Loan servicing transfers can take longer than expected. For this reason, it is in your best interest to send out your own Hello Letters to speed up contact instead of waiting for the seller’s servicing company to send out their Goodbye Letters. On this episode of the Note Closers Show Podcast Scott shares his strategy for speeding up right party contact with new nonperforming borrowers on new note purchases. He shares why this process has helped convert 65% of distressed borrowers to a performing note, a trial payment plan, or a deed in lieu of foreclosure. He also shares why it’s important to reach out and give the borrowers a fresh start and a real point of contact where they can talk with someone to set up payment arrangements.

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Hello Letters: A Simple Strategy For Speeding Up Right Party Contact

I want to talk about something that has been successful for us and quite a few of our coaching students who implement this process. One of the things that are most frustrating like in the note business, we have a tendency to hurry up, do something and wait. We hurry up to make a bid. We are waiting on a response. We hurry up and have fun. We wait for the paperwork to show up.

The most frustrating thing is waiting, especially when that wire’s gone through, waiting on the seller’s servicing company to transfer servicing so our servicing company can start reaching out to make right party contact, especially if it’s a non-performing note. Unfortunately, not all servicing companies are created equally.

Some are slow when it comes to sending out goodbye letters, so our servicing company can send their hello letters out to get the process rock and roll. If you don’t know this, anytime a mortgage has been bought or sold, the selling servicing company has to send out a goodbye letter, which states, “Thanks for paying us or not paying us. Your mortgage has been sold. You will contact this person or this party to start making your payments to set up payment arrangements.” That’s a good buyer letter.

A hello letter comes from our servicing company if you are the buyer and says, “Hello, we bought your note. Here’s how you make payment. Please give us a phone call to set up payment arrangements or jump online.” It’s the instructions for the borrower to know where they want to go. Whenever you buy a note, a seller servicing company has to hold onto that note at least fourteen days before servicing and be transferred.

You’ve got to give time for the hello letter to go out and for them to reach the borrowers, receive it, and go forth and do something with it. This way, the servicing doesn’t transfer immediately. The borrower gets the letter. They can call the old servicing company whose contact, and hopefully, they had, if they are paying or even if they are not paying, they still have it to find out exactly what they need to do. It gives that point of contact.

The most frustrating thing is servicing can drag on. Servicing transfers can drag on for a variety of reasons. It could be the servicing company, and the seller isn’t paid up to date. We’ve seen this happen before where the notes we bought from a seller had to pay up the servicing costs before the servicing company wouldn’t release the notes. That happens.

You also run into some servicing companies like to drag their feet. They don’t do it in a timely fashion or they will send out hello or goodbye letters once a month, which irritates the crap out of me. It doesn’t take much to initiate and create a goodbye or a hello letter, put a stamp on the damn thing, and send it out. It also doesn’t take much. They can also email the borrowers to let them know what’s going on to help speed this up. We all know some servicing companies like to drag out and get their fees or they are not user-friendly.

There are several servicing companies that when I find out that I’m buying the note and when I asked the servicing company. If I know who the servicing company is, it works in my favor because I’m like, “This servicing company sucks.” They don’t respond at any time. It’s hard to get a response from them. I won’t name any names but if you want to know, you can always contact me at TalkWithScottCarson.com when we talk about my favorite and least favorite servicing companies.

I know that if I can reach out and talk to the borrower in some fashion through myself, my team, my attorneys or a new servicing company, which is my servicing company that we use, I’m going to have probably a much higher response rank. I have a good chance to get that borrower back on track. Most of the time, ladies and gentlemen, borrowers are not the savviest people in the world, especially when you are buying non-performing notes or lower-valued assets, maybe contract freebie and stuff like that.

They want to pay and have the same dreams but may work odd hours. They may also not be that financially savvy, which is okay. Everybody has got to start somewhere. If you want to speed up the ability for you to make the right party contact, you or your team. One of the things that we love to do is when we close on a note and when we buy a non-performing note, even a performing note too, and see a higher success rate with a non-performing note is we don’t wait for the seller servicing company to send out the goodbye letters. We don’t wait for our servicing company to send out the hello letters.

By all means, they still do that. One thing that we do that has a huge upside to it is we send out our own hello letters. What does a hello of a letter is? It gets our information saying, “We bought your note from such-and-such. Your servicing company is this. Your new servicing company will be this. This is our contact information.”

Our whole goal is, especially when we are buying non-performing notes and when we buy in bulk, we want to send this letter out. We sent it seven days after the refund. That’s oftentimes before the seller servicing company sent out their goodbye letters. It’s a way usually way before our servicing company sends out the hello letters because our servicing company can’t do anything until servicing is transferred. They can’t initiate a loan number until they have all the information in the servicing transfer. They are sitting there twiddling their thumbs.

