I also wanted to advise you that there is a book out there. If you missed Scott Carson’s sessions, if you missed prior Note CAMPs or you didn’t hear me talk about some of the liens, I have to thank Scott Carson and his audience for encouraging me to write a book. I had two folks approach me probably three years ago and said, “You’ve got to write a book. It’s too much information. Can you put all your thoughts on the liens and how to cure them, resolve them, what to look for in the book?” and that’s exactly what I did. I launched the book. It took me a year and a half to write. It’s going through the liens. If you look at the chapters and content, it talks about everything you need to know. It gives you examples. It gives you that I would recommend on how to cure them. We got to number eight on the Amazon best-seller rank, not number one unfortunately. I have to compete with Scott’s book, so that’s why we’re number eight, but it’s still a pretty popular. I’m still getting comments by email. If you have read the book, I’m looking forward to your comments. There are some plans on putting the second book together in the next couple of years.

Let’s chat about the lifecycle of the loan. We are playing in that middle part of note buying. If you’re analyzing the market and saying, “Where are the products? Who do I see when I go and buy products?” what you see are secondary capital market products that have fallen through chain of Sears, the large hedge funds like Fannie, Freddie, HUD, or private sales, like Bank of America, sell in thousands. It would involve some of the largest buyers in the US like Lone Stars, Bayview, Pretium, Angelo Gordon. They all accumulate a lot of products in thousands. As an example, Credit Suisse bought 20,000 loans, multi-billion-dollar transaction. Goldman Sachs bought 10,000 loans from a recent Fannie Mae trade or Freddie Mac trade. They’re accumulating thousands and thousands of loans and then they leave the best for them and some of the dirty files. They want to sell them down the line. Then you have tier two that are mid size hedge funds or some of the large hedge funds getting the dirty products. Some folks that we deal with, they buy in hundreds and then they end up going through some of the smaller chunks, smaller sales down to you.

I have highlighted this resale and flip and boarding them with the servicer. We get involved in a lot of the aspects of the sale itself, underwriting. We’re helping servicers to board the loans and we play a big part in exit strategies where you or some of the funds or the servicers schedule a loan for deed of foreclosure or short sale, and for a foreclosure, by an attorney of your choice or attorney that is selected by the servicer. We can certainly help you in any stage of the process. If you are an investor, we can help you in diligence. If you’re a foreclosure attorney or a servicer, we can help you in your respective plays on the lifecycle of the mortgage.

What makes us unique? How do I present to you or to some of the larger clients what makes us unique and why we’re so different, why people talk about ProTitle? I come from IT engineering and marketing background. What I learned in my corporate career is I have to pay attention to data management. It was a challenge for me to convert an old-fashioned real estate industry that prints out all the documents and review things by hand to a full-automation, self-learning AI engines that will not only consume the data and presenting data in the right format, but also give the data as crisp as possible so you can reuse it for preparing the documents, preparing the assignments, preparing the releases, preparing the mods. All of the data that we provide to our clients are already vetted for being crisp and can be reused.

When you’re comparing the extended delivery of the title search, you have many vendors. You have local vendors, nationwide vendors. You have vendors that are in India, and this is a representation of what you get with them. The company in India or somebody who is located in US and offshoring to India, this is the real quality score that we receive from somebody who outsources, 75% to 79% accuracy. That was amazing to me because in your business and in my business, if you get 75% of accuracy product, you’re missing millions of dollars worth of liens and you get punished for it. This quality would work for somebody like a big bank like JPMorgan Chase that uses the offshore for preparing assignments or releases and they screw up on 20% of those assignments. It’s okay, they’ll file the corrective ones. There’s always a way to fix their errors, but they can produce thousands and thousands of assignments and it’s very hard to do the same for a US-based company.

NC 02 | Bulletproof Your Due Diligence

Bulletproof Your Due Diligence: All of the data that we provide to our clients are already vetted for being crisp and can be reused.

If you deal with in-county searcher, somebody in that county, you send them to the county office. They do a research and you get the handwritten format, a title report, which cannot be reused in any way. If they searched their own property because you have an error in the data, you have to pay them again to go out and search a different property. Then you do all this good stuff that they have in orange. What we do for our clients is we automate the whole workflow of underwriting and getting the title searches in a common format in our system where we start analyzing the data. With the lien tagging, we’re verifying that the all the liens are tagged correctly with the state’s specific laws are applied. We divide the liens by the liens that survive the foreclosure or liens that are covered by title policies.

