In this episode of the Paper Trail Podcast, host Chris shares insightful stories from his years of experience in note investing. He reflects on his journey since rebranding from the Good Deeds Note Investing Podcast and delves into two detailed case studies involving complex loan situations.

Chris discusses the importance of patience, direct involvement, and the value of understanding both consumer and investor laws. He also emphasizes the necessity of proactive management and communication with borrowers to protect investment interests. As always, listeners are encouraged to interact and learn more about investment opportunities with 7E Investments.

00:00 Introduction and Podcast Rebranding

00:29 Early Podcast Days and Lessons Learned

01:51 The Slow Pace of Note Investing

02:21 Case Study 1: Investor Loans and Extensions

09:24 Case Study 2: Builder Loans and Foreclosure

12:39 Dealing with Difficult Borrowers

18:08 Conclusion and Final Thoughts

Welcome back everybody to another episode of the Paper Trail podcast.

I am your host, Chris Sevany and today we are going to share some note stories.

As always, ever since I rebranded the podcast to the Paper Trail, I wanted to get back into providing investors case studies, feedback, information, kind of roll up the sleeves and get back to the basics.

Back when, man, years ago, I started the Good Deeds Note Investing podcast.

For those going way back in time and just made me think about how that podcast started and for those that don't know first few notes that I got involved in, myself and Gail Greenberg, who was another note investor.

I was working a W2 job and why I would leave the office every day.

There's always people you call and stuff.

And I started calling Gail and we both just started sharing our war stories and we came to the conclusion of these stories were good entertainment, good education, and we're like, we gotta record this somehow.

So we started recording the podcast in webinars and I remember our audio was awful, our video was awful.

Gail had her dogs barking in the background, which I know drove some people nuts as well.

But if you go back and listen to our original podcast, I was awful at it.

Gail probably admit that she could have improved as well, but she did much better than me.

And here I am today, got my morning coffee with me.

But still things can be improved upon and I just go back in time and share that because seven plus years a lot has changed, a lot can happen, but that's still a really short period of time.

So for people also just getting started in the space, realize it takes time.

The note business is slow in regards to working things out and takes time and patience.

What we're seeing today where trying to use time to your advantage as well as also still being patient.

And I want to share at least two situations, see how much time this takes.

Of some loans we bought and we bought a pool of 20 or 30 loans and some of those were investor loans where there was one borrower who had multiple properties and the borrower was like a month behind.

The loans were maturing and when we got the loans boarded, we were relying on the servicer.

But we've started to see a little bit more of us needing to get involved and especially on some of these loans that are investor related versus owner occupied because on the owner occupied loans you really want to be careful speaking with borrowers because most people don't know what you can and can't say.

For example, if the borrower is the call it the wife and she's the Only one on the loan.

And you pick up the phone and call and person's like, yeah, I'm her husband.

Just tell me and I'll relay the message.

Well, you can't, you know, you can't talk to them about the loan information or anything because they're not the borrower.

Unless you have specific written permission or verbal permission at that time, you can't talk to them.

A lot of people don't know that.

But on the investor side, it's different where, yes, you can have those conversations and typically don't have to deal with a lot of consumer law protections that are out there.

Still need to follow the laws, of course.

So with this borrower, the borrower wanted an extension because they wanted to sell the properties.

And we gave the borrower an extension for a nominal fee and also told them that they needed to keep the loan current.

The borrower had, we'll call it, five properties.

Three of them were rented, two of them were vacant, and they're trying to sell them.

We worked out an extension with the borrower contingent upon them still paying and kind of hinting that, hey, look, you got to lower the price on these.

You've had them listed for eight months and you drop them 500.

That's really not moving the needle.

And you're at a point now where the interest, if it goes in default, will accrue and chew up any equity that you have in those.

And unfortunately, a lot of real estate investors have egos that they think, oh, I get myself out of this and I'm still going to make money without understanding the downside risk.

And this instance downside risk is that equity get chewed up fast.

Then all of a sudden they're underwater.

Would they have to potentially be cutting me a check now?

Is it worth it From a monetary standpoint, but also from a mental standpoint, trying to deal with all of the issues that this person had because they had other things going on.