A lot of people don’t realize and will get pissed off at their servicing company, “Why isn’t this loan transfer again?” It’s the whole hurry up and wait feature because, “I can’t do anything until such and such. The FCI has been stopped. The NNA has been stopped. The essence has been stopped. The management sends me their information to transfer. I can’t do anything. I would love to, but I can’t do anything until I have information.”

 

What we started doing a couple of years ago, especially as we started buying bulk portfolios, is instead of waiting this extra month because sometimes it can take a month for this goodbye letter and hello letter. I hate that. If I’ve bought something, I want to get that contact going. We know that the seller servicing company isn’t working on my behalf. The seller has got their money. A lot of times, they are not going to be motivated to move.

What we do is when we are doing due diligence on the initial assets, any time we find any phone numbers, email or contact information that’s working, and we also look at the servicing notes too. It is a big thing in our due diligence. We pull information off of that. Were they friendly when they talked to the borrower or was the borrower-friendly when they talked? Was there a borrower making inbound or outbound phone calls? You can look at the servicing notes and see some great information there. If the borrower wants to do it online or the borrower wants to do a reinstatement. A lot of times, servicing companies are horrible in the follow-up aspect. You would think they would do it but not all are created equal.

Most servicing companies have issues of some sort. That’s not mean that the people are bad or the people that are working. It’s that service companies all have some limitations. You have to embrace the suck and embrace the lesser of evils in a lot of cases. If I can get somebody on the phone and talk with them or be responsive, even if it takes 20 or 48 hours to get a response back from my reps or the servicing company, that’s better than some companies out there that will not respond. They are horrible.

One of the things you should always try to do is call one of your borrowers. Call the 1800 number. See how user-friendly it is for your borrowers to talk with somebody to set up payments and stuff like that. Trust me. Some of these companies are not easy to deal with at all. They don’t seem to get it. If they were to work on their downfalls, limitations or shortcomings, they would have a lot better high success rate and probably get some more deals.

Going back to the thing. We want to speed up party contact. A week after we fund on a performing note or a non-performing note, we send our own hello letter out to the borrowers and get our logo and the entity information, and say, “Mr. or Mrs. Borrower, we want to let you know that we purchased your note from such and such company. The servicing company that you were making payments to FCI, NNA, and whatever it might be. You will now be making payments to Covey Financial, whoever our servicing company is at the time.”

If they are behind, one of the things we say is, “Based on what you provided, and it shows that your last payment was made this day. You are $4,000 behind. Your payoff is roughly about this. Your initial indicative pay off as this. We want to keep it in your home. We are sure you want to all stay in your home as well. If you want to stay in your home, please contact us immediately to set up a payment plan so that we don’t start the foreclosure eviction process. Once servicing does officially transfer, we will start that process. Give us a phone call.”

It’s simply a one-page letter with our contact information, the new servicing company. The servicing company can’t do anything until they receive the stuff but we alert our rep over there and say, “If you get a phone call, here’s a list of hello letters, addresses or property notes that we bought that are getting service transferred to you from FCI or whatever.”

Be aware. We are already going to send their own hello letter out with your contact information for people to reach out to. We have somebody on staff that is Dodd-Frank and blind to it. We also have Fair Debt Collection Practices. If you are a brand new note investor, you would not want to have the borrowers contacting you directly. That’s a big no-no. You want him to contact your servicing company or your rep at your servicing company.

We send the hell a letter out ourselves and results but most of the time, about 60% to 70% of the borrowers reach out. Why is that important? If you can get 60% of your borrowers calling to say, “I want to stay in my house. I want to set up a payment plan.” That’s a good thing. Most of the time, we can set up some trial payment plan, even deed and lose, payment arrangements, whatever it might be with the borrower. When the servicing does hit, they are ready to rock and roll. They are making payments that day or sending payments that are being held until it kicks in. It’s a beautiful thing. I will give you a great example.

In the past, we bought a portfolio of sixteen notes. We had 42 of the borrowers contact us within two weeks of sending that letter out. That’s pretty cool because it removed 42 assets that we had to send a special servicing or send to our attorneys to kick in the game. We had 42 non-performing loans that were converted, not quite to performing but we are starting to make payments.

Some of them brought sizeable amounts to the table like $10,000 and $5,000 to the table to get back on track. The overwhelming response when we asked is they needed somebody to talk to. They needed a person to talk to figure out what was going on. Some people needed their payment date adjusted by a couple of days, delayed two days so that the check went in on a Friday. The payment didn’t pull before the check and bounced across the board or they needed it split up into two payments versus one payment. It has been a beautiful thing.

