Have you dealt with loan servicing companies that do not provide a good quality service or do not value service at all? In this episode, Scott Carson and the founder of Covey Financial, Eric Covey, talk about how Covey Financial services loans for note and tax lien investors. Eric discusses how they put much value on the service that their clients deserve. He also explains how they differ from other servicing companies. Listen to this episode about how Covey Financial puts back “SERVICE” in Loan Servicing.
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Covey Financial: Valuing Service In Loan Servicing With Eric Covey
We are glad to be back here with all of you. We have a lot of great content to cover with you. There is a lot of stuff to cover here, but we will save that stuff in salutations for a little bit later in this episode before we get rocking on the main subject. We have been doing these for quite a while now, since 2011. It is hard to believe it has been a long time of doing something for our note investing community. I was thinking I should take a look and see how many people have attended a webinar or watched a live stream. It is unlocked.
I will tell you that we know that there are several hundred thousand downloads just of the past episodes to give you a bit of an idea. We do take these episodes and throw them on your favorite podcasting platforms. Subscribe to the show. Also, all videos are also on YouTube and you can subscribe to the YouTube channel by going to WeCloseNotes.TV to take in all the great content. Not only will you find episode replays, but you will also find presentations, webinars, episodes of our other podcasts, The Note Closers Show with 1.2 million-plus downloads, and then our mid-year conference returning again for the ninth time here in the late part of June 2022, Note Camp LIVE.
There are lots of great content for you guys to take in, learn, start to learn the nuts and bolts, and get your feet wet in the note industry space. We are glad to have you here. We want to give you guys a heads up. We have our Notes Due Diligence Masterclass. This is our third master class in the series. We did one on calling banks. We did one on finding deals on the masterclass. This is the third one in our masterclass. Starting at 9:00 AM Central Standard Time, that is 7:00 AM on the West Coast and 10:00 AM on the East Coast. We will do a due diligence breakdown from start to finish. We will get into the type of notes, how we start doing our due diligence on specific assets, we will start pulling up collateral and servicing notes, and we will look at the pacer report.
We will show you how we walk through step-by-step with our due diligence. We will give you some checklists along the way for you to take and replicate yourself. We will teach you the faster way of doing it than the longer engineering way of doing it in case you want to do it that way. We show you the front-end side until you get your full offer, and then you do a deeper dive and do the due diligence once you have got approval. We will go through that at 9:00 AM. You can still get a 50% off ticket up until the day before if you go to WCNMasterClass.com. The discounts are automatically figured in there. It will go away if you do not sign up by the first. We have got some great stuff.
I have to give a big shout-out to Baldwin Advisory Group, which is sponsoring the one-day masterclass. Dickie Baldwin will be speaking there. Many of you guys know him from places where we pull our BPOs and O&Es. We are excited to have Dickie join us in the masterclass as well. If you cannot make it, do not worry. It is recorded. The replays will be available as part of your ticket. If you are part of our monthly WCN membership, it is included in your monthly cost. There is no additional cost to attend if you are a WCN member. To give you a bit of an idea of the upcoming events, we have got a very full suite of classes until July 2022. We have a Note Weekend every weekend. We have two more masterclasses after this one, the Notes Marketing Masterclass and the Raising Funds Masterclass.
We have our next three-day virtual Note Buying Workshop on April 22nd and 24th, 2022 and our big mid-year conference Note Camp 2022 from July 22nd to the 24th. All of that is included with our WCN membership as well. Get signed up NoteUmbrella.com to take advantage of that. Let’s bring on the meat and potatoes here on the show. We all know that part of being a note investor is not doing all the work yourself. It is not like being a fix and flipper or wholesaling where you are trying to be a Jack-of-all-trades. The most important vendor and relationship you can have is with your loan servicing company. Unfortunately, not all servicing companies are created equal. For some of them, I do not believe they believe in the service side of servicing.
I was extremely happy to be introduced to our main speaker in this episode. He came from a coaching institute who did an in-depth analysis of a lot of the servicing companies out there. I was blown away with the service in the little time I have known him on how he and his team react and his experience. When I got his bio, I was blown away. I was like, “We got to get them on the show.” We are jacked up. This guy is an investor too. That is one of the great things about what we will learn from him. He is the Founder of Sombrero Capital, which is a Texas tax lending business.
