All Forum Posts by: Eric N.

Quote from @Khalid Bryan:

Hey, great question! First, let me say I’m not a lender or mortgage professional—I’m a real estate broker associate based in Miami, Florida. That said, I did some research on this topic because I found it really interesting, and I was excited to dig into the answer. Here’s what I learned:

If you want to offer seller financing for more than three properties per year to owner-occupants, Dodd-Frank regulations do kick in. The law imposes specific rules to protect buyers, and here’s how you can stay compliant:

1. Understand the Rules

• If you’re financing to consumers who will live in the property, you’re required to follow Dodd-Frank guidelines. These include:

• No balloon payments.

• Verifying the buyer’s ability to repay (documenting their income is key).

• Offering fair and reasonable terms that aren’t predatory.

However, if you’re selling to investors or non-owner occupants, these rules generally don’t apply.

2. Use a Licensed Mortgage Loan Originator (MLO)

• To finance more than three owner-occupied properties per year, you’ll need to work with an MLO. They’ll handle the underwriting and verify the buyer’s ability to repay, keeping you compliant with federal regulations.

3. Document Everything

• It’s important to keep detailed records of each transaction: how many deals you’ve done, borrower qualifications, loan terms, etc. This ensures you’re protected in case of an audit or any legal questions.

4. Consult a Real Estate Attorney

• This step is critical! A knowledgeable attorney can help you set up compliant contracts, review your processes, and ensure you’re staying on the right side of the law.

5. Consider Structuring Deals for Investors

• If you want to avoid Dodd-Frank requirements entirely, you could focus on selling to investors or structuring deals for non-owner occupants. These buyers aren’t subject to the same consumer protection laws, so you’d have more flexibility with your terms.

This topic was a great reminder of how creative financing can open up incredible opportunities for both buyers and sellers. I’m excited to keep exploring seller financing strategies myself and help my clients do the same. Hope this helps, and best of luck with your deals!

Thank you, Khalid.

Marty Boardman has classes where he teaches how to do pre-foreclosures and foreclosures. You can try it free for one week. https://www.instagram.com/fixandfliphub/ 

Quote from @Duncan Forbes:

Thank you all @Eric N. @Jay Hinrichs @Jonathan Greene @Nicholas L.

you have all helped me to really consider what type of challenge / path I want to get into, and all this information is excellent. I look at foreclosures.com

Out of the 3 stages I am definitely not ready for an auction

preclosure / short sales:

- I need to research how to take over a deed / title

- need to prepare how to do door knocking (I have a sales background and feel confident in dealing with an emotional conversation about someone’s home) 

- there IS a window of like 4 weeks that I need to prepare for (have my finances in order) to then bid before it goes to auction?

- question: so NO real estate agent in this piece? Just an attorney? 

For Actual Foreclosures:

- the negotiation will be harder to get a certain price? 
- do I NEED real estate agent here in this phase then? 

I know I am really condensing ALOT of things….but if you guys could help give 3 major pointers in the pre foreclosure and foreclosure part  on this for someone who HAS real estate already (I have a condo in Mexico). Thank you so much @Eric N. @Jonathan Greene @Jay Hinrichs @Nicholas L.

Note: Each state has their own way of handling and regulating foreclosures, and as someone who is not specializing in foreclosures I can give you only general ideas and information. 

Before the house is sold on auction, the owner of the house is in the position to reinstate the loan or pay it off and thus retain a title. They are still rightful owners of the property until court rule transfers the title to new owner. As such, you get under purchase contract with the home owner and if you successfully close the bank will get their lien paid off, owner will get whatever you promised him on top of it and you will get a title.  The process would be different if it was a short sale, whereby someone representing home owner would have to deal with bank to get the lien released for less than what is owed by the borrower. 

Most importantly, whether you do it by directly engaging the seller or hire someone (agent, broker, foreclosure consultant and etc.), you must research the local laws and regulations, which are State specific. And when it comes to LEGAL subjects you don't want to go by what Jay, Eric, Nicholas and others on BP tell you. As Jay suggested, you should pay for two hours of a good attorney from your state, who is well versed in foreclosure law, and ask them to walk you through and explain you the entire process. 