One of our recent students, Larry, has been buying a non-performing note. He borrowed and paid it for over a year. When you look at the deal, it’s a duplex worth $80,000. The borrower owed $35,000 to $40,000 somewhere in there is a payoff. They were $4,000 behind and made the payment, and their monthly P9 is only $340 a month. That’s principal interest, not taxes and insurance.

The previous seller had the note for over a year, and it was sitting on a portal for almost a year untouched. We reached out to the seller on this deal. He’s working a full-time job. He’s only got a few notes. He’s not that focused. He’s paying FCI. They are based on $20 a month or whatever the minimum is because he’s not handling it. He’s not making any money.

 

When we knew that, it was with FCI, and they were not good about being able to communicate with a borrower. We knew that was a good chance. When Larry closed on this deal, I said, “There’s all this equity. This borrower wants to keep the property. They have been getting away without anybody having to hold their feet to the fire about paying on time. It’s a new beginning, and there’s an opportunity here.”

Larry funded this deal. Servicing and transfer weren’t going to take place until March 7th, 2022. This is supposed to take place for several weeks. He funded this deal, waiting a month for servicing transfer. I said, “Larry, here’s the letter. Let’s write this letter up and send it out to them. Let’s say he’s behind, and you won’t work with them.” The guy is running each side of these duplexes out at $500 a month. It is what market rent is, and at minimum, at least $500, if not more. He’s pulling in $1,000. You can’t rob Peter to pay Paul.

We sent this letter out. We sent it via regular US postal service, and it’s certified. We also send it via FedEx to the location. The mailing address was showed a PO box. I can send it via FedEx to the PO box. I get it and send it by certified mail. There isn’t a regular Pony Express but I guarantee he probably owns other property in the county.

Sure enough, you pulled up the county records. In the appraisal district, we found that this borrowed owned two other properties here. I said, “We will send a FedEx letter to what we think is primary. His home.” It went out. Larry is with him on Friday. A week and a half later, the borrower called this new servicing company, called Covey Financial.

Larry had instructed Covey Financial, “I bought this note. The servicing transfer is going to come to you. Here’s all the information I have.” Larry was doing the right thing. He sent over a copy of the collateral file and all that stuff. He said, “This is what I want to do.” This borrower called and talked to Covey Financial only. Covey Financial sent an email and said, “Your borrower contacted us at the servicing. He would like to try to stay in the house. We recommend that you do this or stuff like that.” Covey Financial recommended that Larry completely modify the loan. I was like, “That’s great.” No, we are not going to modify the loan because if you modify the loan, it’s considered a short-term capital gain. There are some big tax consequences if you do a full loan modification immediately.

I said, “No, let’s do this.” If the borrower wants to say, go back to him, reach back out to him, and say, “We need you to bring some skin in the game for us to do this. Bring at least four months to the table or bring $2,500 months to the table and about half of what you owed. Start making $100 or $200 extra a month on top of your mortgage. You do that for twelve months. We will modify your loan after twelve months of on-time payments. If you don’t pay on time, we will stick with this or start the foreclosure process.”

Covey Financial emails back as the term are like that. The borrower called Larry off a letter and said, “I got this letter saying I owed $4,000 more. I don’t have $4,000.” Larry was like, “It’s okay.” I think they talked about doing a trial payment plan, he asked. “Do that, bring $2,500 to the table, pay an extra $100 to $200 each month, and after twelve months, we will modify the loan and go from there.”

Larry should be getting that $2,500 in the first-month payment going forth and going from there. It’s a total win-win there at the board. We see that happen all the time. When we send out these hello letters, 70% of the borrowers will respond in some fashion. Even the borrower’s vacant properties, we will send it too. We will track it down through skiptracing, or our due diligence will try to find a mailing address or physical address where they live, where they are getting their mail, or family members. They live in the house and send letters to them.

If they are on loan, we will say, “We are trying to reach your father regarding a financial situation. Please give us a phone call.” You get people to call, “We want to stay. We do have to pay the piper now. What do we have to do to get back on track?” Some people have moved on. Some people have left the property. They got sick, especially the elderly. Their families leave the property. They may not know who to sell and make the mortgage payments.

We send our own hello letter. The servicing company is still going to send their own hello letter once servicing is transferred. We will even send this out if we are dealing with issues with borrowers that started paying on time, fell off the wagon, and stopped calling. We will send out our own hello letter again and say, “This is your servicing company.” Besides getting a demand letter at that time, it was like, “What’s going on? Give us a phone call.”

We did that during COVID and when people stopped paying or wouldn’t call. We are like, “You need to give us a phone call. What do you like to do? We are willing to work with you in any way that we can to make this a win-win.” The hello letter is one page. Your letterhead, “We are now your investor or lender. You used to pay these guys. Now you are going to pay this on our behalf. Please give us a phone call and start working on this.”

