Putting the Service Back in Loan Servicing with Eric Covey #loanservicing

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
All right, everybody, Hey, we are back after that great
presentation by Larry. But uh, you've heard some people speak
about our next speaker here. This guy is somebody we've
met just recently over the last I guess probably about
the last seven or eight months, maybe a little bit
longer than that, as we are always looking for good vendors,
and his name came highly recommended from somebody else and

(00:22):
we said we put a deal with him, and some
of our suits have done some stuff and we've just
been just so excited at what he and his team
are doing. They really are awesome at what they're doing.
He's also an investor. He's the head over at Kobe
Financials just down on I thirty five in San Antonio, Texas,
but also the one of the principles at Sombrero Funding
I believe, which is a huge taxling servicing companies all

(00:46):
like that. But I'll let him talk about his magic
and his what he's focused on and how he is
putting the service back in loan servicing because there's a
big need for that and not every servicing company is
created equal. So for you guys who are looking to
have notes are tired with your service store, looking for
a new service, coming for a first jeal, You're going

(01:07):
to want to take a lot of notes, and I
guarantee that Eric Covie want let you down. But Eric,
we're honored to have you here on note camp. I'll
let you take it away and we'll go from there.

Speaker 2 (01:16):
Buddy, thank you so much. Yeah, I appreciate the intro.
Let me share my screen here, and yeah, Scott, you're right.
I mean, I think it has been even though it
seems like a long time, has probably only been about
less than a year. So it's been great to know
you and great to be involved. And you know, your
students have been fantastic. I know we've worked with several
and you know it's been a pleasure so absolutely. And

(01:38):
you know today, you know, I know, I've got about
an hour to talk about, you know, loan servicing, and
it really is you know, I think the way I
kind of describe loan servicing to people and kind of
what we do is, you know, closing loans, acquiring loans,
you know, buying loans like that's like the fun stuff.
You know, it's really a lot of fun. And the servicing,

(01:59):
you know, there's moments where it's awesome but uh, you
know it's really kind of you know, you it's like
a really and I think integral part of any loan,
uh to do things correctly, to deal with the borrowers correctly,
to manage a portfolio correctly, to handle things that arise correctly,
And it just takes a lot of thoughts. I think
it's the nice way I'm going to put it. It

(02:21):
takes a lot of thought and effort to do it
well and consistency, and you know, it's it's it's it's hard.
And you know, when when people don't pay, you got
to reach out to them. And it's just you know,
you got to deal with certain you know, life happens
to people and you got to be flexible and tough.
And it really is a difficult aspect of loans. But
what I want to talk today and I kind of
just one thing. And I know we're we're chatting here,

(02:43):
so please you know, I'm an informal person, so anyone
wants to chat a question like, please don't hesitate? Can
you see my screen? Scott even ask I'm sorry, Scott, Yes, yes,
yes we can.

Speaker 3 (02:56):
Great. Sorry.

Speaker 2 (02:57):
So as I as I go through this, I've got
my email here and if anyone just doesn't want to chat,
you can shoot me an email. All the slides will
have my email here at the bottom, and you're welcome
to one. Our website is just kobefin dot com. But two,
if you want to message me directly, I welcome it.
I answer my emails literally twenty four to seven. I

(03:18):
know I've got some emails Hilary late at night some nights.
Is because I'm maniacal checking my emails. But what I'm
going to talk about today is just kind of background
on me in the company. You know, for a lot
of note investors, you know, loan servicing is kind of
like an afterthought, Like most people don't think about the
importance of loan servicing and what it means, and you know,

(03:39):
really what it is. I'm going to talk about the
pros and cons behind out sourcing it. I mean, for
some people it makes sense to do it yourself, and
for some it doesn't. I'm going to talk about a
lot of things that I've done, like I've done personally,
and I've seen a lot of people done personally. Some
avoidable mistakes you can make is note investors to be
sure to not do. I'm going to talk about escrow formulas.

(04:02):
This is one where I think a lot of people
just you know, even in my industry, like I deal
with people who just can't explain how to calculate escrow
and I think this is just one to just every
time I'm going to be with you, Scott, I'm going
to talk about it just because I think it's so important.
And I'll talk to you a little bit about our
pricing and how we work, and then I'll conclude and
just open anto questions. But that's kind of my agenda
for today. So first and foremost me, uh you know,

(04:25):
I'm pushing forty, and you know, I graduated from the
University of Denver. I have a background originating and loans
for myself, and that's kind of how I got in
the servicing business. And I'll tell that story here in
a minute. But my some Borough Capital company, you know,
we've originated since twenty twelve over eight thousand taxlings in Texas.

(04:46):
It's been a you know, substantial ride, and it was
kind of combination of you know, we're originating so many
ten thousand and fifteen thousand our loans. You really have
to do a process much like a real estate loan
you or title, you get doctor viewed, you have a
closing with the bar where you get the documents back.
You got to fund, you have to send the payments
to that you have to actually fund and close. And

(05:08):
you know, we were doing the process on a high
volume scale from many little loans. And you know, one
of the things that I first invested in was, hey,
we got to be get some really good software to
do this and to manage it right. And that was,
you know, one of the integral pieces early on that
got me in the servicing business. Funny story, you know,

(05:32):
I actually the reason I really got into servicing business
is because my mortgage company, my serviceer, pissed me off
so bad. But we you know, I had a mortgage
back my first loan house had ever bought in twenty eleven,
you know, I had a you know, my first time
buying a house. And at the end of the year,
I called the servicing company to say, hey, you know,
I just want to make sure you pay my taxes.

