E317 | Luxury, Lies & Livestock: How We Turned a $1M Non-Performer into a Record-Breaking Win

Get ready for a wild ride with the Papertrail podcast, where they spill the tea on the crazy world of mortgage note investing! This episode kicks off with a jaw-dropping story about a Las Vegas asset that was more than just a bad loan—it involved a borrower behind bars, chickens running amok in the house, and one of their biggest turnarounds ever! They dive into the nitty-gritty of turning a non-performing loan into a success, all while dealing with teenage squatters and a property that had seen better days. With a blend of humor and real talk, they explore the wild ups and downs of the investment game, proving that sometimes the messiest situations lead to the greatest rewards. So grab your snacks and get cozy, because this episode is packed with laughs, lessons, and a whole lot of unexpected twists!

The Papertrail podcast takes listeners on a wild ride through the ups and downs of mortgage note investing, spotlighting a particularly zany case involving a luxury home just outside Las Vegas. Chris Sevigny recounts the rollercoaster of acquiring a non-performing loan secured by a million-dollar property. Things go south when the borrower ends up in prison for running unlicensed restaurants, leaving a teenage squatter in charge of the house, which is now home to chickens – yes, chickens! This episode is a tale of unexpected twists, showcasing the challenges and hilarity that come with investing in distressed properties. Chris shares how they navigated the foreclosure process while working with the squatter, ultimately leading to a heartwarming resolution where the young girl managed to clean up the place before moving out. It’s a perfect blend of real estate education and laugh-out-loud storytelling, reminding us that sometimes, investing can lead to the most bizarre yet rewarding experiences.

Chris dives into the nitty-gritty of the acquisition process, explaining how they spotted this hidden gem on a single asset tape – a glorified spreadsheet of loans. With a rough idea of the property's value and a decent mortgage payoff, they thought they were in for a sweet deal. But as things unfolded, it became a tangled mess of bad luck and wild surprises. From the borrower’s unexpected prison term to the discovery of a teenage girl living alone in a big house, this episode is a testament to the unpredictability of mortgage note investing. The hosts keep the tone light-hearted while unpacking serious issues like tenant rights and property management, reminding listeners that every deal has its unique set of challenges and surprises waiting just around the corner.

After taking back the property, Chris and his team decided to renovate rather than sell it as-is, leading to a remarkable turnaround. With a strategic plan that focused on what potential buyers actually wanted – modern kitchens and updated bathrooms – the investment of $150,000 in renovations ultimately paid off big time. The property sold for nearly $2 million, breaking neighborhood records and proving that with the right approach and a little bit of faith in the process, even the messiest notes can yield the biggest rewards. This episode not only serves as a case study in savvy investing but also as an engaging story filled with unexpected characters and hilarious anecdotes. For anyone curious about the world of note investing, this episode is a must-listen, jam-packed with lessons, laughs, and inspiring success.

Episode Transcript

(00:44):
Welcome back to the Papertrailpodcast where we dive deep into real
stories, real returns and thereal weird stuff that happens when
you invest in mortgage notes.
I'm Chris Sevigny and today'sepisode going to go back, do a little
storytelling and talk about anasset in Las Vegas first position

(01:07):
loan that was non performing,secured by a million plus dollar
property and involved aborrower who ended up in prison,
a squatter that blew ourminds, chickens running loose inside
the house and one of ourbiggest turnarounds to date.

(01:29):
So sit back, relax and enjoythe story of the fun lessons we have
in the wonderful world ofmortgage note investing.
So first, let's rewind andtalk about the acquisition.
This was a single asset tape,which first time listening A tape

(01:54):
is a glorified spreadsheetwith loans.
This was the only one on the tape.
It was a single asset beingsold by a bank that was non performing
and it was a luxury home justoutside of Las Vegas that had sold
several years prior for about1.6 million and we had it valued

(02:15):
somewhere around 1.4 onmillion, so on paper looked like
a solid opportunity.
The UPB, and again, these arejust rough numbers was about 1.1
million with a payoff about1.3 million at the time.
So this asset did sell for 85,90 cents on a dollar which still

(02:39):
was about $300,000 from the payoff.
And Nevada is a state thatdoes not have a lengthy foreclosure
timeline, so still had verygood returns on paper.
As always, we did our duediligence and found the borrower
owned multiple restaurants andlike many business owners, clearly

(03:02):
been hit hard by Covid.
But from our review, it lookedlike he was bouncing back.
Payments were still paused,but the signs pointed towards the
borrower making a recovery.
Unfortunately, that justwasn't the case.
Turns out the borrower wasdealing with more than just financial

(03:24):
stress.
He ended up in prison.
Now why did he end up in prison?
We ended up finding out he wasin prison because he was operating
a lot of his restaurantswithout licenses.
Now, despite that twist, wewent through the foreclosure process.
The borrower had been veryquiet and very silent.

