Eddie Speed Note School

[Brandon Brock]

I attended a 3 day seminar this weekend promoting noteschool. Noteschool is a mentorship and training program for notes performing and non performing. It seems very expensive starting at 16k depending on the level your at. I understand the value in education and mentorship but this is allot of money and I am wanting to start investing in notes. Has anyone heard anything good or bad about eddie speed and note school.

[Bill Gulley]

Well, over a hundred posts and not a word about what is taught, even in general. 

Do you learn how to locate a note or grade a note? Is underwriting credit taught or underwriting financial risks? What about stress testing, anyone know about that looking at a single note or a portfolio?

I'm pretty sure compliance isn't taught, seeing the investors forming entities for "note investing" tells me they probably are not aware of "being in the business" and investing as an individual. 

Are you exposed to owner occupied residential loans? Are they teaching how to modify these NPNs to investors? Anyone looking at the date of modifications or originations?

Are they teaching auditing of originations ?  

Are risks really mitigated with a seller giving you a re-purchase agreement or a hold harmless agreement? Anything taught  in contract law?

Do they go over anything about the Uniform Commercial Code? 

Courts  of equity or redemption rights, homestead exemptions or recourse, are they teach anything about lender and note holder liability ?

I'm betting most all of these note schools are teaching how to move the asset through a system and facilitate a transaction, how to use a financial calculator or their software. Some due diligence on the document side. Common and standard note terms. 

So far, no one has ever posted the class topics taught, it's not a real secret, doesn't need to say how they teach a subject, but subjects never seem to appear. Probably heavy on the marketing side of how to buy or sell a note to them or through their investor groups or network. 

Just wondering if anyone is really getting a note education, even an overview of the note business or if you just think you're getting educated ?  

I can hear some "instructor" now.....ahhh, you aren't a bank, you don't need to know any of that stuff, this is how to make money!  :) 

[J Scott]

Originally posted by :

We each put 50k into this business, got a corporate CC and LOC for a combined total of 28k and went to work. We had our 1 year anniversary two months ago in a little over a year that we have been at this we have grown our portfolio to a value of 290k...

Can you go into a bit more detail about how exactly you grew your investment by 600% in one year?  

[Jay Hinrichs]

@Bill Gulley

 has gotten value.. and he is a good contributor to BP so we know he is not a shill for anyone like others that post on here...

at the least it gave him the momentum and basics to get into the business. 

Plus I believe Bob has a RE license so was at least that much farther along as opposed to some of the complete newbies we see here on BP thinking they are going to run out and buy NPN and then get them re performing.

[Bob E.]

@J Scott  We actually put in 50k each so 100k total.  How did we generate our returns?  That is a good question.  

I guess the first thing is we started.  We didn't spend months wringing our hands studying  things or talking about it, when we started with 25k each it was a small enough amount that we could afford to lose it.  I'm not saying it wouldn't have stung a bit but but you have to take a risk.  Having a mentor was key to this.  If we made a mistake it was not utilizing our mentor even more.

Deal analysis is something like this:

Deal 1  sold this week at auction for a loss, probably a $4,500 loss, this is in my profit calculation.

Deal 2 Bought for 20k sold for 45 with 10k down and 35k financed for 8 years at 8%  I counted this as a 45k asset but probably should have only counted it as 35 since the 10k has been reinvested and is reflected in other assets.

Deal 3, bought for 10k and foreclosed on a non performing borrower, we will be all in for under 20k, and should sell for @ 45k, maybe more if we do owner financing.  Counted this as a 45k asset but in truth it could be slightly higher or lower, there is a lack of inventory in this market so I am hopeful it will go for more but I am budgeting 45k.

Deal 4 Bought an REO for 12k, rehabbed and all in for 20k, property value is 60k, posable more if we sell as a turnkey to a CA investor.

Deal 5 Condo in Chicago, bought NP note (owner died in 2007 and nobody has paid since) paid 22k for the note, property rents in that neighborhood are @ 1,100 a month and the property is worth 60-70k based on estimates from a BP realtor in this market.

Deal 6 bought a vacant REO for 5k, paid 7k in back taxes and put 18k into rehab, rented for $875 staring June 1st and worth 60k based on neighborhood comps and feedback from our PM/Realtor.

Deal 7 Bought a SFR in souther IL for 12.5k, needs 30k in rehab and BPO's came in at 65k and 70k, I counted this as a 20k value since we will need to put more into it. We would also consider wholesaling it for 20k.

Deal 8 was a quick flip where we bought an REO in Milwaukee for 7.4k and closed 30 days latter for 17k, I did not count this in the 290 since the funds are now invested in other deals.

Oh, I also for got to add to my original numbers that we purchased a performing note early on in the process for 12k.  It had a 16k balance and a 12% coupon and we bought it for 12k, this adds ~10k to our bottom line and offsets my calculation error in Deal 2.