(05:53):
I'm on ESCRO and just want to make sure everything's cool, right,
everything's okay. And sure if my servicing company said, yeah,
no promise for Kobe, you got enough money we're about
to cut the check. Great. So like the next month
rolls around and I have this twenty five dollars fee
on my statement and I'm like, hey, when the world
is this? And I called back to my servicing company

(06:13):
and I said, hey, like, you know, I'm on automatic payments.
What's going on? Like what's this fee? And they go,
mister Kobe, we charged you a twenty five dollars fee
because you called us. And I was like, you know,
you got to be kidding me. Like I didn't say kidding,
but you got to be kidding me, Like just because
I called at They're like, yes, sir, And I'm like,
are you charging me now? They're like yes, sir, So

(06:34):
like for fifty dollars. I started a servicing business because
I felt, you know, the way, and I did some
research the way these servicing companies and these you know,
lenders treat servicing I thought was just so wrong and
just you know, so fee driven, and it was just like,
you know, it was ruthless. I felt like it, and
I thought there's got to be a better friendlier way.

(06:56):
And I'll talk about our pricing later, but it was
really a combination of the high volume we were doing
in my sombrero business in Unison with you know, them
pussing me off, and not that I thought it wouldn't
it led to do what we do now. But in
addition to taxlings, I also have I'm anyone who's interested
in like raising money. I've been in private equity and

(07:17):
I actually have two hard money real estate loads that
I currently manage, and we've originated over twenty five million
dollars and dollars in commercial real estate loans in the
last three years. So that's been something I could help
out with. And then the volume that we do in
these two businesses, you know, we've been I've been involved
in purchasing and selling loans and I think the largest
one we ever did was twelve hundred and twenty nineteen,

(07:40):
and in twenty eighteen talking about due diligence and a
Larry gave a great presentation on you know, what to
look for and how to do things, and you know,
I'm happy to be a resource anyone, but we were
I was looking at buying a company in twenty eighteen
that had almost four thousand loans and it turned out
that that company, you know, lied through their teeth their

(08:05):
their assets were held by a receiver. They had no
right to sell the loans and it was a big
giant mess that we spent a lot of money on
that turned out bad. But we've I've been involved in
a lot of purchase in sales, private equity. I talked
about fundraising, and you know, one thing I've also done
a lot too of is I've received a lot of
bank loans and I've been denied a lot of bank loans.
You know, dealing with banks can be very challenging and

(08:27):
tough and presenting, you know, presenting a portfolio of real
estate portfolio lending portfolio could be very advantageous with some
bank leverage where you can borrow money at four or
five percent. But you know, this is a little bit
more complicated. But you know, I have some experiences that
if anyone needs help, background on the company. So the company,

(08:49):
you know, in twenty twelve, you know, after I bought
after I had the mortgage at mortgage story, that's when
I started Kobe Financial and it slowly grew. You know,
we started with you know, people who knew that we
had good software and eventually got to it's gotten to
be that you know, we serve over sixty clients in
over fifteen states. I know we're adding a few right now,

(09:12):
and we our current portfolio of mortgage is over six thousand,
which we're really proud of. And you know, we service
loans for private investors, you know, individuals. We service loans
for several companies like private equity firms. You know, I
think our private equity client that we service taxings for
has about two thousand of our loans, like they're one

(09:32):
of our biggest clients. We service a lot of nonprofit loans.
We service a lot of loans for habitats for Humanity
and the Fuller Center, disasters, and I service loans for
several governments in Florida, which has been nice and it's
been a great experience to do that with them. And
in that since twenty twelve, we've got a great experience staff,
we got CPAs, we got a network of vendors. I mean,

(09:54):
it's just it's gotten to be like a system, which
has been nice. So that's background on me and the company,
and I think I want to talk a little bit about,
you know, for lenders, for people who are buying notes,
you know, what exactly is loan servicing And I think
you know, I tried hard to make this concise and simple.

(10:15):
Uh and like you know, one of the one of
the most difficult things was, you know how I can
put this very briefly and keep it to one hour.
But what is loan servicing? A lot of people just
have no idea, and I mean in a very simple way,
you know, the administration of a loan between a barrower
and a lender. And you know, when note investors buy

(10:38):
loans or you know, transact, it could be that the
note investor you know, for a variety of reasons, wants
to either do with themselves or outsource it. But a
lot of borrowers feel more comfortable that there's a a
third party with no financial interest in the property and
the loan, like just for like a flat fee, you know,

(10:59):
just a will administer the payments like receive them, let
them clear, then disperse them. And the way we do
things is, you know, if a borrow or pays seven
once it clears after seven days, will release the funds
to the lenders. So the lenders for us get money
fairly quickly, along with statements and all. But then you know,
so just this is like a very simple way of

(11:19):
saying it, but like there's a whole lot more deepness
that goes into it, so management of loan payments and
terms after closing. You know, one thing that I've learned
in this business is there's actually, like there's various ways
to calculate interest.

Speaker 3 (11:38):
There's a.