(03:49):
At one point in time he wantedto make a $25,000 down payment to
try and get the loan restated,but he could not provide proof he
had the 25,000 and then hetalked about borrowing the money.
And typically in thoseinstances it doesn't end well.
And it's one of those thingswhere the borrower can't afford the

(04:10):
property.
Do you take the 25,000, delaythe foreclosure and then still end
up foreclosing or do you tryand get the property back sooner
than later?
And typically we just want toget that property back faster in
these situations.
Now, again, we primarily wantto work with the borrowers, but in

(04:31):
this instance they were way inover their head.
And an example of this wasthere was a small lease on the property
from an Internet company thatthey thought was $3,000 a month.
The lease was actually $300 a month.
Give an idea.
And they were going to usethat 3,000 to basically pay the mortgage.

(04:55):
Now, despite all the twistsand turns that happened, we thought
we were going to have a greatexit on this because right before
the schedule foreclosure, theborrower who put the property on
the market for sale had abuyer for the home and we were open

(05:16):
to working with them andactually delayed the foreclosure
sale because it was scheduledon a Tuesday and the closing was
scheduled for that Thursday.
So we delayed the sale by amonth to let it go through.
And a lot of red flags.
The title company wasn't responding.
The borrower was at this pointin time, clearly upside down, didn't

(05:39):
know what the sales price ofthe house was.
Just a lot of misinformation.
But to delay it for a month,it was worth the risk to see if we
could possibly get this thing closed.
Unfortunately, title companyon buyer side went completely radio
silent.
No communication, no update,no urgency.

(06:00):
And despite our flexibility,the deal fell apart.
We had no choice but toproceed to foreclosure.
Now, interestingly enough, tothis day, still never heard from
that title company or whateveruntil the buyer at that point in

(06:20):
time came back around and wastrying to buy the property after
we had taken it back andrenovated, which we'll talk about
that right now, which isrolling into the next segment of
taking the property back.
Now, for those who listen tous, it's not too often that we take

(06:42):
properties back, but it doeshappen in non performing loans.
And one of the risks ininvesting in non performing loans
is you don't have interior access.
So it's like a mystery.
Growing up as a kid watchingthe Price is Right or some of these
other game shows, what'sbehind door number one, door number

(07:03):
two, door number three, that'slike Node Investing in this instance.
We had a little bit ofinformation because the property
was actually on the market forsale, but it was difficult even when
it was on the market for saleto try and get access.

(07:25):
And it turns out the Propertyhad not only been used for dogs,
but chickens.
Yes, chickens.
Now when they're showing theproperty, there was chickens that
they would typically keepoutside, but then they started bringing
them inside because it wassummertime and I guess getting hot.

(07:45):
And there are chickens runningaround the house.
Yes, I said that correctly.
Chickens running around the house.
So after foreclosure on houseslike this, one of the things we typically
do is find a real estate agent.
And we a lot of times willwork with a nationwide firm that

(08:08):
has local agents that canhandle REO properties.
But knowing this was a millionplus dollar property, I went on Zillow
and found out who had listingsof a million dollars plus in the
area.
And I found this agent,Nicole, who to this day is frickin
awesome, who had a house inthe area.

(08:31):
And interestingly enough, soit blows my mind sometimes with real
estate agents and you hearlike majority of them don't even
sell like one house or onlysell one house.
I probably called 10 realestate agents.
I only had to call me back.
Nicole is one of them and shetook the bull by the horns and was

(08:57):
like, I'll go over to theproperty right now, I'll find out
who's living there, I'll goknock on the door.
I was like, holy shiznit.
She is on top of this and shewanted this listing and she got this
listing.
So she was able to find outthe property was occupied, went over

(09:20):
there with somebody else justto get a sense and feel.
But nobody ever answered whenyou were there.
But clearly there's somebodyliving there.
So we have the attorney filefor eviction and my attorney gets
a phone call and it's from awoman who says she's living in the

(09:42):
property and it was her fatherin their family home.
And she asked.
And this was in, I want to saySeptember or August, I think it was
August.
She asked if she could havetill the end of August and no, it
was September.
You'll know why in a second.

