Ep 153 – Note Case Study – Start to Finish!

Scott CarsonBlog, Podcast2 Comments

NCS 153 | Note Case Study

NCS 153 | Note Case Study

Note Case Study: Scott breaks down a particular note deal from start to finish with the help of the Marketing Minions. He discusses why they selected this particular asset, how he came up with a bid, the due diligence that the staff performed and the final outcome of the deal.

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Note Case Study – Start to Finish!

Today is Friday in the office so we like to have Friday called Funding Fridays. We like to hear the sound of money coming in and making money. Today, what we want to do instead of having a guest on, we wanted to basically spend today’s episode breaking down a deal that we just got reinstated. I thought we would go through it from start to finish for everybody and open up to questions. While I’m going through some stuff here and talking.

NCS 153 | Note Case Study

Note Case Study: If you have a solid business model, you can really clean house in a great way financially.

For those that don’t know, my business model is to buy defaulted debts, first lien positions, and work to get stuff reinstated, work to keep the borrowers in the property if at all possible. That doesn’t mean I overpay for the assets because I also keep in mind, “I’m probably going to have to foreclose half the time.” We got some deadbeat borrowers that tell us, “No. I’m not going to pay my mortgage.” When we send letters or make have the services make phone calls. We buy defaulted debt on a regular basis. We’re buying since 2007, closed on thousands of transactions, bought almost over a billion dollars in debt. If you have a solid business model, solid plan, as long as you work your plan that makes sense with what’s going on, you can really clean house in a great way financially and monetarily speaking, really have some great cashflows and great deals.

I like to go where the market gives me the most money. Initially when I started, there was a lot of commercial notes, especially apartment loans. It was also a lot of low balance, ugly, ugly, subprime loan stuff that we bought. As that has evolved over the last few years, we’ve gone more, “Let’s go residential size, commercial, tightened up some.” Also as markets like California, Arizona and the West Coast got more expensive, I transitioned from there to more or so Florida, South Carolina. As those markets have increased in value and pricing over the last few years, that’s made me evolve and transition into more of, as I call it, College Football territory. What I mean by that, a lot of the assets recently have come from the Big Ten Southeast Conference parts of the United States. Those who aren’t football fans or college fans, what’s the Big Ten include? That’s Pennsylvania, Minnesota, Michigan, Ohio, Indiana, Illinois, those areas. They also talk about the Southeast Conference. That’s Missouri, rolling into Tennessee, the Carolinas, a lot of those areas through the Rust Belt.

We see a lot of the assets and we’ve actually always seen a lot of assets in those areas. Those markets have started to come back over the last couple of years strong and more note investors have started coming into the picture. I still believe we only have really truly 5,000 true note investors out there that are actually buying stuff on a regular basis, but we do see more as I could call them, REO refugees. People that can’t buy properties at the foreclosure auction or people that aren’t getting any leads to their thousands of postcards a month. They’re starting to look for better deals and better pricing because all the fix and flip shows and all the AMC TV and HGTV have a lot of people thinking they can be weekend lawyers and buy a property or they can buy a foreclosure or buy an ugly property and fix it up. They’re overpaying for assets because they’re thinking they’re doing a great job and they’re buying it off of After Repair Value.

As note investors, we don’t buy After Repair Value because we’re probably never going to get to the ARV aspect of things. We’re going to get to putting repairs of property, hopefully, if our business model works out being a note investor, to focus on cashflow. I’d been looking for things now, one has sprung up specifically a lot in the last couple of years, especially the last 24 months, a lot of contract for deeds. Contract for deeds are like a rent-to-own. I wouldn’t say like a lease option, but very similar where the institution, the person that owns the property, in this case, let’s just say, Harbour Portfolio, they’re one of the well-known. They have thousands of thousands of thousands of this contract for deeds. What they originally were, they were buying these large pools of low-value properties for literally, most of them were less than $10,000, buying them cheap, putting minimal work into them and offering technically a contract for deed. Not really owner financing but they were basically willing to calculate the paper on these assets to buyers that come and put $1,000 or $2,000 down, but the buyers wouldn’t actually own the property until the net was paid off. That’s why it’s a contract for deed. If the borrower didn’t make a payment, they get evicted. The bank or in this case, Harbour, does not have to go through a long foreclosure process.

There are some states out there that require that if you’ve been in a property for a couple of years and you got more than 25% equity, then you have to go through a foreclosure process. That’s okay because if you got equity behind your note and you’re foreclosing, you’ve got some opportunity to make it up. It also protects the borrower as well if they’re doing a good job as far as paying on time or staying in the property and fixing it up.