He is also the main shindig, or we would like to say, the Chief Bottle Washer at Covey Financial and Servicing, here in Texas out of San Antonio. There are a couple of numbers here. He and his companies have paid over $90 million in property taxes. That is over $500 million in real estate. He dealt and worked with over 8,000-plus property owners. That is impressive. A little background, he is a former college lacrosse player for the University of Denver and has been here in Central Texas. He calls San Antonio, Texas home. We are honored to have Mr. Eric Covey join us on the show for the first time. Eric, what is going on? How are you doing?
Thank you. I wish I had the same photo in my bio as I am looking at myself, but I am okay. Thank you for having me.
It is a little bit of experience, is what we like to call it.
I am in my late 30s and it is bad that in this type of business or just being an experienced businessman, you lose your hair and your hair goes gray. I feel like there is a sign of wear and tear.
We call that seasoning and experience. That is even more impressive, Eric, with what you have done and what you are doing out there. I absolutely love how very hands-on you have been so far with some deals our students have been doing. You are responsive to phone calls on a deal approved. I am honored to have you here. Larry Hoffman is a big fan and He’s like, “I love Covey Financial. Thank you for all the work. It is much appreciated.” I just got to give a shout-out here. Larry closed on his first note deal. Before servicing was even transferred, Larry sent out a hello letter to him. The borrower responded. Eric picked up the phone call and had the BRRRR ready to rock and roll on a modification or reinstatement even before servicing was transferred from the old servicer.
I went to too many sensitive details but Larry is a client of ours. We are very happy with him. We service a good number of loans. We are servicing over 5,000 loans now. I think my competitors do me a favor. A little effort goes a long way. I think in any type of deal, onboarding a loan properly is the key to success. One of the things that we do is a simple welcome call to say, “Scott, welcome. We are your servicer now. I see you are a year behind. Have you ever thought about a modification?” He is like, “I would love that. I have been trying with the other prior servicer for years.”
How many loan sales that borrower had gone through before anybody picked up the phone and called them? Do you remember? Was it 6 or 7 or something like that?
I do not know the details, but all I can say is a little effort goes a long way. Our philosophy is I am part of the onboard team and even on Larry’s one-off note. I handled portfolio transfers of hundreds of notes and then one-off notes. I firmly believe this is one of the stools on a bench that makes it not fall. Onboarding a loan properly is huge. I am happy that it worked out for Larry and we are excited for him. Hopefully, we get more.
I know that he is working through due diligence and will get about another dozen or two. Do you have a presentation you want to pull up or take Q&A? What did you want to do?
What I might do is I might take the reins here. I do not necessarily have a presentation, but I might talk about some things that I can give tips on. A lot of these might be redundant to what you do, Scott. When I am done, I can maybe open the Q&A from there. I think the first thing you all should see is our website. I focus on juicier things. Sometimes, the simple way is the best way.
I see a lot of things that are sometimes troublesome, concerning, or maybe lead to a hard relationship with a client. I am going to cover some things that you talk about, Scott. I already heard you mentioned pacer and other things that were great signs. For people who do not know what pacer is, I will explain that here in a minute.
We deal with loans on one-off buyers. We also have clients with over 1,500 accounts with us. I have been a party to buying hundreds of tax lien loans and selling hundreds of tax lien loans. I think one of the things that I hate seeing my clients see are some surprises that come up later. What I mean by that is I always recommend our clients. Every time I get a new client, I ask, “What are you doing? What is going on? What are you trying to accomplish here?”
They are telling me they are buying notes and I give them some of these tips. Conducting due diligence, as a servicer and even a note investor, I could not recommend this anymore. There are a lot of things here that will be directed by what Scott teaches you, what you believe is right, or what an attorney believes is right. Even a specific industry, whether it is certain types of loans. If we are talking about a mortgage, one of the first things that I see as a big mistake that some of my clients make is they do not even order a title report.
If that property has been sold and someone is carrying a note, they never got paid off is a big no-no. Definitely order a title report. I think these costs vary anywhere from $100 to $250. Trust me, it is well worth it. Reviewing loan documents is one that a lot of people do not really do. I got a loan that came to me from Michigan, and on the documents, it said there was a default interest rate of 62%. I was like, “That does not sound right.” It is okay if the documents say it but the important thing is to make sure was it enforced.
I am going to go down to the pay history here in a minute. One thing I will say is to look at the seller. I will give you a really funny story about me. It was cases involving the seller and making sure the seller had the authority to sign. We were dealing in a big note purchase years ago where we got into the weeds. We had spent tens and tens of thousands of dollars on legal fees. We are going to buy around 2,500 notes and it turns out in the due diligence process when we ask them, “Please disclose to us any material things.” It was not disclosed to us, but we figured out, “These assets, all 2,500 notes, are held in receiver,” so you cannot even sell the notes.
