In this Know Your Speakers edition of the Paper Trail Podcast, Chris sits down with Matt Kelley, a certified foreclosure expert and long-time investor who’s underwritten tens of thousands of loans across California, Arizona, Nevada, and beyond. Known for his no-BS style, Matt shares insights from both sides of the note space—firsts, seconds, courthouse steps, and post-sale acquisitions.
They cover:
- Why underwriting is the true money-maker in note investing
- Red flags vs. yellow flags (and why the latter are more dangerous)
- The importance of underwriting sellers, not just borrowers
- Common mistakes new investors make—and how to avoid them
- What’s really happening in today’s note market (and why inventory isn’t your biggest problem)
Matt is also a featured speaker at the upcoming Paper Trail Conference (Sept 18–20) in Chandler, AZ. Get a preview of what he’ll bring to the stage—and why his sessions are can’t-miss.
🎟️ Register at papertrailconference.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:44):
Welcome to the Paper Trailwhere we follow the journey My journey
through the world of a CEO ofa mortgage note fund.
I'm Chris 70 and after yearsof buying, managing and selling notes
with 70 investments, I'm hereto share the real stories behind
the deals, what went right,what went wrong, and what I wish
I knew earlier.
(01:04):
From non performing loans toseller financing to private lending,
this show is about more thanstrategies, about growing your business,
learning to follow the papertrail and.
Doing the due diligence thatseparates the pros from the rest.
Now let's hit the trail running.
(01:24):
Welcome to this episode of thePaper Trail Podcast, another episode
of get to know your speakerfor the conference we are hosting
the paper trail conferenceSeptember 18th to 20th and Chandler,
Arizona to today I get to hadsorry had the honor to speak with
Matt Kelly.
Matt is a full time note andreal estate investor acquiring nationwide
(01:47):
delinquent loans and real property.
As a certified foreclosureexpert in the states of California,
Arizona, Nevada andWashington, Matt has been called
upon as an expert witness inthe fields of foreclosure, default
loss, MIT and has advised someof the largest mortgage servicing
companies, credit unions, lawfirms and investors throughout the
United States.
(02:08):
I have known Matt for several years.
What I love about Matt andwhat we dive into on this episode
and getting to know Matt isthere's no bs.
Matt calls it like he sees itand had a great time speaking with
Matt, talking about the notes space.
Learn more about Matt andwhere we see things headed in this
(02:29):
space.
So hope you get to enjoy thisepisode and see you in September.
Matt, how are you doing today?
It's a good day and I'm alwayshappy to catch up and chat.
Chris Yep, as I mentioned inthe intro, Matt is one of people
I respect the most in this industry.
(02:49):
Matt, you know, calls it likehe sees it, which is something you
don't see a lot of in thisspace and something I'd like to think
I do as well.
When you're trying to findinformation or learn about this space,
if you don't know who MattKelly is, he's definitely somebody
you definitely to know orlearn more about.
And with that Matt, why don'tyou tell us how you got involved
(03:11):
in note investing in the first place.
Again, I've known Chris formany years so you're going to be
able to also look at him andbe able to see if I'm attempting
to bullshit anybody, whichthere's no point quite honestly.
We both on here underwriterisk and debt for a living and I
Got started working at acompany that was a foreclosure trustee.
That's a company thatprocesses the legal paperwork involved
(03:33):
in the non judicialforeclosure process in a total of
13 different states.
So I learned lot within a veryshort period of time about a lot
of different states, theircollection processes.
But in that position I wasalso able to enter, not only interact
with, but see where a lot ofnotes were coming from.
And I was seeing a lot of noteinvestors do extremely well.
(03:56):
And I will emphasize byattending conferences, one of the
things to do is look aroundthe room.
And if you can look aroundthat room and say, my God, if some
of these people are doing it,I sure can too.
There's some truth to that.
And I got invested in noteinvesting partially because all roads
do lead to notes.
I have purchased properties onthe courthouse steps.
(04:17):
I have invested in realestates in a variety of different
ways.
And a lot of it boils down tothe note.
And there's a lot of money tobe able to found moving upstream.
So we found that rather thanbuying on the courthouse steps and
the wind and the rain and thesnow, there was a lot of power and
a lot of profit to be able tomoving up the food chain and becoming
(04:38):
the bank those that actuallyown the note.
And especially at the time Iwas doing so, there was a lot of
opportunity.
And you've also had a focusnot only on first and seconds, which
I know in the past secondswere something you looked at more
frequently.
And I know if anybody everwants to debate Matt on for seconds
(04:59):
make sure you do a lot ofbackground on it.
But you've done both, correct?
That is correct.
And I did want to stress thatpart as that I'm not.
I believe in opportunity andthat is there is opportunity all
over the place.
And it does take place in alot of ways.
But I have come from a companywith considerably more resources
and a lot more underwritingpower to now that I'm an individual
(05:21):
investor with completelydifferent outlook upon the entirety
of note investing as there isa place and there are individuals
for first mortgage noteinvesting, which is great, but also
there is opportunity in a lotof ways for second mortgages which
can on occasion exceed that ofeven firsts.
Yep.
Yes.
(05:42):
I've known people, includingyourself, who have hit some really
grand slams on those secondsand so forth you mentioned.
And one thing that I've alwaysknown you for is the underwriting
process and going through thatbecause a lot of things that people
see online is all the nicesexy, shiny objects of how to raise
(06:04):
money or how to do this or that.
You like to talk a lot.
And I'm an engineer by trade,so underwriting is something that
I enjoy as well.