We scrub data and verify the position. We have a service that checks the legal description across the assignments and mortgages and deeds, which is super important. That’s the number one aspect of why the foreclosures fail. They foreclosed on our properties or they filed the foreclosure on the wrong properties. They have to stop the foreclosure and refile it again, so it’s super important to make sure that you have an enforceable lien on the right property based on the legal description. Legal description is a king in the mortgage documents. The address never matters. Parcel number might not be accurate. The legal description is a king on all the documents. If you have a correct legal, nothing else matters.

Let’s touch on some of the things that will help you to go from one loan to ten loans to 100 loans with us or with anybody else that you choose. You send us a data tape like format Excel and you say “ProTitle, go ahead and run the O&E report for me.” If you’re doing one O&E the time, you get a PDA file from us. If you are doing a volume, let’s say ten to twenty files, we can do that work for you. Besides the PDA files with all the copies, you get an Excel, you get the fully analyzed title reports in Excel for lien position, lean enforcement, the taxes, the lien tagging and grouping, and which liens will survive the foreclosure. We come up with the pass and fail report criteria. If you have certain criteria that will fail the asset, if you see an HOA lien foreclosure in Nevada, you want to keep that asset back to the seller. You don’t want to deal with figuring out if you have to wait to pay the HOA when the HOA forecloses and writes you off. There’s a tax deed and your criteria would be, “I want to give that asset back to the seller or we pay zero for it” as the unsecured lien.

You can build up a matrix off what is your criteria when you talk to the seller? What is your tolerance of useful liens as the percentage to the UPB. We can build that logic into our system specific to you as a client. When you are growing in volume and buying more assets, we can certainly help in creating new criteria for you to dismiss the asset, give them back or assign some number on how much would it be to cure. We have something called Easy Remedy Recommendations spreadsheet. This is also being deployed for some of the largest servicers. Not only do we bring out the issues with a title exam, we do a title exam, which is $35 per asset. We have a selection of 240 issues or title defects per file that we can pool and then we can recommend the way to cure them. Those type of things we can do with further follow-up on title policy claims.

When you’re buying an asset, you’re verifying that the title policy for the loan you’re buying is present. What you can do as the owner of that mortgage with that title policy, you can file a title policy claim for any prior liens or origination level defects. Sometimes they will only cover you in the event of the loss. If you are foreclosing the property, let’s say after the foreclosure, you’re trying to resell the property, you can’t. That’s an event of the loss. If you have to pay off a prior mortgage that was not released, that’s event of the loss. You have to be careful about how far do you want to push the title policy claims to be compensated for any loss that you’re covered for. Maybe initially file a title claim on any defects, you have the response. Maybe they identify you and send you a letter stating that, “We’ll cover you in the event of the loss,” so that’s that one. Then when you incur the loss, you file pull-up claim and they have to pay.

This is one of the examples that we currently do. It’s called Lien Only Asset Level Dashboard. It’s free. Let me explain what folks did with us when they heard the word free. Folks would call us and say, “I want to get a free asset level lien dashboard without the O&E report.” We can only do it on top of the O&E report, so you have to pay an order for the title search and O&E report. On top of it, we’ll put this reporting structure as the first page. We had a few arguments saying, “But you said it’s free,” and I still say it’s free, but it sits on top of the O&E report. You have to get it and we have to know ahead of time that you need that Lien Asset Level Dashboard on top of your report. It has to be ordered with that snippet of code that will produce the reporting for you. We can do it after the fact, but it’s jumping through hoops. For some cases, we couldn’t do it. For some cases, we could. When you’re planning to use it, make sure that you let us know ahead of time before you place the order.

This example shows you that we developed a few grades for the assets. Grade A is free and clear. That’s our stamp of approval for any liens that will survive the foreclosure. It does not include the township liens. That is something that is completely separate from the O&E report from the title search. You have to call the township if you’re buying one asset at a time. If you’re buying multiple assets, you can ask us to do it or you can schedule somebody in your team to go the township where the property is located and go through all the departments to verify that there are no code enforcement liens, no permit violations and so on.