I hope this doesn't come off as bragging, but the numbers are real and working for us.  

PLEASE NOTE, as I mentioned earlier, the market for Non performing notes has changed in the last year.  We expect that this year we will be looking at doing some direct marketing to note originators that want to get cash out of their performing notes.  

[J Scott]

Originally posted by :

Deal 1  sold this week at auction for a loss, probably a $4,500 loss, this is in my profit calculation.

Deal 2 Bought for 20k sold for 45 with 10k down and 35k financed for 8 years at 8%  I counted this as a 45k asset but probably should have only counted it as 35 since the 10k has been reinvested and is reflected in other assets.

Deal 3, bought for 10k and foreclosed on a non performing borrower, we will be all in for under 20k, and should sell for @ 45k, maybe more if we do owner financing.  Counted this as a 45k asset but in truth it could be slightly higher or lower, there is a lack of inventory in this market so I am hopeful it will go for more but I am budgeting 45k.

Deal 4 Bought an REO for 12k, rehabbed and all in for 20k, property value is 60k, posable more if we sell as a turnkey to a CA investor.

Deal 5 Condo in Chicago, bought NP note (owner died in 2007 and nobody has paid since) paid 22k for the note, property rents in that neighborhood are @ 1,100 a month and the property is worth 60-70k based on estimates from a BP realtor in this market.

Deal 6 bought a vacant REO for 5k, paid 7k in back taxes and put 18k into rehab, rented for $875 staring June 1st and worth 60k based on neighborhood comps and feedback from our PM/Realtor.

Deal 7 Bought a SFR in souther IL for 12.5k, needs 30k in rehab and BPO's came in at 65k and 70k, I counted this as a 20k value since we will need to put more into it. We would also consider wholesaling it for 20k.

Deal 8 was a quick flip where we bought an REO in Milwaukee for 7.4k and closed 30 days latter for 17k, I did not count this in the 290 since the funds are now invested in other deals.

Thanks for the details, Bob...and congrats on the awesome start!!!

Sounds like a lot of these are not note deals -- did you have a mentor from Eddie Speed Note School that helped you with the non-note deals as well?

Quick question for deals like Deal 3:  When you own the note and foreclose, can you just sell the home and keep the overage?  I was under the impression that the home needed to be auctioned, and any profit over and above the value of the note, penalties and legal fees was owed back to the borrower.  Just trying to get a better idea of how proceeds from foreclosures work, since it sounds like you are just planning to sell the property and keep the profits (which may be standard, I'm not sure).

[Che Chiu Wong]

Originally posted by @J Scott:

Originally posted by :

Deal 1  sold this week at auction for a loss, probably a $4,500 loss, this is in my profit calculation.

Deal 2 Bought for 20k sold for 45 with 10k down and 35k financed for 8 years at 8%  I counted this as a 45k asset but probably should have only counted it as 35 since the 10k has been reinvested and is reflected in other assets.

Deal 3, bought for 10k and foreclosed on a non performing borrower, we will be all in for under 20k, and should sell for @ 45k, maybe more if we do owner financing.  Counted this as a 45k asset but in truth it could be slightly higher or lower, there is a lack of inventory in this market so I am hopeful it will go for more but I am budgeting 45k.

Deal 4 Bought an REO for 12k, rehabbed and all in for 20k, property value is 60k, posable more if we sell as a turnkey to a CA investor.

Deal 5 Condo in Chicago, bought NP note (owner died in 2007 and nobody has paid since) paid 22k for the note, property rents in that neighborhood are @ 1,100 a month and the property is worth 60-70k based on estimates from a BP realtor in this market.

Deal 6 bought a vacant REO for 5k, paid 7k in back taxes and put 18k into rehab, rented for $875 staring June 1st and worth 60k based on neighborhood comps and feedback from our PM/Realtor.

Deal 7 Bought a SFR in souther IL for 12.5k, needs 30k in rehab and BPO's came in at 65k and 70k, I counted this as a 20k value since we will need to put more into it. We would also consider wholesaling it for 20k.

Deal 8 was a quick flip where we bought an REO in Milwaukee for 7.4k and closed 30 days latter for 17k, I did not count this in the 290 since the funds are now invested in other deals.

Thanks for the details, Bob...and congrats on the awesome start!!!

Sounds like a lot of these are not note deals -- did you have a mentor from Eddie Speed Note School that helped you with the non-note deals as well?

Quick question for deals like Deal 3:  When you own the note and foreclose, can you just sell the home and keep the overage?  I was under the impression that the home needed to be auctioned, and any profit over and above the value of the note, penalties and legal fees was owed back to the borrower.  Just trying to get a better idea of how proceeds from foreclosures work, since it sounds like you are just planning to sell the property and keep the profits (which may be standard, I'm not sure).