Quote from @Jay Hinrichs:

Quote from @Eric N.:

Quote from @Jay Hinrichs:

Quote from @Eric N.:

Quote from @Jay Hinrichs:

Quote from @Duncan Forbes:

Quote from @Ken M.:

Foreclosures usually have a lot of "hair" that goes with them. Like deferred maintenance, (bad roof, worn out water heater/AC Unit, warped flooring, water damage) etc, unpaid utilities, unpaid taxes, a second loan, unpaid HOA fees, a bad pool, bad reputation, sometimes squatters, sometimes they were drug houses, and so on. The problem is that you don't get an opportunity to do an inspection before you buy.

If you buy pre-sale from the owner, you have arrears to bring current, getting the owner to move after you have solved their problem and taken the pressure off, along with the previously listed concerns. You can wind up with title issues if you are not careful. Make sure you buy it low enough to make it worth the trouble. If you buy it too low, in some jurisdictions they will call it "equity skimming" which is illegal.

It can be very profitable, I've done many, but you really need to know what you are doing.

 Thank you so much! I don't plan on going on the actual auctions :/.    What I am starting to lean towards is "Preforeclosures" and "Foreclosures," not the in between part 

how are you going to find these pre foreclosures ??  are there services in NY that provide this info..  Not sure if Property Radar is in NY yet.. but they are by far the best service to subscribe to for distressed and pre foreclosure notifications. A few thoughts on the subject from someone who made a living doing this until the laws changed on the West Coast.
Most folks in foreclosure go into deep denial. Or they have it figured out and are going to cure via paying or modification etc etc.  So like with everything foreclosure the funnel is wide in the beginning and by the time you get down to ones you can actually buy its quite narrow.

The other thing one needs to understand is the laws in the state about this acitivty of talking to Owner Occ's in foreclosure some states you need to be a licensed Foreclosure agent. And that is a licensed MLO  Lawyer or in some instances a RE broker.. Not just a non licensed investor.  So need to check those laws.

Once you think there is no law pertaining to the activity then the work begins this is a belly to belly business your not going to do this on E mail and text messaging .. you will need to be able to sit down with these folks or it will never happen.

Also in my experience it was a waste of time to send letters or any kind of marketing. ONLY knock on doors and ONLY within 10 days of the auction. that is when folks are getting a reality check that they must do something. Then you have to see in your state your right to cure laws
some states like the ones we worked in Or and WA you could cure right up to 5 minutes before the sale was going to be cried. Other states you must cure within 5 days of the sale and the lender can allow it or they can refuse.  U have to be able to run your own title work since you will be looking at 20 to 30 props to narrow down to one so not feasible to pay for title on them all.  While this is a way to buy property for most they burn out in the first 6 months since its so darn hard to do it.. I mean we tracked a 2 mil population metro and were able to buy 1 to 3 a month with 6 full time folks doing nothing but the tracking and door knocking. do it yourself going to be a challenge but hey give it a try see how it works.

Very valuable insights, Jay. I was referring to Owner Occupied foreclosures in particular, when warning to stay away from foreclosures in certain states.

I agree that door knocking would be the best way to get these deals down. I also agree that funnel is big and wide when foreclosures start, but only few properties end up being sold. People reinstate the loans and do loan modifications all the time. That's why I would target them a week before foreclosure sale and put all effort on homes that were all but certain to go off the hammer. 

But are you sure that it's impossible to get done remotely, by phone? Did you ever try it?

I only bought props pre foreclosure with significant equity.  And most were just cure it and buy sub to.. if you have no real equity you have no exit without writing a check.  I like to make money on real estate not just buy it to say I own it. And make a few bucks a month as a landlord .. Not many landlords buy their rentals this way. although with all the guru training many are trying and we will see how it all works out.

it takes sales skill to talk people into deeding you their home.. this is a highly charged emotional situation.. And it takes belly to belly skills.. I am sure some will do it with phone and e mail etc.. but I suspect they miss the best deals.
Just like top wholesalers they have buying agents when a lead comes in that buying agent is over to the house and meeting with the folks ASAP so they can lock it up.. if they are non owner occ then yes this is different but now your talking about investors as sellers different mind set .