In this particular example, it’s a prime mortgage for $303,000. You’re covered by title policy. There are judgments that predate the mortgage for $2,886. You’re covered for those by title policy. There is a state tax lien warrant, it does not survive the foreclosure. There’s a tax lien or forfeitures for $2,300 plus, but that suffice the purpose. If you see on the analysis that this should be in the final analysis when you are ready to negotiate with the seller, how much liens in amounts will survive the foreclosure? In this case, it’s 2359. The reason we gave C as the asset score is because you’re dealing with delinquent taxes. That’s the number one for losing the mortgage. It’s not paying attention to the taxes. It’s not knowing the redemption years for all the tax certs.

In South Carolina, they can wipe off the mortgage in the year. In Indiana, they can wipe off the mortgage in a year after the tax certificate have sold. If you see a tax certificate in Indiana and there’s a year lapsed after the tax certificate on the recording date, you’re in danger of losing the loan anytime. That’s why for taxes, we’ll always give asset score of C and non-mortgage lien capable of foreclosure. We give an asset score of fail because of the taxes, since they can wipe off the mortgage. We would give the same fail if that would be HOA in Nevada. We would be giving the same fail for Texas HOA even though it’s not a Super Lien state, but we’ll want it to make sure that we’ll flag the potential danger to you, so you can jump on it and remediate any type of issues with those liens that can potentially hurt you.

NC 02 | Bulletproof Your Due Diligence

Bulletproof Your Due Diligence: We have a service that checks the legal description across the assignments and mortgages and deeds, which is super important.

One of the things that we did for a number our tier one clients, they asked us to define the curative buckets. When we’re dealing with thousands of loans, we structure the curative buckets for them. After we process all the loans, each asset given the lien type would go in its own bucket. Those things we’ve done before, they’re available. If you are looking at a large portfolio, you don’t know how to approach the curative actions on the whole portfolio. You want to make sure that you preserve your first lien position, you’re enforceable. There are some liens that can hurt you. We can help you to a massage the portfolio and bucket-ize all the liens and define curative buckets.

We’ll talk about Title Exam Dashboard, an asset-level title exam dashboard. This is not free. This is the sample that I spoke about for reviewing each title page by page and looking at the defects from the asset to give back perspective: data tape integrity, mortgage origination defects. For example, missing a signature from one of the borrowers or missing a notary, legal description mismatches, which is huge, reverse mortgage specific, non-mortgage lien alerts, and how to cure the defect. All of that is semi-automated where the title examiner reviews your file and creates recommendations. That’s what you see on the first page of the report. We need to know you’re ordering it before you placed an order for the O&E report. This piece of logic attaches to every search place, and therefore we need to know in advance that where doing this for you, so we can properly present it when the file goes back to you for review.

Let’s talk about the marketing opportunity on the reverse mortgages. This is something that I wanted to show you, so you can start looking into another segment of the market that I don’t think you’re looking at. Reverse mortgages are mortgages given all across the United States to seniors that are 65 years of age or older. Those are mortgages that are agreements with the senior citizens that open their death or any of the default cases. The property goes into the possession of the lender and the senior citizens are getting payments every month on behalf of the lender to live in their homes. Their homes, by default, are homestead. They live there. They claim it as a primary residence, which is great. They maintain the property.

If you look at the market segments, this is lifted off what HUD is reporting. If you look at the 1990s, it was not a possible program at all. Right at the financial crisis of 2007 and 2008, you see the numbers for reverse mortgages were in hundred thousand, mortgages originated. Those are new originations. Every year since that peak, the volume of new originated reverse mortgages was pretty steady, 54, 60, and so on. It originated from about 50,000 mortgages. 2018 is only first quarter, so it will probably be higher than 55 at the end of 2018. You see that this is a very steady volume that’s currently not addressed by the investing community. It’s starting to peak and ramp up from the perspective of secondary markets.