Speaker 2 (11:41):
You know, do you do three sixty five days in
a year? Do you do three hundred and sixty days
in a year, or do you what banks do was
this is a three sixty five three sixty, which is
like effectively a higher rate than advertise. So that's like
three interest rate calculations. In Canada, there's actually a unique
Canadian memorization way of doing it, which is something that

(12:02):
we learned recently. We don't service any loans in Canada,
but you know, if you ever, you know people along
like Michigan and up in the Northern States may have
something up appear in Canada that you got to be
careful on Canadian amortization because apparently it's different. I'm not
familiar with it, but apparently that's something to keep an
eye out for them. But like, you know, one of
the things that we do, and I think this is

(12:23):
really important when you when you are diligencing a deal,
or even like preparing your documents with your attorney. Make
sure you get terms in there that can actually be done,
that either yourself or your servicer can do. And the
simplest one is three hundred and sixty five actual days
in a year. Like, hey, if you charge twelve percent interest,

(12:44):
you know, and there's thirty one days in May. You know,
that's how it actually works. Where if you say, hey,
there's only three hundred and sixty days in a year,
you know, every month has thirty in February is where
people get mad in well, hey there's only twenty eight days,
be trying to be thirty days. It's like, hey, that's
just what the docs say. It's you know, three sixty

(13:07):
and this month you've got penalized a little bit more,
but overall it's you know, that's the way it works.
So the management of loan terms, it sounds simple, but
it's a little bit more complicated than it sounds. And
also the proper application of payments pursuant to the terms.
So back to what I said about you know, how
many days are calculated the promissory note and how the

(13:28):
interest is determined. You got to make sure the system
applies it. And if you just do it in Excel,
I believe Excel it's it's it's Excel assumes there's actual
days in a year, where if you have like a
a three sixty year or a three sixty five three
sixty interest calculation, Excel may not be accurate. So you know,

(13:51):
when payments are applied, you got to make sure, hey,
actual days are determined. And you also got to make
sure you're not violating near the local or federal laws.
And what I mean by that is I can't tell you, Scott,
how many loan documents I have seen where like certain
things are like illegal, like not well, I'm not gonna
use the word illegal, I'm gonna say not right. And

(14:14):
a good example is a lot of states have certain
grace periods, like I know Texas, at minimum, you have
to have a ten calendar day grace period. And I'm
on boarded loans and I've seen the documents say five days,
and it's like, no, you actually, you know it's great
that your documents say that, but this is a residential loan.
This is the law, and you know we're going to

(14:36):
make it ten days to conform, right, And then some
some states have fifteen and you know, and that's just
about grace days. A lot of states have rules on
how much you can charge for late fees and NSF
fees and all sorts of different things. And you got
to make sure that whatever you do on someone's loan
not only gets applied correctly, but conforms with all laws.

(14:59):
And also too. Applying loan payments, I think a lot
of people think is like easier than not, but there's
actually there's a variety of loan payments. There's like a
regular loan payment, there are irregular loan payments like interest
only extra principle only the principle like, there's irregular payments
that arise that like you know, you have to apply correctly.

(15:21):
And the most complicated way of ever thinking about payment
application is if your loan ever falls into bankruptcy. Bankruptcy
law is so complicated that I have talked we have
network of attorneys we work with, and the problem with
bankruptcy and payments are there's no uniform way. It's really

(15:44):
you have to read the bankruptcy case one by one
and apply the payments as the judge requires. So it's
really like anything you can think about payments before it
gets thrown out the window. In bankruptcy, you have to
like literally follow what the judge says. And also and
it's just it's it's extremely complex and hopefully if you
all ever buy a loan or in bankruptcy or falls

(16:05):
into bankruptcy, I highly recommend you know, making sure you
have a really good attorney that represents you as a
leanholder in the case. And we have a network of
people who need that. So in addition to these first
two things, the next big thing that servicers do and
what they need to do is maintain accurate records. So

(16:28):
records include all the payments, whether they're regular, regular, all
the event longs like you know, call calls that come in,
calls that go out, all the statements that you send out,
whether they're regular payment statements, late notices, essef notices, you know,
delinquency notice, whatever it is. Like, you have to maintain

(16:50):
those records accurately because a lot of people don't know this,
servicers and even lenders who do it themselves, like a
lot of but servicers get audited, like I get audited
from time to time by certain state regulatory agencies, and
you know they come and inspect all of our books
to look at everything we did. They'll say, hey, why

(17:11):
did you charge an NSF fee on this person. Well
we'll say, well, look they mailed us at check it
defaulted or didn't clear. Here's the transaction. You have to
literally have like the world's biggest paper trail, and especially
when you're talking about residential loans, just because the CFPP
and the rules are only getting more and more consumer friendly.
You know, they protect consumers, not you know, us, the

(17:33):
commercial lenders or the commercial servicers. So maintaining records, I mean,
this is one I mean also too, like loan files.
You know, you got to you know, one of the
things that we do is every time we onboard a
portfolio from our clients, you know, we make sure that
the loan documents are in there, all the closing documents,
anything that we you know, the insurance documents, attacked, anything

(17:56):
that related to the loan. We have to make sure
we hold on to it because you know, you have to.
Every loan is different, every term is different, and you
got to like look at them and make sure everything
matches perfectly. And anything that you send to the bar
where needs to be maintained and anything that you say
to the bar needs to be recorded or saved somewhere
in like a log. Servicing also includes you know, compliant

(18:20):
and proper notifications to Barrow for certain events. You know,
a lot of I have a lot of note investors
who you know, think that they'd like us to do
things differently, Like we notify people of their payments ten
days before they're due, and I've got some people who
tell me you need to do it differently, and it's like, look,
trust me, you know this is compliant. It's fair notification.