Deal 3: If you have already foreclosed the property, and you get to keep the entire proceeds. (Think of it as you are the "bank" in a typical REO transaction). There are some investors who I know of getting non-performing first mortgages with the intention of acquiring the properties first, then fixing it and selling it at a profit (just like typical flipping).

[J Scott]

Originally posted by @Che Chiu Wong:

Deal 3: If you have already foreclosed the property, and you get to keep the entire proceeds. (Think of it as you are the "bank" in a typical REO transaction).

Banks DON'T just get to keep the entire proceeds.  

They must publicly auction the property and sell it to the highest bidder.  Typically, if the house is worth more than the mortgage lien, someone will outbid the bank and that person will now own the property.  I'm under the impression that the bank is entitled to have the note fully satisfied (including penality and accrued legal costs) and then the borrower is entitled to any overages.

This is why I'm confused...

[Dion DePaoli]

@J Scott

The last milestone in the process of foreclosure is the foreclosure auction. Ownership does not transfer to the Mortgagee unless this step has occurred (in this process path) and no bidder shows up at that auction outbidding the minimal reserve given from the Mortgagee.

Deeds of Trust contain a "Power of Sale" which allows the Mortgagee to enforce a foreclosure without a judicial process. That is the closest idea of a Mortgagee "ordering" an auction of the property. That can only occur upon default and proper notice through the Trustee. It is really the Trustee who orders the sale based on notice and proof from the Mortgagee of default.

Mortgages go through a judicial process where the plaintiff (Mortgagee) complains (about the default) to a judge. The defendant (Borrower) has a chance to answer or defend. Then the plaintiff asks the judge to enter a judgement in favor of the Mortgagee pursuant to the Mortgage based on everyone's argument and evidence. The judge grants judgement and formally "orders" the sale which also occurs by public auction.

Both of those are simplified versions of the process for the sake of conversation. The moral of the story is both auctions are public auctions conducted by the county, however those powers are vested in the county by Sheriff or Clerk. A Mortgagee nor a Deed of Trust Trustee carries out the auction themselves.

The result of the auction is (a) no bid exceeds the minimal amount of reserve to the Mortgagee thus the Mortgage/DOT will be extinguished and the Mortgagee will receive title to the real property, (b) a bid is sufficient to exceed the minimal amount of reserves to the Mortgagee thus the Mortgagee's debt is paid, extinguished and title passes to the bidder who made said bid. Only when a bidder is present and the amount of the bid exceeds the "Total Due" to the Mortgagee do proceeds from that bid pass to the next party of interest whether it be the Borrower or another lien holder.

The Mortgagee who receives the REO uses the real property as any other real property investor. The gain or loss they experience is, for the most part, all theirs. There is no overage from the sale of REO that pays any other previously interested party from the sale of that REO. The overage only pays down other interested parties directly from the auction, for the most part. Once the Mortgage/DOT is extinguished and the interest of real property is conveyed the Borrower is not entitled to anything. Their interest and rights are gone.

Now, certain exceptions do relate to all of that but they are not overly common nor are those situations commonly litigated. A Borrower can and some have brought legal suit against Mortgagees under and idea sort of like Unjust Enrichment. Those suits are not commonly successful. Generically it is difficult for the Borrower or other junior interested parties to show they have damage that is improper above the implications of the security instrument being an agreement to be able to use the property to recover said funds which also means the property becomes Mortgagee's if no bidder exceeds the minimal bid.

There is however more of a common danger and caution to the predatory use of a Deed in Lieu. If a Mortgagee seeks DIL and gets it for say a smaller balance loan compared to the value of the real property it is much easier to prove damage or unjust enrichment by the Borrower. Essentially the idea is the Borrower was taken advantage of by the Mortgage under some idea of duress.

Through the process of foreclosure the Borrower is afforded their right to redeem and if that right expires there is not a whole heck of a lot the Borrower can do to make claim to any proceeds.  The Mortgagee is entitled to the Total Due, just nothing over that number.  

Think of it in the same context as the Mortgagee receiving title from an under bid foreclosure auction is the same as any other third party at auction. The party who gets the property from auction can do what they wish and owe the prior Borrower/Owner nothing subject to any post auction redemption period.

[J Scott]

Dion, 

Thanks for that... And that was my understanding (the basics, at least :-)...

Given that, the scenario that Bob presented in Deal 3 above seems unlikely to play out legally... Is that correct? 

I'm other words, Bob would have to take the property to auction,  and given the $45K value, it would likely be bid on.  Bob would get his $20K that he was into it for, and that would be it.  Any overage would be due to the borrower or another lien holder. 

Am I interpreting that correctly? 

[Jay Hinrichs]

@J Scott

  in our state amounts that over bid from the minimum credit bid are then dispersed to the next in line on the TSG . if there are no other loans leins etc.. excess proceeds would go to the trustor who lost the property... the Trustee conducts the sale for the benefit of the Bene and they receive funds at auction then disperse.. in WA excess proceeds go to the courts for dispersal is my understanding.. in Oregon the trustee ( which is a law firm of some sort) will disperse...

