Special servicing is a tricky part of the note business, especially because you’re always dealing with distressed owners. Scott Carson’s guest today is a member of his very own We Close Notes team, Hazel Rivera. Hazel is a special servicing and management specialist. This episode touches on the best practices when it comes to negotiating with distressed homeowners on their loans. Hazel shares with Scott some of her favorite and least favorite case studies and what you can and cannot do as a note investor when it comes to borrower outreach. If this is something that interests you, then this episode is for you.
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Best Practices In Special Servicing And Negotiating With Distressed Homeowners With Hazel Rivera
I’m extremely jacked up for this episode. We have a very special guest. This lady knows her stuff. She is amazing. I could not do what I do without her. She has been a very critical part of our team. She joined our team a couple of years ago. We have talked about having her on. We had around with her before and had rescheduled. This episode is going to have so much impact for many of you that are going to read this that are in the note business that are getting into it. They have the idea that “I want to sell service or I want to talk to borrowers.” We will save that whether that is a good or bad thing for later on, but we are honored to have the lovely, the amazing, the rock star when it comes to servicing. Our own Hazel Rivera, joining us from New Jersey. How’s it going, Hazel?
I’m good. Thanks for having me.
I’m honored to have you. Let’s talk a little bit first about who Hazel is and how did you get into loan service? Let’s talk a little about your background and go from there.
I’m from Jersey. I started off working for a chiropractor, and I just put my resume on Indeed, and a more good servicing company reached out to me. They were interested in having me work for them. I had no clue about the industry. I don’t have a mortgage of my own. I fell in love with being able to reach out and help people keep their homes as well as helping the investors get their money’s worth. It’s a very rewarding job.
You have been doing this for how long and how many years now?
Four and a half.
In the previous company that you worked at, did you handle a lot of non-performing and performing assets?
I handled over 600 assets at the time.
That is a pretty good chunk. Let’s dive into that. When you go from a non-industry and chiropractic into mortgage servicing, it’s a different ball game. What is involved in the training to get you ready for something like that. Do you take classes or there are fair debt collection practices? You have to learn these too?
In the beginning, they do give you training. It’s about two weeks long. You have to watch the videos and answer a few questions, and then you get your certification. After that, it’s pretty much hands-on. You are not going to learn the ins and outs of the industry unless you go through it, growing pains.
It’s a lot of every situation can be a little bit different as I joke, in loan servicing especially non-performing side. Every note is his own country Western song?
Let’s talk about that. You handle our portfolio. You are doing a lot of things working with our sellers and working with our servicing company, with attorneys. Let’s talk about when you were working for the servicing company, talk about what your day in the life of an asset manager at servicing companies like, what were you doing there on a daily basis?
You respond to your emails. You check on performing payments. Make sure the performing notes are on time. You call anybody if they are late on a payment and then you do loss mitigation, which takes up most of your time. The cold calls and sending out letters, I don’t like to send out generic letters too much to homeowners. You want to make it more personable so that way they are more inclined to reach back out to you. Checking on those bankruptcy cases those are very important, as well as an escrow. You are doing a lot in a day to make sure the assets are on the right track.
That is why I’m glad you brought that up. It might be okay if you have got people to start out with one or two assets. They may still try to do that themselves. What advice would you tell them starting off? Go do it yourself or do you need somebody?
No way. I would definitely get a mortgage servicing company to help you so that way, you have trained asset managers, loan servicers, helping you do homeowner outreach. You want to make sure you stay in compliance. It’s very quick for a homeowner to feel harassed and go to an attorney general and make them complain about you, and then you have to deal with the lawsuit. It’s better to leave it to the professionals.
There are some people that are calling borrowers at odd hours at a time. Let’s outlined some of what you can do. Let’s talk about some of that. Are you able to call them at all hours? Are you calling a servicer every day or are you doing it four times a week? Servicers will change a little bit to how much they reach out, but what are the times you can and can’t call them?
Between 8:00 AM to 8:00 PM, you can give a call. Be aware of the time zone. That is something that I had to learn being in Jersey, some assets in California, and other places. There are different parts of Indiana where there is an hour difference. You have to just Google the actual address and see the time zone and make sure reaching out at an appropriate time. As for phone calls, it depends, if the homeowner is non-performing, I would wait. Maybe call twice a week and you realize they are going dark. You call 3 to 4 times, but I wouldn’t call every day. If somebody calls you every day, are you going to want to answer? Not really.
As far as letters, demand letters and stuff like that, can you send threatening stuff, like “Pay me now?”
No. You definitely get those moments where you want to. Like, “I need to see some payments coming in,” but at first, you send out a contact letter, let them know you are reaching out. Maybe they relocated, and they are renting out the property, or they changed their phone number or their email, which happens often. You send out a friendly contact letter. I would wait two weeks. You then can send out an intentions letter asking them if they want to keep the home. You can provide homeowner options. If you don’t get a response, that is when you should send a forfeiture notice or a demand notice.