(18:41):
And like, you know, we can't harass people. You know,
you got to give them a notice of when their
payments do, notify them when they're laid, and then you
can start calling them after about twenty five days. You know,
you got to respect some privacy to some degree for
some of these people. And it's hard for some lenders
because you know, this is money that you know, you
expect and we're well aware of that. But you know,

(19:02):
we can't control when people pay and don't pay, and
you know, we got to at least be compliant and
not you know, harass people. But notification is a big one.
You know, you got to make sure that's consistent. You know,
you know, you have to send a monthly invoice for
their payment statement, you know, and with the way we
do do we send it via regular mail, email and

(19:22):
text message. We send someone a trifective notice is like
hey Scott, in ten days, you know, your mortgage payments
due on the first, and then you know, after they
missed their grace period, well we'll send a late notice
the same way email, regular mail and text message like
hey Scott, you missed your payment, now you got to
pay this. And then have around the twenty fifth we

(19:43):
send like a formal delinquency notice and then we also
around we do a forty five day and a ninety
day certified letter and that's compliant back to you know,
going on the next bullet here, collecting and dispersing funds
properly between bars on lender like this is one that
sounds so simple, but you know, depending on how much

(20:04):
P and I you get principle and interest based on
the payment application, you got to make sure that that's
properly dispersed. You got to make sure that the barrower,
you know, whenever we do the end of year ten
ninety eight forms UH and the lender ten ninety nine forms,
like you know, the interest being applied correctly to the
correct lender, to the correct barwer, you know, allows us

(20:24):
to do all of our end of VIOR tax reporting properly.
So collecting and dispersing funds is so huge. I mean,
that's like the most integral part of what we do,
and that's where we spend a lot of time on
making sure our system is accurate. The next item that
we do, and this is probably repetitive, but processing and

(20:46):
crediting the payments. It's you know, synonymous is what I
just said that you know, you actually you need to
receive the payment. You have to actually post the payment.
And posting the payment includes two things. Registering in the
servicing software which applies a principle and interest reduces the
loan balance and you know does what it does, moves

(21:08):
the next payment, and you also have to deposit it.
And a lot of servicing companies get in a lot
of trouble lately because what they'll do is they have
these lock box services, you know in Phoenix or who
knows where, out in the middle of note well, out
in some other distant place, and you know, people will

(21:28):
send payments. They will be received and deposit in their
bank account, like you know, on a certain day, but
the servicing company doesn't get the report from the lock
box bank until like two weeks later to post it
to the loan payment. So there's like a two week
period where someone logs in online their payment has been pulled,

(21:50):
it's been deposited, but they're showing up as late, and
depending on the timing, maybe they're credit reporting shows them
as negative. It's like a huge problem for servicers. And
you know, we and we had to fire our lock
box during the heat of COVID in about April of
twenty twenty just because it got so bad that we
get the mail here in San Antonio, just because hey,

(22:12):
if we grab a payment and we you know, we're
going to deposit and post it in our system the
same day so we don't have these bizarre lacks. And
this is even though it sounds like something I talked
about before, it's a little bit different, but it's it's similar.
Another one thing that servicing companies do is, you know,

(22:32):
in addition to like statements, you know, communicating with homeowners
early when payments are missed to help them avoid falling
further behind. So what we do is we call people around.
If their payments are doing the first and they haven't
paid by the twentieth, we call them. The rules say
you got to call them by the I think it's
either thirty one or thirty six days according to CFPB,

(22:54):
but we call them much earlier because one, we don't
get paid our servicing fee until funds are collected, so
we're incentiviz to call people, but we're friendly about it.
But two, you know, we know our clients. You know
they value that we do more than the bare minimums.
We try to call people early to get them to pay,
because if they call it thirty one or thirty six days,
then they're two months behind, where when we call them

(23:15):
at twenty days, there's still just one month behind. But
you've got to make sure that, you know, especially these
last couple of years with COVID and everything in the
world going on, people being laid off, you know, it's
it's been a challenge to make sure that homeowners get
contacted early and you know, they get set up with
some type of option. Options include we can do an

(23:39):
informal we can do an informal arrangement. Hey Scott, you're
two months past due, your payments are two hundred bucks.
You know you four hundred bucks. Why don't we pay
one hundred dollars a week until you're caught up, or
one hundred and fifty bucks every two weeks since your
co We do a lot of informal arrangements and it's
been successful. If someone is really in a bond, loan

(24:01):
modifications is one that we recommend our clients to do.
And you know, I don't know if Larry's still on
this call or not, but I love this story about
Larry where he sent us his first loan. He bought
a non performing loan in South Carolina and he the borrower,
was with a previous servicer who she'll be left unnamed,

(24:22):
and the borrower I looked at the payment history and
he was making payments for the last twenty four months
fairly timely. I'm like, huh, that's a really good sign.
That's great. So one of the things that we did
is we made a welcome call to this client, and
that's what we do for all loans, but we made
a welcome call and we're like, hey, you know, we
see that you want to be on an automatic payments.