Contract for deeds fall under two categories: They’re either paying or they aren’t paying. If they’re paying, great, you got somebody to take care of the property, keeping it up, doing some maintenance, paying taxes, paying insurance to the property. Those that aren’t paying usually turn into pretty ugly properties relatively quickly. I don’t like vacant properties because then I do have to foreclose most of the time. Then I do have to put work in the property. I have to make sure the air conditioner doesn’t grow legs and walk off or hopefully that the copper goblins don’t show up, that’s going to trash up my property. It doesn’t mean I won’t buy some vacant contract for deeds because if it is vacant, the borrowers moved on and so I have another foreclosure process. It’s basically a cancellation of contract, now you have an REO. Now you can do a variety of things with it: Either turn them and sell it as an REO, keep it as a rental, owner financed or do a contract for deed, do a variety of things. It gives you some flexibility.

NCS 153 | Note Case Study

Note Case Study: I could create a contract for deed with my attorney, get it created and up and running because I’m the owner.

What I like about this contract for deeds though, especially if they’ve been hit and miss, because you’re usually dealing with somebody that doesn’t have the greatest of credit. You’re usually dealing with somebody that’s going to pay a little bit more for housing, people get more on a per square foot basis for housing when it comes to rent and all things like that. Primarily, you’ll see assets below probably $70,000 of value and probably more so $50,000 of value. Why? That’s why contract for deeds are so valuable. Most banks don’t want to do a loan for $50,000. It doesn’t make any sense for them. They can do a loan, some won’t do it but a lot of the loan officers don’t make any money a $50,000 loan. That’s why a contract for deed is so valuable because I could create a contract for deed with my attorney, get it created and up and running because I’m the owner. I want to make profit on the cashflow.

A $50,000 loan might make a couple of hundred bucks just because of traditional fees, appraisal fees and closing costs and stuff like that. With traditional mortgage, you’re not going to make any money but with a $50,000 contract for deed, if I can bring in $2,000 to $3,000 down and they’re willing to have payments based on 9% to 10% interest rate, which is really true market interest rate for somebody who has bad credit, let’s just face it. I don’t like to give somebody a 5% interest rate if they can’t actually go out and qualify for it. What happens? We get lists of this contract for deeds on a biweekly basis.

As we’re going through stuff, one of my biggest goals is for us to basically be closing on average at least an asset a day throughout the year. One asset a day is 365 deals. A lot of people would be like, “Oh my god, it’s a lot.” When you have systems in place and you have marketing in place, that’s not so difficult. Somebody will be like, “I haven’t closed my first deal yet. I couldn’t even think about closing 100 assets at one time.” That’s okay. You evolve. We have plenty of people that close on their first deals and they’re moving on to three or four and then ten, fifteen, twenty. Jen, I’m going to put you on the spot here. What’s one philosophy or one thing, when I look at these spreadsheets that we often we see that I like?

The ROIs.

The ROI is good, I agree to that. Nichole?

Last payment fee.


The first thing we do is look at the last paid date. Usually we do it within the past year to filter them out.

We get 400 assets in but we usually see 50 to 100 of them that have made payments in the last twelve months.

Just last year we had around 120.

We did have quite a bit. It ranges. There’s usually a good shot of them that made payments in the last year. The philosophy behind this is, if somebody has made payments in the last year, six months, three months, especially the most recent payments, you can almost guarantee the borrowers want to stay in the property. If they make payments in the last twelve months, great. Greg, you answer this question. What’s one of the things that we do? We want to ensure that they’re making payments but what’s one thing about the property we want to look at?

Utilities, to make sure they’re active and on, because if they’re paying their water bill, they’re usually good.

There you go and occupancy, it’s a way to check occupancy remotely, calling the accounting, the water, the gas, the electricity when we can. It’s going to get a little bit more difficult for the power but still, pretty much it’s one gas company and one water company. We assume they’ve made payments in the last, six, three, twelve months, power is on the property. Then we also do what? We send somebody by the property, right?

Yes, the CMAs.

We get a realtor to pull CMAs, but we want them to have eyes in the property too. Having a realtor to pull a desktop CMA is okay but you really need for them to put their eyes on the property and realize, “The CMA is actually for a good property,” or, “Oh no, it’s Jumanji in the backyard.” The CMA does not reflect Jumanji. We’re looking at these lists. Honestly, before we make an offering, we’re not getting realtors to drive by. We’re not calling power companies yet. We’re assuming that they made payments for the last twelve months. They’re occupied probably in decent shape. We initially make an offer off of a Stair-Step Method.