(10:03):
And she wanted to know if shecould have till the end of September.
And we were like sure, on thestipulation we can come back and
do another inspection on house.
Because it's been about fouror five months since the house had
been off the market.
And our agent had heard aboutthis property because it's in a neighborhood

(10:23):
that has higher priced homesand it had a little bit of a stigma
to it with this borrowers whoare living there and the person living
the property agreed.
So set up a time with our realestate agent Tuesday.
I'LL meet you at 2:00.
So our agent gets there andtexts me and says, hey look, I actually

(10:45):
had to come by myself.
I'm just going to text youupdates in case like you don't hear
from me.
Just you know where I'm at incase I go missing.
I was like, damn.
And text me at 2:15 and says,oh, she's finally here.
Showed up 15 minutes late andshe gets out, extremely apologetic.
Oh my God, I'm sorry.
Late my class, I was in schooland just class ran late and my agent

(11:08):
casually says, oh, do you goto UNLV in traffic?
She replied, no, I'm a juniorin high school.
That's right, a teenage girlliving in a 5,000 square foot luxury
home by herself completely alone.

(11:30):
Our agent goes in and to thiswoman's credit, she had done a great
job trying to tidy up the property.
House was cleaned out, stillhad the dogs but the chickens were
gone.
The place clearly smelled like animals.
Needed significant amount ofwork and our agent even texted us

(11:53):
and was like, you cannot evictthis girl.
And we agreed.
We're like, no, we're notgoing to force a teenager out there.
And I was putting myself in myown shoes.
I'm like, I grew up in a small town.
Now my parents weren't loadedby my dad was a schoolteacher and
my mother worked at a local bank.

(12:14):
Traditional middle classfamily, but I could never imagine
in a million years having tolive in a house and take care of
it by myself.
At the age of 17, I couldn'teven figure out how it would survive

(12:36):
or even take care of a property.
The amount of responsibilityon this poor girl.
And she mentioned, hey, if yougive me the end of the month, I'm
moving out.
I have a family member I'mgoing to go living with.
And our agent was asking aboutlike the mother and the father and
really getting the full scoopof this story of I believe the mother
had ran off, the father was inprison and she was basically left

(12:58):
to her own and didn't wantpeople to know because at 17 you
don't want to go into child custody.
She was like three months orfour months before her 18th birthday
stuck in this limbo.
But yes, we worked somethingout and actually towards the end
of the month, three daysbefore, she asked if she could have
another week and we said ofcourse, gave her an extra week and

(13:19):
then yes, she left at thatpoint in time and actually cleaned
out the entire property.
It's probably the best cleanout we've ever had and leave it up
to a 17 year old who takesresponsibility more than some of
our 30, 40, 50 year old borrowers.

(13:39):
So now we're stuck with aproperty that essentially was a farm.
And our agent was very blunt.
Home's not in sellable condition.
You have to make a choice.
Sell it as is, maybe break even.

(14:04):
Or invest in a targetedrenovation for potential upside.
Because it was a high endproperty in a very competitive market,
we chose to renovate.
But wisely so.
If you've listened to me inthe last seven or eight years, talk

(14:25):
extremely rare that we take onand renovation project.
Many reasons.
One is I spent 20 plus yearsmanaging construction and doing it
while you're there is difficult.
Doing from afar is even harder.
And no matter where you'redoing it from, it all boils down

(14:45):
to one important thing.
The people and the communication.
And here we had a verystrategic plan with our agent.
And this wasn't a plan wherewe're just throwing money at everything.
We wanted to focus on whatmattered to buyers.

(15:05):
So what matters to buyers?
Updated bathrooms, a fresh andmodern kitchen.
We redid the flooring throughout.
It had a casita and anapartment that we went and renovated
because it was carpet and just filth.
Everything we did was designedwith resale value in mind, not just

(15:32):
vanity.
We interviewed multiplecontractors and not only were interviewing
contractors, we areinterviewing what I call superintendents.
Somebody to manage the day today on our behalf that would follow
the scope precisely, stay on schedule.