Let’s talk about the default events, which means the borrower of the reverse mortgage is defaulted on the agreement. If all borrowers are deceased, that was the essential of the agreement where the property goes back to the lender and then becomes de novo foreclosure property. The property is going back to the lender and any and all liens attached to the property is in the same way as they didn’t do a foreclosure. If there are any liens that are against the borrower, you have to go through the foreclosure court and foreclose out those liens. Sometimes the older people forget to do certain things that are a part of the agreement they signed with the lender. Some of those, they sell the property to a third party without the license date, and that’s a default event. You’re not allowed to do that by the agreement and it automatically is a default. The agreement is no longer valid, the loan is in default, and you can either foreclose or you can discuss with the borrower on what they have to do. If the borrower is no longer living in the property, that is also a difficult event. They have to sign the occupancy compliance permit or affidavit every year. If they don’t live in the property, it’s automatic default.

Sometimes they forget to pay taxes. Borrower pays taxes. It’s automatic default. They forget to pay water and sewer, and the water the sewer company puts a lien on it or they forget to pay the HOA. It’s automatic default. They’re not allowed to have any means based on their non-payment because they’re getting money from the lender. Some of the sources where you can get this product. HUD is ramping up their sales over first mortgages. I believe it’s 500 loans to 1,000 loans, so it’s not a big chunk. They are announcing it as a loan balance worth $136 million. It might be quite a lot of money for some of the investors in the cold, but certainly with putting few investors together might get to the point of taking down this loan pool. Some of the prior purchasers, Rushmore purchased the prior HUD mortgage, reverse portfolio. Goldman Sachs has it. Credit Suisse has it. Some of the servicers that servicing reverse mortgages, RMS, which is Reverse Mortgage Solutions, Nationstar, Financial Freedom, CHC, Celink, etc. You have sources. Somebody asked me, “There’s not a lot of product from a seconds market. We are all fighting for buying the first liens that are pretty expensive. What do you suggest?” I tell them, “Take a look at the reverse mortgage market.” Not a lot of investors are playing. There’s an opportunity to this.

One thing that was designed for the reverse mortgages is something called the Junior Lien Certificate, which certifies by our title examining department that there are no liens on reverse mortgage that will hurt the investor. We are approved by HUD and NOVAD, their contractor with our junior lien certificate and certainly we’re considered to be industry experts in reverse mortgages. Some of the folks asked us, “Can we get data in different formats besides the PDA?” The answer is yes. We do a portfolio Excel reporting where the data comes from us in CSV format or we do an API. That’s where the data goes from our server into your server or your servicer or your servicer that you used for managing the deal. We are integrated with many of them and certainly those two levels of reporting are available by us to you.

We have an automation in place where our findings can be automatically pooled in the body of the email for filing the title claim. We have that automation in place as well. For example, you’re buying 100 loans. You ordered a hundred O&E reports from us and you say, “I want the dashboard. I want the title exam.” You will get the dashboard, you analyze our findings, and you verify all the liens. You get the discount based on O&E reporting and you can use our title claim automation when you purchase the pool to start automating the title policy claims for the liens that predate the mortgage. Some clients found that extremely useful to do it on the fly with us and they write post-date diligence cycle. When you lock all the loans that you’re purchasing, you keep all the bad loans off and you’re left with the good loans and you want to give yourself a higher insurance rates for old liens hunting you from before the mortgage. If you’re interested in some of these products, I can send you more information on the that as well.

Some of the thoughts that I want to put in your minds for automation and cost savings is preparing the documents. First is preparing the documents and using our metadata to cut down the cost of the prep. If you’re using somebody who has an ability to take the spreadsheet from us of mortgage level data and uploading their system, you’ll cost per assignment drops by half. We have this vendor in Houston that is completely integrated with us. When they take our metadata and they upload in their system, the assignment prep fee goes from $35, $40 to $20, so it carves down the cost to you by half. That’s one of the cost-saving opportunities in our world. Title claims certainly is number two. You can automate your title claims for all the defects that we bring from the O&E reports and that will give you a level of insurance that if something goes wrong and there’s a prior lien or prior judgment that can’t foreclose the mortgage, it’s recorded prior to the mortgage. It can’t hurt you. Your protected and the title company will probably send you a letter saying that, “In case of the loss, we cover the expense,” so that’s very important.

Think about when you’re scaling up, the data we use for anything you do, building special rules, we’re flexible but also you can be flexible as well by absorbing 1,200 data points from us and writing rules to do something with it either preparing modifications, modification agreements, or preparing the quit claim deeds or what have you. We give you the data. You don’t have to copy and paste. You don’t have to scrape it from PDFs. You can request the data in a reusable format, either CSV or the connector through the API, and we can deliver that data to you and you can reuse it and save some money.