Some of this contract for deeds are written two years ago, three years ago, four years ago. The values of these properties have gone up, while the mortgage payments are the same but the mortgage balances are crippled down a little bit. One of the things that we do is we just do a quick Stair-Step Model pricing off of the unpaid balance. This comes directly from a hedge fund source, we won’t name names, but a hedge fund source say it’s basically off of the unpaid balance because it could all be a good place. What I mean by Stair-Step Method, if an asset’s worth more than 50, we’re making an offer at 55% of the unpaid principal balance. That’s unpaid principal balance, not pay off, UPB. If it’s in the 40’s, the value, we’re making an offer at 45% of UPB. If its unpaid principal balance is in the 30’s, 35%. If it’s below $30,000 mortgage, 25%. But we usually don’t get into those lower balances, we try to stay above 20, 25 for sure, just because we do have some that would be vacant and you’ve got to replace a water heater or one major system in the house, you’re basically in the red now instead of the black. We look to these assets. We write a quick Stair-Step Model, pricing point and then what we did next, Nichole? You hit it right on the first thing.

The ROI.

How do we figure a rough ROI? Let’s see if we’re going to reinstate. We take their existing payment, multiply it times twelve. Why do we take the existing payment versus figuring out a lower amount or a higher amount? 99% of the case is market rent on these properties, is it going to be higher or lesser?


Market rents are always going to be higher than their existing payment. The philosophy of this is, “Mr. and Mrs. Borrower, if you’re going to move out, you’re going to be paying a rent to somebody else.” How exactly do we say that? “Listen, you’re going to have to pay because you can’t stay.” We’ll take your existing payments, multiply it times twelve because twelve months, divide that then by what our quick Stair-Step pricing offer is. We’re going to run that really easy in literally 30 seconds. What I love is the fact that if I can give the list to them here in the office, in ten minutes they’ve run that. They’ve run that Stair-Step Model, they’ve figured twelve months, they’ve figured rough ROIs, which is phenomenal. I get excited because then we can organize those high to low; higher returns versus lower returns. We can figure out which one’s we really want to focus on. We get 400 in, we’re able to identify the first hundred and that’s the ones we’re working on. Then we submit an offer; just a quick offer real fast. Let’s get the ball rolling. On average, Jen, how many of them are we getting countered back or accepted?

We usually get countered back, maybe a handful accepted it, to begin with initial.

We submitted 100 last month then we only have 40 that got countered back. There are 60 that weren’t available anymore. Offer is on 100, roughly 50% comeback, we go to the next level. Your 50, we’re not getting close, we sold it. How do we whittle that number down, Greg?

Based on ROI, utilities and then what the realtors think what the quick sell pricing is and if they were occupied, they see the lights on.

Once we get that number back, we’ll say, “We went for 100 to 40,” that’s when these peeps put on their superpower capes and start getting the realtors involved and making phone calls. That’s the longest part of the due diligence process, right?


If you’re out there trying to get realtors to pull values and stuff like that, trust me, we deal with difficulties as well. One of the things that we’ll do is we’re are trying to get them to pull a desktop CMA and drive by and say, “This could potentially be an offering for you.” The listing, if that doesn’t work then we will pay them up $50. Sometimes it will go a little higher depending if there’s a couple more in the area, but pay them $50 for the CMA. They’ll go out, then they’ll get drive-by, then they’ll give us photos, then that helps us out with true values. One thing we always ask is we want a 30-day quick sale price.

We also want to see the numbers. Sometimes if it’s longer days on a market, a 30-day quick sale price means you’re dropping the value down cheap. The asset may be worth 60 but a 30-day quick sale price may be 20. It’s when you got to really look at the CMAs to make sure what it looks like. Of course, sometimes CMAs are way across the board. All of these is worth anywhere from 30 to 60 and you’ve got to narrow it down. It’s a bit of a difference again. What are the 60’s? Are those bigger properties, smaller properties, properties in good condition versus ours? Is ours have a blue tarp on the roof? That’s a lot of the due diligence.

Looking at the seller, what does the seller want as far as the counter? Do they accept our offer or do they counter? Did their counter make sense? Some of the KPIs we put on our benchmarks is we don’t want to go below 24% ROI. Why 24%? Taking twelve months of payments divided by what they counter or accepted offer, it should be equal to 24% or greater. Why? Because if we got to split the cashflow, we want to make sure and see their cash investors are seeing a decent return. Then we’re going to pay them quarterly; it’s really 90 days and really do some magic to get this stuff payment of.