Talking about which a lot ofpeople might find boring, but to
me, that's where you make your money.
Wouldn't you agree?
Yes, I wholeheartedly agreewith that.
I do believe that underwritingis the most important part.
(06:25):
Raising money is exceptionallyeasy, especially when there's a deal
in hand, especially whenthere's opportunities about.
And there are a lot of notesavailable, not just on the brokerage
websites, but there are a lotof notes in various places that one
can go to, some of which havedifferent information packages.
But I will premise that asagain, as we underwrite risk for
(06:47):
a living, I don't really trustanybody when it comes to the information
being prevented.
I can trust.
But verify and being able toverify all the information, whether
it be lien, position,delinquency, status, documents of
record, just all the littlenuances come to it, that is something
that can be very easilylearned, very quickly learned.
(07:07):
And there's also otherindividuals out there that one can
run the information by.
As this is a community, notonly a community within the conferences
that one can attend, theonline support groups of the Facebook
groups, but additionallythere's teams of individuals from
title companies, the actualforeclosure trustees or foreclosure
attorneys.
And I do want to stress thatthey do not want you to screw up
(07:30):
so because if you screw up, itmakes their life more difficult.
The servicers that are outthere want you to be compliant when
regards to everything, whetherit be licensing, if it's needed.
Most of the time it's not, butit's always good to double check
as well as the documents thatone is looking at.
All these individuals are outthere to help you out.
And the vast majority of themare absolutely free of charge.
(07:52):
Yeah.
What's one of the biggestmistakes people make when they're
underwriting loans?
I'm going through in my mind,a lot of mistakes that people make.
It's a laundry list.
I have underwritten tens ofthousands of loans and I have processed
foreclosures on behalf ofthousands of investors and tens of
(08:14):
thousands of foreclosures as a result.
I've seen everywhere fromtitle issues, whether it's not understanding
they're in first position,second position, not understanding
the data that's provided tothem from the servicer or the seller,
and that there are bars as tonot only statute's limitations, but
on what's usually referred toas zombie loans.
(08:36):
There are some problems whenit comes to just old defaulted loans.
And that gets into verytechnical language.
But not reaching out is quitehonestly the biggest mistake that
I see.
And that's reaching out toagain, the foreclosure trustees,
the servicers, reaching out toothers within their community to
be able to get another voice,get another pair of eyes on a particular
(09:00):
property.
As some people are very put alot of emphasis on an in person inspection.
When in reality this is anumbers game.
And if we were to break downwhat pays a note, there is value
within the homeowner andwhat's usually referred to as emotional
equity.
But the reality is it's actualequity and it's the property will
ultimately pay off the noterather than over a period of 20,
(09:22):
40 years.
Yep.
And one thing that I'velearned also over time and is you
got to underwrite the selleras well and make sure you know who
you're doing business with.
That is very important.
That was very high up on my list.
It wasn't the biggest one.
But I, Chris and I have beenover this many times as we're both
very passionate about it.
As much energy as one putsinto underwriting the debtor, one
(09:45):
should put effectively equalenergy into underwriting the seller.
Not only do they actually ownthe note, but that they don't have
a lot of judgments against them.
They don't have activelawsuits, particularly from other
investors.
That there's not a tarnishedhistory and they are open and active.
Not only you can see that theyattend other conferences, but you
(10:07):
can also perhaps see that theyhave other mortgages, notes out there
from documents of record.
Yep.
Because there's one companyout there that we know that is in
a lawsuit.
Yeah, one.
One's in a lawsuit right nowbecause they're selling the same
loan to multiple people aswell as I think they took like a
line of credit.
Several companies doing that.
Yeah, we had one recently.
(10:28):
It wasn't anything fraudulent,but we had small pool loans under
agreement and got ready toclose and basically.
Okay, lsa, we had alreadyagreed to lsa, let's get executed.
Why are the funds they come back?
Oh, we're pulling the tradebecause one of loans is paying off.
I'm like, oh, come on.
Okay.
But there was still that oneagainst them.
(10:48):
Yeah.
But it was four loans, butthey pulled all four.
And I'm like, okay.
But then literally three weekslater they call us up and say the
loan didn't pay off.
Do you want to do the trade?
So we say yes.
And I'm like, resend the lsa.
And this was on a Friday.
So on Monday I called back andI'm like, okay, we ready to go?
Like, oh no, we're pulling it again.
And I'm like, okay, Yep.
(11:11):
And then a month later theycalled again and said, hey, you still
interested in those loans?
I'm like, no, I'm good.
Pull it.
Once a loan gets paid off,hey, I understand that happens all
the time.
We have done that.
But then the second time, andwhat it was is actually it wasn't
getting paid off.
The borrower was trying tosell the property and it was going
sale pending and then it keptfalling out of sale, which is to
(11:32):
me different than getting a payoff.
But either a lot more commonnow than it was a year ago.
Yeah, but yeah, sounderwriting the borrower.
Also, I think one thing peopledon't understand is when they get
these title reports tounderstand the title report isn't
title insurance.
And I've seen title reportswrong or miss all the time loans
or stuff.
(11:53):
We'll likely go into it oncein the more extended presentation.
But that is a point ofpersonal annoyance for me.
There's a lot of differentprograms that are out there, none
of which are the gospel truth.
And a title report is aguaranteed product.
It's a form of insurance as tothe state of title at a given point
in time.
Things happen since then.
(12:14):
But a title report is supposedto be a snapshot of the property
at a given moment in time.
There are other things thathappen where we'll explore and go
into what's the title plant date.