 You did the right way. Going direct to seller in pre-foreclosure and snatching it before auction sale. Once it's gone to auction forget it. It will be bloated up by bid wars and sold for way more that what it's worth. Makes banks happy, but not what you want if you are concerned about your bottom line. 

My personal experience tells me home owners in foreclosure are in complete denial and will try their best to dig themselves in as deep as they can. There is no point in talking to them when they are just hit with foreclosure notice. Most will curse you and send you to hell. You better reach out to them days before the auction and give them a simple choice: allow foreclosure sale  to occur or allow you to take it over from them, with equity justifying your purchase. 

banks are only owed what their note calls for any bid up at auction above what the bank is owed goes to the next Lien on title or if no other liens it goes to the owner of the house who lost it.

 That's correct. If you can get the home with good chunk of equity before it goes to auction, you could pay off the loan and own that home for what the seller agreed to accept. This would also save home owner from foreclosure. 

Quote from @Jay Hinrichs:

Quote from @Eric N.:

Quote from @Jay Hinrichs:

Quote from @Duncan Forbes:

Quote from @Ken M.:

Foreclosures usually have a lot of "hair" that goes with them. Like deferred maintenance, (bad roof, worn out water heater/AC Unit, warped flooring, water damage) etc, unpaid utilities, unpaid taxes, a second loan, unpaid HOA fees, a bad pool, bad reputation, sometimes squatters, sometimes they were drug houses, and so on. The problem is that you don't get an opportunity to do an inspection before you buy.

If you buy pre-sale from the owner, you have arrears to bring current, getting the owner to move after you have solved their problem and taken the pressure off, along with the previously listed concerns. You can wind up with title issues if you are not careful. Make sure you buy it low enough to make it worth the trouble. If you buy it too low, in some jurisdictions they will call it "equity skimming" which is illegal.

It can be very profitable, I've done many, but you really need to know what you are doing.

 Thank you so much! I don't plan on going on the actual auctions :/.    What I am starting to lean towards is "Preforeclosures" and "Foreclosures," not the in between part 

how are you going to find these pre foreclosures ??  are there services in NY that provide this info..  Not sure if Property Radar is in NY yet.. but they are by far the best service to subscribe to for distressed and pre foreclosure notifications. A few thoughts on the subject from someone who made a living doing this until the laws changed on the West Coast.
Most folks in foreclosure go into deep denial. Or they have it figured out and are going to cure via paying or modification etc etc.  So like with everything foreclosure the funnel is wide in the beginning and by the time you get down to ones you can actually buy its quite narrow.

The other thing one needs to understand is the laws in the state about this acitivty of talking to Owner Occ's in foreclosure some states you need to be a licensed Foreclosure agent. And that is a licensed MLO  Lawyer or in some instances a RE broker.. Not just a non licensed investor.  So need to check those laws.

Once you think there is no law pertaining to the activity then the work begins this is a belly to belly business your not going to do this on E mail and text messaging .. you will need to be able to sit down with these folks or it will never happen.

Also in my experience it was a waste of time to send letters or any kind of marketing. ONLY knock on doors and ONLY within 10 days of the auction. that is when folks are getting a reality check that they must do something. Then you have to see in your state your right to cure laws
some states like the ones we worked in Or and WA you could cure right up to 5 minutes before the sale was going to be cried. Other states you must cure within 5 days of the sale and the lender can allow it or they can refuse.  U have to be able to run your own title work since you will be looking at 20 to 30 props to narrow down to one so not feasible to pay for title on them all.  While this is a way to buy property for most they burn out in the first 6 months since its so darn hard to do it.. I mean we tracked a 2 mil population metro and were able to buy 1 to 3 a month with 6 full time folks doing nothing but the tracking and door knocking. do it yourself going to be a challenge but hey give it a try see how it works.

Very valuable insights, Jay. I was referring to Owner Occupied foreclosures in particular, when warning to stay away from foreclosures in certain states.

I agree that door knocking would be the best way to get these deals down. I also agree that funnel is big and wide when foreclosures start, but only few properties end up being sold. People reinstate the loans and do loan modifications all the time. That's why I would target them a week before foreclosure sale and put all effort on homes that were all but certain to go off the hammer. 

But are you sure that it's impossible to get done remotely, by phone? Did you ever try it?