@Dion DePaoli

  how does it work on a drop bid...   which was very common say in Vegas and Phoenix in the day... full amount owed lets say was 500k... but bank drops opening bid to 250k and it sells 3P.... for say 275k  who is entitled to that 25k overage... I always wondered about that.

[Jay Hinrichs]

@J Scott

  on Bob's # 3 above I believe if I am reading that right... he bought the note... foreclosed on it and NO one bought it at the sale so he ended up owning it for the 10k he paid for the note... and is now free to rehab and resell and make whatever he can make...

Also its my understanding that if he bought the note for lets say 10k  and it had an unpaid balance of say 25k  all arrears and cost including on the opening bid and if it had sold 3P at the sale for say  40k  Bob would get his 25k .. which would give him a 15k profit on the deal and the extra 15k would go to next in line if their were leins or the trustor/owner who lost it. 

[Dion DePaoli]

@Jay Hinrichs

Rules vary from state to state and county to county.  Surplus are not all calculated the same.  The Mortgagee is entitled, in general, to all amounts due under the note and amounts over that are surplus.  What you will find is the rules on what a Mortgagee can set as reserve or minimum bid.  A surplus is not always created by exceeding the reserve.  In other words, a Mortgagee may still be entitled to amounts over the minimal bid or reserve up to the total due under the note.  Exceeding the reserve creates a sale but may not always create a surplus.  

@J Scott

Bob's example is the loan was foreclosed where he purchased the loan for $10k then initiated and completed foreclosure.  The loan went to auction and nobody bid the property.  The loan is extinguished and the property reverts back to Bob where they now own the real property.  He can now sell the property in the open market as he wishes the upside is his to enjoy.  Further, he can improve the real property to realize a higher sale price.  He mentions his cost basis is $10k for the loan purchase and $10k in other costs on top or $20k all day.  He hopes that the market value of the real property he will realize is $45k or greater, essentially doubling his money.  

You have miss placed the foreclosure auction in his story. It is already over. Only the auction creates a surplus not an REO sale. Bob's interest is now REO not a loan any longer.

[J Scott]

Thanks Jay and Dion... That clarifies things... 

I guess I had assumed that if the property would be worth $45K with just $10K in work,  someone would have bid more than $10K at auction. 

What I was forgetting was that the value of the note was likely more than $10K, so opening auction boss was higher than that as well. 

[Bob E.]

@J Scott  To answer your question on Deal 3 you are right any overage would go to the next lien holders and then to the owner.  

In this case the borrower owed 60k and the BPO when we bought the note had come in at 29k we set the opening bid at auction at 25k but could have set it as high as the amount owed (60k + fees etc.).  In retrospect that was too low of an opening bid.    We did a followup BPO 3 months ago and it came in at 39.9k but our realtor tells us people are having problems getting loans for these lower priced properties and that with owner financing we can get more traffic and a higher price.  If we sell for 50k with 5k down at 9.9% 240 months the buyers payment would be $431.28, local rents for similar properties are $600-650.  The return on our invested capital, even after allowing for servicing fees, is a little over 30%.  If anyone is wondering we did offer to rework the loan with the borrower, it would have been a lower return but sill very solid and with less drama.  The borrower  refused to work with us.

Also you are correct that several of these are not note deals, 4 were REO's that came through various sources, one came directly through note school as a "deal of the week". It was a city where we already had a property and and so had property management in place. The other three were through contacts we made through note school so I will give them credit for those too. The other thing that Note School provided was a lot of resources and ideas on how to find the right realtors and property managers for these long distance properties as well as a vision on how to sell them either as occupied rentals and contacts that can provide RMLO services so we can sell direct to owner occupants. All of these pieces can and could be found without Note School training but they put it all in a box with a bow on it and made start up much faster and easier as well as helping us avoid a lot of rookie mistakes.

Taking on the REO's is just like dealing with a NP note after the FC has taken place, even with a note it's not like you FC and are done, that is just the beginning, you then have to decide if you are going to wholesale it, rehab for for rental and then hold or sell the rental, or rehab for consumer sale.

[Bob E.]

@Che Chiu Wong you are correct, some people will buy the note with the intent of getting the property, we are fine with this for vacant property but if a property is owner occupied we will always offer a modification.  We have passed on deals where a modification would have resulted in to low of a return for us, we prefer not to be in a situation where we HAVE to evict someone to make our target return.

[Patrick Desjardins]

I've spoken with 2 of his students recently, both of which are BP members and somewhat successful. And Bob's results ARE typical, notes are a great investment.

The main complaint is that his classes are overpriced.  Depending on if you're going to invest in 1sts, 2nds, seller-financed, performing, NPNs.. you can get the same results for a fraction of the price elsewhere.