It was like, “Thank you for wasting our time and money.” Do a little diligence on the seller and make sure you are not buying something that might come back to haunt you. One thing I will say is I have grown skeptical. I do not know if you can agree with this, but whenever someone approaches me to buy a loan, they better have a good reason why. I do not know if you have ever talked about rights of set-off or other types of cases, but unless the reason is good, I am wary of recommending you or transacting with people because you never know what you are buying.
This is an interesting one. We had a client who said, “The seller cannot produce the original note.” I had told that client, “Do not buy it unless they produce it for you.” Scott, I am sure you have talked about not receiving original documents. It is a big issue and one thing if their bank holds the paper. There’s nothing wrong with that. You can coordinate with the bank. Either they deliver to you directly or set up an escrow company or attorney to be a middleman so that everyone is comfortable. You talked about bankruptcy. Bankruptcy is a huge one. Make sure the borrower is not currently in bankruptcy. The next one is where I am more simple on.
I drive by inspection. I cannot tell you how many notes I have seen where if you do a Google Street View, it is missing a roof. It is like, “Do a little bit of effort and make sure the property is in decent relative condition.” Again, it goes back to my skepticism on seller selling notes. You want to make sure you are not stuck holding the bag. I will talk about stuff that more pertains to me on the servicing level. Granted, we do not receive original documents, so we need to make sure we get copies of the documents, which we know our files are a lender backup. We maintain detailed files and we organize everything in categories.
Whenever you are buying notes from someone, if they give you a flash drive or something in a very nice organized account number, name, and sorted file, you are going to say, “This is going to be a great loan to buy.” When it is disorganized and a scan-to-scan 1 to 6, it gives me the heebie-jeebies, but we always grab those and organize them in a way. This is where my comments come in strongly. Whenever we onboard loans into our system, we want to make sure that the terms match.
If it has late fees of X, grace day of X, original balance of whatever it is like interest rates and certain things, we need to make sure our system matches. That is why I am so involved in the front-end on onboarding loans correctly. Importantly, I have a lot of clients who never received full-pay histories and I am like, “You better call that seller back and get it because you may not realize that you need it until it is too late. Whenever you are giving someone money is the time that they will give you the information you request.” Full-pay histories are required for a variety of things. One is to make sure you can get from the original balance to where you are onboarding it.
The principal balance is tied out. Whenever we onboard new loans, we have customers who always dispute, “I already made my April payment to the prior servicers.” “Here is your pay history. Tell me where I am wrong.” You definitely need to get an updated one because sometimes, loans transact weeks prior to the effective date. At the effective date, when the funds are received and it has all been transferred over, if there is any new activity, you got to make sure you get the new activity so that the balance is tied. There are no customer disputes.
Additionally, you need a full-payment history for other reasons if the loan goes to a foreclosure attorney or if the client filed for bankruptcy. One of the things that our office does a lot with attorneys across the nation is, supply them with the information they need so they can tell the judge, “This is what we are claiming. Full-pay histories are a must. Here is another pretty big one too. Scott, am I going too fast or do you want to talk a little bit about pay histories?
You are doing great. This is a good recap and aspect of everybody. We will take plenty of questions when we are done here.
Closing the loan is fun. You just got to make sure you get all the details. On the full-pay history, if the loan has a variety of charges, if applicable, like legal fees or any types of tax, like property tax advance, escrow advance, or whatever it may be, there needs to be a clear detail of what these charges are. It also goes back to the fact that, “If we have to show this in front of a judge, whether it is foreclosure or bankruptcy, they are going to ask us.” If a servicer and they are our client, the lender, cannot produce like, “This is what the charges are for,” you are at the mercy of them saying, “You cannot collect that. Write that off.” The details of the charges are extremely huge.
A lot of servicers, at least others I have seen in some of my competitors, if they are reluctant to share that, it is another red flag and does not buy the loan. It depends on the type of invoice or the charge, but invoices would be ideal. If not invoices, there should at least be the payee name, how much it was originally, and then what is the current balance. You do not know if some of those charges have been paid off. That is where you have to review the pay history. This is another big one for us. We get loans sometimes and we do not have any contact information for people.