So we end up actually getting in contact with the borrower, and also we're trying to see if we could potentially refinance them and into a different type of loan program to lower their payments.

Unfortunately, the borrower just didn't qualify.

And the borrower was able to get a few of the properties under agreement, but the remainder, we had sent a demand letter to the borrower.

And one thing we see consistently is borrowers will procrastinate to the last second and then they blow up your phone.

So in this instance, we are communicative ahead of time with the borrower and we're just telling them, hey, look, the moment the demand expires, we're going to give you two options.

You either give us a deed in lieu on the properties and we will just walk away.

You don't owe us anything, your debt's resolved.

Or if you want to continue selling them, that's a business decision by you.

But just realize and understand that if you do that and there is a deficiency, meaning that you don't sell them for as much or we have to foreclose, you're still responsible for those costs.

Because in our business, time is money.

You want, you control the asset by having the loan.

But in this instance now you want to just fully control the asset and take over this asset.

So you know, these weren't homes that were in areas that don't see appreciation or are very challenging.

This was a nice middle class area.

So, you know, the borrower notes that they agree to this.

And then we draft all the paperwork, we send them the paperwork, they come back with a few comments which we adjust.

And the day before the deadline they're like, oh, I think I have these sold for cash.

Can you send me the payoffs?

And I'm like, sure, here are the payoffs.

But again, we just want to reiterate, if this paperwork's not signed tomorrow, the deal is off, we're foreclosing and you're going to be potentially stuck with the bill because several months have passed and the payoffs now are probably pretty close.

Well, definitely in a foreclosure sale, I mean there's still equity in the properties by about 10% which would get eaten up in now if he sold them anyways, Realtor fees and closing fees or at a foreclosure sale.

Finally gave him the ultimatum and stayed on top, stayed on him.

And this is the difference between getting a little bit more involved and the servicer.

Because the servicer.

And note this isn't to knock a servicer.

Servicer reps are managing probably 300 loans.

So you send them something, it might take them a few days.

They're not at your beck and call.

You're not their only client.

And when you're trying to get things done in an expedited manner, sometimes you got to step in.

And in this instance, because you know it's some valuable property that we're chasing, it's over a million dollars worth of property, we want to step in now if this was $100,000 property, yeah, we would probably let the servicer take care of it.

So what are we focus on some of those bigger assets.

But the point I'm trying to make is there comes certain times where if you need to be a little bit more forceful, you may need to step in and give that ultimatum.

And in this instance we did.

And I believe this would have probably won the dawn for another few months if we didn't myself and Larisa take that initiative.

So that's story one, story two, very similar, but these were non performing loans, very similar situation, handful of properties.

And this one was a builder in an area where we also have contractors and a builder who has these properties 90% complete.

And when I say 90% complete, the house pretty much done.

It needs landscaping, driveway and final touch paint up and touch up and punchless work in the house cabinets and literally it's like driveway landscaping.

And so you're probably 10 to 15,000 per property.

But when you multiply that by four borrowers in default, borrower's got about 30 other properties that they're trying to figure out what to do with.

Borrower asked for an extension again.

First time we gave it to them, but then the borrower again didn't make the payments.

So we start the foreclosure process and the borrower goes dark for a few months.

And we also had our attorney try and reaching out and our servicer to no avail.

So I pick up the phone, call the borrower, introduce myself and basically, hey, look, we got to come to some resolution and let's get on a call and let's figure out what we need to do.

And at first the borrower doesn't think like, oh, you're not willing to work with me, you won't give me an extension, you won't do this, do that, and we're like, no, we'll work with you, but at our terms.

And again, it comes down to a business decision by you in regards to what you want to do.

If you have the money to go finish these properties and sell them, then that's great, we get our money.

You make some money on these deals because there is some money in them and then we all walk away.

But my inkling is based off of the lack of production over the last several months is you're a little strapped for cash, you can't finish the projects, and interest is accruing on multiple projects that you have, not only ours, because we went online and saw you got some other properties that are in legal issues.

And what we're willing to do is just hand us over these properties, you walk away free and clear.

Or if you don't and you try and finish and don't and you come underwater, you know, you got other assets in other locations, they've got some multifamily properties that have equity, it could impact those.