So.. it's not a knock on Eddie Speed or his students - it seems like it works. But why blow 15k on his bootcamp when instead you can spend 1k for someone else's, get the same knowledge and network, and buy a 14k note?

[Scott Carson]

I might add a comment or two to this strain....the note business has many facets...performing vs non performing, institutional versus owner financed paper.  Residential vs commercial.  1st's vs 2nd's.  Add in the numerous state laws and it makes for a lot info.  You aren't going to learn everything about everything in a 4 day workshop or if you paid $20K or greater.  You've got to spend the time doing deals and getting your feet wet!

I've created tons of owner financed paper and still do some of that with exit strategies on assets where there is no other exit strategy that makes sense. But I'm focused primarily on 1st liens, non performing, institutional paper. 95% of the NPN paper falls under the $125K FMV with over 7 million homes still underwater. Markets are improving across the board but there are a ton of deals still to be had by reaching out to the banks directly instead of going through the "chop shops" or "you gotta buy my deals only" warehouses.

Just do your due diligence.  BP is a great place to start to find the nitty gritty on everything and everyone out there.

Happy Hunting!

Scott Carson "the Note Guy"

[Dion DePaoli]

Originally posted by @Scott Carson:

95% of the NPN paper falls under the $125K FMV with over 7 million homes still underwater. Markets are improving across the board but there are a ton of deals still to be had by reaching out to the banks directly instead of going through the "chop shops" or "you gotta buy my deals only" warehouses.

Scott this is not really true. 95% of the defaulted loans in the market are not under $125k. About $1 Billion in NPN traded this month in institutional sales with an average BPO value of $190,000 and $200,000. That was about 4,000 loans.

Are there low value loans in the market?  Yes.  However the market is more of a bell curve with high, medium and low cost property values.  It tracks on the normal real property market curve and doesn't lean overly left.  

As far as reaching out to actual banks I will be brutally honest with the masses.  You are DREAMING.  The NPN loan sales I mentioned above all traded for roughly 70% of BPO.  Most investors on these boards want higher returns than that type of price level will allow.  There is fundamentally zero need for a bank to entertain a bid on an NPN from street level investor.  The bank has already managed it's reserves and has relatively no need to deal with a street level investor for cash.  Further, NPN's are being put into securities which affords large broker dealers to invest in NPN's with very low costs of capital.

So when I see recommendations for street level investors, especially newbies, to reach out to banks it is frankly bad advice.  They lack the skills to offer a price that is even in the ball park and are ill prepared for the reality check of where the market 'actually' is.  Their call most often won't even be answered.  

The advice to steer away from these programs that produce loans has merit.  There is another thread in the forums where several posts were made where folks can source some loans in line with their return expectations.  It is still sort of recent, not to far down on the list in Notes Forum.  You will see @Bill Gulley list some very good sources.  

For the newbies, sorry to be so brutal but I think the veil needs to be lifted here the "call the banks" pitch is dated and won't work for you.  Try looking in your own backyard and finding a private seller who has a need for cash that you can fill.  Your ticket to entry is not in the institutional market unless you are prepared to pay like an institutional investor.

I also suppose this sort of reality doesn't exist in these seminars.  I just leave that for itself.

[Robert Wade]

I am interested in doing notes, so I was intrigued by the posts here when I came across them. I have to agree with Bill Gulley that what I found lacking in the posts was education. Everyone is talking about the deals they made and very little about how they did it. One of the reasons I have gotten into BP is I wanted to learn from those that do not those that teach. I have done some SFR deals with mostly mediocre results by my standards and I would assume the standards by most of you on here. We all want to make money and the more the better. I connected with some of the local investors on here just to have local knowledge to talk to and join forces with if the situation arose. I want to offer my apology to Bill Gulley because when I initially contacted him, I just flat out told him I was looking for a mentor without even discussing with him why I needed a mentor or what kind of service I could be to him(one of the things that was brought to my attention because of BP). Why this long rant? People like me are trying to better themselves later in life and don't have the finances or the time to take classes to risk learning something new. I work (wife runs a daycare in our house and I have a full time job during the day and run a full-time business with my wife in the evening we have an employee who runs during the day for us and we are there on the weekends) to pay taxes right now so others can sit on their #@# and I want to get out of that race. I know I will have to pay more, but I will be making more also. REI is about the only way I can see to do that. Knowledge is powerful and is valuable. Long story short, I don't know that I have really learned anything of real value here tonight.

Sorry for the ramble, please help me learn what I don't know. Which direction do I go?

[Bill Gulley]

@Robert Wade

 That wasn't much of a rant, LOL. And, no apology is necessary, I understand there are many in the same boat as you.

I totally agree with Dion, new note investors should not be thinking they will walk into a bank and buy NPNs at a steep discount, or even getting them to sell one note. 

First, as to my mentoring, I can teach notes and most likely I will, I am working on it. (Running joke on BP is that Bill will get a book out). That's because it's been about a 2 year thought, one year in research off and on, and stuff changes!