NC 02 | Bulletproof Your Due Diligence

Bulletproof Your Due Diligence: We’re doing updates that bridges the time gap from the federal sources within a year from now to the present time, so you are up to date with everything that’s going on in the title.

Great job as always. A friend of yours says he needs a Vulcan mind to brain dump with you, to be as knowledgeable as you are.

Buy a book, read it, come back with questions. Hopefully, it’ll answer all of your questions.

An audience asks, “When an asset fails, does that mean another lien can cause foreclosure and wipe out their claim?”

If the asset failed, yes. If the failed asset is in the category of non-mortgage liens capable of foreclosure, that’s a red flag to you. If there’s a tax alien, if there’s HOA lien in Super Lien state, if there is a water and sewer lien in the state or jurisdiction where it can foreclose out the mortgage, the answer is yes.

Another audience has a question, “You mentioned that you helped with the boarding of the loan. Can you explain how that works and what you mean by that?”

Boarding is boarding for servicer. When you buy a loan, you have to service them. Scott, can you recommend servicers? I don’t know if you have anybody in the lineup.

We have Madison Management and Shante Duffy joining us.

Boarding means they take a loan and they board it within their system. They send we-buy-hello letters and they collect payments and they work with a borrower, so that’s servicers. When they board the loan, they have to verify that the seller will sell you the loan if they’ll ask for signing of record. They have to verify that everything is kosher, the legal matches, the assignment chain is not broken, they have all power to foreclose on the mortgage, and so you have to monitor that they do everything right. Servicers are not lazy, but they are taking their sweet time on making sure that all the collaterals are in the right place. They have the note, the note is there, they can foreclose, and everything goes right, so you have to stay on top of it to make sure that they have all the ducks in a row before you say, “Let’s foreclose. We tried everything. The borrower was not responsive.” They have everything ready when you are ready to go through any exit strategy.

That’s why you need to update it because if you’ve bought the note for awhile and haven’t done anything in six months or nine months, you need to recheck what’s on there.

We do something called an update. You can look at any new liens, judgments, assignments, and releases recorded in the present time. We’re doing updates that bridges the time gap from the federal sources within a year from now to the present time, so you are up to date with everything that’s going on in the title.

An audience asked the question, “Can you mention the sources for reverse mortgages again, please?”

The sources are HUD. Buying from HUD, you have to be a qualified investor. You have to go through all the reviews by HUD to enable bidding on the HUD reverse mortgage pools. Rushmore bought the last pool from HUD. Try to contact servicers. Some of the smaller banks, community banks, they have it in their portfolio. If you’re entrenched with them, you can get reverse mortgages from them, but you will start seeing reverse mortgages more and more coming as the alternative strategy this year or next year.

We are seeing some already. You’re right about that. The thing to keep in mind with reverse mortgages is it’s not your traditional credit-based mortgage. It’s age and equity-based for the most part. If both occupants, husband and spouse, are 65 and they’ve got some equity there, there’s no credit to do 520 or 550 cycle. What they do is base it off the equity, like an annuity. They pay monthly to the borrowers, in some cases, if there’s enough equity there. You have to keep in mind that you’re not buying anything with equity. It’s underwater or close to being underwater, but we are starting to see second mortgages starting to pop up, especially when we’re reaching out in banks and asset managers with what we do. You hit the nail right on the head. Someone asked, “What does the acronym TPOL stand for?”

Title policy.

Another audience asked, “You mentioned NOVAD. I see them on county records. What do they do again?”

HUD, by itself, Housing and Urban Development, Ben Carson is not allowed to pay anybody, so they hire contractors like NOVAD to perform what HUD needs to perform. NOVAD is a contractor of HUD to execute on their behalf.

The name of your book is Bulletproof Due Diligence. You can find it on Amazon. Another question “How can we add a township and water search on your online order form?”

NC 02 | Bulletproof Your Due Diligence

Bulletproof Title Due Diligence: Protecting Your Investments

Online doesn’t exist. You have to email us with, “Placing this order for this property. Please add the township search and water and sewer payoff.” However, you want to phrase it as long as folks in the office know what you’re talking about. If they don’t, they’ll come to me, “Alex, somebody’s ordering this and I have no idea what they want.” They want the township search, water and sewer, and title exam. Once you explain it in the email, they will place it with service enabled. It’s not available online. We’re working to enable it online.