If you Google it, it's justgood through that moment of time,
but it's not necessarily now,but alternatively not just going
back a few weeks as again,there is benefit in understanding.
(12:34):
Is that title report justpulling from the grantor grantee
index with just the person's name?
Are they looking at theassessor's parcel number?
Because sometimes judgmentsand municipal liens attach via just
the apn.
It doesn't matter who owns theproperty and other ones, again, judgments
under their name that againwill attach to the property via that
way.
And there's a lot of differentmethods in which these things attach.
(12:58):
And quite honestly, titlereports don't look at all of them.
So there is benefit inverifying the information.
I've also seen liens missedregularly on these title reports,
some of which are free of charge.
And I do stress that's a greatway to not only start, but it's a
Great resource, even on scale,but having the ability to go back
and double check it whensomething might not necessarily be
(13:18):
right, or you're really tryingto sharpen your pencil and be the
most aggressive possible whilestill hitting your margins.
There's a lot of benefit inunderstanding where that information
comes from and, and been ableto verify it and do so very inexpensively,
if not free of charge.
Yeah, we found multiple timeswhere there were additional liens
on a property that didn't show up.
(13:39):
Or recently had investor reachout to me because they had bought
a loan, pulled title anddidn't show any municipal liens.
And this is in Cook county.
So of all places, they end upgetting a deed in lieu or they got
the property back and theyhave it under agreement to sell and
they're selling it with awarranty deed.
So it's coming with title insurance.
And title insurance comes inand says, oh, by the way, here are
(14:00):
all these municipal liens thatgot to get paid off.
And on that list, this sellerwho owned the property would actually
have to pay to sell theproperty, essentially.
Correct.
Because they used a warrantydeed instead of a special warranty
deed.
Yeah, it also depends on thestate, but that's a very nuanced
example that also could veryeasily be run by a title company
(14:20):
and also could be run by theforeclosure trustee that would be
able to answer that questionas to who's liable for what and when.
Yeah, so I want to pivot realquick because one thing I think people
talk about right now, which Ithink is a fallacy in some sense
because most investors outthere literally only buying a handful
(14:41):
of notes here and there andeveryone's complaining.
I can never find any inventory.
And people are trying to findthese needles in a haystack.
Yes, we've seen less notesover the last several years and so
forth.
But from a abundancestandpoint, what's your opinion on
where we are in the markettoday and where you think it's headed?
(15:02):
Note market or real estate market?
Note market.
Note market is.
Is tough, to be very honest.
The downflow of notes, theconnection of Wall street to Main
street, so to speak, has beenbroken up many years ago.
And the notes are still outthere, they are still being sold,
but not necessarily to you.
(15:24):
There are notes in bulk.
I'm going to tell you aboutsome trades that are going on right
now.
When we're done with thiscall, I think you'll be interested
in getting that breach.
There are a lot of verylicensed brokers and being able to
connect with them even to buya handful is entirely possible, including
one off deals, small trades.
And I've become over the yearsa much bigger fan of utilizing licensed
(15:48):
brokers, especially on thesmall scale as there is an additional
level of protection and I dostress the license part of it as
there's a lot of people outthere that call themselves broker.
But I know that's a personalannoyance to you for the Daisy chain
investors, but nonetheless,yeah, it's gotten a little tougher.
But there is immense power inbeing creative, being able to look
(16:08):
around and find out whereNotes are beyond the traditional
sites and also reaching outdirectly to sellers.
And I'll definitely be talkingabout some of the strategies that's
how to do.
I'm very happy to shareinformation as one of the biggest
things is quite honestly Idon't view anybody as competition
within this industry.
And additionally I've alsofound the biggest way to keep a secret
(16:30):
is just to tell everyone.
Yeah, it's you've done thesame thing I do.
I'm very similar.
Like I give everything awayand half the people I know I give
it to or probably 90% donothing with it, which you know is
but they.
Come up a year or two laterand ask you how it's going and what
you're doing and you're likethe thing I talked about last time.
I'm doing that.
How's it going?
Fantastic.
(16:50):
Okay.
And then they keep doing whatthey're doing, which I have no problem
with.
Yep.
Also, I know you run a websiteAfter Auction Bid that deals with
foreclosures in California andoverall on the real estate side,
are you starting to see moreforeclosures California and love
to get your opinion overall onreal estate, which I know is market
driven or MSA driven, but justcurious to hear what your thoughts
(17:12):
are.
To be clear, a lot of us,including Chris on this call, we
do other things besides just notes.
I love notes.
I'm a big fan of Notes notes,but it's very easy to do other things
as well.
This is not a full time gig whatsoever.
In fact it takes very littletime, especially when it can be done
well and efficiently.
So getting back toafterauctionbid.com I really wasn't
here to promote it quitehonestly as I don't need the competition.
(17:34):
But I do welcome everyone.
After Auction Bid is a websiterelating to a law in California that
passed a couple years agocalled this B1079.
I can keep going on aboutthat, but what happens is a property
goes to foreclosure sale.
And when that happens, peoplebid on it or not, regardless, it
goes to foreclosure sale andit becomes either bank owned or owned
by a third party.
(17:55):
The law changed in California.
There's a few other stateswhere this applies too.
But I'm dealing withCalifornia, even live there.
And I can come in after theforeclosure sale either as a prospective
owner occupant if I want to dojust a one off or if I want to do
it on scales, I do it as anonprofit and be able to buy the
property at the foreclosuresale after the fact for that price
(18:18):
or a dollar more.
I've been able to look at thebasically the winning racehorse and
seeing the results ofyesterday's winners and be trying
to just go, oh, I wish I wasthere at the right place at the right
time with the right amount of money.
