In this episode of The Paper Trail Podcast, Chris recaps the recent Paper Trail Conference and the intentional decision to keep sessions unrecorded for candid discussions. He then dives into the latest foreclosure and REO data from ATTOM and USFN, comparing national trends with the 7e Investments portfolio. Foreclosure activity is climbing, REOs are surging, and certain markets like Florida, Nevada, and South Carolina are experiencing significant distress. Chris explains how these trends affect investors, why understanding local markets matters, and how note buyers should factor price declines and holding costs into bids. He also previews an upcoming 10-part series on bidding strategies for non-performing loans, highlighting the need to look beyond calculators and consider external factors. The episode closes with thoughts on rising non-performing loans in commercial and multifamily sectors and what these shifts mean for upcoming opportunities in distressed debt.

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

I am back.

We just finished the Paper Trail Conference.

Great time.

Thank everyone that went to the conference.

I think a lot of people walked away with ton of education which was my goal to make it more workshop based, workshop oriented for people to really dive in and learn.

It wasn't somebody up there just pitching a service or teaching you something to do so you could go buy their course.

It was relevant, informative and I hope everyone enjoyed it.

And for those that missed was not recorded intentionally.

We did not record it so people could speak their mind and really talk about things in an intimate setting, including people asking questions that they might not feel comfortable asking if they were being recorded.

So hope people enjoyed the conference.

And again, if you did not wait for some more information about next year where we are looking at having it at the same location in Chandler, Arizona around that same time of year.

Other news within 70 investments is we are in the process of closing our Regulation A offering.

What does that mean?

Because we get a lot of people asking us that question.

The SEC requires any regulation A offering gives them a three year window within that offering and we have come up upon that three year window.

Actually we slightly are over that window but prior to the three year mark we resubmitted for a new Regulation A offering which allows us to extend our current offering for up to six, six months.

We are closing this offering in November and what that means for investors is those who are investing in our Regulation A plus fund looking at those bonus shares, those are going to be going away.

Your investments will continue to the company is not going anywhere.

All we're doing is creating another path, another avenue to invest in the company in closing out the prior no different than other offerings, for example a multi family or self storage.

You know they close that offering to new investments and they continue to operate.

We are doing the same thing.

So recommend that you come on and join the webinar today.

What I want to talk about was an article I was reading and in Adam ATTOM & USFN United States foreclosure Network that target over towards Mortgage Point which the title of this was Keeping an Eye on REO Trends and within our portfolio.

We just finished our semiannual report and we're looking at our portfolio and how it has changed over the past six months in the past year.

A year ago within our portfolio we had two or three real estate owned properties as of June of This year we're up to 12.

So we 4x that number and that number actually has gone up slightly even since that time.

Why?

Well, what the data is showing is this data was from August that they took, which was from Adam.

There were 30, almost 36,000 foreclosures filings, which are defined as sending default notices that schedule auctions or, you know, complaints, which was down from July by just 1%, but up almost 20% from a year ago.

So a year ago there was roughly, you know, between 25 and 30,000.

Now we're up over 35,000.

And some of the facts that stick out with this is August was the sixth consecutive month that we've had year over year increases in activity in this third straight month with double digit growth.

So last three months they've had double digit growth in foreclosure.

Now that's essentially the quarter and it'll be interesting to see what happens the next quarter.

And things I look at, for example, when people say, okay, are you in a depression, you're in a recession, you know, they look at the past quarter, a few quarters, where are we headed on defaults?

And I always remind people the mortgage and real estate space is such a slow moving train.

What happens years ago is finally starting to take its toll, which is home prices increase significantly.

People took a lot of leverage and we are seeing price declines in many markets.

We've also seen taxes increase, we've also seen insurance increase.

So let's dive a little bit more into those numbers.

Through August, lenders took back 4,000 properties in August and again another 5% increase over July, but a 40% increase from a year ago.

Where is this happening?