I only bought props pre foreclosure with significant equity.  And most were just cure it and buy sub to.. if you have no real equity you have no exit without writing a check.  I like to make money on real estate not just buy it to say I own it. And make a few bucks a month as a landlord .. Not many landlords buy their rentals this way. although with all the guru training many are trying and we will see how it all works out.

it takes sales skill to talk people into deeding you their home.. this is a highly charged emotional situation.. And it takes belly to belly skills.. I am sure some will do it with phone and e mail etc.. but I suspect they miss the best deals.
Just like top wholesalers they have buying agents when a lead comes in that buying agent is over to the house and meeting with the folks ASAP so they can lock it up.. if they are non owner occ then yes this is different but now your talking about investors as sellers different mind set .

 You did the right way. Going direct to seller in pre-foreclosure and snatching it before auction sale. Once it's gone to auction forget it. It will be bloated up by bid wars and sold for way more that what it's worth. Makes banks happy, but not what you want if you are concerned about your bottom line. 

My personal experience tells me home owners in foreclosure are in complete denial and will try their best to dig themselves in as deep as they can. There is no point in talking to them when they are just hit with foreclosure notice. Most will curse you and send you to hell. You better reach out to them days before the auction and give them a simple choice: allow foreclosure sale  to occur or allow you to take it over from them, with equity justifying your purchase. 

Quote from @Jay Hinrichs:

Quote from @Duncan Forbes:

Quote from @Ken M.:

Foreclosures usually have a lot of "hair" that goes with them. Like deferred maintenance, (bad roof, worn out water heater/AC Unit, warped flooring, water damage) etc, unpaid utilities, unpaid taxes, a second loan, unpaid HOA fees, a bad pool, bad reputation, sometimes squatters, sometimes they were drug houses, and so on. The problem is that you don't get an opportunity to do an inspection before you buy.

If you buy pre-sale from the owner, you have arrears to bring current, getting the owner to move after you have solved their problem and taken the pressure off, along with the previously listed concerns. You can wind up with title issues if you are not careful. Make sure you buy it low enough to make it worth the trouble. If you buy it too low, in some jurisdictions they will call it "equity skimming" which is illegal.

It can be very profitable, I've done many, but you really need to know what you are doing.

 Thank you so much! I don't plan on going on the actual auctions :/.    What I am starting to lean towards is "Preforeclosures" and "Foreclosures," not the in between part 

how are you going to find these pre foreclosures ??  are there services in NY that provide this info..  Not sure if Property Radar is in NY yet.. but they are by far the best service to subscribe to for distressed and pre foreclosure notifications. A few thoughts on the subject from someone who made a living doing this until the laws changed on the West Coast.
Most folks in foreclosure go into deep denial. Or they have it figured out and are going to cure via paying or modification etc etc.  So like with everything foreclosure the funnel is wide in the beginning and by the time you get down to ones you can actually buy its quite narrow.

The other thing one needs to understand is the laws in the state about this acitivty of talking to Owner Occ's in foreclosure some states you need to be a licensed Foreclosure agent. And that is a licensed MLO  Lawyer or in some instances a RE broker.. Not just a non licensed investor.  So need to check those laws.

Once you think there is no law pertaining to the activity then the work begins this is a belly to belly business your not going to do this on E mail and text messaging .. you will need to be able to sit down with these folks or it will never happen.

Also in my experience it was a waste of time to send letters or any kind of marketing. ONLY knock on doors and ONLY within 10 days of the auction. that is when folks are getting a reality check that they must do something. Then you have to see in your state your right to cure laws
some states like the ones we worked in Or and WA you could cure right up to 5 minutes before the sale was going to be cried. Other states you must cure within 5 days of the sale and the lender can allow it or they can refuse.  U have to be able to run your own title work since you will be looking at 20 to 30 props to narrow down to one so not feasible to pay for title on them all.  While this is a way to buy property for most they burn out in the first 6 months since its so darn hard to do it.. I mean we tracked a 2 mil population metro and were able to buy 1 to 3 a month with 6 full time folks doing nothing but the tracking and door knocking. do it yourself going to be a challenge but hey give it a try see how it works.

Very valuable insights, Jay. I was referring to Owner Occupied foreclosures in particular, when warning to stay away from foreclosures in certain states.