Now it can be, in fact I havetotal of 45 days to do my research
and be able to buy thatproperty after the fact.
(18:38):
And if it sounds easy, quitehonestly, it is.
There's still immense benefitand being the bank, but sometimes
I like skipping to the end andjust buying properties at foreclosure
sale or even after the auctionand bid on them.
But with that said, it hasgotten a to be a much tighter market
and that it was largelyinvestor driven within years past
(18:59):
and hedge funds andwholesalers would utilize foreclosure
sales as a very off brand forthem is that they wouldn't do that
all the time.
They wouldn't count on it.
It would just be some thingswhere they'd occasionally get some
home runs.
But as the market has been adumpster fire in terms of pricing
that in California, which ismuch more sensitive than other parts
(19:20):
of the country and it's againregional that it's certain counties,
certain cities, certain placesare doing worse than other ones.
But we're seeing a shift inthe funds that they're now going
to the more nuanced forms of investment.
So we are seeing propertiessell more at the foreclosure sale
and for a significantly higherprice, which by the way is fantastic
(19:43):
for note investors becausethey're getting paid off or getting
paid at or above the pricewhich they were comfortable taking
it to sale for.
Yeah, that's one aspect ofnote investing that I think a lot
of people I want you to forgetbut just aren't not cognizant of
is those properties that haveequity and people are always nervous,
(20:04):
oh, I'm going to take thisproperty back and like I've got a
$300,000 note on a $700,000property and the borrower's deceased.
Hey, I would love to get thatproperty back for that.
Equ.
I'm really not going to inmost instances.
And yeah, when you talk again,California, I'm seeing in Texas and
Florida, you want to talkdumpster fire in a bad way.
(20:26):
It is.
It actually works outfantastic for me.
Yeah, we're the opposite ofeverything else.
Prices are going up.
That's very nice.
That's good.
But ultimately, when pricesare going down, this will result
as.
And we talked about the market tightening.
Where are we at?
We're kind.
We're well into 2008, 2009, asthe prices are going down.
(20:47):
And a lot of what happens inreal estate generally, whenever you're
hearing about the news, itstarted at least six months ago and
I've been doing presentationsfor a while and I talked about when
I thought things started asthey were happening.
And I believe I was correct inall those regards.
But when it comes to thosepricing, that's something that we
take into consideration asnote investors, as taking the property
(21:07):
back, being able to flip it,sell it, do all the above.
Those are things that we takeinto consideration, including the
timelines it will take tocollect upon said note.
As some states vary greatly.
Florida years, Texas, veryshort time time frame.
That's one of the things whereI have some notes in Florida, but
I've never been like a.
(21:28):
Oh my God, Florida.
Like certain people, like love Florida.
And for me, I'm like, I'm nota big fan of it because it takes
so long to foreclose.
And now the mandatory mediation.
Google it.
All you hear about is theexpedited timeline.
But one challenge and that'sout the window.
They are going to challenge itbecause they're already in court.
What Chris and I arediscussing is the differences between
(21:49):
judicial and non judicial.
Non judicial is you're not in court.
It does not involve the courtsystem, judges, attorneys, anything
along those lines.
So it tends to be faster and cheaper.
Whereas judicial foreclosureprocess, which is a lot of states,
especially the eastern ones,and a bunch in the Midwest, those
ones, they are already in court.
It is being processed byattorneys or even it's a quasi judicial
(22:13):
that it is processed byattorneys, but it's still a non judicial
process.
And then the other componentto that I think a lot of people forget
about is in certainjurisdictions, just because you're
foreclosed, then you still gotto take possession or get the deed
to a property I've had inMaryland where it's taken me a year
from a foreclosure sale tohave the sale ratified.
And I wasn't even, I wasn'teven the high bidder.
(22:34):
I didn't take it back.
It was sold at third party.
Yep.
That's one thing.
I guess there's a lot ofcraziness to it.
But guess what?
You can figure out all thisstuff without knowing it.
And a lot of this you're notgoing to be able to figure out by
Google.
But pick up the phone, call anattorney, call a foreclosure trustee,
call the servicer and evencall some other investors or even
post about it in some of theonline Facebook groups as there's
(22:56):
plenty of people out there tohelp out.
Lots of people with experienceand most of us freely share.
Yeah, that's one thing that Ifind in this space.
Certain people, and I don'tknow if it's an ego thing, but people
are afraid to just pick up thephone and call people, get other
advice or opinions to me, Iwant to try and get as much use as
much people's brain power as Ican who've been there, done that
(23:16):
in this space.
It's not the first time you'veheard this.
You're not normal.
Yeah.
Consider that a compliment, though.
Yeah.
Matt, final thoughts again, wehave speaking at the conference on,
you know, underwriting.
Look forward to, I don't know,have we physically met?
I can't recall if we'veactually ever met.
We've been to enough conferences.
It's definitely happened in afew places, but it would have been
(23:38):
Vegas at some point.
So it's not memorable.
I know why for you, but go ahead.
We're going to talk about alot and Chris is hopefully going
to razz me more than a little bit.
It's strongly encouraged andI'm going to talk about believing
in what you do, not as anempowerment motivational sense, but
there is profits to be madeand there is power within utilizing
(23:59):
investor investors, utilizingfunds, but also putting your own
skin in the game.
Yep.
And for everyone listeningAgain, that is September 18th to
20th and Chandler, Arizona.
Go to papertrailconference.comto get your tickets today.
So Matt, thanks for coming on today.