This is important whether you're a real estate investor, a mortgage note investor looking to buy a home, because the more REOs there are, the more impact it may have on pricing.

Now you can assume that, you know this largest states typically have the greatest, which is the case got Texas leading the way, California, New York, Florida and Illinois.

Then if you look at MSAs Metropolitan Statistical Areas, you know, Chicago, New York, Houston, San Antonio and Dallas.

Now what are some of.

Now this is where properties were taken back.

What are some of the things that you're seeing?

And some of those metropolitan areas, very high tax, very high insurance.

So there's a theme to me, there is a theme that areas that have very high cost of ownership, you see more REOs because if you have newer investors coming in, they don't understand that cost or even people owning these assets.

Single, you know, owner occupied a lot of times.

When I bought my first house, I was way off on understanding the true cost own a home.

So it's something that considers.

Now let's talk about foreclosure rates.

Where are you seeing the greatest amount of foreclosures leading the way?

Nevada.

Which is interesting because I recall now over 15 years ago, during, you know, the great recession, Nevada and Florida were leading the way.

And I don't know if it was just because of the movie the Big Short where he goes out there and sees the exotic dancer and she talks about like four homes or whatever she had.

But I remember pricing in Nevada, pricing in Florida shot up and then got crushed on foreclosures.

Second or right around also increasing is, and this one surprised me a little bit, South Carolina.

Now South Carolina has, you know, a significant amount.

We haven't seen a lot of activity in South Carolina.

We've seen some defaults in Nevada, South Carolina, we have one foreclosure actually coming up in South Carolina, but it hasn't been rampant from what we've seen.

So that one kind of caught me off guard.

Another is Florida.

Definitely not surprising.

The southwest area of Florida and condos are getting crucified.

I just saw a $60 million tape come across my desk and 20% of these assets were in Port Charlotte, Cape Coral, Tampa area.

You know that west coast of Florida is getting crushed right now.

So if you own property in that area, my recommendation would be most likely to try and stick it out because they will recover.

But that area is taking the proverbial beating at this point in time.

The areas that they mention, Lakeland, Florida, Columbia, South Carolina, Chico, California, Cleveland, which not surprising, it's an area we no longer do business in because of the jurisdiction is just so challenging in Ocala, Florida, which we actually have a non performing loan in Ocala, which is more in the center part of the state.

Others areas that they talk about, Las Vegas, not surprising.

Jacksonville again, an area with tons of investors pouring in.

Houston and Orlando, Orlando of course, with a lot of short term rentals, maybe those getting hit hard.

So you're seeing some of these areas that are typically known to have the high, high boom, high bust.

So those areas again and they continue just going back to the states we talked about the REOs and now the states where foreclosure starts, it's the same.

Texas, Florida, California, New York, Illinois.

And it's interesting is in Illinois and New York, you know, those will get those will stack up very quickly because it takes a significant amount of time to foreclose in New York and Illinois.

Florida, very similar.

It takes a little bit of, you know, could take a year to foreclose in Florida, Texas and California.

Very short foreclosure timelines.

California, to the disbelief of many.

Quick foreclosure evictions.

Different story.

So why do I share this data?

What does it mean?

What can you do with it?

This data continues on that upward trend and none of us are, you know, no one can predict the future.

What I tend to do as an engineer is follow the trends and always go by the philosophy of everything reverts back to some type of mean.

And over the years pricing has increased significantly, interest rates have gone up and more people have gotten into the real estate space.

Whether it's to own a property or to own it, you know, own it to live in it or own it as an income producing property.

You know the numbers typically again, pricing goes up, people come in fomo.

Then you'll see several years later the defaults start to kick in and they'll continue to rise.

But what you're going to see is an increase in defaults, you're going to see an increase in foreclosures and you're going to see opportunity.

You'll see opportunity in foreclosure properties.

You'll see opportunity in people having to sell even though they have equity and their carrying costs are significant so it might be cheaper for them to sell it at a discount.

Be many different avenues.