We talked about Larry’s loan that we onboarded. One of the first things we did was after we onboarded the data, we gave them a welcome call and said, “Here is how you make payments. Here is our portal and your login.” A lot of times, we get loans and they do not have a phone number, email, social, or mailing address. We are like, “How are we supposed to do our work here and notify them?” Having good contact info for the ultimate borrower or borrowers if there is more is another big one that you need to request from your seller or the originator to make sure you grab those items.
Without them, you take a couple of spaces back in the effectiveness of servicing. Escrow items are another big one. If a loan requires escrow items to be collected, whenever you buy a loan, it is incredibly important to make sure there is an active policy in place. It has been recently paid or it is due in the future. I see some of my clients buy notes with five years of property taxes due. They did not really bother to look at that but make sure that there were no other liens. This would come up in the title report in most of them. Make sure that these other ancillary items do not come back to haunt you later, and it should not be in the reps and warranties of a purchase agreement.
For property taxes and HOAs, make sure everything is paid by the time you buy them. I always recommend this. I have learned this the hard way. I am not a fan of spending money if I do not have to. If you are buying a handful or even just one note, you might have an attorney prepare a PSA, which is also known as a Purchase and Sale Agreement, where the buyer and the seller agree to certain reps and warranties on what the transaction details are. You make sure the correct party signs on behalf of the seller and all loans are not subject to set-off claims or disputes.
You would hate to buy a loan that the seller got notified of a civil lawsuit disputing something. This goes back to diligence, but from my items, number two here is key. We help people whenever we have clients start off with loans with us. If they are delinquent property taxes, depending on the client, but most of the time, we pay them out of my money.
We work on recollecting it back from the borrower. If the borrower starts paying, it will be repaid back with no problem. If they do not and continue to go delinquent, we will square up with our lender once something happens, whether it goes to foreclosure or not. Scott, I am happy to segue to our business and some other topics I want to talk about. I might pose some questions right now to the group to see if there are any questions on some of the things I talked about.
One of the great things about what you just said is the thing that always frustrates me. I always like to see RPC, Right Party Contact. As you said, there is no email, phone number, and cell phone. I am like, “This stuff is not that difficult to collect if you do a little social sleuthing, white pages, or worst case, you skip trace in a lot of cases.” It makes the transfer so much easier for the servicing company when you have the information you have found while doing your due diligence.
The sellers should have it. Unless someone moved or changed their number, there is no excuse. We, as a company, talked about how we work and how we are different. We do skip tracing as part of our collection process. Anytime we have someone that goes delinquent and we just cannot get ahold of them, we have a skip tracing process of trying to hunt them down.
Larry said, “Eric, I did not know you paid back taxes. It is pretty damn amazing.”
I help my clients out as best I can, Larry. Let me go back in time to how I got started to highlight ourselves and how we are different. Scott, I do not even know if you know this story about me. I got on the tax lien business and we are doing a bunch of little $10,000 loans here and there. We are doing about five a day. We had to upgrade our software to start managing this ourselves. I got a loan back in 2012 with some type of mortgage. At the end of the year, I called my mortgage company and I said, “It is the end of the year and it was my first mortgage. I have escrow. I just want to make sure you are paying my property taxes.” They go, “Yes, Mr. Covey. No problem. We have enough money in there. It is all good.” That was a three-minute phone call.
Next month rolls around, and I get a statement. I have this $25 fee on my account. I am like, “What in the world is this?” I call back again the servicer, and I am like, “Eric Covey, again. I am on ACH. Why do I have this $25 fee?” They go, “Mr. Covey, that is because you called us.” I was like, “Come again? I called you for less than three minutes of my life.” They go, “Yes, sir.” I am like, “Are you charging me now?” They are like, “Yes, sir.” From there, I got driven over $50 to be like, “This cannot be right. This is not the way this should work.” I was outraged. I did a little bit of research on how servicing works and what the common practices are. I quickly concluded, “This is not fair. It does not make sense.”
Our philosophy is I believe we truly partner with our clients. We have no laundry list of fees or onboard fees. I have no early termination fees. If I do not serve you well, you can move the servicing over. I am not going to penalize you for it. No problem. We have one simple price. I just put everyone $15 and if you have over 200 loans, I will happily give you a better deal. All we do is collect a monthly servicing fee.
We only get paid when money is collected. That is where I go back to being a true partner. This is why we do our welcome calls to ensure we get our first payments and many thereafter. We are incentivized not to let loans be delinquent, blast with letters and emails, make delinquency calls, and get payments in the system so that everyone gets paid. I love that my other competitors out there have a huge laundry list of fees because they get paid no matter if payments are collected or not.
