FL Foreclosure Grand Slam

               One of the reasons I love investing in notes is the variety of income. Sometimes I receive a payoff from a sale of a home in as little as 3 months, other times it’s closer to 1 year or more. I can turn a non-performing note into consistent cash flow, or I can gain back title and rent it out or seller finance it to a new buyer. The options are endless, and the versatility of income is just one of the great things about investing in notes.

           One of the other great benefits about investing in notes, is that at least once a year (if you’re lucky sometimes more), you get Grand Slam deals like this one. This deal really is an out of the park, grand slam, killer deal. It took just six months to get a 155% return on our money, and provided us with a profit that was double my annual salary in just one deal! Does it get much better than that? It’s also great that our partnering investor was happy because they received 1 years worth of interest (fixed interest only loan) in their IRA, in just 6 months. This means their return on investment was much higher than our agreed upon rate of return, 100% tax free, and passive.

          The borrower in this note was happy because he was able to move into a new home for his impending retirement and we assisted him with $3,000 toward his moving costs. His debt was gone, and he’s retirement ready. Take a look at the details below!

                 While this deal doesn’t come along every day, these deals do happen (and not just once)! We have other deals that are shaping up to be as great as this, and we have several colleagues and friends that have stories with crazy returns in little turn around time. If you’re interested in working with as an investor please reach out to us at the contact information below. See how you can passively grow your IRA like this partnering investor did at a great investment to value!

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Bankruptcy – The Good and The Bad

Bankruptcy. Designed to help people who are over burdened with debt find relief. Relief by absolving some or most of their debt, or assisting them with a payment plan to get them back on their feet. When used for the purpose it was intended for, it can be a very beneficial process and help people, families, or businesses start fresh. Unfortunately, like many other programs created to assist in a time of need, there are some people who abuse it. Often times in the note business, Bankruptcy is used as a “stalling tactic” to stop, prolong, or avoid foreclosure and is typically done RIGHT before a foreclosure sale. There are even really savvy borrowers who will file several times, first the husband, then the wife, then a joint filing being able to prolong the process several years before eventually losing their home.

Today we wanted to share with you 3 case studies of REAL stories about borrowers using BK as a stall tactic to hopefully help you understand the various ways as a note buyer, you may unexpectedly encounter Bankruptcy. Before we move forward, you’ll need to know some of the basics of Bankruptcy as you read the Case Studies. If you want to go further in detail take a look at one of our old posts regarding BK and Notes.

Ch. 13 – The classification of bankruptcy filing that enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

Ch. 7  – Unlike a Ch 13 filing, in Ch. 7 the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. The remaining debt is discharged.

Automatic Stay – An automatic protective injunction that halts actions by creditors the moment the bankruptcy petition is filed.

Lift of Stay – A request made by a creditor to the court which allows the creditor to take action against the debtor or the debtor’s property that would otherwise be prohibited by the automatic stay.

Case Study 1:
This past month we had a note in Tallahassee that was set to go to foreclosure sale on the first Monday of the month. We wake up Monday morning excited to check the docket and see the results from our Foreclosure sale only to find “Canceled per Bankruptcy”.
Lo and behold, the borrower filed Ch. 13 Bankruptcy the Friday before, cancelling the foreclosure sale and automatically gaining protection from us (the lender) and other creditors, seeking collection. While the borrower may be using Bankruptcy as it was intended, to keep her home because of her ability to repay, in all likelihood is simply trying to do whatever the can from not losing their home, even if it’s just stalling it for a few months. This borrower did not show up in court at any point in time during the foreclosure, or respond to any of the demand letters or notifications. They did not reach out to my attorney or servicing company to see what options they had (which we sent letters telling them there were other options).

The borrower filed BK themselves without an attorney to assist. Several of the documents were filed incorrectly, which tells me they are likely to be dismissed (kicked out). For the time being, we’re stuck waiting to find out….

1. What her financials look like and her ability to repay.
2. The proposed “Plan” which would outline her payments to us as creditor.
3. If she even files the necessary documents in time in order to be approved for a plan or not.

Until one of those steps are completed, we just wait.

Case Study 2:
This note is owned by a friend and colleague of ours that also invests in 1st lien notes. The property is in Pinellas Park, FL. The borrower was delinquent for several years prior to our friends buying the note. The homeowner was very adamant about keeping her home, although she had no income and her financials did not support her ability to afford the home. While they initially tried several loss mitigation options, but ultimately foreclosure was the only option. After filing foreclosure, and a strong fight in court, a few days before the foreclosure sale, the borrower filed Ch 13 BK. Thus again, stopping the foreclosure sale and putting the borrower in automatic stay.