The one that we don’t consider, is if the borrower is going to make up any back payments. A lot of times they will make back payments in some sizeable chunk. Chunk could be $500, it could be a couple of grand. It depends. My philosophy on this is, if I can have a 50% hit rate on this or if 50% start modifying and reinstating, I’m doing okay. Because the other half, if they don’t pay, what am I going to do with those, Nicole?


Foreclose, evict and mostly these are faster evictions than foreclosing. I just cancel the contract and then I can turn around and sell it as an REO. Give it to a realtor, “Let’s get cash,” boom, get our investor paid back and then we’ll split in proceeds and moving on. What are some of the things that you’ve heard from this people of the city department when you’re getting information? Greg, what’s one thing you’ve heard that’s been interesting?

My favorite one was this lady. I asked her about a property and she said, “He was in here the other day. He was telling me about a tree he was cleaning up that fallen down from the storm.” She knew the guy and it was like he’s living there, taking care of the place after a storm, probably going to be a decent property to look at least.

Pride of ownership, so we put a big check on that one. Jen, what’s something you’ve heard?

Services are on but they haven’t paid their bill for four months and she said, “But with her reputation, it doesn’t surprise me.” She knew and she said, “She will probably pay it when it hits six months.”

That tells you somebody who’s habitually late on the power, but they may also be self-employed, peaks and valleys.

They eventually pay it.

That’s more like we call that a scratch and dent law.

How do they go that long without paying their bill and still having services on?

Some cities are very lenient about things.

That’s why there’s shit holes.

Nichole, what’s one of the most interesting that you’ve heard from the city?

Probably the power where he was like, “It’s on but he’s never really there.” These are usually small towns that we call that usually know the people and, “He’s never really there.”

We’ve also had where they’re like, “They’re out on payment plans for their utilities and they’re on time.” I think one of you said one time that they’ve got into a fight in the lobby or argue with their wife or spouse one time.

Yes. Going back to it, the services are on but there is very limited usage so it lets you know that they’re not home often. They may be travelling whatever the case maybe.

Maybe working, maybe an elderly individual with a power at least on but it’s not vacant. Unoccupied is the better way to say it. We have a lot of information. What else do we do besides calling the city?

Internet sleuthing.

NCS 153 | Note Case Study

Note Case Study: Borrower research. These are things we’re doing before a close.

Internet sleuthing AKA Facebook stalking. Borrower research. These are things we’re doing before a close. We have found some interesting things doing some internet sleuthing and being our own Sherlock Holmes. Jen, what’s an interesting thing you found with a borrower before?

Probably the one that had the barber shop. I don’t know how far behind he was on payments. He had made a recent payment within the past six months, but he had not made any progress since then. When we went to go find this information, he was self-employed with a barber shop and he had gone travelling. He’d gone to Disneyland, all these places he had travelled, brand new car, had his own business.

He did a lot of good stuff but he couldn’t pay on time. I think a lot of what we see especially with this contract for deeds, is the borrowers want to pay but the servicing company that’s behind it just sucks. They just don’t do a really good job. That actually works in our favor because when we find all this information when we reach out, it’s pretty easy conversations to have. What’s another interesting thing, Greg, that you’ve found?

The borrower on this one said, “I asked my daughter if she want to go to Disney World or have a place to stay. Long story short, we’re about to be homeless when we get back.”

Nichole, you found somebody one time going through a bit of a transition?

That was Jen, but he was placing his mortgage payment for his hormonal therapy.

He was going through a bit of transition?

It’s not all bad people either. I found one where they just had a baby and I guess the dad lost his job. They even set up a GoFundMe to help pay their mortgage and help pay for stuff for their kid and everything. It’s not always like they’re making really bad decisions. It’s just life sometimes.

That’s what people think sleuthing because they got a GoFundMe account, you didn’t click on the GoFundMe account to find out how much money they’ve raised for it. That works in your favor being the lender to see that stuff, “Mr. and Mrs. Borrower, I own your mortgage now. What can you do?” and they tell you, “A thousand bucks,” and you found out they got $8,000 raised at GoFundMe, “We need a little more than that.” All sorts of interesting things we find. That helps us determine yes or no. We’re going to make a yes on that. We’re going to say yes to this deal or take it down.

We’re still looking at ROIs, still looking at possible outcomes that we have to reinstate or if we have to foreclose or evict to make money on the thing. We had a 100, we made offers, only had 423. Now offer is on 101 or 102. We need to get them 40 countered back. We ended up finalizing the realtor BPOs or internet sleuthing. We’ve got to finalize 22, 23 assets. I did a webinar on a Monday night, going through each assets, “Here are the 23 assets and here’s the breakdown of what we’re doing. Here’s the numbers behind it and here’s what we’re doing.” Literally sharing our business model.