Great speaking with you andfor those listening, also make sure
(24:20):
all your tickets and leaveyour favorite like review for us
on your favorite listening station.
So take care and thank you all.
For.
Thanks for joining me on thisepisode of the Paper Trail.
I hope today's insights helpyou sharpen your note.
Investing Strategies if youfound value in this conversation,
subscribe, leave a review andshare it with fellow investors.
(24:41):
I'm Chris Sevy, reminding youto keep doing the work, trust the
process, and.
Always follow the paper trail.
Until next time.
Welcome to the Paper Trailwhere we follow the journey My journey
through the world of a CEO ofa mortgage note fund.
I'm Chris 70 and after yearsof buying, managing and selling notes
with 70 investments, I'm hereto share the real stories behind
the deals, what went right,what went wrong, and what I wish
I knew earlier.
(01:04):
From non performing loans toseller financing to private lending,
this show is about more thanstrategies, about growing your business,
learning to follow the papertrail and.
Doing the due diligence thatseparates the pros from the rest.
Now let's hit the trail running.
(01:24):
Welcome to this episode of thePaper Trail Podcast, another episode
of get to know your speakerfor the conference we are hosting
the paper trail conferenceSeptember 18th to 20th and Chandler,
Arizona to today I get to hadsorry had the honor to speak with
Matt Kelly.
Matt is a full time note andreal estate investor acquiring nationwide
(01:47):
delinquent loans and real property.
As a certified foreclosureexpert in the states of California,
Arizona, Nevada andWashington, Matt has been called
upon as an expert witness inthe fields of foreclosure, default
loss, MIT and has advised someof the largest mortgage servicing
companies, credit unions, lawfirms and investors throughout the
United States.
(02:08):
I have known Matt for several years.
What I love about Matt andwhat we dive into on this episode
and getting to know Matt isthere's no bs.
Matt calls it like he sees itand had a great time speaking with
Matt, talking about the notes space.
Learn more about Matt andwhere we see things headed in this
(02:29):
space.
So hope you get to enjoy thisepisode and see you in September.
Matt, how are you doing today?
It's a good day and I'm alwayshappy to catch up and chat.
Chris Yep, as I mentioned inthe intro, Matt is one of people
I respect the most in this industry.
(02:49):
Matt, you know, calls it likehe sees it, which is something you
don't see a lot of in thisspace and something I'd like to think
I do as well.
When you're trying to findinformation or learn about this space,
if you don't know who MattKelly is, he's definitely somebody
you definitely to know orlearn more about.
And with that Matt, why don'tyou tell us how you got involved
(03:11):
in note investing in the first place.
Again, I've known Chris formany years so you're going to be
able to also look at him andbe able to see if I'm attempting
to bullshit anybody, whichthere's no point quite honestly.
We both on here underwriterisk and debt for a living and I
Got started working at acompany that was a foreclosure trustee.
That's a company thatprocesses the legal paperwork involved
(03:33):
in the non judicialforeclosure process in a total of
13 different states.
So I learned lot within a veryshort period of time about a lot
of different states, theircollection processes.
But in that position I wasalso able to enter, not only interact
with, but see where a lot ofnotes were coming from.
And I was seeing a lot of noteinvestors do extremely well.
(03:56):
And I will emphasize byattending conferences, one of the
things to do is look aroundthe room.
And if you can look aroundthat room and say, my God, if some
of these people are doing it,I sure can too.
There's some truth to that.
And I got invested in noteinvesting partially because all roads
do lead to notes.
I have purchased properties onthe courthouse steps.
(04:17):
I have invested in realestates in a variety of different
ways.
And a lot of it boils down tothe note.
And there's a lot of money tobe able to found moving upstream.
So we found that rather thanbuying on the courthouse steps and
the wind and the rain and thesnow, there was a lot of power and
a lot of profit to be able tomoving up the food chain and becoming
(04:38):
the bank those that actuallyown the note.
And especially at the time Iwas doing so, there was a lot of
opportunity.
And you've also had a focusnot only on first and seconds, which
I know in the past secondswere something you looked at more
frequently.
And I know if anybody everwants to debate Matt on for seconds
(04:59):
make sure you do a lot ofbackground on it.
But you've done both, correct?
That is correct.
And I did want to stress thatpart as that I'm not.
I believe in opportunity andthat is there is opportunity all
over the place.
And it does take place in alot of ways.
But I have come from a companywith considerably more resources
and a lot more underwritingpower to now that I'm an individual
(05:21):
investor with completelydifferent outlook upon the entirety
of note investing as there isa place and there are individuals
for first mortgage noteinvesting, which is great, but also
there is opportunity in a lotof ways for second mortgages which
can on occasion exceed that ofeven firsts.
Yep.
Yes.
(05:42):
I've known people, includingyourself, who have hit some really
grand slams on those secondsand so forth you mentioned.
And one thing that I've alwaysknown you for is the underwriting
process and going through thatbecause a lot of things that people
see online is all the nicesexy, shiny objects of how to raise
(06:04):
money or how to do this or that.
You like to talk a lot.
And I'm an engineer by trade,so underwriting is something that
I enjoy as well.
Talking about which a lot ofpeople might find boring, but to
me, that's where you make your money.
Wouldn't you agree?
Yes, I wholeheartedly agreewith that.
I do believe that underwritingis the most important part.
(06:25):
Raising money is exceptionallyeasy, especially when there's a deal
in hand, especially whenthere's opportunities about.
And there are a lot of notesavailable, not just on the brokerage
websites, but there are a lotof notes in various places that one
can go to, some of which havedifferent information packages.