We have been onboarding a ton of loans and we have been growing. We are in 15 or 16 states. We have got a couple of licenses pending. We are excited to be a little bit more competitive because we are fair and a true partner. There is so much in the servicing that happens. One of the problems of being a small lender or even a big lender is servicing software is not inexpensive. It is very costly. Also, the escrow management is very hair-pulling and hair-graying. I can respect if someone wants to manage the loans themselves. I totally understand.
A lot of people outsource it. I have clients who we are onboarding who say, “I do not have a true vacation in years because I have clients call me about payments or I have to worry about paying something while I am in Cancun.” It is a good way to outsource it. I feel like, given our pricing and software capabilities, people are getting the best deal possible. I also believe it is not like you get what you pay for when it is cheap. We have got other sources of revenue here that allow us to do this at a very affordable scale, even though I believe the quality is very strong.
We have a question, “At $15 to $20, does that even cover your costs? What about if we are buying nonperforming notes, we end up having to foreclose and never collect on a payment? How does that work here?”
I wish I could charge everyone a whole lot more money, but I do not. We have enough business where we cover our hard costs and then some. We also have other forms of revenue in the tax lien business that helps us do other things. It is a nice mix of overall revenue that allows us to do this. We charge the same thing for nonperforming. We have no conditional pricing, whether it is performing, high credit score, high balance, or very small nonperforming. My belief is we will try our damnest to collect the payments on a nonperforming loan. If it goes to a foreclosure sale, we will square up with the lender and we will say, “We have services for four months. You owe me less than $80.”
That is one of the most important things when we are talking. It is like, “We did not collect, but we serviced it for four months.” You are not handling the foreclosure aspect of that, and you are saying, “Kick the files to the attorney. We will provide payoff statements.” Once we start the process, it is handled in with the attorneys and the legal side.
This is a really good topic for everyone. I believe your servicer should not be incentivized to do other things that could be more profitable. Other companies do some level of foreclosure work for additional fees or higher fees. I feel like that creates an unhealthy relationship that incentivizes them to do things that may not be best for the borrower or the lender client. We, as a company, do not practice law. We do all the monthly late notices to those that apply and the over 45-day or 90-day letters. We bang and try them hard and we have the weekly delinquency calls. If that does not work, we also do skip tracing to try and hunt people down.
If that does not work at a certain point, we recommend our clients like, “We have hit them hard with everything we got. It has been 120, 160, or 180 days. I think it is time to hire an actual attorney.” One thing I will say, too, is I have a client who previously did his foreclosures on his own. I do not recommend that, especially if you are talking about residential homesteads and residential mortgage law. I am not a regulator. I am not a guy who is going to whistleblow him, but I quickly put a stop to that and said, “If you want to work with us, do not tie me or yourself in a lawsuit. You are lucky you have not been sued yet but let the attorneys handle it.”
One thing I will say about attorneys is that depending on what your loans are, there are a lot of attorneys out there who do things on a flat fee basis. What a lot of people do not realize is just because you get an attorney invoice for $2,000 on a file, you have to clarify with your attorney what is collectible versus not collectible. A lot of clients say, “This is what my bill is. You have got to add it all.” I say, “I know this sucks, but I think you worked with the wrong attorney because I would recommend trying to find someone in your state.” It does not matter where they are as long as they are in the state and they are bar credited, but you negotiate a flat fee basis.
We work with a few across the nation. We have got one that is great here in Texas that is scheduling, “If I do this, it costs this.” You can call them all you want and ask them questions. They do not bill you for it. Foreclosing is something that needs to be done by attorneys, in my opinion. We do not do it. If you do solicit some attorneys, make sure you are trying to negotiate a flat fee because it is easier and simpler. The reason why I say that is sometimes people call and say, “I have got my income tax. I want to get a credit loan. How much do I have to pay?” We reach out to the attorneys and say, “Give us a finalized fee invoice. This guy is trying to pay right now.” This is easier for them to compute what the add-on charges are.
We got two folks who asked the same question, “What states are you licensed to do business in?”
This number is a constantly moving target because we are growing.
I know you have got five pending or in the process when we talked to you.
In some states, strangely enough, I do not have any servicing fee license requirement. I do not know how that works, but it works. I need to update this on our website. I have not updated our website in a while. From start to finish, Arizona, New Mexico, Texas, and Louisiana, I know we are working with you on Arkansas, which we are going to apply. Just try itbut that is in the works, Mississippi, Alabama, and Florida. We got a license in South Carolina. That is why I need to say that I need to add this.