So what is it that you want to do?

And within a span of three days of conversations, we are able to get a resolution which the attorneys and the servicer were over a month involved.

So there are these instances where you sometimes will need to step in.

Now there's also occasions where you attempt to step in and it just doesn't work.

And I'll share another example where have a borrower who's.

We're in the foreclosure process as well and the borrower reached out to us and not only did reach out to us, they first reach out to our asset manager who gave them a response that they did not like.

And then this individual went to our website and picked every name off our website and emailed every single person on our website basically asking, trying to think of a nice way to say telling us that we need to work with them.

They're very direct and very demanding, which is interesting for somebody who hasn't paid their mortgage in a year and a half while they have a renter in the property that they were living in and then moved out of the so when we got that email, we didn't respond the way the borrower thought we would.

We responded thank you for your email.

The individual you originally contacted is your point of contact on this.

The other people you have reached out to are not involved at all in regards to.

To the details of this loan.

And you must go back to that original point of contact which they did.

And we could not get anywhere with them because the borrower is using ChatGPT for everything.

And it's very easy to tell because different font sizes, the bold, the EM dashes and what they're trying to tell us makes zero sense at all.

And they are of the some opinion and not sure how they're figuring this out that like the essentially like proceeds from like the sale.

They believe even though when if the property sold at foreclosure our bid would be we want to.

We think the property will get sold at our.

Let me step back, use some rough numbers.

$700,000 property they owe us basically 650.

Our bid at auction is probably going to be somewhere in fives.

Okay, so we'll Definitely, we'll get paid, we'll make money.

When you look at, okay, if it bid full, take it back and then pay all the fees and holding costs.

Like, okay, what's the number differences?

For some reason, basically they believe that if somebody else bids above us.

So let's say somebody bid 600, we bid 550, even our payoff 650.

They're of the opinion that $50,000 above our bid goes to them, doesn't come to us is essentially what they're trying to tell us.

And we tried to explain it to them, but they're just not getting it because they're using ChatGPT.

So we did push this over back to our attorney and let our attorney kind of handle it and deal with them in the sense of hoping that they get an attorney.

Unfortunately, they didn't get an attorney.

So they're using ChatGPT now with our attorney.

And we're also now trying to pull back a little bit and limit communication because again, we're not.

It doesn't make sense for us to pay our attorney to talk to somebody, which is like talking to a wall, because they're of this CHAT GPT opinion on they know all the laws of the land.

So this one actually is still in progress and process and similar situation of in this instance.

Now, we're still trying to work something out with the borrower, but we also do have a foreclosure date coming up in the near future.

And by using that foreclosure date as, you know, some leverage in regards to working something out, something I strongly recommend if.

Long story short, as we wrap up this episode, if the borrower is allowed to drag things out, they typically will because they're living in a property or they're collecting money or they're not paying and they're living for free until they really get pushed.

What incentive do they have?

Many of them don't understand that the interest is accruing.

And yes, they are, one way or another, they're technically paying.

It's just like putting it on.

Buying something on a credit card and not having it paid off.

Pay it till another year.

People are like, oh, I just bought this and I don't have to pay for it till a year.

I mean, that's kind of how some of them think, but not also not understanding that, yeah, it's, you know, might be another year before you have to pay, but it's going to be a lot more expensive for you because of all the other fees and costs that are associated with it.

So, long story short, as we wrap up this episode of the Paper Trail podcast is if it's an important decision or something that is critical or time sensitive, you might want to talk to your service or attorney to see if it might be worth you reaching out as well.

This isn't for every single person or every single situation.

I just want to mention that what we have found sometimes, as always, this is why we manage our assets, this is why we have our own internal investor relations team, is nobody takes care of your product better than you and your team will.

Now, that's not to say that your vendors don't take care of your products.

They do.

And many of them do an excellent job.

But if you need something done, sometimes it's best for you just to pick up the ball and get it done.

So hope you enjoyed this episode of the Paper Trail Podcast.

As always, leave a Like on your favorite listening station.

And if you want more information about our investment opportunities, including our Regulation A Plus offering or our five 506C offerings, head over to 7e Investments.com.

thank you all for listening and I will catch you on the next one.

Take care.