This borrower ended up using an attorney and was approved with a BK plan that requires a high monthly payment on the note, (way more than her original payment she already couldn’t make before) which of course just two months in, failed to pay. She was however, making very small payments to the Trustee which was no where near the required payments in the BK plan. The note holder requested a lift of stay based on the lack of ability to pay to the plan, but luckily for her, had a borrower friendly Judge who denied the Lenders request, and approved the borrowers ability to continue the BK plan.

A few months later, the Trustee requested the borrower be dismissed from a lack of payments according to the BK plan, and AGAIN the Judge denied the request and was in favor of the borrower continuing with the plan. I will say, this is a pretty crazy case that unfortunately for my friend does not happen often, but can happen. When you’re in BK you’re at the mercy of the Judge, and this Judge happened to favor the borrower. So my friend is stuck waiting, and waiting, until eventually they are kicked out (which we know will be the outcome based on their past payment history). On a positive note, they have collected some money from the Trustee which helps recoup attorneys fees, but is still prolonging the completion of the deal by 1 year +.

Case Study 3:
This note was purchased by another colleague of ours that we are assisting through the
process of working the note to completion. The borrowers had previously filed BK but were dismissed without prejudice (kicked out) from a failure to pay. Again, just 1 day before the foreclosure sale, the borrower filed BK for a 2nd time, resulting in another automatic stay. When a borrower files Bankruptcy back to back like this (after 60 days), normally it’s up to the court to lift the stay or allow it to remain in place. This judge favored the borrower and are giving them a 2nd chance to attempt to repay in the Ch 13 plan.

Again, the note holder has collected a decent amount of money from the Trustee from the borrower’s payments, but their ultimate goal was to gain title to the property, not have a potentially risky re-performing note. They’re continuing to wait to see if the borrower will be successful in the plan, and sell it as a re-performing note, or if they will be kicked out, where the note holder can proceed with the foreclosure sale.  Either way, it’s a waiting game!

So there you have it, three real BK stories that unfortunately show how easily this system can be manipulated. As annoying as it may be at times, it’s a part of the business so we suggest getting familiar with it so you can hedge yourself as much as possible, or simply be less “shocked” when it happens to you.

 

Getting Started in Notes

This past weekend, I taught a full day course through my local REIA, Central Florida Real Estate Association on how and why to Invest in Non-Performing Notes (specifically focused on Non-Performing 1st lien Bank Originated Notes). I received a ton of a great feedback from the attendees on how informative, easy to understand, and well formatted the course was. The audience really felt they got a lot out of the course and could actually continue to pursue Note Investing as a form of building wealth (which was my goal). Even with all of the great feedback, I still consistently heard “what do I do next?” and “How did you know when you had enough knowledge to be ready to buy a note?”

Since that was not my first time hearing those questions, and very likely will be the last, I thought it’d be great to address those questions here. It can be super intimidating and feel like an enormous challenge to finally pull the trigger when starting a new business or buying your first asset in a new investing strategy. It may never feel “right” or you may never feel like you know enough to actually get started, so here is my advice: If you follow the guidelines below, and take deliberate actions toward your goal, you will see success! Hopefully I’ll be able to help a few of you realize you’re probably a lot closer to being ready than you even know!

 

Get the Knowledge

Note Investing is an intricate business, and can feel overwhelming during the learning process. I truly believe the brunt of the “work” is in the initial stage of learning what in the heck it takes to invest in notes. There is a LOT to digest and is a detail oriented business. With that being said – once you learn what you’re doing and what to look out for you’ve done most of the heavy lifting. If you want the knowledge or have attended courses and feel pretty confident you have learned what it takes, you might be ready for the next step. For those just starting out, here are my best suggestions on gaining the knowledge necessary to learn.

Attend a Seminar or Educational Course with an Experienced or Reputable Teacher
There are lots of online courses that are offered, like Scott Carson’s Note Camp, or Virtual Buying for Dummies, which does a great job of teaching you about note investing all from the comfort of your own home and computer.

There may be local courses, meet ups, or other groups as well (similar to the course I taught here in Orlando). Check out your local REIA’s and on Meetup.com to see if there is anything happening on the topic of notes.