We raised quite a bit of money there that night. We had the deal funded roughly within 48 hours, closed on that following Friday, got plenty investors that want to invest on stuff. We can’t get everybody involved but we get you ready for the next tape. Some people are actually, “Why didn’t you take my money?” Because three people fund the whole deal. When they’re funding, they’re not pooling money. If somebody’s going to fund $100,000, they’re going to get $100,000 worth of assets as their assets that they’re joint venture. They’re not giving you any split of every asset. I’m partnering at them all but they’re funding that chunk and then we’re working through those out. Then the fun begins.

We always review collateral before we close to make sure we have that, we’re pulling on the reports. The collateral file though has a lot of good information that we can find out as well. We’ve got a collateral file here. We see all sorts of good stuff. We got the National Asset Advisors checklist, quitclaim deeds, all the good collateral. I’m not worried so much about the contracts. The contract for deeds, especially a company like ANA, they’re fully enforceable. They do them a lot of the time. I’m not worried about that. What I really want to look at is the borrower’s information. Once you flip over to that part, it’s all there. Literally, it’s like a three-loan application. It’s a very simple form. We give them their social security numbers or telephone numbers?

Name, phone numbers, employment, social security number, date of birth, marital status, and emergency contact.

We get their spouse information, so we can do more internet sleuthing on the spouse. We get their phone numbers, so we can do a reverse search for phone numbers. We can call those numbers to see if they’re working before it close. Employment, what they do, which helps us when we do internet sleuthing too, whether they work at their barber shop or a landscaper or a teacher, a doctor, a lawyer. We’re not seeing any doctors and lawyers in this contract for deed. What else can we find here?

Relative emergency contact.

Relative emergency contact information and phone numbers for them too, right?

We have address and phone numbers.

It gives us a point of contact to reach out to you because you’re not paying. Very, very, very valuable for us. Not only to check those and make sure the numbers work before we close, but also to do a little sleuthing of phone numbers. If we find enough information on the people, I don’t worry about family members. That’s what you guys do. You’re pulling phone numbers, Facebook profiles, LinkedIn profiles, if we can find their employment phone numbers for their job, that kind of stuff as well. What else do we have? This is basically a lot of the rest of the contract for deeds, the property information and all that good stuff.

Their agreement as far as payments and stuff like that.

Let’s go through this one here. This one’s in Toledo, Ohio that we’re looking at. This one asset I’ve seen it bounced around for a while. I’ve seen it literally been on the list of contract for deeds for at least the last year. One thing that happened when we start looking especially we map this up and take a look at I, that was one thing that thrown people for a loop when they were looking at the property online?

Everyone thought it was a vacant lot.

Everyone thought it was a vacant lot, but if you look at the actual spreadsheet, what does this spreadsheet say?

It has a vacant lot. It has two different addresses tied together in one contract.

If you map it, you go to that vacant lot, but right next door to it is, what?

If you scooch down and turn the corner on Google Maps you find a house.

You got two-storey, three-bedroom, one bath, 1580 square foot house. It’s got a two car garage, green trim, decent weird corner lot aspect of it, but a decent looking property. When we’re doing all this work on it, I’m looking at the spreadsheet here. This asset’s been around for almost over a year and a half now. I got this spreadsheet originally I looked back in my inbox to see when did I originally seen this come out. I missed this asset too. I know a lot of people missed this asset. Originally, it showed up January 12, 2016 on the spreadsheet. That’s a year-over-year and a half ago, everybody.

On that spreadsheet, it showed for this one, original loan on that was $31,000. It originated March 19, 2012. They made a payment on October 1st 2016. Their due date was February 15, 2016. When they made their payment, they were still eight months behind but they were at least trying to do that. I’ll just write it $31,000. They put $1,000 down as their down payment, three-bedroom, one bath, 1,530 square feet is what the BPO said versus the online. House was built in 1927, owner occupied.

The thing is their principal interest payment was $272.27 a month, that’s not a lot, 10% interest rate, 30 year. It was a 30-year mortgage so it’s set to mature March of 2042. Zillow gave it a value. You can always drop us an email as we’ll, we’ll go through some stuff with you as well at Scott@WeCloseNotes.com or find us online at Facebook as well. Market rent rates in the neighborhood is about $800 a month, $850. Right down the street is two properties, three-bedroom, one bath, a little bit bigger square footage at $800 a month. There’s plenty of room there that the borrower need to make payments. We don’t run a charity. You’ve got to make your payment on time.