These are all documents that need to be basically structured similarly or professionally that aren’t harassing in nature or you can’t threaten people. You have to follow the law. A lot of screw up on this and trying to self-service because they don’t send those things out. They keep trying to call them, get a hold of people and delaying the letter notices. Would that be something that you have seen in the past happen?
Yes. There are investors that want to call and get a quick answer. That’s not always the case. I don’t answer calls that I don’t know. It is better to have a paper trail and to reach out in a friendly manner and letting them know you may understand their hardship, but there is a debt that’s owed, and you are willing to work with them. Be more open-minded that some people do have a lot going on with them and they do try to avoid paying their debt. You want to be as friendly as possible. That way, they feel more comfortable to reach out and let you know what is going on with them.
You mentioned something there. I’m a big believer you have empathy for borrowers because you never know what they are going through. I’ve been in a bad situation in the past years ago. Understand that you don’t want getting a phone call from a servicing account. You don’t want to answer the door for a certified letter coming in when you are late in your mortgage. What are some of the things that you do? If we were to have a conversation like you are calling the borrower for the first time, what are some of the things that you do that set yourself apart? You ended up building a good rapport with a lot of our borrowers. I think you are easy to talk to. Let’s talk about some of those things that are the Hazel touch.
I think it’s having empathy and getting to understand where they are coming from and let them know you are not wanting their money. You want to collect on the debt, but you also want to make sure that they are okay. When you do work out a payment plan, it is feasible for them to make on-time payments every month and that it’s not going to be hurting them. If they feel like you don’t care, then it’s like, “Then I don’t care.” They will drag it out longer. It’s better to call and ask them how their day was going. If there’s anything that you can do to help if there are certain options that may be more appealing to them. Getting an understanding of where they are coming from, and what is going on, and what led them to stop paying on the mortgage or the debt that is owed.
It’s trying to figure out what happened. Everybody goes through financial hiccups, and I don’t think most people want to try and take advantage of a bad situation and not pay their mortgage. A lot of people want them that dream of homeownership and want to own it because they sign up for it. We have seen a lot of craziness in 2020, with everything being COVID-related. When you get a borrower on the phone, and you are starting that process, what is that process? Are you collecting financials? What kind of questions are you asking? What are some of the things that you are doing to uncover where they are at and what they can and can’t afford?
First, before you even reach out to a homeowner, you want to check their bankruptcy status. If they are inactive bankruptcy, if they have been discharged, dismissed, or never had one. If you have the green light to reach out, you want to see what their intentions are. You don’t want to go and discuss and explain all these things and stay on the phone for an hour when you realize they don’t even want the property. If they are not paying their mortgage, most likely they are not paying taxes. Taxes take precedence over the mortgage. They are going to have to deal with that and homeowner’s insurance.
If you explain to them everything that’s going to be owed and their financials are going to change before you even start looking at how much they can afford, sometimes they get overwhelmed, and they are like, “This is all right. I will sign a deed in lieu or a cancellation agreement. I will go about my day.” If they realize that, “No, this is something that I can do. I do want to keep my home,” then you go, and you discuss what options work for them.
We will take it back a little bit. You recheck the BK’s. You go to the PACER and check the bankruptcy status first. What happens if you see that it’s a BK7 or BK13? What is your step then? Has it been calling the borrower or do you call the attorney? What is your process with that?
You do not want to call a homeowner if they have been in bankruptcy, whether it’s a 7 or a 13. At seven, they don’t usually pay on the mortgage. At thirteen, they do. Depending it’s a conduit plan or not. They may be paying the mortgage to the servicing company as well as directly, and then as well as with the bankruptcy plan. You want to read the plan first, and then you can call the trustee, make sure the payments are being mailed to the correct address. If there are any missed payments, you call the trustee as well as the attorney, but you never want to call the homeowner.
If you call on a bankruptcy, whereas a lot of real estate investors avoid bankruptcies because they are not going to take the property back. We embraced that, don’t we? When we see a BK, we know what you are going to have somebody to talk to?
It depends on the situation. There are some bankruptcies where homeowners do get dismissed due to nonpayment, and then you can’t reach out to them. You are in this limbo state of what their intentions are. For the most part, it’s usually outlined in the bankruptcy, who you can contact. They are more reliable if you contact the attorneys or trustees than the actual homeowner sometimes.
If they paid their attorney bills or not, and gone that route exactly that the attorney can handle it or reach out to them. Let’s take it another way. Let’s say they are not BK. What are some of the ways that you try to track down Right Party Contact, or as we say in the industry, RPC we see that. That’s the biggest thing when somebody is buying new assets is to get that Right Party Contact?
You want to do your due diligence. You want to skip trace. If there are two homeowners, you want to make sure you get addresses and phone numbers for both of them. Once you speak to them, you want to verify who they are. If you have their social, you can ask them for the last four just to have verification. You can ask them to send something in, but I wouldn’t go disclosing any personal loan information unless you verify that the number that you are calling is the person you are trying to reach.