Can somebody put it in the comment section?

No, because you are paying for the title report and the extra fee does not come across. Our searchers don’t read additional section and that’ll be skipped, and you will be mad, calling me, “What the heck are you doing? We asked for this and didn’t get it,” so email is the best or you can place another and then email the confirmation email saying, “Can we please add the township search?” That, we can do. Township search, water and sewer and payoff, we can do as an add-on without anything else, but title exam and asset level dashboard, we need to have your email first, so we enable your order to have that before we place it.

What do you see the biggest mistakes people make in the note business? Especially when it comes to the title stuff. What are you seeing?

The biggest mistake is probably taxes. Second biggest, just because I see those emails and I feel bad for investors, they completely skip the township searches. I wish I can help and somebody said, “I ordered a title, I ordered BPO, I got penalized $2,000,” and I said, “I hope you listen to Scott Carson on the seminars because I keep telling you that title report and BPO only covers you 90%, and then it’s the township searches, water and sewer and HOA payoffs.” That, I see quite a bit of not understanding how to read the title report. Having a title report on your hands, which tells you, screams at you, “Don’t buy this loan,” You buy it and then coming back and saying, “I got the title report.”

You got to know how to read it. You got to know that the owner is no longer in title and it was foreclosed or what have you. You’re buying a loan that doesn’t exist. Read the comments on first lien subject to tax foreclosure or HOA. It will show it and will show the subject too. For this particular file, if the mortgage holder was serviced correctly, it’s wiped off. That’s what it says. You have to analyze the data we are telling you. I’ve seen some of the mistakes there, “But you have so many compound report.” Yes, but it will say, “Subject to foreclosure,” which means if they got served, it’s wiped off. Be careful and read all the comments that we will provide for you.

Ordering is great, but taking the time to print it out, flip through it, you’ll learn more about reading a full title report and going back and asking questions than you just assuming. You know what the magic word is about assume, it makes an ass out of you and me both.

Just be careful. You don’t have to know the title. You don’t have to read the title report page by page. Read the summary page that we provide for you and try to comprehend it. If you’re not sure, call us. We’ll help you and will tell you, “Don’t buy.” We are not going to advise you buy or not buy, but we’ll at least tell you, “The mortgage is lost because A, B, C, and D,” or “You have a six years’ worth of delinquent taxes in California. You’re about to lose the mortgage in the tax sale.” That, we can tell you.

The biggest thing is sometimes calling up and not jumping and see what taxes are listed. Pick up the phone because that’s the first red flag I always tell people. If the person on the mortgage is different than who’s on the county, that’s usually a red flag right off the bat. Don’t trust what it says on the website. You need to pick up the phone, call, or order.

If you see an owner being different from the borrower, you have to quantify. They changed the owners; how does that affect you as the investor? If a severe defect where the mortgage is gone, somebody died or in a family transfer, transferring into a trust, that’s okay, you still have the enforceable lien. Let’s say you decided to do your homework, you go there and says 2015 taxes delinquent in the amount of $100, there is not so much to $100. In two years, they can accrue a tremendous amount of penalties and interests and you’ll end up paying $2,000 instead of $100 or $200. That’s a common ‘gotcha’ in New Jersey.

We process thousands of loans for some of our clients and there’s something called Municipal Certificate of Sale in New Jersey where if it’s old enough, the certificate of buyer pays for the consecutive amount of taxes or utilities, whatever the certificate they buy every year until the precedence. They’re allowed to charge a maximum allowable percent on this certificate for the consecutive year, which is 18% and penalties and attorney fees. I’ve seen many cases where $200 certificate from 2015 or 2014 becomes a $3,000 to $5,000 lien. A huge jump because you were asking them to pay it off two years from now. I seen that all the time when people assume that, “I’ll go to the seller and I will ask for a discount of $200,” and then they go, “It’s $5,000 now. ProTitle, how did you screw up?” We didn’t do a township search, we didn’t call for the payoff. You should watch out for some of the old liens that are sitting there. The old municipal lien is either paid off and not recorded as a release or accrues enormous amount of interest and penalties and you have to call them and get the payoff statement.