We do loans in New Jersey, Virginia, Ohio, and Michigan. We are in Wisconsin if my memory serves me, but one thing I will say is we are at a size now where we get audited financials every year. With a matter of filing some paperwork, we can service any state. In one state, I have a licensing company that does all my compliance and licensing. I have been advised not to consider New York. There was a participant from New York. There is not anything bad about New York, but the reason I got told not to advertise in New York is that the licensing process takes five years if I apply now. I do not even market that I am considering there.
New York is one that I am avoiding and Massachusetts. I forgot what his reason was but he said something similar that it takes forever. Any other state is fair game for us, other than those two. We are considering Larry in Pennsylvania and Indiana and Scott for you, Arkansas. We have got a few here that are not in green that needs to be added.
If you have got some stuff in a state that you are not showing green, then reach out to Eric. If it makes sense, you guys look to do that. If it is just a one-off, it is not going to make sense. That is the one thing I want to make sure and clarify with anybody here. Eric will work with you if you bought your first note and you are looking to grow some more, but if you have got one note, you have only had it for 24 months and never done anything beyond that point, he is not the right servicer for you. He wants to work with folks that are growing their portfolios. To begin, you got to start somewhere, but keep that in mind. If you bought one note, that is all that you own, and you never spend any time in the note business, it is not the right spot for you.
We are willing to take long-term partnerships. If someone is expecting to have a portfolio of over fifteen one day, we will happily take some risks. A question came in, “We are not in Oregon, but I know Oregon is one of our easier states to apply to.” If you have got more than 5 to 10 loans in there, we will happily get set up. We weigh that we get a lot of requests from certain states. Even if you have had one, you might ping me.
Another thing that amuses me a lot is I read reviews online of servicers or I Google lawsuits with servicers. If you have other servicers, that is no problem, but dig into who you are working with or who you are considering before making a decision. A servicer who is bad could lead to a lawsuit for everybody. This is public information, but we onboarded a lot of loans from allied servicing that got punished in Michigan for behaving without a license. In Pennsylvania, they got cease and desist orders. I think they are lucky it did not become worse than that. We try to make sure that our applications are filed by the time we get the servicing in. We are growing in more states. We should be established there already. If you have one loan in a state we are already established in, we will happily help you out.
We got a question, “How is it different for servicer tax liens versus a mortgage note? Is there any difference to it?”
There are different types of tax liens. Texas has a unique law that behaves more like a loan. In other states, they behave a little differently and the servicing is different. To make it simple, it is exactly the same as a mortgage. It is just a much smaller one. The average loan size is $12,000.
You are collecting the payments and then releasing them after a while. If they pay off or if they do not pay, you do not stay.
Tax liens are harder to foreclose. You have to follow the same foreclosure rules at the tax office and that is one of the painful aspects of the business. It takes up to two years to foreclose on somebody.
Somebody asked, “Are you looking to get licensed in California anytime soon?”
I have gotten a few requests in California and that is one on my radar to consider. Again, please reach out to me with my email. I would love to get to know you and see if it is something that we pull the trigger on soon.
It is Eric@CoveyFin.com. Larry says, “Eric, I just want to thank you once again for everything you have done and are doing for me. It truly means the world to me.” That has got to make you feel good.
I am very happy to serve Larry and others. We try and care. One thing that I can convey on this call and Larry, I do not know if you have worked with Kathy or anyone else in our office, but I get emails from my staff on Sunday nights and bizarre hours of the night that people are working from home, even off the clock. It is amazing to me that we have built a good staff that truly cares to get the job done and get reports out.
We have new software. The reports are automated now but our staff truly cares. That is the one thing I will say that makes us unique. It is primarily driven by the fact that I show up to work every day. I am first in, last out. Our office is totally closed and dark. I do not know how you can find that out otherwise, but we have good people here who care. I show up every day to make sure everyone does their job.
It is true that not every borrower is going to be sitting at home on a Monday through Friday. Sometimes, reaching people on Sunday nights or people respond on Sunday nights or Saturday nights before they start to tackle the week.
We do our best to have flexible hours for people that talk to us. We are also working on expanding our hours and we even have an after-service answering service that takes certain messages or reiterate, “This is our mailing address.” We have a pretty good customer satisfaction rate. We have a couple of many good ones that I personally look into. If anyone ever writes us a bad review, I figure out what is going on and I handle it.
I got a question, “Do you also service commercial loans or just residential?”