You can also attend the longer 3 day events that are often held by the “guru’s” which typically cost more, but do provide great education. Here’s a spoiler alert for those 3 day events…They will up-sell you (and up-sell a lot), on joining their mentorship program. There is nothing wrong with joining or the fact that they are pitching this to you. They’re not going to give away their decades of experience and knowledge for a few hundred dollars and in a 3 day course. They have a ton of experience and a WEALTH of knowledge packaged and ready to go for you to learn from, so this may be a good choice for you if you want to really ensure you have the necessary educational foundation. Just know it’s going to happen and be open to all of the education they do provide to you while you’re there.

Explore the internet!
There is SO much great, free information, online. BiggerPockets.com has great blog posts on NoteInvesting. Dave Van Horn at PPR also has a lower cost educational course he offers with a ton of free content upfront to help you learn more about investing in notes (both 1st and 2nds). A great resource for seconds is at the Key Hole Academy. There are also great blogs written by real note investors like myself. If you haven’t read our other posts, I highly recommend taking a lot at some of the posts that walk you through the basics of investing in notes.

If you have you have a solid foundation of Note Education, the next steps is to build your pipeline to be able to get inventory and close some notes! I would make your next efforts be…

1. Creating Your Brand, and Building Presence as a Note Buyer – (remember professional and reputable). Create your website, LLC/Note Business, Logo, Email,  Business Cards, LinkedIn account, Facebook, and Blog (if you’re doing one).

2. Raise Capital – Attend local REIA’s and let yourself be professionally known as a note buyer, talk with your friends and family. Post about what you’re doing on faceboook. Talking with people opens doors. You never know who has money sitting idle that they are willing to invest!

3. Contact and Reach Out to Potential Sellers – In order to buy notes, you must have inventory. Start reaching out to sellers from banks, hedge funds, or credit unions. Make as many connections, follow up, and fill out those NDA’s. If you do this actively you’ll start to receive inventory!

Ready, Fire, Aim!

You’re probably familiar with the saying, “Ready, Aim, Fire” which focuses on readiness and preparation before taking action. Instead, we like to say and live by “Ready, Fire, Aim” which focuses on readiness, then action, followed by adjustments to get you back to your ultimate target. If you’re waiting until you’re fully ready every time – guess what, it’s extremely likely you’ll never FIRE. I was probably asked  10 times in my class “When did you know you knew enough to buy your first deal?” My honest answer; I didn’t! I got my education, we bought our first deal and learned a lot as we worked the deal,  then bought more. Every deal I do, I learn something new. I’ve now done 30+ note deals, and have been reaping the rewards of “Ready, Fire, Aim” instead of still sitting on the sidelines waiting to “Aim then Fire”.

I’m not saying attend a 2 hour course on notes and go buy your first note deal. As I mentioned before, education is the brunt of the work and one of, if not, the most crucial part of investing in notes. Just don’t spend years “learning”, then learning more, then waiting until the perfect deal comes along. Get the knowledge, pull the trigger, adjust from your mistakes, and do it again.

Focus

We really started to see success in our business when we stopped learning about ALL of the ways we can make money and focused on one strategy, notes. We knew notes allowed us to live the lifestyle we desired, provided both passive income, and cash to have on hand, grow our retirement, or save. When we stopped attending other real estate seminars and dabbling in other areas of real estate investments we saw our note business take off!  Whether you invest in notes or not, one of my biggest pieces of advice to you is to choose one strategy, get good at it, rinse and repeat.

Work on You: When You Grow Personally, The Rest of Your Life Will Too

The last thing I think is crucial to success not only in  notes, but in any business, is self development. I truly feel around 90% of our success has been solely from  self development. Over the past 3 years, we have attended several courses, read and listened to a variety of books, and openly talked about and explored the growth process that came from these events with each other and our family/colleagues.

I’m not sure why self development courses and gurus have such a bad rap. Maybe because a lot of the courses do have some corny activities, and downright out of the box, in your face activities. But guess what – if it works, WHO CARES? At one event we attend very early on in our self development journey, the speaker asked us to high five a neighbor and repeat some cheesy phrases (that of course were positive and self-affirming but feel lame and weird to say aloud let alone in front of people). My husband and I were a bit hesitant and definitely weren’t fully committed, but we did it nonetheless. When we sat back down in our seats, the speaker called out the numerous people in the audience who were clearly doing the activity half-heartdedly. The speaker then said, “would you rather be rich and look stupid, or look cool and be poor?” My husband and I thought about it for a second, and no more than a minute later realized, if what we’re doing in ANY way will improve our life, our income, our happiness, who cares if we look stupid.