I agree that door knocking would be the best way to get these deals down. I also agree that funnel is big and wide when foreclosures start, but only few properties end up being sold. People reinstate the loans and do loan modifications all the time. That's why I would target them a week before foreclosure sale and put all effort on homes that were all but certain to go off the hammer. 

But are you sure that it's impossible to get done remotely, by phone? Did you ever try it?

Quote from @Jay Hinrichs:

IMHO, buying foreclosed homes in auctions is not for newbies. As noted above, a lot of buyers in those auctions are the same people who buy dozens if not hundreds of houses in auctions, sometimes all over the state or multiple states. The amount they end up paying is already high and leaves little to no margin of profit for someone who is not doing volume operations. On top of that you have idiots who engage in bid wars and pay retail for a house that has never been inspected (and those are the bidders who will cry foul when they discover totally trashed and destroyed house that will require a full gut job to rehab). 

I believe the best bet to get a good deal is to target pre-foreclosures with good chunk of equity. The reason you want to hit the owner just before the sale is that by that point he lost any hope or chance of redeeming the house. If he could reinstate the loan he would already. So, you make an offer to purchase and get them out of foreclosure sale. The pitfall , of course, is predatory regulations passed since last housing crisis under false pretext of saving or helping home owners to avoid foreclosure. There is no chance home owner can mediate, apply for loan modification (which is a predatory disaster in itself) , reinstate or retain the home two days before auction, when they have zero funds and ability to do it. They had 270+ days to take action, but they didn't. What makes anyone think they would be able to save themselves a day before auction? But Lo and Behold, you will have state regulators and prosecutors, coming after you, painting you as a Devil incarnate to make some headlines and parade themselves as protectors of poor home owners, who are set up and guaranteed to lose their homes when they have no options to reinstate the loan a day before auction. 
So, you have to thread waters carefully and check the state laws and regulations before touching any pre-foreclosure house. In some states you just stay away from those as plague. You should target states that have more common sense and people oriented government and regulations (hint-hint: stay AWAY from Dem controlled jurisdictions. Even if only one branch of gov is Dem controlled , such as legislative, executive or judicial, just stay away from those like bubonic plague. 

Quote from @Duncan Forbes:

@Eric N. it looks like it’s good! See picture above! 

 All states have foreclosure sales. Banks regularly foreclose on properties and sell them on auctions. Restrictions are placed to prevent potential buyers from acquiring those properties before they are disposed of by banks. Check to see if you can market to people on active foreclosures and make an offer to buy their properties. 

Quote from @Jay Hinrichs:

Quote from @Eric N.:

Quote from @Jay Hinrichs:

Quote from @Eric N.:

I have done further research into the topic. The biggest hurdle in the Scott's model is the Deed for Contract. When complaints were filed due to major issues raised, some states prosecuted the companies for depriving buyers of ownership rights and outright deeded the houses to buyers (regardless of breach of contract and default on loans), with huge restitutions to be paid to state and end buyers. It should be noted that the cases were prosecuted against companies that owned and sold thousands of properties nationwide, not against small time operators, but anyone who attempts to follow the model is better off hiring a well versed in the subject matter attorney and be aware of state specific restrictions (like in NY, Wisconsin and others) on Deed for Contract agreements. 

my last post on this subject.

I ran into a small company  6 folks involved  boy friend girl friends  they read rich dad book then went to a guru presentation and learned about wrapping notes which of course is the bizz model your talking about. IN these cases they took title sub to from the sellers .. ( but in the case your describing its the same thing you have a senior note as most investors will want security) they then sold on contract to buyers with small down payments and credit challenged or income challenged and they did about 30 of these in a year or so.. worked hard at it..

I run into them as they were looking for some sort of funding and I had my HML company in Portland going at the time.. WE dive into it and its a mess.. What starts out as a delta ( wrapping the underlying and taking in the difference) started to break down .. First one defaulted and keep in mind they were maybe 8k a month positive.. average payment was 1.2 on the underlying sub to note.  Since these were recorded C for deeds full foreclosures had to be done to get the folks out.. then the second one defaults. then the third.. 10 to 20% default rate is the norm with this type of deal.. next thing you know they cant pay the underlying and the sellers are screaming like stuck pigs.. ( the original seller) These guys had no money to prosecute the foreclosures so the people they sold to just squatted.. . Now the senior lenders start filing foreclose against the original sellers.. the Original sellers start filing complaints with the AG. And filing civil suits.. it was a mess.. I paid off about 10 of them for them and took them over as those had enough equity to make it worth my time. But it put them out of business big time and they were lucky nothing criminal was brought against them.