Yes, we do anything so you can buy real estate. In fact, we are in Maryland as well. We are about to get licensed there. We are also doing personal loans in Maryland. Anything with principal interests and a loan balance, we can definitely service it. For the personal loans, it is a little bit less expensive than we normally do. There is no escrow or any of that stuff. Whether it is commercial or residential, it is indifferent to us on a service level.
Both 1st and 2nd liens you guys are doing are all real estate and P&I.
I know a lot of our competitors milk it when the dollars are bigger on commercial loans. We have got no conditional pricing. It is just one simple price that includes unlimited escrow items. I would love to have them.
Guys, Covey Financial, if you have got loans, check into it. Get rid of the junk fees. Look at your servicing docs and make sure they are signed through for you. You are right, Eric. It is a hard thing when they say, “We charge you per month, but it is hard to get ahold of somebody to answer a question about a loan.” We have seen that with a lot of things.
I will share something really important too. I do not know if anyone has loans that have gone into bankruptcy, but that is one thing we are very careful about because there is no uniform bankruptcy payment way. Every bank has its own unique payment plan and unique thing. We onboarded some loans from a giant servicer and it has 80,000 mortgages out of Minnesota. When we got the loans, we were like, “I am sure they have done it right. They know more than we know.” Lo and behold, a few months later, we realized that they misapplied over three years of payments on over 50 bankruptcy accounts.
This is its own unique topic, but the way payments are applied to bankruptcy is extremely complicated and unique. I think that is why some servicers charged for that, which we do not, to say, “Whatever it is, they put it in the bankruptcy code.” What was amazing to me was I told my client, as I pointed out, I am like, “If you pay them a conditional price on 40 of these, you definitely wasted your money. They did not apply it right.”
You got to be careful how things get applied. Not everybody knows that. We are talking to somebody and they were buying a note that was three months behind. The borrower made a payment and they were like, “Why did this go to three months?” It was the February payment. The latest payment first is not going to do anything soon. You got to give them a chance to get caught back up. That is something to keep in mind.
Scott, do you know how to calculate a two-month cushion and escrow?
It is a trick question.
Many of you all know the CFPB allows escrow to have a two-month cushion. It is funny, you say like, “How do you calculate a two-month cushion? Is it the total charges? Is the payments divided by ten?” That is a question that I get a lot. Every time we onboard loans from new clients, you quote escrow. We are like, “Why didn’t you tell him that was the payment? That is not the payment. We came up with that number.” In this example, I summed up in a little schedule the property taxes, the insurance, HOA bill that is due annually, and then pest control bill. I can come up with anything I can think of for escrow.
I call it the TOE, the Total Escrow Obligations. The TOE is $87.50. If you divide the toe by 12, it is $7.29, but you will see here that I came up with an $850.69 escrow payment with a two-month cushion. It is a very simple math. If you take the original TOE, you multiply it by 14 months, and then you divide that by 12, that is how you come up with an escrow payment with a two-month cushion.
That is a nugget there, everybody. I bet you see a lot of these issues, especially on a lot of owner finance notes where people are trying to figure in PITI.
I saved the best for last.
Somebody asked, “Do you have a list of attorneys that you use in the states that you are licensed in?”
We do. We have a list of people we work with, but we allow our customers to direct whatever law firm they choose. We are getting one in Miami that came from the big, previous servicer that told them, “You have to use our firm.” You can use whichever firm you want. We are just the servicer here and these loans belong to you. If this is an attorney who you have a relationship with and you like working with, we will happily work with them. It is just a matter of communicating. We have a list of ones that we work with. We also will work with whichever attorney you use.
Somebody mentioned, “Do you mean you are not going to the attorney’s comments hostage that we have to go through you to get the comp the attorney?” Some servicing companies make you go through them to communicate with the attorneys and then you are waiting on the servicer to respond to your question from the attorney versus going direct.
You will find we are easy to work with. We will work directly and not hold our customers hostage in any way.
Are you a big basketball fan? I saw the Spurs logo there on your shirt. Are you excited for the Final Four?
We had a sweet 16 game here in San Antonio, but I am not that big of a basketball fan. My brother-in-law is and he gave me this shirt. It happened to be in my laundry rotation. One thing I haven’t shown you that I will happily show you are some of the custom software that we have. One thing that we have launched in our new software is we give our client unlimited users on the lender’s side. What a lot of our clients do is they set up their lawyer or the full team, including attorneys and other bankruptcy attorneys. They can be users of our software. If they want to pull a payoff statement or a reinstatement calculation, they can do it.