(24:43):
That's great. We see that you're three years past due,
but you've been paying. Have you ever thought about a
loan modification? And the guy was like, look, I've been
begging my previous servicer for years. I would I need that?
And Larry, you know, paid a fraction of the loan balance,
and you know, this worked out really nice for Larry
that he ended up having a fresh start to a

(25:05):
brand new loan that's performing and it's very valuable now.
So loan mods aren't necessarily bad things for people who
don't pay, and it really just depends on what the
circumstances are for the loan. And if you see like
any recent paper trail of payments, a loan mod is
a great way for a note investor to buy a

(25:27):
loan at a discount and improve the face value of
the note by making it a new, performing, brand new,
badass loan. So that's one of the scenarios that works
out really well. But for people who can't pay and
just struggle and they've got a good story and it
makes sense and we've seen like a level of effort,
I think every person deserves at least one loan mod

(25:49):
But we've got clients who've done it, burned our client
and just you know, end up being foreclosed on just
because they were just took advantage of something nice. Short sale.
I've actually none of my clients have ever been involved
in a short sale. And for those of you who
don't know what a short sale means, that would mean,
if you know, the lender would have to take a

(26:09):
loss in order for the barrow or to sell the property.
And I think these things happened very rarely and they
shouldn't happen. And it really has to do with like
what the value of the property is, what the LTV,
the loan is. And I think a lot of people
would make a mistake by you know, not requiring any
money down from a barrower to buy a property. So

(26:31):
I could you give them one hundred percent financing, you know,
and then some for like closing costs and other things,
and they put no money down, they got no skin
in the game. Short sales could arise because maybe you
leant too much money against the value of the property.
A deep and lieu of foreclosure. We we've done a
few of these for our clients where the customer the

(26:51):
bar just says, look, I just can't afford this property.
You know, it's over. I'm like in over my head,
you know, I just want to give it back to
the lender, and a deed in little foreclosure is what
happened in those situations. So bars you fall behind, we
have to give them several options because we service CFB
requires that we we have to give them options. But

(27:12):
just because if they apply for a mod or something
doesn't mean the lender has to approve it. You know,
the criteria for underwriting and indiligence must still be met.
And yeah, let me keep going here. I hope y'all
are still there. I know I've been on a monologue
here for a while.

Speaker 3 (27:29):
You're doing good.

Speaker 1 (27:29):
You're doing good, Eric, I was to say, short sell
sometimes will come in handy to the neighborhood has dropped down.

Speaker 3 (27:36):
We you know, to beend not far behind.

Speaker 1 (27:38):
We've bought some stuff that we bought such a big
discount off the UPB you know, and then we're you know,
the bar was trying to sell it, but the previous
bank wasn't responsive, like you said, previous servicesor wasn't responsive.
And when we moved itt somebody, they were like, oh,
you want to do a short seale. Okay, what do
you want to sell it?

Speaker 3 (27:55):
What can we sell it for?

Speaker 1 (27:56):
Talking to the realtor out there, like, well we got
a cash offer, this, like, let's do it. Let's just go,
you know, because we're gonna it's a win win there
at the point they get in and move on. But yeah,
we don't seeing in the last few years. But you know,
with some with some of the stuff that we're seeing,
i'd be I would be surprised we see some more.

Speaker 3 (28:13):
Of those over here the next next twelve to twenty
four months.

Speaker 2 (28:16):
Oh yeah, I heard a Zillo stat. I mean, San
Antonio is a hot market, just like Austin. Like I
think San Antonio is now the fastest growing city in
the nation. But I heard an interesting stat here that
home prices on Zillow have average dropped fifteen percent in
the last handful of months. And I'm sure other states

(28:36):
or cities may be similar, maybe worse. Austin, Scott, You're
probably not experiencing that because Austin's so crazy, but short
sales arise in rare scenarios. But you're right, if you,
as a note investor, buy something at a cheap enough,
at a discount, ye, a short sale may be the
biggest win win for everybody. Yeah. Absolutely, Like my.

Speaker 1 (28:56):
Neighbor across Lily across the street, he bought at the peak,
he paid five point fifty for his house. Well, comps
now are not at five fifty or five seventy five.
I think maybe he paid it's more at five hundred,
so he you know, that's gonna take a little while
for that to come back to get where he was
based on comps in the market.

Speaker 3 (29:15):
But you know, it is what it is.

Speaker 1 (29:17):
He if he rides it out, great, but if something
happens and he loses a job, he's upside down by sending.

Speaker 3 (29:22):
Five grand, you know what I mean? And absolutely, you
know that's uh.

Speaker 1 (29:26):
You see, I talked to a lot of short sale
agents because it's kind of one niche that we target
for potential to stress debt.

Speaker 3 (29:32):
And they're seeing an increase.

Speaker 1 (29:34):
Definitely in Dallas and Houston, especially on that like five
hundred thousand dollars price ranger above, they're seeing that starting
to sneak up. You know, a lot of builders are
slashing their prices because the the euyers are walking away.
That's not really a true short sale, but it kind
of is a little bit.

Speaker 3 (29:51):
You know what I mean.

Speaker 2 (29:52):
Yeah, and I think you know, to me, this is
so rare maybe for you. So anyone ever thinks about
this or has a question, I think just email Scott
or somebody or I and will happily help you. But yeah,
these things don't happen often. I think a lot of
them happened in the eight financial crisis with the falsified appraisals,
but now in the real appraisal world, it shouldn't happen. Okay,

(30:14):
So yeah, good to know y'all are still there house.
I hadn't heard from anybody in a while. So that's good.

Speaker 3 (30:19):
You're good. You're getting some you get some love on
YouTube as well. All right, good, we're good, we're loving it.