An audience asked, “Is the water and sewerage waste search included in the cost of the township search pricing or is it an additional cost?”

HOA payoff any additional cost. It’s a three-step process where step number one is the property subject to HOA. Step number two is what’s the context for the HOA. It’s not readily available. Step number three is making sure the payoff information is available to us because we’re not the interest holders, we’re not the borrowers. Some HOAs will refuse to give the information to you. We have the benefit of being a title company, so when they see the word title company, “Probably the sale is going on,” and they will give the information to us either on the phone or by fax. That’s a separate service. Water and sewer is a separate service. Since you don’t need the water and sewer payoff in half of the United States, it’s because it does not attach. You can cherry pick the loans that do. We know those townships. We can order for all of them. This is one of the slowest turn time processes, so don’t expect us to be as fast as delivering O&E reports. We are at the mercy of the clerks and the turn time for some of the water and sewer reports are two weeks or three weeks. Don’t call us 24 hours after and say, “Where’s my water and sewer?” You will hear the same response for a period of two weeks until you get it.

What’s the timeframe on a title report these days without all the extra bonuses? The extra bonuses are going to take time. Sometime the HOA doesn’t want to give the information out unless they get paid. They sometimes charge fees for the payoff reports. If it was a clean thing, what’s the normal turn time for a title report?

For the title search, it’s in 48 hours. I don’t know if that would be 24 to 48. We have an option to process the title in four hours with additional fee of $35. It’s available online. If you locate it and you plug in the address and you see that, there is next to that feature available. You can the report in four business hours. If you were ordering on the weekend, you’ll get it Monday morning. 48 hours is typical. There’s some rural counties. There are some cases where the data is archived, and it takes us a little bit of time to get it from the archives. The chain of title goes back over 30 years, so there’re some cases, corner cases, where the title will be a little bit longer, but on average, it’s 48 hours.

That’s pretty normal and there’s always exception to that rule. For the rural county, some people are like, “I didn’t get it in 24 hours.” I’m like, “Where are you buying?” “Middle of Egypt.” It can take a little while. Another audience has a question, “Are most title reports standardized or does everyone prepare their own version?”

They’re standard. We came up with the standard way of reporting. It doesn’t matter if you order in Texas or if you ordered in California, you get the same looking reports. The look and feel are the same.

For you, but other title companies, it’s different, isn’t it?

We have our own unique title report, which is accepted by title company as well. We’re in the title insurance business and our reports are accepted by Stewart, First American, and Fidelity, so all the big title underwriters. In fact, we have a title company ourselves through ProTitle1.

NC 02 | Bulletproof Your Due Diligence

Bulletproof Your Due Diligence: If you see an owner being different from the borrower, you have to quantify.

That’s 48 hours business hours. If the order is at 5:00 on a Friday, you’re not getting it come Monday morning.

We try to rush those files. It’s two business days. We’re processing all the orders on the Eastern Time Zone. If you send it to us at 5:05, the order is getting placed next day in the morning, so keep that in mind. Don’t beat us, “5:05, times start ticking.” Not for us. We are closing the door and the office is closed.

Another audience has a question, “For an unpaid tax certificate, does the township know the total payoff or do you have to contact the holder of the tax certificate?”

The treasurer knows. There are a few states that will refer you to collection companies or an attorney. In Alabama, they will refer it to a collection agency responsible for the payoff. In Texas, it’s the same thing for the tax mortgages. The last assignee of record that gets that certificate that affects mortgage from the treasurer will have the payoff, but most of the time, you get it from the treasurer. They have a communication between themselves and the tax certificate holder because the tax certificate holder pays consecutive years in tax. Not only do they pay, they expect the payoff to include the principal, interest, treasurer’s fee, and attorney’s fee.

An audience has a question, “You’ve got a portfolio of notes, you got the bid award, what are the minimum reports, or which ones would you suggest we get for firsts or seconds?”