We are happy to do it, but we give our clients the ability to do it if they like. We can also upload documents back and forth to each other through our software. Our clients can pull all the statements that we sent out, all the escrow analyses that we have sent out, and the late notices. They can click borrowers and see everything that I see. That is the investment that is unique to us, where a lot of servicers have limited lender access. This custom platform is the opposite. I want you to have everything that I have because we get calls from our clients like, “Did you send them a late notice?”
There are also conversation logs, and our customer service reps get penalized if they do not make a conversation log. If we find out that someone talked to them, I am like, “Myra, I am going to charge you $25 on your next paycheck because you did not make a conversation log.” She has never made the same mistake twice.
That is one of the most important things. It is also very huge if you are given unlimited access. People are using private money and funding partners. For them to be able to have a fly-in-the-wall view of what is going on and full access to see stuff like that is a big advantage in a lot of cases. That is a huge tool to be able to use.
I have a hard money pool that I manage. We are still making a couple of tweaks to our software. You can do a search by month. You have got eight loans, none are delinquent, and you have got $3.1 million. We are coming out with a couple of new pushes here. You can also download stuff in Excel and get tons of details on principal, escrow balances, what is your delinquency summary like, some agent reports, another agent reports, some payments that might be pending that are within a threshold, and any loans by states. We are working on making this more of a map view.
If you have a loan in bankruptcy, you can pull up a little grid of loans in bankruptcy. If I go to my admin side, we let our client add. There is no limit on people on their side. This is something that is unique to us that if you want 300 people and you’re a big company, whatever it is you want, you want your mother, your dog, and everybody to have access, put them on here. You can have it. There is no charge for it. I will spare you on our portal, but this is something that is better done with a demo directly with a client.
I will give you a great example. Anything over $250,000, if it is a portfolio, we usually do a separate LLC for that individual to be able to log in, see the information on that, how it is balanced, and what is going on. That saves a lot of time in pulling reports. You can plug a few buttons, download the report, and folks have stuff right there to take a look at. That is awesome.
In my portfolio, we create sub-pools. If you have a series LLC that has a bunch of series, we will give you a code. You can get a grid view on those five loans that are owned by this thing. You do it on that view. You can sub-filter our reports here as well.
Jerry says, “Can I have a loan payment sent to different accounts?” If he is doing 50/50, half goes to his account and the other half goes to his IRA investor.
I assume, Jerry, you are talking about some of the loans owned by an entity or a party, whoever it is, and another portion of loans owned by another party. Shared investment loans or shared participation loans are not a problem. There is no additional charge for that either.
Eric, this has been great. I love what you shared. I hope everybody here loves it. This is awesome and good stuff.
I have not shown you, if anyone is interested, that our biggest strength is our reporting. Larry is about to get his first wave of it from us. Our reporting is one of our strong points, in addition to truly partnering with our clients. We are giving people some of the basic journal entries, interest accrual at the end of the month, and what a journal entry should look like. Our lenders are getting 15 or 16 reports every month. It is automatic and it is stored on our websites. There are also reports you can run daily.
Eric, I want to thank you for staying. I know you were out driving around and getting back to the office when we were initially talking. I appreciate. I know that a lot of people on here appreciate it. Check him out, CoveyFin.com. Eric’s email, reach out directly to Eric@CoveyFin.com. Eric, thank you so much. We will see you around.
Thank you, guys.
That is going to wrap it up for this episode. Check it out. Drop an email, pick up a phone, call Covey Financial, and ask them questions on what states you have got a portfolio. It is worth checking them. We all know that the worst thing is getting nickeled and dimed on stupid fees in a lot of things. You can see how you can have a true partner with Covey Financial. Go out and take some action. We will see you all at the top.
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About Eric Covey
Mr. Covey has extensive experience in financial services. He has formed and operated several entities, including Sombrero Capital (2011) and Covey Financial (2012). Mr. Covey primarily oversees Covey Financial which is a loan servicing company. Covey Financial serves more than 50 lender clients, across 15 US States, and manages over 5,000 mortgages. Mr. Covey also runs Sombrero Capital, a tax lien investment and servicing firm. Sombrero Capital has paid over $90M in real estate taxes, secured by more than $500M in real estate, across 8,000+ property owners. Mr. Covey graduated from the University of Denver with a BSBA in Construction Management and Minor in Economics. While at the University of Denver, he served as a member of the varsity lacrosse team.
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