Speaker 2 (30:25):
Let me go ahead and continue here. So another thing
that servicers do is, and it sounds strange, but you know,
relationship building between the bar and lender. You know, I
gave an example on Larry how we kind of helped,
you know, the financial relationship there. But we try to
be like middlemen, so for instance, as much as we can.
You know, sometimes we've got clients who want to call
the bar directly, like I don't know, ask him a

(30:45):
question who knows what, but or deliver bad news like hey,
you've been denied your own modification. Like we react as
intermediaries between our clients and our lender because sometimes if
they interact directly, it gets a little hostile, you know.
And you know sometimes borrowers will plead and just not
accept no for an answer, and you know, it helps
us just keep the relationship professional. And I mean, I

(31:09):
think this next topic for me, I mean, I can't
tell you enough how ESCRO is important for loans. I mean,
this is one where you know, this is this is
could be a seminar in and of itself, but properly
managing ESCRO for accounts and their calculation, I think it's
one of the biggest reasons why I think people should
hire a servicer the way leans work, where property taxes,

(31:33):
I mean, insurance collapses, and even there's other things like
HOA bills, Like I mean, there's there's so many things
that can supersede a deed of trust or a mortgage
that I think just by simply collecting ESCRO, whether it's
for property taxes, insurance, or HOA, not only protects the
borrower but ultimately protects the lender you guys here on

(31:55):
the class and I honestly would never advise anyone to
not like to to disallow escrow. Like, if you have
a loan like escro should be required, no if hands
or butts, And if you can't afford the payment with escrow,
it's a bad loan. And like, think about that. If
you want to do a loan a ten or twelve percent,
but they're saying, man, but that ESCRO payment a five

(32:17):
hundred or eight hundred bucks for the taxes and insurance
I can't afford, don't do the loan because if they
can't pay it, what makes you think they'll pay it later?
You know, without escrow, without escro just kicks the can
down the road and it just makes a big mess.
But services handling this stuff is like, I think the
biggest reason why you know, why people should hire service.

(32:40):
I look at the question that you're talking about. If
we are going to originate alone, right, yeah, so I'm
going to time them in here, David, So requiring escrow.
As a lender, you can dictate when you originate the loan. However,
if you like, let's just say you buy a loan
and let's just say the loans in default, right, like

(33:03):
they're passed you on payments or who knows what a
modification what you call the customer and say, look, I
bought your loan your new lender, let's talk to you
about getting you on the right track, right, And that's
like the greatest way to reach out to someone. And
just like, look on your new lender, you sound reasonable. Hey,
I want to work with you. Your past due, how
can we get you a fresh start? By the way,

(33:26):
let's agree to your payments start And I don't know
September fifteenth or September twentieth, but I'm going to require escrow.
So it depends on how you buy a loan. But yeah,
you can dictate terms easily when you originate loans, but
when you buy a loan, the pain and the circumstances,
you can probably modify it to it. And also too,
when you buy loans if they don't have Escro accounts.

(33:50):
This is where I mean when me like I've had
a background of buying loans and I've helped some of
my clients. You know, look at stuff on diligence items.
If you buy a loan that doesn't have ESCRO, that
should be like a red flag, you like, go check
the taxes, request that proof of insurance, like the lender
should have it. And if the lender the seller doesn't

(34:10):
have it, they should contact their bar for proof of insurance.
And you know it's it's gonna be hard to change
the terms if you buy a loan. But if the
if the loan's current, if the insurance is in place,
that the taxes have been paid for a while, that's
probably a fairly good trust. But without ESCRO, you need
to keep your eyes on it. And I know we
we do insurance monitoring and we do tax monitoring, and

(34:33):
we can we can tell pretty early on if someone's
a linkment on their taxes. So, David, I hope I
answered your question there. And if you if you've if
I didn't, please shoot an email. I can explain that
in greater detail. So let me look here, Carolyn, you're
asking me what are the fees for doing workouts with bars?
I'm assuming this is an extra cost. So here's what

(34:54):
I'll say. Uh, if we do like an informal payment arrangement,
like hey, Carolyn's paying one hundred bucks a week, we
don't charge anything and we don't practice law at my company,
and what I would recommend. This is what I recommended
to Larry the loan modification that he did. Larry and
his attorney did it. We weren't in We we don't

(35:14):
profit or we don't make any fees or doing it
like I'll talk to you about how we price ourselves
here later in this presentation, but we don't. We don't
charge anything for workouts. The loan modification shall be done
between the lender and the barer, and I recommend the
attorney prepares the docs. And you know you're better off
spending three hundred dollars on legal fees and paying a

(35:36):
servicer a couple hundred. You know, we don't charge anything.
But if a service or charges stuff, that's I think
it's wrong, but some do. But we don't charge anything.
Rob Stokes asks, please careify you say SA supersedes so
homeowners associations. I know this in Texas, and I think
these are state specific rules. You can definitely check your state.
But in Texas, if you don't pay the if there's

(35:59):
a community with a home owners association, and those HOA
fees aren't unpaid, like they're not very much like what
five hundred bucks a year one thousand bucks a year.
If those things aren't paid by the property owner, that
will supersede the lean position. It's a special hoa leen
in Texas, and they have the ability to foreclose in
front of you. There's rules that they have to notify you,

(36:20):
and a lot of them do, but it's it's something
that's seriously consider and Rob, I hope I answered your question.
And one thing I'll say to you about lenders. I'm
going to talk about some common mistakes. But you know,
I have a greater relationship with my attorney and we
talk all the time, and we've negotiated flat pricing, Like, hey,
if I order doctor, it cost me x You know,