Verifying the date of birth and last four is pretty normal. What are some of the things that you have used? Do you use social media to track the borrowers down or any of that stuff work for you?
I have, but you are not allowed to contact them through social media. I have Googled, Facebooked, and browsed and see, this person is not paying their mortgage. They are saying that something is going on, but they bought a 2020 Audi. You are like, “Wait a minute.” You have to readjust and figure out how to discuss with them getting more money or what is going on with their financials. You can reach out to them in several ways and check. There are times that I have gone on Google Maps, the imaging, looking at the houses and making sure there are cars out there. It all depends, but you only should contact them through skip tracing, where you have verification on how you got the information or proof.
That’s a good thing if anything is called into play. I know some people like, “I used Facebook. I connected and sent a message on Facebook with my borrowers.” I’m like, “Oh my God.”
No, not the best idea.
You have probably heard some doozies of borrowers saying why they can’t make their mortgage payment, besides being laid off or not having money. Has there been an interesting story of somebody saying I can’t pay because of this or this that stands out in your mind?
Yes, actually it was one of yours. We had an asset where a homeowner had told me that he had brain cancer. He didn’t pay for over a year on the asset. Legally, you are not supposed to ask for proof of their medical information because that is personal and there are HIPAA laws. It was hard for me to try to be empathetic, but then also work with him. Finally, I got to the point where I said, “Let me see your financials. I want to see that at least medical bills are being paid.” That is when he let me know that this is not true. We ended up taking the house back from him shortly after. Don’t get sucked into those sad stories. It’s easy to do. Especially when it comes to medical reasons and you can’t get the proof that you want, or request certain things and ask certain questions. I would definitely try to find ways to finagle the answers that you are needing. That way, you can handle and address the situation better.
I had forgotten about that one, lying about brain cancer. Good times. We have had such a wider, especially with us being so focused on the non-performing side of debt. The performing side is pretty easy to collect on for the most part?
It’s getting things set up on an ACH. I think you have got such a great touch with people. I know that there are borrowers that reach out to you on a regular basis, or even when we have sold assets, they still wanted to contact you because they were talking to you on a monthly basis about things. You mentioned something important is not getting sucked into the emotional aspect of it. A lot of people that want to self-service or they want to talk to the borrowers, that is where things go awry. They give an inch and the borrowers take a mile. Do you want something?
That definitely sums it up there. In a nutshell, they do try to take advantage, not all of them, but a lot of them do, especially with their financial burden. You try to be nice, but if you are asking for something, make sure you get it, don’t be too lenient. Don’t wait too long. If you see a performing homeowner has missed a payment, let them know, “You got to make a double payment or a payment and a half.” Most servicing companies do accept partial payments. They will put it in reserve. Once it’s a full payment, they will apply it to the account. You can ask for more and make sure that you’re getting your money back. Because if they see that you don’t care, you have enough assets to deal with and stuff to deal with on a day-to-day basis, they are going to think that they are flying under the radar. It adds up. It’s harder to collect on a $2,000 debt whereas a $500 one.
You are looking at a lot of information and touching base on a lot of things. Is there a number that you look at? Is there a formula in your head that you look at? What can they afford based on income? Let me try to get a mortgage. It’s always rightfully around 40% to 45% of whatever their monthly income would be roughly what their payment is. What are some things that you look at on the financials? Are you making a list with you over the phone, or they send stuff into you, and you have that conversation? What can you afford and go from there?
It depends on the situation. If it’s somebody that I have been with before, and we have done payment arrangements like a trial payment plan, you get a feel for what they can afford. They are pretty straightforward. If it’s a new homeowner that you bought the note, or it’s somebody that was in the dark, and you are having to figure out their financials, I would send out a financial application, having them list their expenses as well as their income. You can do a gain to loss ratio and get a feel for what they can afford at that moment.
I can say, “Looking at the financials, I think that you can afford $600 a month.” They may have debt that they didn’t want to disclose, and they can only afford $300, “Let’s meet in the middle and do $450.” Try to make it feasible because if it’s not, and you are like, “No, this is what I want.” You haven’t paid. You are not going to get your payments. If it’s something they can afford, a lot of times, they can go on automatic payments because it’s like, “No big deal. I had that for sure in the account.” I always tell homeowners to put the least amount that they can afford and then send more, send it and apply it to your principal, put it into a reserve, make sure you are paying your delinquent property taxes. If you have a water bill, you have to make sure that all the debt is being paid and not you receiving your side of it because then you are stuck advancing funds at the end.
That is great counsel there because it’s not about the mortgage payment, the taxes, and the water bills. A lot of times, the water bill follows. Even the county, a lot of times, is obviously a lot more lenient with the borrowers calling in if they needed to set up a tax payment plan versus an investor that’s out of state trying to pay taxes?