(15:52):
And one of the big things thatwe never do is provide large upfront
payments because that's a signof a quality operator.
And we found this individualhusband wife team who used to do
a lot of renovations for HUDand foreclosures.
And it was a little differentbecause they're used to the, I'll
call it lipstick on a pigstrategy where here that wouldn't

(16:15):
work.
So we had a company go increate floor plans of the property.
We'd have zoom calls goingthrough the floor plans, going through
the modifications.
They were at the property,walking through detail by detail.
And it was interesting becauseI felt like I was there.

(16:35):
Now tell my agent, hey, goback to this, go back to that.
Look.
Oh, the base.
Hey, you forgot to caulk thebase in this location is one of the
things that I found when wewere doing our walkthroughs.
But I felt like I was boots onthe ground there and was able to
easily manage these individuals.

(16:56):
It did take about three tofour months because it's a 5,000
square foot house it costsaround 150,000 all in.
But it paid off because afterthe rehab we put a coming soon on
it for $2 million for this asset.

(17:17):
And we had one buyer came inlow balled offer.
We went back and forth andeventually couldn't come to a value
or when we reached a value,this individual thought everything
about the property was goingto fall down.
So it just didn't work out.
But we ended up getting underagreement for, you know, and selling

(17:40):
it within I think one or twoweeks of having it listed between
1.9 and $2 million.
So that $150,000 investment,tripled that investment because it
ended up getting us half amillion dollar added to the value
of that property.

(18:03):
Interestingly enough, itactually broke the sales record for
that neighborhood.
And going through this entireprocess and still talk to the agent
today, still talk to thatcontractor today and always joking
about future deals and future opportunities.
What did we do right in this situation?

(18:25):
To me I think the power ofcombining the acquisition and again
that in house asset managementwith the experience that we have
then focused on listening toexperts, we listen to the contractor,
we listen to a realtor, butjust be we listen and absorb because

(18:46):
they were probably all we atodds a lot on cost versus value and
what we should do, what weshouldn't do.
And then we had to parse andreally dive in and figure out okay,
is that a sword worth dying on?
Is that really going to work?
Is the agent just trying tomake her sale as easy as possible
by running up costs, which shewasn't by the way.

(19:07):
And certain things worked,certain we go back and forth and
using those write up grades,the local partners, we were able
to turn a non performing loanwith chickens, a teenage squatter,
into a huge win.
And most note investors, ifthey were to take back a property

(19:28):
of that size, they would havejust sold it and cut their losses.
And yes, we thought about that.
But we also based off of theproperty, the location and its value,
knew there was hugeopportunity if we're able to pick
and find the right team.

(19:50):
And it wasn't easy.
We had to really dive in andspend the time and do the due diligence.
Due diligence matters, the duediligence not only on the loan, the
borrowers, the contractor, theagent, the property comps.

(20:12):
Because we knew this propertyfixed was worth 1.8 million plus
based off of all the other sales.
So we knew that was the caseas long as we did a smart renovation
and tailored it to buyers expectations.

(20:34):
Last but not least, As I endthis, I just want to say never underestimate
the craziness of note investing.
If this was your first deal,chickens in living rooms, record
breaking sales, teenageborrowers living in a house by themselves.
That freaks a lot of people out.

(20:57):
But for us, it's like we'reimmune to it because we've seen again
600 plus deals we've done.
Of course, not all non performing.
It's probably more than 700now, I don't even know.
But we have seen so manyinsane, crazy things.
Nothing really shocks usanymore in regards to what we find

(21:23):
in these properties.
If you enjoyed this story,want to learn more?
Continue to listen to thePaper Trail podcast and also this
September, want to let peopleknow we're going to be hosting a
conference just outside ofPhoenix called the paper trail conference,
September 18th to 20th wherewe're going to talk note investing,

(21:46):
we're going to talk privatelending, we're going to talk seller
finance.
Going to spend three daysgoing through the ins and outs and
workshops.
People get more educated onthe space.
So if you're interested inthat, you can go over to papertrailconference.com
and if you're more interestedin our fund, reach out to us at 7e

(22:10):
Investments.
Until next time, keeplearning, keep investing.
And remember, sometimes themessiest notes can bring the biggest
rewards.
Take care.