There is fear, weakness, doubt, and hesitation in all of us, even the most successful of people. If we expect to change our lives, to grow our income, or to create a lifestyle we haven’t been able to live yet, we have to expect to change ourselves. To get big, new, and incredible results you must be willing to be vulnerable, dig deep into your inner beliefs, explore and face your fears, motivations, and confront and change your thoughts. While it’s uncomfortable, scary, and at times down right weird, it’s worth it, and it’s necessary to see the results you desire.

I hope this post is beneficial for you if you’re starting out in notes or any other business. We want to see your success!

Week 2 – The Countdown Begins!

 Monday 12/4  – Sunday 12/10

Woah. This week was tougher than I expected. It was my first week back full time at work and I’m not going to lie. I was exhausted! I could barley stay awake to 10:00, but I still made it happen. Take a look at all of the steps I took toward my goal this week.

Monday(3 hours in all)

1. Followed up with emails that were not actively answered with the New Year Holiday. Paid invoices, and made sure our current deals were again, on track (stay on top of those vendors)!
2. Called, Emailed, and/or Registered to receive inventory from 5 new potential sellers.
3. Read for 30 minutes.

Tuesday (2 hours)

1. I called, registered, and/or emailed 5 more potential sellers of assets/notes. Received Inventory from 2 new sellers.
2. We have title issues that needs to be cured on one of our notes and I have been calling/hounding/emailing the original title company (that issued title insurance) for the past 2 weeks. So again, I called and emailed them and I will continue to do so until I see some results!
3. Read for 30 minutes.
4. Finalized a new marketing piece with a case study on our most recent deal (case study designed for only $5 from Fiverr.com – amazing!)

Wednesday (4 hours in all)

I’m a member of our local REIA (CFRI) which has been a blessing for our business. If you’re interested in learning about real estate or already active in real estate, I really encourage you to become a part of your local real estate investment association if you aren’t already. I have found ours invaluable to our business.

1. Presented a Deal of the Month at the general meeting. Deal of the month is a monthly presentation in where active members present the KILLER deals they recently closed with the entire association. That means I was able to present our style of investing (notes), plus that deals’ nearly 100% ROI & profits in front of 250+ people! Let’s just say we were able to find a few additional interested investors/partners for future deals!
2. Talked with fellow note investors about doing some new deals together – this connection was GREAT!

Thursday (4 hours)

1. Talked with 4 interested investors about working with us on deals.
2. Had an hour long talk with fellow note investors & colleagues on new strategies and plans of action for 2016.

Friday (1 hour)

1. Placed an offer on 1 asset, but unfortunately couldn’t come to agreement on price.

Saturday

Read for 1 hour (Tony Robbins Money Master the Game).

Sunday

1. Finished today’s blog post
2. Read for 1 hour

Total Income this week: $249.80

The Dangers of Brokering

When you start off in the real estate investing world most “gurus” or educational speakers suggest going into wholesaling or brokering. They talk about the benefits and ease of assigning a contract or mortgage for quick cash. The concept is great and works for many investors, but the negatives that are involved are almost never discussed.

My company, Seasoned Funding, LLC had success in a joint venture deal with two other investors, wholesaling a contract on a house in Central Florida in January of this year but we ran into our first real experience brokering a note this past week. It was a juicy non-performing note deal in Sanford, FL that was listed on a tape we had received from one of our direct contacts. We are in no way shape or form, exclusive to this tape, but took the time to go through and see if there was anything worthwhile. After doing some light due diligence we knew we had a deal. I decided to drive out to the property take some pictures to see it’s current condition and had a local realtor from our REIA group pull comparables and give me a valuation.

The following day we put in our offer and within an hour, it was accepted at $26,000! I immediately pulled an O&E report, which can cost anywhere from $50 – $100 and created a flyer to help us advertise through Postlets. We inserted the deal into our email-advertising host, Mailchimp, and blasted it out to all note investors, real estate investors, and connections our company has acquired on LinkedIn.