When you look at the stuff that you have done, I think a lot of people get into like, “I have servicers. I’m going to board my loans. The servicer is going to handle everything.” You are already shaking your head.
How is it important? Because with 600 files that you are dealing with previously with, you had a variety of different investors on those. Big that had a couple of hundred like me and then others that were onesie-twosies, I imagined. What was probably your most frustrating thing when you were working at a servicing company with investors? What were some of the pet peeves that drive you bonkers? We don’t name names out there, but actions or lack of actions or lack of communications?
Lack of communication is a big one. You have to stay responsive. This is your asset. In your investment, you have to make sure that you are hands-on. Whether someone else is handling it or not, you want to make sure that things are getting done. Also, you don’t want to be too overbearing. You don’t want to micromanage. If you are not sure of how the industry goes, especially with loss mitigation, you have to trust the asset manager and build that relationship where if there is something bothering you, or you think something could be done better, you can express that. Maybe the asset manager has a reason that what you are asking for is out of compliance or can be overwhelming for the homeowner. They know the homeowner is a grumpy person. They won’t handle being called every day. It just depends. It’s a case-by-case situation. What I know is a pet peeve for me is investors that are not hands-on and that they don’t seem to care about the investment that they have.
I have had servicers call me before, like, “This guy bought a portfolio of loans and then disappears.” We have seen that happen. No comment, no contact. People are like, “Do you know this guy?” I’m like, “I know this guy. Let me reach out to him.” Crickets, it’s crazy. I think servicing in distress debt investing. People have to embrace the hurry up and wait for mentality. We buy things, but there is a time when stuff gets transferred over, and we have had Shauntay on here talking about the 30-to-45-day transfer. The communication, you can reach out to borrow, and then you are reaching out for more information. What is the timeframe that you let lapse between if you send them something and they take action? Is it a day, a week, a couple of weeks a month? It probably varies a little bit what you’re asking. What is that timeframe that you want to have that concept, that next touchpoint with a borrower? What would you try to get the borrower to do?
If you are in communication with the homeowner, you don’t want to not talk to them within 30 days. You want to reach out at least. If you are sending out financials, they can send it back within 30 days of when it’s mailed out. Some servicers do 45 days, so you can call them after two weeks. “Did you receive it? Do you have any questions or concerns? Is there something that you want to go over? If it’s an agreement, you can reach out and want to have an attorney review it? Go ahead. Do you have any questions for me?” Not necessarily like, “Send it back already. I need the documents.”
Just checking in, making sure they received it. If they have any questions or concerns because sometimes, they won’t call in, and you wait 40 days, 35 days, and they are like, “I forgot. I didn’t understand this.” It’s like, you could have called me, but it falls back on the person that is managing the asset or the investor because that is your investment. You want to make sure that you stay in communication and make it comfortable for them to want to reach out to you with any concerns that they have.
You want to make sure it’s not a non-adversarial kind of relationship for the most part. You probably got to read them a disclosure every time you call them, though, first and foremost?
I don’t because I build a rapport with the homeowners, but I guess if you don’t talk to them all the time, it is best to do that.
It started off, especially the initial phone calls. I know you do that from the initial phone calls. Besides Mr. Fake’s brain cancer, you have probably had good and bad borrowers on the phone. Some people have been extremely nice, and then others that have been downright ugly. If you were to think back to the ratio of when you get new files and when that first Right Party Contact when you get them on the phone, what would you say the percentages of people are friendly and communicative versus being ugly?
Friendly, probably like 20%. There are not many friendly people the first time you talked to them. They are defensive, maybe embarrassed, and they don’t want to talk about having to give out money. I let them know, “I’m not here to take your money and leave you in the dust and not care. I want to know what’s going on with you. I want to work something out with you. If you love your home, I want you to keep it. I don’t want you to go into legal. That is the route that will be taken if you don’t communicate with me. I’m trying to just keep you in your home.” They are more open to that. I have had quite a few homeowners that have said colorful words to me before. I explained to them, “I’m trying to help you here.”
There are investors that they are like sharks. They don’t care. As soon as the 45 days, depending on where you are, the 120 days. Once you are delinquent, they go for legal. They don’t want to hear anything because they feel like you sign this. That is old. That’s it. I had an investor like that when I worked for a servicing company. He wanted to put everything illegal and didn’t want to talk to anybody and didn’t care. Don’t do what I did, but I didn’t listen. I was like, “I’m going to call these people. I’m going to let them know I care. I want to make sure that they stay in their homes.” He had a great turnaround. He assigned all his loans to me and most of them were worked out from non-performing to performing.
That was one of the biggest mistakes I made years ago when I got into the non-performing side. We see that happening. That is a great example. Those investors that come from the fix and flip side or the property side, they want to take the property back and don’t realize that it can be extremely profitable, if not, better return on investment to get the borrowers back on track to performance versus having now not more money coming in now, forking out legal fees and other things to take it to legal?