But I will premise that asagain, as we underwrite risk for
(06:47):
a living, I don't really trustanybody when it comes to the information
being prevented.
I can trust.
But verify and being able toverify all the information, whether
it be lien, position,delinquency, status, documents of
record, just all the littlenuances come to it, that is something
that can be very easilylearned, very quickly learned.
(07:07):
And there's also otherindividuals out there that one can
run the information by.
As this is a community, notonly a community within the conferences
that one can attend, theonline support groups of the Facebook
groups, but additionallythere's teams of individuals from
title companies, the actualforeclosure trustees or foreclosure
attorneys.
And I do want to stress thatthey do not want you to screw up
(07:30):
so because if you screw up, itmakes their life more difficult.
The servicers that are outthere want you to be compliant when
regards to everything, whetherit be licensing, if it's needed.
Most of the time it's not, butit's always good to double check
as well as the documents thatone is looking at.
All these individuals are outthere to help you out.
And the vast majority of themare absolutely free of charge.
(07:52):
Yeah.
What's one of the biggestmistakes people make when they're
underwriting loans?
I'm going through in my mind,a lot of mistakes that people make.
It's a laundry list.
I have underwritten tens ofthousands of loans and I have processed
foreclosures on behalf ofthousands of investors and tens of
(08:14):
thousands of foreclosures as a result.
I've seen everywhere fromtitle issues, whether it's not understanding
they're in first position,second position, not understanding
the data that's provided tothem from the servicer or the seller,
and that there are bars as tonot only statute's limitations, but
on what's usually referred toas zombie loans.
(08:36):
There are some problems whenit comes to just old defaulted loans.
And that gets into verytechnical language.
But not reaching out is quitehonestly the biggest mistake that
I see.
And that's reaching out toagain, the foreclosure trustees,
the servicers, reaching out toothers within their community to
be able to get another voice,get another pair of eyes on a particular
(09:00):
property.
As some people are very put alot of emphasis on an in person inspection.
When in reality this is anumbers game.
And if we were to break downwhat pays a note, there is value
within the homeowner andwhat's usually referred to as emotional
equity.
But the reality is it's actualequity and it's the property will
ultimately pay off the noterather than over a period of 20,
(09:22):
40 years.
Yep.
And one thing that I'velearned also over time and is you
got to underwrite the selleras well and make sure you know who
you're doing business with.
That is very important.
That was very high up on my list.
It wasn't the biggest one.
But I, Chris and I have beenover this many times as we're both
very passionate about it.
As much energy as one putsinto underwriting the debtor, one
(09:45):
should put effectively equalenergy into underwriting the seller.
Not only do they actually ownthe note, but that they don't have
a lot of judgments against them.
They don't have activelawsuits, particularly from other
investors.
That there's not a tarnishedhistory and they are open and active.
Not only you can see that theyattend other conferences, but you
(10:07):
can also perhaps see that theyhave other mortgages, notes out there
from documents of record.
Yep.
Because there's one companyout there that we know that is in
a lawsuit.
Yeah, one.
One's in a lawsuit right nowbecause they're selling the same
loan to multiple people aswell as I think they took like a
line of credit.
Several companies doing that.
Yeah, we had one recently.
(10:28):
It wasn't anything fraudulent,but we had small pool loans under
agreement and got ready toclose and basically.
Okay, lsa, we had alreadyagreed to lsa, let's get executed.
Why are the funds they come back?
Oh, we're pulling the tradebecause one of loans is paying off.
I'm like, oh, come on.
Okay.
But there was still that oneagainst them.
(10:48):
Yeah.
But it was four loans, butthey pulled all four.
And I'm like, okay.
But then literally three weekslater they call us up and say the
loan didn't pay off.
Do you want to do the trade?
So we say yes.
And I'm like, resend the lsa.
And this was on a Friday.
So on Monday I called back andI'm like, okay, we ready to go?
Like, oh no, we're pulling it again.
And I'm like, okay, Yep.
(11:11):
And then a month later theycalled again and said, hey, you still
interested in those loans?
I'm like, no, I'm good.
Pull it.
Once a loan gets paid off,hey, I understand that happens all
the time.
We have done that.
But then the second time, andwhat it was is actually it wasn't
getting paid off.
The borrower was trying tosell the property and it was going
sale pending and then it keptfalling out of sale, which is to
(11:32):
me different than getting a payoff.
But either a lot more commonnow than it was a year ago.
Yeah, but yeah, sounderwriting the borrower.
Also, I think one thing peopledon't understand is when they get
these title reports tounderstand the title report isn't
title insurance.
And I've seen title reportswrong or miss all the time loans
or stuff.
(11:53):
We'll likely go into it oncein the more extended presentation.
But that is a point ofpersonal annoyance for me.
There's a lot of differentprograms that are out there, none
of which are the gospel truth.
And a title report is aguaranteed product.
It's a form of insurance as tothe state of title at a given point
in time.
Things happen since then.
(12:14):
But a title report is supposedto be a snapshot of the property
at a given moment in time.
There are other things thathappen where we'll explore and go
into what's the title plant date.
If you Google it, it's justgood through that moment of time,
but it's not necessarily now,but alternatively not just going
back a few weeks as again,there is benefit in understanding.
(12:34):
Is that title report justpulling from the grantor grantee
index with just the person's name?
Are they looking at theassessor's parcel number?
Because sometimes judgmentsand municipal liens attach via just
the apn.
It doesn't matter who owns theproperty and other ones, again, judgments
under their name that againwill attach to the property via that
way.
And there's a lot of differentmethods in which these things attach.