And the other thing to consider, real estate is market driven.

What happens in Las Vegas may not happen in Boston, may not happen in Northern Virginia, but could happen in Miami, Florida.

Things to really focus on and understand.

So you want to follow where this is happening.

As a note investor, why this is important is I mentioned Port Charlotte.

We have two non performing loans I believe in Port Charlotte right now and that area is getting crushed.

When we bid on those, oh six months ago, we discounted the value of those properties because at that time we saw some writing on the wall.

If somebody did not discount the value of that property, they could have now overbid and could potentially either make little to no or lose money on that asset.

So as a non performing note investor, it's important to follow these trends to understand where home prices are headed in going.

Because you don't know.

But in Port Charlotte, if you bought a note today, and it takes a year to foreclose.

Where do you think pricing is going to be in a year will be higher, lower or the same?

If you expect to be higher and bid that way, you're just adding risk.

You get no benefit at all for predicting something to be higher.

If you predict nothing happens and prices stay the same, you're taking on risk.

Prices may go down if you include some price decline that you've already factored it in.

Just like stock markets and everyone else factor in whether there's going to be a rate cut or what's going to happen that can get factored into that pricing.

So if it happens, you're okay.

If it's less, you win.

If it's more, you lose.

So it's that balance of figuring out how much you can dictate and adjust with also still being able to win and buy assets that is part of the secret sauce of a note investor that nobody teaches you, everyone just tells you take a model, throw numbers at it and it spits out the information.

There is a lot more to it than that.

It's no different than owning real estate.

There's no different than anything you do where you're trying to predict something.

Because I say this all the time, the moment you put that information into your calculator, it is wrong.

So how to make sure that you're taking that into consideration?

And I'm going to be doing a 10 part series coming up that shows how to bid on non performing loans outside of just relying on a calculator because it's important for people to understand these external factors that are going on.

And again, 41% surge in real estate foreclosures, it's still low by any means, but it's starting to see that increase and it's starting to pick up steam.

Also when they talk about other factors, you know, consumer price index is 3% year over year, you know, for inflation, which I always joke that I never believe those numbers because I also think it's much higher than what they show.

So something to definitely think about, something to consider is where these are headed.

In the other article that actually posted this on LinkedIn that ties to this a little bit is also the number of defaults that aren't even yet in foreclosure.

It's just those that are trending now, 30, 60, 90 days that are moving the needle.

And this was more based off of commercial lending, which again very different than residential, but also just something to be very aware of.

And in that article, you know, from Q2 of last year that this year total MPLs increased by $10 billion which is 5% increase.

Commercial real estate was 5.3 non farm residential increased by 1.5 billion which is 4.7% increase.

Construction LPL were billion multifamily 2.8 billion.

So definitely it's not a tsunami that's coming but significant increases.

For example commercial NPLs increased by 102% as compared to with 13% of the entire industry.

Non residential increased by 53% construction NPLs increased by 63% construction NPL 63% construction loans increase that's not how many in default that's how many the percentage increased multifamily non performing loans listeners and increased by 426% 426% lot of those are resetting lot of in default.

What does all this why am I here?

Why am I talking?

If you're an NPL investor, opportunity is going to be knocking.

Be prepared.

You're going to have the opportunity to invest in defaulted debt.

So make sure you understand what it is you're doing.

You follow the metrics and you be patient.

Want to thank you for catching this episode of the Paper Trail podcast.

As always, make sure to leave us a review on your favorite listening station.

And if you want more information about 7e, go to 7einvestments.com where we have our fund links to our fund offering to our Regulation A+ offering at the SEC website.

We also are now originating DSCR and Residential Transition loans which you can learn about@7e investment lending.com.

so if you're an investor looking for a loan, whether you're refinancing that rental property or looking to acquire a rental property, we now within our our team have the capacity, capability and relationships with some correspondent lenders to do that.

So thank you for listening.

Take care and I'll catch you on the next one.