That can be a stressor in itself having to go to legal. Sometimes you need proof. How many times did you reach out to the homeowner? Where is that paper trail? Did you send out contact letters, intentions letters, demand notices, or did you just call them? The homeowner can fight that. Sometimes they go and they file for bankruptcy. You are stuck having to deal with the bankruptcy. To avoid all of that, you try to be more open-minded and patient. You work with them.
What is a case study story of your friendliest borrower that was non-performing? Do you have anybody that sent you Christmas cards? When you think of a friendly borrower or an ideal situation, is there a story that pops to the top of your head?
I did have a homeowner one time. He was smitten with me. I helped him forgo from non-performing to performing. We polished his loan. He was able to refinance eventually. He called me in the servicing company even after his loan wasn’t there, asking me how my day was. He told me how to fix a dryer. He called me for random stuff to talk about and have someone to talk to on the phone. I didn’t mind it because you spent five minutes talking to the person on the phone and that is how you build the rapport. He can go and tell somebody else, “Maybe we try to switch your servicing company and help you find other properties so that the investor can go and invest in.” It’s always good to be very friendly with people and talk to them. Sometimes people just want to talk.
It reminds me of that movie Red with Bruce Willis, where he keeps calling the Social Security Payroll Department and keeps tearing his checks just to talk to the lady, at Roxbury to call the credit card approval company.
People are like that.
Sometimes, you probably a little bit of a counselor too on the phone with some people as they have gone through bad things too. Sometimes I can let people talk because they probably don’t have anybody to talk to. Is that true?
Yes. I have a homeowner now, one of your assets. She is not doing too well. She has a lot of medical issues, and I asked her, “How are you feeling? What’s going on with you?” We have gotten so friendly that she will just call me after her doctor’s appointment to let me know how it went and that she is stressed out or something. You are not that everybody. You have to go being so personable and friendly with because it is a business. When you have those people that you see want to talk to you, they need someone to hear them out. What is it going to hurt you to take ten minutes out of your day to let them know that you care? Not all the time, but yeah, it does.
You have to have empathy. That is why I think the note business if you are going to be doing this, you need to have a portfolio because you are going to have some cases like that. I had a borrower years ago who lived in Jacksonville, Florida. We have had a few of those, very low, fixed income, handicapped. You are not going to boot somebody in a wheelchair out of their house. You are going to try to work with them as best you can to make it a win-win. Your win may come to a lot longer after they have passed it on, but trying to help take care of people a little bit.
It all depends, but especially when you see that they are trying and they are not making excuses for their financial situations. They are willing to give you their financials to show proof of their hardships, you definitely want to be more lenient. If you feel like they are blowing smoke by just saying stuff and not providing any info or calling you back all the time, that is when you are like, “There has to be something else that I can do with different options.”
If you think back to all the loans that you have been involved with, not just my stuff, but previously, is there a percentage that breaks down in your head about if we were to split them up into three buckets? The first bucket being those that get re-performing or modified or drop payment, the next bucket being those that sign the property over and walk away, and then the third has got to go to legal foreclosure. What kind of percentages would you put on out of ten assets? What kind of percentage do they fall into that you see that you can think of?
I don’t know. That’s a complex question. It’s loaded. It all depends on where the assets are. Most people are not inclined to sign the property over unless you let them know, “It’s going to be illegal. It’s going to affect your credit.” You are not saying it in an aggressive manner. It’s more, “No, I’m concerned for you because if you want to eventually buy another house or you want to go rent an apartment, this is what’s going to happen.” Those are the people that eventually sign over. I think 70% end up having to go to legal if they had been dark for a long time, and that is exactly why you want to reach out frequently. Send out those letters and a field agent, a door knocker to check on the occupancy, take pictures. That way, you don’t get to that point where they are just gone.
If they are not responsive, 70% go to legal. That makes a lot of sense in a small percentage. You will sign the property over to walk away because they got divorced or moved on or moved out of the year. We have seen it happen with our portfolio, and you are doing a good job of getting people to sign over. What has been one of the biggest surprises with the last year of COVID? What’s one of the things that you have been surprised about or seen as a trend taking place here with everybody struggling or people being out of work?
The homeowners that I build rapport with, I’m very proud of. A lot of them have had hardships, and they will call me, like, “I’m going to make my payment. I will make a double payment next month,” or they will let me know, “I’m trying to get financial aid.” I don’t even have to reach out to them to see what’s going on with them. They are reaching out to me because they know that it’s easier, not to say that they are using the pandemic as an excuse, but it’s easier to discuss these things because it’s something else to fall back on and not their negligence. That is a good thing, but I have seen a lot of homeowners become unresponsive during the pandemic. It’s unfortunate because you have helped them out by giving them payment options. It all depends on the homeowner and their mood. For the most part, they have been pretty good, the performing ones.