(12:58):
And quite honestly, titlereports don't look at all of them.
So there is benefit inverifying the information.
I've also seen liens missedregularly on these title reports,
some of which are free of charge.
And I do stress that's a greatway to not only start, but it's a
Great resource, even on scale,but having the ability to go back
and double check it whensomething might not necessarily be
(13:18):
right, or you're really tryingto sharpen your pencil and be the
most aggressive possible whilestill hitting your margins.
There's a lot of benefit inunderstanding where that information
comes from and, and been ableto verify it and do so very inexpensively,
if not free of charge.
Yeah, we found multiple timeswhere there were additional liens
on a property that didn't show up.
(13:39):
Or recently had investor reachout to me because they had bought
a loan, pulled title anddidn't show any municipal liens.
And this is in Cook county.
So of all places, they end upgetting a deed in lieu or they got
the property back and theyhave it under agreement to sell and
they're selling it with awarranty deed.
So it's coming with title insurance.
And title insurance comes inand says, oh, by the way, here are
(14:00):
all these municipal liens thatgot to get paid off.
And on that list, this sellerwho owned the property would actually
have to pay to sell theproperty, essentially.
Correct.
Because they used a warrantydeed instead of a special warranty
deed.
Yeah, it also depends on thestate, but that's a very nuanced
example that also could veryeasily be run by a title company
(14:20):
and also could be run by theforeclosure trustee that would be
able to answer that questionas to who's liable for what and when.
Yeah, so I want to pivot realquick because one thing I think people
talk about right now, which Ithink is a fallacy in some sense
because most investors outthere literally only buying a handful
(14:41):
of notes here and there andeveryone's complaining.
I can never find any inventory.
And people are trying to findthese needles in a haystack.
Yes, we've seen less notesover the last several years and so
forth.
But from a abundancestandpoint, what's your opinion on
where we are in the markettoday and where you think it's headed?
(15:02):
Note market or real estate market?
Note market.
Note market is.
Is tough, to be very honest.
The downflow of notes, theconnection of Wall street to Main
street, so to speak, has beenbroken up many years ago.
And the notes are still outthere, they are still being sold,
but not necessarily to you.
(15:24):
There are notes in bulk.
I'm going to tell you aboutsome trades that are going on right
now.
When we're done with thiscall, I think you'll be interested
in getting that breach.
There are a lot of verylicensed brokers and being able to
connect with them even to buya handful is entirely possible, including
one off deals, small trades.
And I've become over the yearsa much bigger fan of utilizing licensed
(15:48):
brokers, especially on thesmall scale as there is an additional
level of protection and I dostress the license part of it as
there's a lot of people outthere that call themselves broker.
But I know that's a personalannoyance to you for the Daisy chain
investors, but nonetheless,yeah, it's gotten a little tougher.
But there is immense power inbeing creative, being able to look
(16:08):
around and find out whereNotes are beyond the traditional
sites and also reaching outdirectly to sellers.
And I'll definitely be talkingabout some of the strategies that's
how to do.
I'm very happy to shareinformation as one of the biggest
things is quite honestly Idon't view anybody as competition
within this industry.
And additionally I've alsofound the biggest way to keep a secret
(16:30):
is just to tell everyone.
Yeah, it's you've done thesame thing I do.
I'm very similar.
Like I give everything awayand half the people I know I give
it to or probably 90% donothing with it, which you know is
but they.
Come up a year or two laterand ask you how it's going and what
you're doing and you're likethe thing I talked about last time.
I'm doing that.
How's it going?
Fantastic.
(16:50):
Okay.
And then they keep doing whatthey're doing, which I have no problem
with.
Yep.
Also, I know you run a websiteAfter Auction Bid that deals with
foreclosures in California andoverall on the real estate side,
are you starting to see moreforeclosures California and love
to get your opinion overall onreal estate, which I know is market
driven or MSA driven, but justcurious to hear what your thoughts
(17:12):
are.
To be clear, a lot of us,including Chris on this call, we
do other things besides just notes.
I love notes.
I'm a big fan of Notes notes,but it's very easy to do other things
as well.
This is not a full time gig whatsoever.
In fact it takes very littletime, especially when it can be done
well and efficiently.
So getting back toafterauctionbid.com I really wasn't
here to promote it quitehonestly as I don't need the competition.
(17:34):
But I do welcome everyone.
After Auction Bid is a websiterelating to a law in California that
passed a couple years agocalled this B1079.
I can keep going on aboutthat, but what happens is a property
goes to foreclosure sale.
And when that happens, peoplebid on it or not, regardless, it
goes to foreclosure sale andit becomes either bank owned or owned
by a third party.
(17:55):
The law changed in California.
There's a few other stateswhere this applies too.
But I'm dealing withCalifornia, even live there.
And I can come in after theforeclosure sale either as a prospective
owner occupant if I want to dojust a one off or if I want to do
it on scales, I do it as anonprofit and be able to buy the
property at the foreclosuresale after the fact for that price
(18:18):
or a dollar more.
I've been able to look at thebasically the winning racehorse and
seeing the results ofyesterday's winners and be trying
to just go, oh, I wish I wasthere at the right place at the right
time with the right amount of money.
Now it can be, in fact I havetotal of 45 days to do my research
and be able to buy thatproperty after the fact.
(18:38):
And if it sounds easy, quitehonestly, it is.
There's still immense benefitand being the bank, but sometimes
I like skipping to the end andjust buying properties at foreclosure
sale or even after the auctionand bid on them.