NCS 153 | Note Case Study

Note Case Study: People are missing this asset because they’re copying their spreadsheet over and mapping it but they’re not literally on the spreadsheet.

In the last twelve months, the new spreadsheet we got, they had made an updated payment this year, so that’s why it fell onto that category. When I first saw those payments, they’ve made a payment just a couple of months ago. I missed this out awhile back. My focus was a little bit different. What’s just funny is people are missing this asset because they’re copying their spreadsheet over and mapping it but they’re not literally on the spreadsheet that says, “Also, blank, drive, vacant lot.”

They’re twisted because it said the vacant lot was one address and that’s not actually the vacant lot address. They had it reversed as far as the description.

Exactly. We purchased this asset in June.

Closed it on June 29.

Right before July 31st we closed on it. It was part of 40 something assets. It took over a month actually for us to get the collateral in. Just a week ago we got the collateral on this. It took over a month. Actually, we delayed funding on another trade until we had the collateral because we’re like, “It’s over a month now, we’re trying to get the servicing transferred.” We’re transferring it over to Madison Management, because their service was on this. Then the collateral shows up and is it complete, Jen?


What was wrong with the collateral?

It didn’t have any quitclaim deeds.

Because in this case, it’s a contract for deed, Harbour owns the property. They’ve done a contract for deed to the borrower. Let’s just say her name is Mrs. Smith today. They transfer the asset, the quitclaim need to transfer the deed from Harbour to us and transfer assignment of the contract.

So that we can record it.

Exactly, record to show ownership. We get all these files and there are no ownership documents in the files, right?


Jen, you’d spent how long creating new quitclaim deeds to send back to Harbour to get signed and notarized?

Three days but one of them included a Saturday so I could get them done and ready to go out on Monday back to Harbour to get signed.

Then what shows up?

On Monday, a separate file with 40 quitclaim deeds in it.

That’s what happened. Did they notify you that it was happening?


Jen spent three days working on stuff that she didn’t have to work on, which unfortunately happens sometimes. Finally we got the collateral corrected. Servicing is transferred finally after 30 days.

It was in the process, yes.

Then what happened?

In the process, the borrower received a letter.

Let’s figure this out real fast just so everybody knows. What happens when an asset is sold, the seller sends out a goodbye letter and they also send a goodbye letter to the servicing company, in this case, Madison Management to say, “Here’s the letter. Is everything correct? Here’s all the contact information. Is that accurate?” They’re saying in a goodbye letter, “Thanks for not paying us. Now you cannot pay Inverse Asset Funds or this people.” Madison’s going to send a hello letter, “Hi, thank you for not paying but now you got to pay us.” What happens? You got something that popped up.

The borrower reached out to us because they received their letter saying that their contract was void and going to the servicer. She freaked out a little bit. The old servicer gave them our contact information because Madison hadn’t picked it up yet, so the borrower called us and said, “I’ve made my payments. I haven’t made a payment for this month but I have it ready. I was told not to pay it. Why is my contract cancelled? Who are you? How can I pay you? I want to stay in my house.”

The thing is she said she’s got cancelled payments for the last twelve months. That means this is a note of a different color. It’s a deal of a different color. It’s no longer a non-performing note. It’s a performing note really, that we got at a non-performing price. It’s an error on the seller’s part because they didn’t do their due diligence on their files. We come out looking really good because now we got an asset. Borrower’s ready to make a payment or two, make this month’s payment and last month’s payment because she’s been sitting there and wants to stay in the house, a house that’s worth somewhere around 45, so she’s got some equity. She owes 30 and some change, literally some change.

She wants to stay in the house. We did a quick search. They’re landscapers based on the file here. We found that the borrower, Mrs. Smith has three Facebook profiles. We don’t have to reach out to her because she’d already reached out to us. We’ve got what kind of information, besides her phone numbers in the file, what else do we have?

We have her email. Now we have her proof of payments, a little bit of personal information. Another thing, she called flipping out saying, “I don’t want to get kicked out my house. The servicer cancelled my contract, so what do we do?” We’re like, “Give us a second. We own the debt now. Let’s work something out. We’re not here to kick you out of your home.” I know Madison’s going to take care of all this and everything, but in the meantime we gave her comfort we said, “We’ll work with you.” I did ask her, “Are you still employed?” and she was, “Yeah.” I said, “Are you still able to make the current payments that you’re making?” She said, “Yes. I have August payment here. I just haven’t mailed it yet because I don’t know where to mail it to.” I said, “Bear with us, hold onto it. You’re going to make a payment but will keep you at the same payment.”