You never know what is going to happen. We have had some performers go dark. Others that popped up out of the blue they have started paying again or looking to do a payoff or get refinanced out of the property. That is always a good day when we get in a refi. It rolls in.
There was one typical homeowner that is going to pay off. It’s almost three years reaching out to this homeowner, and during the pandemic now, he wants to buy his house outright, so I think that is great.
“I don’t like to go legal. I’ll go illegal.” It all depends on the situation, what is going on. We have had our hands tied in 2020. I’m not going to go legal in a lot of cases because of the counties and states out there, the foreclosure and eviction moratorium. We have had good and bad. It’s such an interesting industry out there. It’s going to be even more interesting in 2022. 2021 and 2022 is things get a little crazy with foreclosures and evictions again that are starting to pop back up. When you think about the industry a little bit and new investors, what maybe 2 or 3 things that will make your life a whole lot easier besides communication? If an investor comes to you with like, “I’m willing to do A, B or C, and this is the way I want to go, or here is what my plan is for my assets.” What are some things that you have experienced that you love when they do?
As far as game plans, knowing what they want to accept or not, I think that’s a good thing. They have to do their due diligence. You can’t go saying that you want something from a homeowner and they are not financially there, or they are renting out the assets, so you can’t even find them even if you do a door knocker. That’s important. It’s having a game plan. If you are going to send it to a servicing company, that is the first thing that the asset manager is going to ask you. “What would you like to do?” You can’t expect them to know what you want them to do, so you have to have an idea. I want you to skip trace the homeowner, verify phone numbers, verify the address, after 30 days of no contact, send out a letter. Is there a co-homeowner? Do they have other relatives living in the house with them? Is it a business?
You want to check all of those things and then let them know, “I’m willing to do a payment plan. We can do a trial payment plan for 12 months and then we can modify the agreement or do an addendum to the land contract.” If you know and you can say with confidence where you want it to go even if it doesn’t pan out that way, it reassures the asset manager that you know what you are talking about, and when they go to talk to you about something, you are going to stay in communication and you care about your assets, so they are going to care about your asset.
It’s one of the best advice. Care, come up with a plan. That way, you get some marching orders versus trying to let somebody make decisions that they have no type of direction. If it’s impossible, your loans will sit there riding on the vine for the most part. When you think about all the loans you have done, what has been probably the most creative work out that you have heard of a borrower or an investor working with a borrower on, or a borrower is presented to an investor that went that way? Can you think of anything? What is a creative workout or is a pretty cookie-cutter, paid monthly or increasing interest rates, and we will do the staggered closing to have you refinance? Anything weird? The swap-out houses or anything?
Sometimes there is an incentive to pay off your loan. I know one agreement, there was a balloon payment at the end and the loan. We ended up modifying it. The investor said, “If you pay it off sooner than what we agreed upon, I will take off that $15,000 balloon payment.” That’s exactly what happened. It went from a non-performing loan to a performing loan to being paid off fairly quickly because there was that incentive. If you give them a reason to want to pay after 12 months, you can do a trial payment plan. When you modify the loan, you go from a 10% interest rate to a 6.5% or 7% interest rate. You are still collecting. It’s still a little high on the interest side, but it is an incentive for them to make their payments monthly and on time.
What is your favorite thing to do when reaching out to a borrower and then what is your least favorite thing to do?
I like introducing myself. I like getting to know them and building that rapport. It feels good. Sometimes it’s draining having to deal with them being grumpy at first, but then you get those calls where they are excited and happy to hear from you, and they want to talk to you. It’s like, “I definitely have a good turnaround.” It makes you feel good. It’s rewarding. The ones I’m not too excited about are homeowners that may be finished their bankruptcies, and now they are going to pay you directly. Sometimes, not always, but like a little chip on their shoulder, they feel like they can go back into bankruptcy, they can deal with that, and they don’t have to deal with you or talk to you. It’s like, “Let’s just work something out.” It’s different, but it’s all on a case by case, and a lot has to do with the states. If you are getting in a rural area, it’s harder to communicate with the homeowner and have field agents, door knockers, go out to the swampy areas and check. They are well aware of that. They play off that sometimes.
Avoid Louisiana is what you are saying?
Yes. There are places that you do want to do your due diligence before you buy that note because you have to think about if you are going to send a door knocker out. I had an investor that wanted pictures of photographs of the property, and we weren’t able to do it because the third party for the field services wasn’t able to get out there. It was not fun to deal with for him or the homeowner because the homeowner, it affected their credit, and they got evicted instead of trying to work something out. It’s unfortunate at times, but it’s case by case.
It’s a big thing I tell people, avoid the rural assets because that reason, it’s hard to get people to go out there, realtors, people don’t necessarily want to live remotely. They like to be in around towns. The days on the market are a lot longer. The fact that it’s remote often leads to a lot of vandalism on vacant properties, too, in an area less populated. Where there are no neighbors peeking through the windows and see what is going on, it’s more likely to have things happen. You mentioned early on about borrowers calling how they are working with local cities or states for help. Can you talk briefly about that? I know it’s different across the country, each state, each city is different, but I think a lot of borrowers don’t realize there are outreach programs or church groups or charities and things like that work with borrowers or people that are struggling?