Within 30 minutes I received 3 emails inquiring for more information on the NPN. I knew this deal was going to close quickly! The inquiries continued the following day and that night, I met with a fellow investor who was interested in the deal.

Somehow, with all of the advertising our company did on this note, fellow note investors or the people that sent us inquiries discovered who the direct source was and went to the source placing a higher bid than our accepted price, yet lower than our assignment fee (even though our fee was only discussed with 4 people). The timeline for closing had not been discussed with the fund manager after our offer was accepted, and I assumed that I had the typical due diligence period of about 2 – 7 days. Two days after our offer was accepted, the fund manager called to state that because of the increased interest and bids on this note within the last 24 hours if we were not able to have the money wired to the fund by the close of the business week, (which at this point was the following afternoon), we would lose the deal.

We were fuming! We understood the funds perspectives and were EXTREMELY thankful that they stuck to their word and honored our offer, but we just couldn’t believe that even though a NDA was filled out and NO fund names were disclosed, a fellow investor(s) had no qualms going behind our backs and jeopardizing the deal for our company who did the brunt of the work.

We called the investor we had met with the previous night and disclosed what was happening and why the sudden urgency to close. Luckily, he was extremely understanding, and got to work with his SDIRA to get all of the paperwork completed to get the funding wired by deadline. Even with the sudden urgency, the fund wasn’t able to provide the SDIRA with all of the paperwork they wanted/needed in order to fund, something that happens quiet frequently when investing with NPN’s and SDIRA’s.

When we heard the news we immediately figured we’d not only lost the deal, but lost $100 from pulling the O&E but to our surprise, the fund manager commended our work and agreed to extend the closing date to the following business day using one of our other inquiring investors that they had previously done business with.

We found out that the “inquiring investor” was in fact the one who went directly to the source in an attempt to cut us out and was attempting to continue to do so. We spoke with the investor on Friday, in which they said “yes” to our fee and interest in closing, but then told us they had no interest in the deal on Tuesday (expected closing day). We found out from the fund manager directly that they were now trying to buy the deal for the price we had negotiated leaving no fee at all, even though we had come to an agreement on a fee price Thursday! The fund manager once again stuck to his word and told the investor unless the fee was included, they were not able to purchase the note. He allowed us 2 more days to contact one of our other funders and were able to close the deal for our original asking fee, $6,000! It took a lot longer than expected, and had more complications than I could have ever predicted but we luckily were able to close – all thanks to the fund manager!

Point blank, there are some people that are selfish and unethical. I understand the reason you get into investing is to make money, but I have trouble understanding how a fellow investor could do that to a company that’s simply trying to do the same thing. If you ask me, if someone does the work in finding the deal, crunching the numbers, and pulling/doing due diligence; they deserve a fee.What I want investors to learn from this story is how to better protect themselves when trying to wholesale or broker a deal. If you don’t advertise, the deal won’t be sold but if you advertise you run the risk of other investors attempting to “cut you out of the deal”; it’s a double edged sword.

So here are a few steps we’re going to make sure we are taking in the future to better protect ourselves:

1. Have ALL inquiring investors fill out an NDA (that has been approved/drafted by an attorney to properly protect you) before giving ANY information out. No matter how badly you want to close or need the leads, if they’re serious, they’ll take the time to sign it and wait for the information. You can state the area (provide pictures and details) but don’t give them everything right away.
2. When advertising – DO NOT list the address until an NDA has been signed and returned and you’ve spoken face-to-face or over the phone with the inquiring investor(s).
3. Have a clause within the NDA or a separate agreement that states they will not go directly to the source(s) if it is disclosed or discovered. Remind them of this fact when you send the NDA or have the NDA returned.
4. If at all possible, discuss having the entire “marked up” price funded directly to the seller. After they have received the funds, they will wire you your fee. This will keep an investor from knowing your negotiated price and keep them from attempting to negotiate your fee down.
5. If your fund is not willing/able to accept the “marked up” price and wire you your fee, get a brokering or wholesaling agreement signed stating that if they want to follow through with this deal they must agree to pay you a the agreed upon fee.
6. Try not to disclose the source of the deal if at all possible! Delete their name from any Sale/Purchase Agreements or any documents that could eventually tell the inquiring investor(s) where it is coming from until they are ready to wire the money to close.

Now these are not always going to protect you. People will do what they want to do, ethical or not, but I’m hoping by taking this steps and being smart about your investments you can learn from our mistake and get another deal under your belt.