That’s another thing too. While her payment here in the contract is $272 a month, how much was she actually making payments though?


I don’t think I have mentioned what we bought the assets for, did I?


We originally offered 9, they countered back at 16, we sold at 13 and some change. I ended up having investor fund this at 15, put a little bit extra just for some servicing, holding cost along the way, which we’d probably won’t need, which is great. Let’s run some numbers here real fast. We took their existing payment $272.27 times 12, it $6,867. It’s $6,800 coming in. We had $15,000 basically funding on that, that’s a phenomenal return, great returns of 45%.

Isn’t it 45.8%?

Yes, 45.8% if she makes the payment $272.27 but she’s making more than that though. She’s making double payments. Her payment is how much?


Her existing payment was $272.27 times 12 is $3,267 in twelve months. $3,267 divided by $15,000 investment, that’s a 22% yield on that. It’s right in the ballpark of what we thought initially. It’s over 20. I thought we could make up a little bit, we’ll be good. She’s making a lot more than that. $560.87 divide that by $15,000 is about 45% yield with her making the payments on time.

Instead of a 22% return, you have is 45%.

Phenomenal deal there. It’s a bit better than we thought, but that’s when the things that we maybe roll the dice a little bit and say, “It’s occupied. They want to stay, looks like a decent property. We got some information, let’s go with it.” It’s turned out to be valuable. Let’s talk about some things. If she’s making payments on time right now, if she’s done for more twelve months, what can we do? This is a test for you guys. You hear me talk about this all the time.

We could resell it as a performing.

NCS 153 | Note Case Study

Note Case Study: Not going to get rich of that but it’s a great way to show some great returns and add some chunks.

We could turn it around and resell it as a rate performing. A 45% yield is pretty damn good. Let’s look through this, so $31,000 is what she owes. If somebody wanted to make a 12% rate return on their money, that means we get to pay them $30,720 in a year in a $31,000 divide that by 12 months, basically $310 a month. As long as she keeps making her payments or extra payments, we could get somebody to bring in their $31,000, cash out our investors, give them a good return. We’ve got $15,000 to split, they get $7500 dollar profits on their $15,000 investment. What kind of return is that to them? It’s a 50% return and we did that in 90 days. $500 a month or $7,500, you’re not going to get rich off of that. Not going to get rich of that but it’s a great way to show some great returns and add some chunks. If your IRA had $20,000 now you got $27,000, now you got $30,000 or something like that, especially doing it more and we closed on 40 of these.

All within 60 days of closing too.

Let’s say we have somebody else who doesn’t pay. The other deal we got to evict. We’re still looking we’ve 45% on one deal and 0% on another one. What’s that come to? Still 22.5% return if you blend it across. That’s what I’m trying to get at. This deal not only gives us some room on another one, it may possibly give us some room on a second one. We can turn it around, sell it as rate performer, cash out on another investor. Then we also got a cashflow in return. We got an asset that’s returning to us on a regular basis. Basically, I have none of my own money in this. I’m taking an infinite return of investment. That’s the beautiful thing, and we got a borrower that’s happy.

We have a good rapport of her. She already called me back and was giving me information. We have a good reputation with her now because she’s already called back saying she contacted NAA regarding her payment, to let them know that she wasn’t going to be mailing the payments to them. She said that she would wait and get the information from me as far as where to mail the payment to. I’ve already had about two or three conversations with her since the initial contact.

You sent over the payment instructions straight off Madison’s website. Now, we’ve got money coming in extra. She’s starting to make a payment. Maybe we don’t see twelve months of payment, we see thirteen or fourteen months of payments for twelve months because she makes it for extra payment and a half.

We also had that personal touch where if she does run into an issue, I have a feeling that we would have that communications where we can work out and negotiate as we need to.

I get very excited for stuff like that. That’s the beautiful thing about a lot of these deals is a lot of people will do a little bit of due diligence and they make some offers but then they shy away and they get scared. They don’t send a realtor out. They don’t make a few phone calls. They suffer from paralysis analysis. They aren’t taking that extra step to double check. They’re making a bid and then it comes time for them to accept to counter and counter, they don’t do any due diligence after they make the bids and they’re scared. They cancel so they’d miss out deals like this. I think this big deal is probably bid on three or four times from people and cancelled.

Yes, I know it has. As a matter of fact, not too long ago, we had three people bid on the same asset and actually two of them retracted before we ever actually placed the bids from everyone and then the other person ended up retracting after the counter came back. I red line this one too when it came through and then we had the discussion.