Completely different markets. For the first lien, only order the title reports when you’ve won the bid. Waste of time if you start ordering for diligence before the bid. On the commercial bids, that’s different. All of our commercial buyers, note buyers, they purchase reports printed just because how much risk they’re thinking by bidding. The smaller the number of assets, the risk is much bigger. That’s why they are ordering reports. They’re more expensive, so if you’re playing in a commercial market, we can quote to you the price. You’re looking at $175 to $195 per report on the commercial stuff. For the rest of the first liens, you order after you locked the pool, won the bid, and due diligence time period opens. If they want to do diligence, you want to submit the reports. If you’re buying from say FCI, they give you very little time. As soon as you are in diligence cycle, place that order. They are giving people 48 hours to wrap up diligence, so right at our average turn time. Either extend that a little bit, ask us to offset, and we’ll do whatever we can to get it within the 48-hour window.

The second liens, we have two products. One is pre-bid, one is post-bid. Pre-bid, we have something called the dollar search. Some of the second lien buyers, they use that product quite a bit. It’s full automation for scraping all the ownership data and purchase data and amount purchased and comparing that to the data tape and giving you 95% accurate result if the note is secured or unsecured. Before you go and bid, you already know the percent of unsecured assets when you place the bid.

I know the Mission Capital had the seconds pool out. A lot of people were looking at tons of unsecured assets, so you have to be careful with that. Once you won the bid, you have a waterfall approach for the second liens. You do a bankruptcy scrub, you look at the collateral. We have a product called a Second-Position Mortgage and assignment search with the status of the first. It costs $45 and we will give you all the assignments of the second. We will check the status of the first name and tell you if it’s for foreclosure, foreclosed, or not in foreclosure. Also, we’ll give you a report on any advanced that would wipe off the mortgage such as tax deed, HOA deed, so we’ll look at the chain of title. It’s a subset of what to look at the real search, but it’s geared towards the secondary market and it’s half-price pretty much.

An audience asked, “How do you make money on the second mortgage market? Are you trying to take the property back?”

I don’t think that’s a question for me.

Depending on what they sell the discount for, because you’re not going to modify or reinstate the loan for them on a reverse mortgage, it’s going after the property because you, as the lender, can take the property back if the borrowers don’t pay you off. Will they have the right to refinance? Yes, that’s where it comes from. It is not your traditional buy-the-note-to-get-it-modified play for the most part.

I can comment on one of the methods second lien buyers are making money. There’re tons of them and I may speak a few.

My apologies, I meant reverse mortgages. I said second mortgages.

Reverse mortgages, you get the property back. You resell the property, so you don’t flip and you don’t mod even though you can. You can refinance it, but the play is you get the deed in lieu of foreclosure equivalent and you get the property to resell.

It’s more of a property play than a cashflow play. One last question, “Do you talk about the township search, water and taxpayer stuff in more detail in your book?”

Yes, it’s there. It talks about some of the details on township states, what to look for, some of the examples, so I hope you find it useful, educational, and I’m expecting that people struggle through the book. There’s a lot of technical material, so if you’re not serious and you’re expecting a romantic book, you’re not getting it from me. All the states, all the regulations for all the liens that you need to know about is inside the book. Read it, take notes, ask questions.

You will find him at Alex@ProTitleUSA.com or the website ProTitleUSA.com to get all your title needs. Alex is the preferred vendor in the industry, one of the most knowledgeable individuals in the entire industry. I’m not just talking about titles, I’m talking in total. He knows his stuff, can help save you a lot of money, save you a lot of trouble, and it’s well worth it. He does handle all 50 states. Stuff like that definitely works in all 50 states out there, so take advantage and go there, get one ordered now. Go out in his book, Bulletproof Due Diligence. You will love it. Alex, thanks for joining us at Note CAMP. I appreciate it so much.

My pleasure. Thanks.

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About Alex Goldovsky

NCamp 2 | Bulletproof Your Due Diligence

Alex is Founder and CEO of ProTitleUSA and a leader in Nationwide Residential and Commercial Title Search, Analysis and Due Diligence Market, servicing Fannie Mae, Bank of America, Wells Fargo, Colony, FDIC, SBA, First American and many other nationwide clients. A mastermind behind a number of leading products in the title research industry, such as an automated title exam and portfolio analysis dashboard for 1st position residential and commercial assets, 2nd position secured/unsecured note dashboard, exist strategy automation and many more. Alex is also a highly sought after speaker on real estate investment and title specific seminars and work groups. Alex has a Master’s Degree in Engineering and holds 9 US Patents.

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