(36:41):
if I call you with a question, you don't charge
me like I'll just but I order a bunch of
stuff from you, and you just flat pricing. And you
know your attorney's going to be a great resource to
what the local laws are. I mean, I don't trust realtors.
I don't trust you know, other lenders. I want to
hear it from the attorney who represents my best interest,
and that's the best way to get rules clarified. Spending
a couple hundred bucks on an attorney might save you

(37:03):
tens of thousands later. Well good, I hope answered these
questions here and if they keep and feel free to
keep them rolling in if you have any more. Okay,
I talked about ESCRO accounts, credit reporting. We report to
the three credit bureaus. There's actually I think five. Uh,
there's TransUnion, Experience, Equifax, there's a Novis, and there's a

(37:28):
new one. I can't remember the name of the new one,
but there's technically five. Just you know. But a lot
of borrowers, if they're good payers reporting them positive, the
credits are great. And if they're bad payers, you know,
they get penalized. So credit reporting is a big one,
and I think it helps lenders get payments if they're
going to pay.

Speaker 1 (37:47):
I think it's a great I think it's a great
bargaining because we've bought stuff where it was owner finance
and somebody wasn't paying for it to be credit reported,
and if we find out that that had been reported
in a lot of times performing you know, we've had
bars like listen, if you start paying on time, we'll
start reporting to credit here.

Speaker 3 (38:04):
That'll boost your credit score.

Speaker 1 (38:05):
Yeah, you know, and then twelve months or whatever, you
can get refinance out of this if you need to,
you know. And I think that's a thing that people
don't recognize. That's actually really really about not every servicing
company reports to all three.

Speaker 3 (38:18):
Someone will report to one and that's about it.

Speaker 1 (38:21):
So that's a huge it's a that's a huge bargaining tool,
I think, in good and bad for folks that like, oh,
I'm gonna get refinanced.

Speaker 3 (38:29):
Well, you've been reporting credit.

Speaker 1 (38:30):
Now you're not gonna go get a traditional mortgage or
refinanced me out for twenty four months, so let's do
a deed and lou or a short sail or something
like that. So yeah, it's a I'm glad to hear
that you report to all three.

Speaker 3 (38:39):
That's awesome. Marriage.

Speaker 2 (38:41):
Oh yeah, No, credit reporting is great, and I mean again,
I think it it keeps the bad actors away and
anyone who's on the fringe of being a good actor
becomes good. So credit reporting is great for lenders and
note holders to consider when getting service. I got a
question here about answer of servicing your company. Interve servicing
is actually really easy. Uh, maybe let me know what

(39:03):
states these loans are in, but you know the transfer
process we've done so many of them. That data is
provided by the previous servicer, and then we got to
notify the barrow. We're about fifteen days prior to the
transfer date. We'll sign a servicing agreement and then we'll
get final data on the transfer date. And it's it's
really easy. But what we would I would recommend to

(39:26):
that is, you know, we got to get a pay
history from the previous service or a full pay history,
any itemization of charges that are on there, and I
copy the loan documents and we'll be good to go.
But yeah, that's that's it's really easy. Let me kind
of get through this year and now that I'm actually
word a run out of time. So next part. Next
part of this is implementing compliance and sound policies. And

(39:48):
this sounds so simple, but it's huge. I mean, there's
a lot of companies out there that have ceas and
desist orders from state regulators. There's a lot of companies
out there that are unlicensed. I mean, just dealing with
like the basics of being licensed, compliant with local laws,
doing things soundly according to the CPB, and doing it consistently,

(40:09):
like you know, you'll be surprised if you start googling.
You know, one of the things that I do in
my free time that gives me a lot of amusement
is I google my competitors and reviews, and I love
seeing the things they do wrong. So definitely looking to
do that whenever you consider someone. And again, consistent processes,
that's like, that's I think the biggest thing. A lot
of a lot of people who bring loans to me

(40:30):
that they've done it themselves. You know, it's hard for
the lender to go on vacation and to the phones
get statements out consistently if they do it themselves. And
here we've got a staff that you know, and system.
It doesn't automatically. We have an annual audit every year,
so that also helps us make sure and I think
any any service or you consider needs to make sure

(40:52):
that it's a financial audit to make sure all the
funds are being collected and distributed properly. We also have
like a dedicated bank account for our clients' money, so
we hold our clients money for a few days and
we spit it out. It's not com mingled with our
operating accounts. And then we've got a professional staff that
helps us manage portfolios. We've got monthly meetings with our clients.

(41:12):
You know, we we do so many like reports. I
mean I literally could talk about reports for hours. But
you know, we've got a great A good servicing company
should have a big paper trail, great reporting, great staff
and just good consistent things that they do. And you
know what one of the biggest ones is they should
also treat people nicely. We've been getting a lot of

(41:33):
loans lately from a company that shall be your name,
name list, and just because they're jerks, it's like, great,
thank you. You know, I love it. And you know,
simple things like that make this business work.

Speaker 1 (41:45):
It's a small business. It's a small it's a small thing.
You treat your clients like shit, people will find alternatives.