All these "mentors" or "coaches" or "consultants" you see out here on notes writing books or whatever, are not teaching finance, or law, or taxation, or even personal finance, much less foreclosure law, safeguarding collateral, evictions privacy laws nor brokerage laws. Investors must be aware of these areas, they don't need to be an attorney or CPA, being aware of things is not requiring you to be an expert in all these areas. Gurus teach (and I use that term lightly) MARKETING aspects, how to, without any meat of the product being traded. 

There is liability in the note business. Lenders have liability in baiting borrowers, with disclosures, rejecting loans, in giving loans, or collection and servicing requirements, liability concerns are huge compared to real estate, violations carry ten years in prison and/or $100,000.00 fines, you better know what you are doing, and there are many brokers out there running small shops that have little if any compliance awareness. An RMLO license does not teach mortgage brokerage management, it's a very basic license to originate loans under strict guidelines....originate, not underwrite. BTW, buying a note from anyone, you can take on all the past liabilities associated with that note from it's application and origination. While there are all kinds of agreements to manage those risks, in the end, it's the guy at the end of the rope who gets hung first.

A bank is not going to sell a mortgage to Bob "Investor" without knowing who Bob is, what their knowledge might be and the reason they are interested. What if Bob really doesn't like John and wants to buy his note simply to foreclose on him and cheat him out of his house? Yes, Bob will have liabilities but the bank will also have liabilities in selling to Bob! So, if you do walk into a bank you better be able to talk mortgage brokerage talk as well as they can.

I address questions in the forums because doing that carries no liability for me. There would be or can be if I advise on an individual basis in a specific note, I'm not willing to take $500 on payments or charge a % of some profit and take on that liability, that won't even cover my insurance premium. I'm not longer a registered lender, active broker, nor am I an RMLO or an attorney.   

I don't mean to rain on the parade, but the reality is, the note business is more complicated than these gurus or broker-dealers let on. 

Your first due diligence exercise in notes is to find out the qualifications, experience, knowledge and financial stability of the note seller-dealer! Do they really know what they are doing, are they compliant with laws, do they hold the appropriate licenses, if there is fraud or errors can they buy it back and make good on any guarantee? This is step one CYA for a buyer, who you are dealing with. You really can't assess your risks until you know or are fully aware of who the seller is.

I'm not writing a book here, just trying to beat the word count in Dion's posts. 

We call RE operators "investors" fancier title, sounds better, implies more wealth, it's guru originated, the IRS will call you an operator and that carries just as much clout with me as "investor". BUT, in finance, in mortgage brokerage arrangements, "investor" means your own money, not your uncle's money, not your buddies money, not borrowed money, your money. A mortgage broker is one who is in the business of dealing in mortgages or notes, it is their primary source of income, they advertise and seek out note purchases and sales, there is a thin line between being a broker or in the mortgage business and being a personal investor. 

You can buy part of a note or perhaps a small note through corporate entities, crowd funding, 506 entities under SEC, but guess what, the SEC only authorizes the formation and operation of pooling investors, these set ups absolutely do not give license to sell or trade stocks, bonds, mutual funds or mortgages as a broker dealer, those requirements are in addition to the pooling of funds authorizations. So, again, know who the seller is. Check state law requirements. 

Don't know how many times it's been mentioned on here, but the modification of any mortgage is a new extension of credit legally. Being the owner or investor behind the door of a NPN does not give you license to originate new loans. If you do so illegally, your note most likely will not be enforceable! The guy that buys it from you may find that out 2 years later in a foreclosure. And that buyer will most likely come knocking on your door! You will need a RMLO to modify any residential owner occupied mortgage.

While those with a small amount of mortgages are exempt from many servicing requirements, you are not exempt from all collection requirements, giving a proper accounting, notices, tax reports, late payment notices and collection matters. Even if you are exempt, I suggest you use a loan servicer!

If you have mastered RE principles, assessing the value of the collateral is fairly easy. 

When I appraised notes for the State of Missouri, the very first question I had was "Is this obligation enforceable, was it in compliance with rules, regulations and laws at the time it was originated? Assuming a note is enforceable is a very bad assumption to make.

While seller financed notes may have some degree of predatory practice related, such as a sale price higher than market value, such issues can fade away in time as the note is seasoned. An individual carrying back the sale of their home (owner occupied) won't be held to higher institutional standards, RE operators.investors may be being in the business. 

From a compliance stand point, seller financed notes have much more leeway, fudge room, as they are looked at as private transactions. There is a bit of "safe haven" for personal transactions, but if Dodd-Frank applies, it applies! 

Seller financed notes are in your backyard, you can drive by the collateral.  There are techniques to contact a borrower before ever buying a note, legally and ethically, I doubt your broker dealer will let you do that. With a B-D, you usually sign an agreement not to contact anyone, especially the borrower. 