There are. They have to Google them. That is something that I also help homeowners with. If I know that they’re not able to afford it and they do have a hardship, “I know Indiana has a hardest hit fund, so that you can contact them.” I have sat in a few of their meetings to get an understanding of what their requirements are and how it works. Ohio has a Dream Act Ohio. It depends on the state. You can look it up, and then you can inform your homeowner, or you can have them reach out themselves. There are places that are willing to help even with the littlest stuff like if the debt is $2,000, they will bring them current. If you have them do that, you work with them in the meantime before you get your check because there is a waiting period. You try to modify their loan where you make it more affordable so that they can make their payments every month.
Sometimes you have got to split the payments up or adjust the payment date so it doesn’t draw on their account before they get paid and overdraw. We have had that happen a couple of times, where it’s simply delaying the date that we drew from allowed for their check to get deposited on a regular basis actively.
Sometimes you do have to switch it from the first of the month to the end of the month or accept biweekly payments. Not always, it’s rare, but there are homeowners that like to pay weekly. Maybe they get paid weekly. As soon as they get the money, they don’t want to spend it. They want to be able to put it in the account. When looking for a servicing company, that is very important, making sure that they accept partial payments because there are servicers that don’t accept partial payments and they need the full payment. It’s harder for a homeowner when they have other bills in their face coming in to not pay that and have to hold that money until the end of the month at the beginning of the month to send it in. Partial payments and a biweekly and ACH is still are very important.
How hard has it been to get a borrower to set up an ACH? Do you see people open to it more so or people avoiding ACH?
It depends. If you put them on an agreement, they are more open to it. If you are trying to work something out and they are delinquent, they are not. Because they feel like, “I’m going to start sending money, you are going to deduct it from my account, but then you’re going to foreclose on me,” which is a myth. You can’t go and foreclose on a homeowner if they are making payments. They have to be usually 120 days delinquent and then you can file. It depends, but I see more often than not, people are willing to get on ACH as long as you are willing to lower their interest rate or make their payment more affordable, they will get on ACH.
You have to dangle that carrot of some sort in front of them to get them to work with you a lot of times.
Yes. ACH is great because you don’t have to worry about it. You just do a payment check, even if it’s at a servicing company and you have a performing loan. You should always make sure, at the end of the month, at the beginning of the month, that payment came in.
You have given such great nuggets so far to those that are reading this. You are a jewel. If somebody is looking for somebody to handle, what are the characteristics of a good asset manager? Somebody who’s organized? I bet you are pretty organized handling all the phone calls and assets. Six hundred files, you have to be pretty organized.
You have to be organized. You have to have your updates in line with what you are going to discuss and little notes around, to make sure that you don’t want to call somebody and not have that understanding of what your last conversation was or what you’re requesting or needing or requiring of them. If they feel like you are calling and you are talking about something you have already said before, and you are being repetitive, it’s like, “You don’t even remember why you are calling me. You don’t know like you’re taking me as anybody else.” If it’s like, “How’s everything going. I remember you weren’t able to make last month’s payment because your job gave you your payment late or your check bounces. Is everything okay?” You collect on a payment is easier than calling them than having a hold on one second and checking the notes and making sure not even having a note and calling on the payment. You want to make sure you remember what you discussed with people. You write it down, you follow up, and you stick to your follow-up dates.
It’s very good to be organized, empathetic, friendly, patient. People are rude. Sometimes they are very rude, they can be offensive, and you have to take it. You have to understand that it’s not a good feeling to have to owe money and a lot of money. If they are not in a financial situation where they can pay that, it’s a big stressor. You have to put yourself in their shoes. Would you want someone to call your mother and be aggressive trying to get money? No. You’d want them to be understanding, kind, and soft-spoken, and you get more bees with honey.
I can remember a couple of conversations with Jennifer, who was working with us. You dealt a lot with Jennifer. She would stress out on phone calls. I will be listening. I’m like, “Take it down a notch with the borrower.” She would be like, “I don’t want to talk to this borrower.” I was like, “Let’s call her.” The borrower gets aggressive, and the minute you come on and try to take it down a notch, “I’m trying to help you. Let’s talk. Let’s figure something that’s a win-win here, and we will go from it.” It totally changed the whole conversation. If you are having a bad day, don’t start dialing and talking to borrowers.
If you don’t have patience, have someone else call because sometimes you want to ask a quick question, you are on the phone for twenty minutes, but you don’t want to rush them. You want them to feel like they are being heard. That’s very important.
Are you ever calling borrowers when you are first trying to track them down at their work or place of business, or their employers trying to get them on the phone, make contact with them initially or no?