So if one is going to stack up senior loans and wrap them with owners who cant get mortgages IE sub prime the person doing this better have a boat load of reserves to pay off the underlying when the deals go belly up.. that's the side of the coin that the guru is not going to talk about.

 I am not too concerned with "gurus" and what they do. If you think of it, all of our society is full of scam and hypocrisy. Almost any business you look at has its own gurus and scammers. Where should I start? Big pharma? Banking industry? Defense contractors gobbling up hundreds of billions of dollars in federal contracts while making civilian aircraft that falls off the skies, because they want to cut corners and squeeze every penny they can out of production? Show me one business endeavor that doesn't have it's own "gurus" and snake oil salesmen and I will say it's a better endeavor than the real estate business. Human nature is fallible and any business that exists out there is run by humans. And at the end of the day it's not up to me to fight the windmills and the way real world works. I just want to focus on what I do and whether I can legally employ one or another approach/strategy, to test its viability. If it's LEGAL (i.e. no civil or criminal penalties for it on the books) and it WORKS (meaning, it's profitable) then that's all that truly matters to me. 

The Sub2 model you describe is not similar to what Scott does. Even though it's about wrapping notes, in Sub2 you have average Joe Six Packs, the homeowner, who gets hit with foreclosure because of your miscalculation. In Scott's model, you are the one who will be foreclosed and deeded out by investor if you default on your PML. Investor then can take that property from you and either put it on MLS to get his money back or try to sell to whoever he wants to. If he overestimated the value of property and can't recover his loss then it's none of your concern. Whereas, you could be on the AG's hook for screwing John Doe the homeowner out of his sole possession in his life.

But to sum up your truly relevant point, all you are really saying is that there is high default risk when you deal with people who have poor credit history or some other financial issues. And you couldn't be more right. You are 100% correct in your assumption. Any underwriter will agree with you and I am not going to argue against obvious. But this is exact same risk anyone who is in rental business has to take, it's not different from it. All those people you perceive as broke ,financially illiterate or irresponsible live somewhere unless they are homeless. Most if not all of them rent. Rental properties are owned by landlords. So, it's not like Scott had devised some extra default prone strategy to troll gullible fools, while making all his money teaching noobs to self-destruct. It's more like any other long term holding strategy, with less out of pocket costs, quicker financing of the RE purchase and less responsibilities than a landlord has. By all measures this strategy is far superior to what all the BRRR/DSCR/Poor Dad Rich Dad folk do. The only question is: is this LEGAL? Can you do this LAWFULLY, without running into $20 Mil fines or 5 year prison sentences? And I think it is, with certain caveats  and in certain states. 

So, in the end I would caution anyone who wants to try it to hire a real good counsel, a Dodd Frank/Safe Act/TLA and CFPB versed attorney,  and thread the waters accordingly. I know I would if I wanted to try it. 

for sure its legal as long as you use an MLO to do the loan and adhere to dodd frank rules for qualifying the borrowers ability to pay..  although keep in mind this narrows the field of buyers quite a bit..  Anyway have a nice holiday week.. 

 Thanks, you too. Merry Christmas. 

Quote from @Jay Hinrichs:

Quote from @Eric N.:

I have done further research into the topic. The biggest hurdle in the Scott's model is the Deed for Contract. When complaints were filed due to major issues raised, some states prosecuted the companies for depriving buyers of ownership rights and outright deeded the houses to buyers (regardless of breach of contract and default on loans), with huge restitutions to be paid to state and end buyers. It should be noted that the cases were prosecuted against companies that owned and sold thousands of properties nationwide, not against small time operators, but anyone who attempts to follow the model is better off hiring a well versed in the subject matter attorney and be aware of state specific restrictions (like in NY, Wisconsin and others) on Deed for Contract agreements. 

my last post on this subject.