Starting out, staying in your own backyard has many advantages. If I were to buy a note in Riverside CA, I would want trusted boots on the ground, I want pictures of what the collateral really looks like today, not 6 years ago, I need a title company there, I need to know an attorney there. Look on the deed of trust, who is the trustee? Is that person still alive and practicing, or did the Bar Association assign another attorney or was his business taken by other partners? Need to change the Trustee? Find a local attorney. If I buy a note in SW Missouri, I have none of these issues of long distance due diligence or enforcement issues. Newbies need to stay local, IMO.

Seller financed notes are the easiest to deal with, one on one and they can be had at a greater discount, I've already explained that.

It was either in this thread or the one Dion mentioned above, that I described how to start learning, follow that! When you read that material and you have a question, it will then be a specific question that can be answered. I can tell you if you need to follow the telephone recording requirements for note collections and having a collections activity log but I can't just answer how do I learn.......at east beyond what I've mentioned. Questions need to be specific in forums to get specific answers. You won't learn much reading generalities in forum posts or blogs. All you have to do is mention me, or Dion, or Ken Rishel or anyone else you trust for answers. I have not dealt with any mortgage broker or dealer that is on BP, therefore I can not endorse anyone, but I'm sure there are a few who are compliant and would be "square dealing".     

Now, THIS is a rant! Would someone please take a word count and see if I beat Dion's post.....please......LOL. :)

[Dion DePaoli]

@Bill Gulley

 Well that was like 4 scrolls down.  You win.  For now.  I don't want to continue to post information to a thread meant to talk about this course that deals with overall note information.  Stop on by the Notes Forum folks.  Lot's of good stuff there.

[Scott Carson]

@Dion DePaoli

I'm going to contradict several things and argue with you.  Yes, 4,000 loans did trade in the above $190K value.   But 4,000 loans is still only 0.00057143 of the 7 Million loans still underwater.   That's just a drop in the bucket.

Here is an article that came out in March that you might want to check out.  http://www.bloomberg.com/news/articles/2015-03-13/...

If you take the $16.7B in UPB (Unpaid Principle Balance) and divide that by the 98,000 loans that comes to an average UPB of $170K. That's UPB, not market value. That's why I say 95% of the debt out there is on assets BELOW $125K in FMV. We can all agree that a large chunk of the country is still well below where peak numbers were in 2007 as far as FMV.

As far as buying direct from banks, I will also disagree with you on this. I've bought millions and millions in loans from Capital One, Wells Fargo, Synovus, Ocean Bank, US Century Bank, Banco Popular and hundreds more. Many of these were one off commercial deals at or below 50% of value on the NPN side or one off's.

I've been buying NPN's since 2009 and have built a list of asset managers with the use of Laneguide.com and Distressedpro.com that is now over 5,000 strong. It's a numbers game. If you call 50 asset managers in a day, you'll get 13-14 on the phone and get around 4 NDA's into you with 1 tape. If you don't call, you don't get.

I also follow up regularly with this list via email drip campaigns once a month to see what they have on their portfolios.  This activity alone usually sends 2-10 new asset managers sending deals over to me.  

I recently had about a dozen of my mastermind students and I get together to do just this.  We contacted several hundred banks in one day and continue to follow up with them regularly....numerous lists came in along with future lists coming to us as well. here is a short video on that first day of bank calling.  https://vimeo.com/120538228

I wish I had a dollar for every time someone told me that calling banks doesn't work. It usually comes from people who have made 10-20 calls and have tried calling the big 5 (BOA, Chase, Citi, Wells, and Indymac) and not smaller regional banks with no place to go.

Recently we just got in a list of assets in MN from a bank with 25 locations and a bank in OH sent me their entire list of assets for sale. Quicken loans sells their NPN's in pools on a quarterly level that we just made a bid on.

Often times, we will also get large institutional traders who have bought large pools from the big 5, who have one off's or smaller traunches of assets that we can pick up as well from this same marketing.  Our success rate goes up even higher if we directly call the asset manager after seeing that they've read our email or clicked on a link or two. It's like any other type of marketing....its got to be done on a regular basis over and over again.

I don't agree with calling local owner financed lenders and trying to buy their notes. Most investors that offer owner financing are usually too far invested in the project to take a sizable hit or discount on their note deal. Or they just don't want to give up a huge chunk of profits. I'm not saying that there aren't those owner financed investors out there that will take discounts, I'm just saying that I'd rather work smarter and send out one email to 5,000 asset managers and have deals come in versus the other way. 

Most owner financed investors need to structure their deals appropriately to maximize return. Often times a 80/15/5 loan gets a higher price and leads to more profit. You get 5% down, carry a 1st of 80% and a 2nd at 15% LTV. You'll get a much nicer offer on the first lien if you choose to sell it and you got 5% down (plus any other closing costs) and you've got a 2nd lien for cashflow. If you don't sell the 1st lien off, its a lot easier for the borrower to get refinanced out into a conventional loan in 24 months at only a 80% or less LTV (depending on appreciation and market values).