But with that said, it hasgotten a to be a much tighter market
and that it was largelyinvestor driven within years past
(18:59):
and hedge funds andwholesalers would utilize foreclosure
sales as a very off brand forthem is that they wouldn't do that
all the time.
They wouldn't count on it.
It would just be some thingswhere they'd occasionally get some
home runs.
But as the market has been adumpster fire in terms of pricing
that in California, which ismuch more sensitive than other parts
(19:20):
of the country and it's againregional that it's certain counties,
certain cities, certain placesare doing worse than other ones.
But we're seeing a shift inthe funds that they're now going
to the more nuanced forms of investment.
So we are seeing propertiessell more at the foreclosure sale
and for a significantly higherprice, which by the way is fantastic
(19:43):
for note investors becausethey're getting paid off or getting
paid at or above the pricewhich they were comfortable taking
it to sale for.
Yeah, that's one aspect ofnote investing that I think a lot
of people I want you to forgetbut just aren't not cognizant of
is those properties that haveequity and people are always nervous,
(20:04):
oh, I'm going to take thisproperty back and like I've got a
$300,000 note on a $700,000property and the borrower's deceased.
Hey, I would love to get thatproperty back for that.
Equ.
I'm really not going to inmost instances.
And yeah, when you talk again,California, I'm seeing in Texas and
Florida, you want to talkdumpster fire in a bad way.
(20:26):
It is.
It actually works outfantastic for me.
Yeah, we're the opposite ofeverything else.
Prices are going up.
That's very nice.
That's good.
But ultimately, when pricesare going down, this will result
as.
And we talked about the market tightening.
Where are we at?
We're kind.
We're well into 2008, 2009, asthe prices are going down.
(20:47):
And a lot of what happens inreal estate generally, whenever you're
hearing about the news, itstarted at least six months ago and
I've been doing presentationsfor a while and I talked about when
I thought things started asthey were happening.
And I believe I was correct inall those regards.
But when it comes to thosepricing, that's something that we
take into consideration asnote investors, as taking the property
(21:07):
back, being able to flip it,sell it, do all the above.
Those are things that we takeinto consideration, including the
timelines it will take tocollect upon said note.
As some states vary greatly.
Florida years, Texas, veryshort time time frame.
That's one of the things whereI have some notes in Florida, but
I've never been like a.
(21:28):
Oh my God, Florida.
Like certain people, like love Florida.
And for me, I'm like, I'm nota big fan of it because it takes
so long to foreclose.
And now the mandatory mediation.
Google it.
All you hear about is theexpedited timeline.
But one challenge and that'sout the window.
They are going to challenge itbecause they're already in court.
What Chris and I arediscussing is the differences between
(21:49):
judicial and non judicial.
Non judicial is you're not in court.
It does not involve the courtsystem, judges, attorneys, anything
along those lines.
So it tends to be faster and cheaper.
Whereas judicial foreclosureprocess, which is a lot of states,
especially the eastern ones,and a bunch in the Midwest, those
ones, they are already in court.
It is being processed byattorneys or even it's a quasi judicial
(22:13):
that it is processed byattorneys, but it's still a non judicial
process.
And then the other componentto that I think a lot of people forget
about is in certainjurisdictions, just because you're
foreclosed, then you still gotto take possession or get the deed
to a property I've had inMaryland where it's taken me a year
from a foreclosure sale tohave the sale ratified.
And I wasn't even, I wasn'teven the high bidder.
(22:34):
I didn't take it back.
It was sold at third party.
Yep.
That's one thing.
I guess there's a lot ofcraziness to it.
But guess what?
You can figure out all thisstuff without knowing it.
And a lot of this you're notgoing to be able to figure out by
Google.
But pick up the phone, call anattorney, call a foreclosure trustee,
call the servicer and evencall some other investors or even
post about it in some of theonline Facebook groups as there's
(22:56):
plenty of people out there tohelp out.
Lots of people with experienceand most of us freely share.
Yeah, that's one thing that Ifind in this space.
Certain people, and I don'tknow if it's an ego thing, but people
are afraid to just pick up thephone and call people, get other
advice or opinions to me, Iwant to try and get as much use as
much people's brain power as Ican who've been there, done that
(23:16):
in this space.
It's not the first time you'veheard this.
You're not normal.
Yeah.
Consider that a compliment, though.
Yeah.
Matt, final thoughts again, wehave speaking at the conference on,
you know, underwriting.
Look forward to, I don't know,have we physically met?
I can't recall if we'veactually ever met.
We've been to enough conferences.
It's definitely happened in afew places, but it would have been
(23:38):
Vegas at some point.
So it's not memorable.
I know why for you, but go ahead.
We're going to talk about alot and Chris is hopefully going
to razz me more than a little bit.
It's strongly encouraged andI'm going to talk about believing
in what you do, not as anempowerment motivational sense, but
there is profits to be madeand there is power within utilizing
(23:59):
investor investors, utilizingfunds, but also putting your own
skin in the game.
Yep.
And for everyone listeningAgain, that is September 18th to
20th and Chandler, Arizona.
Go to papertrailconference.comto get your tickets today.
So Matt, thanks for coming on today.
Great speaking with you andfor those listening, also make sure
(24:20):
all your tickets and leaveyour favorite like review for us
on your favorite listening station.
So take care and thank you all.
For.
Thanks for joining me on thisepisode of the Paper Trail.
I hope today's insights helpyou sharpen your note.
Investing Strategies if youfound value in this conversation,
subscribe, leave a review andshare it with fellow investors.
(24:41):
I'm Chris Sevy, reminding youto keep doing the work, trust the
process, and.
Always follow the paper trail.
Until next time.
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