I ran into a small company  6 folks involved  boy friend girl friends  they read rich dad book then went to a guru presentation and learned about wrapping notes which of course is the bizz model your talking about. IN these cases they took title sub to from the sellers .. ( but in the case your describing its the same thing you have a senior note as most investors will want security) they then sold on contract to buyers with small down payments and credit challenged or income challenged and they did about 30 of these in a year or so.. worked hard at it..

I run into them as they were looking for some sort of funding and I had my HML company in Portland going at the time.. WE dive into it and its a mess.. What starts out as a delta ( wrapping the underlying and taking in the difference) started to break down .. First one defaulted and keep in mind they were maybe 8k a month positive.. average payment was 1.2 on the underlying sub to note.  Since these were recorded C for deeds full foreclosures had to be done to get the folks out.. then the second one defaults. then the third.. 10 to 20% default rate is the norm with this type of deal.. next thing you know they cant pay the underlying and the sellers are screaming like stuck pigs.. ( the original seller) These guys had no money to prosecute the foreclosures so the people they sold to just squatted.. . Now the senior lenders start filing foreclose against the original sellers.. the Original sellers start filing complaints with the AG. And filing civil suits.. it was a mess.. I paid off about 10 of them for them and took them over as those had enough equity to make it worth my time. But it put them out of business big time and they were lucky nothing criminal was brought against them.

So if one is going to stack up senior loans and wrap them with owners who cant get mortgages IE sub prime the person doing this better have a boat load of reserves to pay off the underlying when the deals go belly up.. that's the side of the coin that the guru is not going to talk about.

 I am not too concerned with "gurus" and what they do. If you think of it, all of our society is full of scam and hypocrisy. Almost any business you look at has its own gurus and scammers. Where should I start? Big pharma? Banking industry? Defense contractors gobbling up hundreds of billions of dollars in federal contracts while making civilian aircraft that falls off the skies, because they want to cut corners and squeeze every penny they can out of production? Show me one business endeavor that doesn't have it's own "gurus" and snake oil salesmen and I will say it's a better endeavor than the real estate business. Human nature is fallible and any business that exists out there is run by humans. And at the end of the day it's not up to me to fight the windmills and the way real world works. I just want to focus on what I do and whether I can legally employ one or another approach/strategy, to test its viability. If it's LEGAL (i.e. no civil or criminal penalties for it on the books) and it WORKS (meaning, it's profitable) then that's all that truly matters to me. 

The Sub2 model you describe is not similar to what Scott does. Even though it's about wrapping notes, in Sub2 you have average Joe Six Packs, the homeowner, who gets hit with foreclosure because of your miscalculation. In Scott's model, you are the one who will be foreclosed and deeded out by investor if you default on your PML. Investor then can take that property from you and either put it on MLS to get his money back or try to sell to whoever he wants to. If he overestimated the value of property and can't recover his loss then it's none of your concern. Whereas, you could be on the AG's hook for screwing John Doe the homeowner out of his sole possession in his life.

But to sum up your truly relevant point, all you are really saying is that there is high default risk when you deal with people who have poor credit history or some other financial issues. And you couldn't be more right. You are 100% correct in your assumption. Any underwriter will agree with you and I am not going to argue against obvious. But this is exact same risk anyone who is in rental business has to take, it's not different from it. All those people you perceive as broke ,financially illiterate or irresponsible live somewhere unless they are homeless. Most if not all of them rent. Rental properties are owned by landlords. So, it's not like Scott had devised some extra default prone strategy to troll gullible fools, while making all his money teaching noobs to self-destruct. It's more like any other long term holding strategy, with less out of pocket costs, quicker financing of the RE purchase and less responsibilities than a landlord has. By all measures this strategy is far superior to what all the BRRR/DSCR/Poor Dad Rich Dad folk do. The only question is: is this LEGAL? Can you do this LAWFULLY, without running into $20 Mil fines or 5 year prison sentences? And I think it is, with certain caveats  and in certain states. 

So, in the end I would caution anyone who wants to try it to hire a real good counsel, a Dodd Frank/Safe Act/TLA and CFPB versed attorney,  and thread the waters accordingly. I know I would if I wanted to try it.