This worked out when we bought both portfolios. We had people say, “We want to move. We’ve moved out of the property. Can we deed the property back to you?” I’m like, “Let’s do that. This works.” If you are going to end up hiring a servicing company and start paying them $90 a month, if you can speed this up on a non-performing note and get them paying a month sooner, that adds another 8.5% to your bottom line as far as returns. Now you’ve got more money, one more month of payment than waiting another 60 days or 30 days.

The biggest fallacy we see is a lot of investors wait on their servicing company to send out, and that’s fine if you want to do that but you don’t know what you don’t know. You can send out your own hello letter. It’s giving instructions on where and who they need to call to get the conversation going. It’s just a conversation. We can’t collect now.

 

If you don’t have a person who’s in your office and licensed to talk to people who have gone through the Fair Debt Collection Practices, you always need to have the conversation going to the servicing company. We have many in-house that’s gone through that training. If the borrowers had money, and they had to wait a month for servicing transfer, they are going to spend that money.

We are like, “Go down to the store or get your cashier’s check, send it to us, make it out to our servicing company, Madison Management or Covey Financial, whatever that might be, send the payment to us. We will send you a FedEx envelope or FedEx label for you to send that lump sum in. We will hold it until servicing is transferred. We will write your loan number on there and let you know and go from there.”

When the servicing finally shows up, and suddenly you have a $2,500, $2,000 or $500 payment, that goes in immediately. That’s a great feeling. It’s also a nice knowledgeable thing if you’ve got investors on your notes that you can say, “We send him the hello letter out.” The borrower showed up as making payments already from us.

It adds a lot of confidence. It’s an extra thing that you can do to your note business. Unfortunately, not everybody does it. A lot of us get bugged in with work and life or maybe only owe one note. You don’t know any better. It’s an important thing for you to do if you are going to be buying notes on a regular basis, especially non-performing.

Don’t be afraid to send that hello letter, especially as non-performing, get the borrower back to the table. Tell them, “It’s a fresh start. I don’t care what happened previously. Let’s work to help you stay in this house. If you want to walk away, let’s walk. Let’s get that going, so you don’t have this over your head.”

That’s one of the most important things you can do, ladies and gentlemen. It’s a beautiful thing. It’s one of the things that we work with our one-on-one students. We are like, “Here’s your hello letter, and then we can send it out. Here’s what you can offer up to your borrowers and make sure that the servicing company is putting some place for you.”

The servicing company works on your behalf. They may come to the table with a solution or two, and it may not be the best solution based on taxes or what you want to happen. If Larry was to modify this loan immediately, not only is it a short-term capital gain but the clock would start all over again. If you modify the loan and the borrower made one month’s payment and then stopped, he’s got to wait for that borrower to go 90 days late versus him already being 12 months behind.

That’s why you do a trial payment plan for at least the first twelve months because if the borrower doesn’t fall through on their promises, it still gives you the right to go back and foreclose. If they modify it, you can’t go back after what they are late on. It’s a fresh start. Don’t modify immediately. Start dropping that plan but start it all off. Don’t wait for that goodbye or that hello letter. Get a letter out and get the conversation started.

You got to realize. People that aren’t paying their mortgage know that you are going to make their mortgage payment. Their stress is probably something that’s gone on. It’s causing big stress, divorce, job loss, and sickness. You never know what’s going on in somebody’s life. Sometimes you need to reach out and say, “Let’s create something here that makes sense. Let’s get you back to the table and get you on the right track to homeowners.” Especially if they got a ton of equity, they are not going to want to lose that equity. They need something to talk about.

If they come to the table, “I’m going to make $200 a month.” You are like, “I saw your payment market. The rent on this property is $1,000. Your mortgage payment is $550. $200 is not going to do it. If you can’t afford it, we need to move to the next step of either, A) Dig on the property over to us, giving you some cash for keys, or, B) Moving to sell the property on a short sale, something like that.

That’s my tip for you guys. It’s pretty simple and easy but effective. For the price of a stamp or a few bucks from a FedEx envelope, you will know if your borrowers want to play ball or you got to go immediately to the legal side and boot that file if your attorneys start the foreclosure process. It speeds things up. It’s effective and a win-win.

I would not recommend stalking your borrowers on Facebook or LinkedIn and contacting them that way. You need to keep everything on paper with a copy and go from there because the last thing you want them to do is to come back to your personal profile, “What is he doing? I’m not paying and going from there.” Go out, and take some action, everybody. We will see you all at the top.

 

Important Links

• TalkWithScottCarson.com
• Covey Financial
• http://NoteBuyingForDummies.com
• http://NoteWeekend.com