That’s the thing, we looked at that nasty vacant lot.

Our office alone just from the time we got this tape to the time we actually closed on it, you’re all trying to kill this thing eight times. It was a vacant lot. I was like, “This is not a vacant lot.”

See that’s one thing you’ve got to keep in mind too. If you’re outsourcing due diligence, you’ve got to double check sometimes. You’ve got to make some notes. You’ve got to take a look at some things. That’s okay. It’s learning thing, it’s a numbers thing too. Out of these 40, we have 20 that perform, great. We’ll evict, foreclose, sell the assets off real fast, sell them to the next door neighbor. Greg, you bought an asset in Lake Station, Indiana outside of Gary. Not in Gary, thank God. You drove by the property?

Yes, it was vacant. We were coming back from Cape Coral with the Mastermind and decided to stop in Indiana.

Indiana is not on the way to Houston from Cape Coral. That’s a bit of a detour my friend.

Yeah, we detoured to check out some assets.

You and your dad flew up to through Chicago?

Right and drove into Indiana to look at some assets. We had one in south in We Close Notes. Lake Station was on the way back to the airport so we stopped in there and looked at that one. It was vacant but the yard was kept up, it wasn’t even trashed out. There’s just nothing in there, except the boat in the front yard. Neighborhood looked good and I took a couple photos of the property and came back and we were talking about it and then we got a call on Thursday. The same day we did this one, literally two hours later, the neighbor.

We’re looking at this other asset. Honestly, we knew it was vacant when we bought it. We got our buddy Jean Chandler drive by. He went up to take photos, drove around it, property’s in good shape, I guess the neighbors are cleaning it. Power is off but it’s in good shape, clean, not trashed out. It needs a little bit of work and carpet but not too bad. There’s a tarp on the back roof a little bit, but there’s no water spots in the inside, somebody did a little bit of a job. I got a missed phone call this weekend. It’s the next door neighbor to this house that we bought. The next door neighbor is the one who’s been mowing the lawn. Next one, she’s like, “I want to buy this asset. Me and my son want to buy it for him to move in.” Anyway, that one we got an offer coming on that one today from the homeowner. She said, “All it needs is working.” I’m like, “We know what it needs. We’ve got photos, videos, that kind of stuff.” We know, what about this asset compared to the rest of the assets on the block?

It is the black guy at the neighborhood but it’s not terrible.

It’s got Jumanji in the backyard. It’s got high leaves which we might uncover, who knows something. That’s what we see. We got one in here, boom, knocking two there, especially as the letters hit them because we’re dropping out letters and we start making phone calls eventually. Some people ask, “Scott, why are you making phone calls? Why not Madison handle it?” Madison’s okay but most servicing companies aren’t going to be as aggressive on their call as we would do. That’s why we’re going to write some letter, that’s why we’re also going to do some quick phone calls. We can make a couple of phone calls and get borrowers back on track. It saves us a lot of money that we don’t pay in servicing fees.

It gives us that rapport as well.

The borrower has somebody to call in case we’re not. I would not do that if you’re brand new, because you’re not going to know what the heck you’re going to do. You don’t know what to say or what not to say. We’re working with Daniel and Joel over there as well to have them take some assets, “Here you go. Give us a quick run. Let’s move to eviction. Let’s move to foreclose, we can sell these assets off.

Once again, we have these types of deals all the time that we work through. We’re working through a couple of tapes of performing stuff that we’ll be doing a draft over the next week or two on actually. If you like to get into our buyer’s list, you can go to WeCloseNotes.com and what will pop up is a little tab that says Buy Notes. It will take you into a sign-up sheet: name, email, phone number and you’ll be alerted of any assets that we have available or any drafts that we do highlighting assets that we have available for sale; potential money partnerships that we are doing on a regular basis for our own stuff. Hopefully, this has been valuable. We’re going to be focusing on a deal pretty much at least once a week for the most part unless we have too many guests on. This is one thing that I think a lot of podcasts lack a lot of time, because this is a deal flow and sharing the deal flow. A lot of people get into talking about the business and talking and talking and talking, they don’t actually share what they’re doing in the business.

We’re The Note Closers Show, we want to keep the closing part versus the note talking show. That’s what it’s all about, by closing deals, making it happen, getting some good returns and then sharing what we’re doing on a daily, weekly, monthly basis with you to help you close more notes. Go make something happen. See you all.


Important Links

Harbour Portfolio

Madison Management

2 Comments on “Ep 153 – Note Case Study – Start to Finish!”

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