I think we can agree on one thing though....no matter which route you go, you have to treat it like a business.  If anyone continues to state that buying direct from banks can't be done, then they need to fly their happy rear into Austin and I'll be glad to prove them otherwise!  Or I can post photos of the assets we've closed over the past 7 years!  

Respectfully in disagreement,

Scott "the Note Guy" Carson

[Dion DePaoli]

Disagreement noted @Scott Carson. The inference you are making based on HUD loans is simply improper. Your presumption that the balance of $170k is at an LTV higher than 100% does not hold true. The sale describes HUD loans which statistically has LTV's less than 100% within its portfolio. So the $170k tracks back closer to the real property market (which it should) bring the loans in line with $190k to $200k. Simply look up the median home price in the US - just because these are NPN's doesn't mean these assets would not have affinity to that group.

As far as the bank idea.  I will stick to my original statement.  There is more and more regulation coming down.  Mandates to banks and savings & loans for requirements to servicing and disposition.   A barrier that most one off loan investors have zero clue about.

I will admit I speed read your response but I didn't see where addressed any idea of pricing.  So you spent all day calling banks.  Great.  Does that mean a trade is imminent?  No.  Does it mean bank is going to take a vulture bid from a street level investor on their assets without any other market insight?  No.  

If a street level investor called me and started talking institutional pricing, I would listen.  They also wouldn't come off as street level.  However, as I stated before, most investors including most of the folks in that room in the video are looking for returns much higher than what they are typically going to find being allowed via an institutional sale.  This same notion was just echoed at the MBA conference in NYC and by the Fannie/Freddie trades that just took place.  

Those are the barriers to trade for a newbie.  I rarely see a newbie capable of conquering them.  

Now can they call some of the investment funds that took these large portfolios on which do from time to time sell down the street?  Yes.  Pricing does relax a little bit but I think most new street level investors don't understand the price levels they need to have to compete.  A perfect example of that is newbies always wanting the secret place to buy a loan with no competition.  Institutional sellers have mandates and wherewithal to obtain good market feedback prior to sale. That is the way it is and has been for the last 8 years with distressed loans.

The tid bit you have on seller financed deals seems to miss the point while supporting it.  Seller financed deals often times have simple reasons for simple discounts.  That's why it fits better for newbies.  That also does not mean only SF deals it just means don't go learn how to play hockey in the NHL.  

Either way.  Good banter.

[Scott Carson]

@Dion DePaoli

In response to your response :) (I do love the banter)! Actually our day of calling resulted in over a dozen tapes or lists of deals. We also received numerous mini bulk pools in of 10 assets or less. Quite a few deals have closed from this along with asset lists being sent over to us. As far as your comment about a vulture offering, most of these banks have already written the debt off and are still upside down on UPB vs FMV and are glad to move these deals because they aren't the typical $125K+ assets that most banks and other larger hedgefunds are going after, which does drive the price up into the 70% of FMV of value.

Most investors botch the calls because they don't know what to say or what not to say. Or they are too broad (I buy REO and Notes) versus just focusing on the NPN side of things on the special assets or secondary marketing department sides of the banks.

Every note investor needs to have a servicing company and NOT self service.  I totally agree that things are changing and that people need to be more educated versus them just trying to get out and do it on their own and getting "checked" (hockey reference) into the boards and losing their teach (or money).

Vulture....I haven't been called that one before.  Devil, ******* (my middle initial is A), Satan, Shark, Bottom feeder...

I'll take my higher returns and the deals we see and stay profitable on what "the big boys" don't want to waste their time with.

[Bob E.]

Update:  Someone pinged me on this today and it brought back old memories and I wanted to update everyone on where we are with this program.

Two years ago we were just resolving our first Non Performing asset, Monday we will resolve, if all goes well, our last one when we process a foreclosure in FL.

We made all our money back several times over with Non Performing Notes we bought a early on, I still feel that without some kind of mentorship program we never would have started.  For the last 18 months or so there have been very few "deals" in my opinion so we have changed our approach and we are flipping and occasionally reselling with owner financing.  The non performing side will be great  if  when we have to handle a foreclosure but we would rather be creating our own notes and, occasionally, selling performing ones to recapitalize.

We are still actively engaged with Eddie Speed and Note School, learning, changing, adapting on the performing side.  We did upgrade to his middle package so we would be in on both performing and non performing so I may be biased, but I think this program has expanded our thinking and allowed us to do more deals and be more profitable.

Personal Note:  Our most profitable deal to date closed two weeks ago while we were in the Midwest meeting with potential partners,  It was a non performing note that spent almost 2 years working its way through the IL court system, we were all in for about 25k and netted 60k at closing.  Wish we could still find deals like that....