I have. Yes. When you call, don’t let them know where you are calling from. If you are talking to somebody other than the homeowner, but you do, that’s a good thing to call employers to verify employment. It does show up on skip traces sometimes. If you use TLO, at least it does show, and you can contact them like that. Sometimes you contact relatives. That is a good way. It’s not always the best because they get mad at first. Like, “Why did you call my grandmother? Why did you call my aunt?” It’s like, “You weren’t answering. I didn’t know this was your phone.” They end up having that talk with you because they want you to stop calling their relatives, so they do reach out to you, but you can’t do that.
Applying a little pressure to grandma.
There have been times that I have called relatives and employers. Don’t say where you are calling from or what you are calling about. Let them know that you are trying to reach the homeowner. If they are not there, you let them know, “My name is Hazel. Can you have them give me a callback?” You leave a phone number.
Let’s talk about non-performing. What would you say on average, the amount of time that you spend per loan in looking at notes, making a phone call? Would you say it’s about an hour per month per note, an hour per week, 30 minutes per week? What would you say is an average? Let’s say that they are non-performing. You are trying to work through them. It’s more heavily laid on the front end to get them back on track, but at the beginning, how many hours or minutes do you spend per note?
It depends. Sometimes you want to look through the collateral file. You want to see who signed it. If there are two homeowners on there, you’re going to do your skip trace. If you have a lot of numbers, you want to call all of them, jot them down. Did it beep? Is the line disconnected? Is it a voicemail in Spanish? Leave your voicemails. Do not email off your TLO. If do skip trace and you see email addresses on there, don’t do that. Email only if they provide you with their email address. If they did provide you with it in the past, or you see the notes from servicing company, you email. If there’s information on there, you want to spend over an hour. Maybe every 3 or 4 days, maybe twice a week, you want to touch on it for two hours or so. If it’s something where you don’t have a lot of information, you are doing a lot of Googling, you are trying to find other people, and you send out the field agent. It depends on what you definitely want to put in that footwork in the beginning for the first 30 days to see where it’s standing.
After 30 days, it’s the tale of the tape. They are communicating, great. If not, then you got to get more aggressive with legal work, demand letters at that point?
After 30 days, I would probably send out the contact letter and then the intentions letter, homeowner’s option. There is a fee for demand letters if you send it from the servicing company or forfeiture. If you send a demand letter, you have to wait 30 days before you can send it to legal. If you send a forfeiture for land contracts, it’s 45 days. In that time, you want to send out a paper trail still and do some more skip tracing or calls and verify that they didn’t get a phone call from you, and then they filed for bankruptcy. That is very important because if you want to be in compliance with bankruptcy, that has nothing to play with. You don’t want to have any attorney generals on you because of that, so it’s important.
You obviously enjoyed this, but there are days that you get drained. What do you do to recharge yourself?
I listen to music. I take a break, walk away, take a walk, and listen to something soothing because when you are like that, it’s more of emotional distress. You are taking on somebody else’s hardships and burdens. I am an empath. I do feel bad. I want to help everybody. You want it to be a win-win for the investor and the homeowner. Sometimes you do, it feels like a burden by trying to help them, but then also not take their money where they are not able to have food on the table at the end of the night. Be kind to yourself when you are doing this, it’s not always easy.
What are your long-term goals? Do you want me to keep doing this for a while or you are looking to do other things in the future? What do you want to do?
I think I want to be like an investor on a buy and flip houses and help out homeowners, maybe have my own organization where I can fund for people that are financially stable long-term. Now, I’m happy doing this. It would be nice for you to have more notes so we can have more homeowners and work out more deals. I love my job. I love what I do and I can’t complain at all.
We’re working on that. It’s the same here. I want more deals. It’s a matter of things coming across the pipeline and it makes sense for us. I know that you worked on getting your real estate license there as well, too for you, and doing some nice stuff there. It comes in handy being able to pull values and know what is going on with the deal. Hazel, this has been awesome. People are going to love this episode. It’s such great stuff. I love talking to you. We have such great energy. I absolutely love what you do.
You guys are great.
We love you. Thank you so much. We are very blessed to have you as part of the team out here. Keep doing what you are doing as always. If I can do anything to help out, feel free.
Thank you. I appreciate it.
Thank you, guys. Thank you, Hazel.
That’s going to wrap it up for this episode. You wish you all could find a Hazel. That is the biggest thing. I see so many investors out there get started and they want to try to do it themselves. You can shoot yourselves in the foot very quickly. Don’t get drugged down a path where they take a mile when you want to give them an inch. You have to have that balance of empathizing with them, but also very kind of strict and determined. We need you to do something of some sort where we have to go to Plan B, C, D out there. I highly encouraged to talk to your asset managers. Don’t self-service. Don’t try to do the workout yourself, hand it off to a professional, somebody who’s experienced at it, knows the options, knows what you can and cannot do to keep you out of trouble. Go out, take some action, and we’ll see you all at the top. Bye.
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