Speaker 2 (41:51):
That's right. But here's really what servicing is like. Uh,
you know, we have moments like this with some people
that you know, when we talk about how pay to apply,
how interest was applied, how there's days between Hey, if
you're seventy days behind, the first thing you're going to
pay is seventy days of interest. And some people just
don't understand. And we have moments like this where it

(42:12):
can be you know, a tough business. You know, we
have it. It's really customer service. You know, we have
to answer questions. We especially lately with COVID and hardships,
we've we've literally had to be therapists to all of
our clients are borrowers just going through hardships. But you
know this is more of a joke. It's not to
be serious. Okay. Now, let me talk about like some

(42:35):
pros and cons about outsourcing servicing. And you know, I'll
talk about the pros first and again. If then anyone
has something I didn't think of, please speak up. I'd
love to talk about it. But pros are I cannot
tell you how much money we have spent. I have
spent on software employees, all the above overhead that you know,
the people who come up with me for fifteen bucks

(42:57):
a month, you know, really just benefit all. You know
the complex systems we've set up over the last ten years,
and you know this, you know custom processes and statements
and all anything that we've done so you avoid substantial
software costs. And yes, there's some cheap software out there,
but I can tell you I've seen it all and
it's not worth the you go it to pay for

(43:19):
and it's not worth it. There's also like you avoid
the learning curve of how things should be done. How
do you handle what if someone? How do you force
place insurance? Uh? You know there's back to property taxes.
There's a taxing on it. What do we do? Uh?
You know, you avoid a huge learning curve by outsourcing

(43:39):
servicing to a good serviceer, that is, and you piggyback
off our experience and also our network of vendors. You know,
we've got attorneys we work with and vendors that you know,
we've got preferred pricing on and they're really good and
they can handle high volume. No. I've onboarded loans from
other places where I mean like the attorneys should be

(44:00):
like disbarred, you know, like it's been like horrible, you know,
literally like negligent actions. And I think my client ended
up pursuing their attorney for that. Let's see here. So
you know, you avoid a ton of overhead, including staff,
and I mean, you know we also the benefits of
outsourcing too, is you know we have there I'm in

(44:21):
the office right now. We've got office hours here on
Saturdays as well, and you know, we've got customers. We
have a staff. We've got office hours. You know, we've
got phones that can be answered and people to answer
questions where the lenders literally for fifteen bucks a month
can just do that. And you know, do you know
benefit off off outsourcing it? Other pros are you know,

(44:45):
you've got a compliance you know, we've got to be
audit trail. This is something that a lot of people
don't really know what this means. Property tax monitoring. So
property tax monitoring, I think people think it just means, oh,
you just go to local tax office and look up
you know what's going on, and pay it when it
comes up. We actually have a vendor that helps us,

(45:05):
you know, determine every month are the property taxes zero?
Is there a new assessment that came out, is anything
new or anything changed? And hey, when the property taxes
are due, what amounts do and like pay it timely?
And insurance monitoring this is something that we have as well.
This is the big one. I mean insurance management literally

(45:28):
is like the biggest pay in the butt for people.
Because I don't know if anyone this call has ever
had a barrower switch insurances, cancel insurance, or just do
something crazy without telling you and it happens all the time.
People switch insurances and cancel insurances all the time. And
what happens is the insurance company sends the refund back
to the barwer. Then let's send it back to us.

(45:50):
So we get a notice and we have a system
now that electronically can say, oh, Scott Carson canceled his
insurance last week, So we got a call Scar Carson.
It'll be like, whatever you do, don't cast that check.
But sometimes Scott Carson will say, man, I spent it
last weekend with my family. I thought it was free money.
And we're like, well, we're going to redo your escro,

(46:12):
we're going to pay your new insurance. We're going to
force place it. And your ESCRO account's about the double.
Your payment's about the double. Like insurance monitoring is one
that you know protects the ultimate collateral. And barers do
some really crazy things sometimes and they spend the money,
and you know, we we have an electronic way of
keeping track of these things to make sure that things

(46:35):
are covered and if and if the bar were like to,
the electronic database of insurance will notify us, Okay, they
got a new quote with State Farm, then we'll pay it. However,
if they cancel it and they don't have a new quote,
we force place it the instant they cancel. So our
insurance monitoring is probably one of the biggest prize things
that we do just to make sure that the the

(46:57):
collateral is covered. And I think ultimately, you know, I'm
not going to beat overhead again like stress relief. I mean,
you know, avoiding running a business, running the you know,
collecting payments, processing and do them. All that we do
is a big stress relief if you outsource servicing. Let
me talk about the cons of outsourcing servicing. And you

(47:17):
know a lot of people think that hey, I can
do this better myself, or I can do there and
excel and save money, and you know, whatever it may be.
And you know, for some people maybe that is the case.
It's really up to you. But you know, the cons
are you lose a media control. And I mean I've
got some clients who say they want me to do
things in a bizarre way or ways they think is better,

(47:39):
and it's just like, hey, we've got to have a
consistent flow of things that works for thousands of people,
and I can't just do it for your one loan
or I can't change the wording on your one statement.
I mean, this is like federally approved stuff, you know,
so loss of control. Certain things may not be your liking.
But like you know, we as a servicer, we respond
you know, in twenty four to forty eight hours at

(48:00):
the latest. And I think holidays and weekends probably put
an impact in our response times, but we're pretty fast
about responding.

Speaker 3 (48:08):
You know.

Speaker 2 (48:09):
Again, statements may not be word it's you're liking. Practices
maybe slightly different, but you know, we've got an overall flow.
But again, one thing to consider too is when you
buy loans. Certain states are different. This is where it's weird.
But like certain states, you might have to be licensed
to service alone. You may not be entitled to you know.

(48:32):
Oh it's a you know, it's mind alone. I can
do it myself, like some states allow you to. But
some states say, hey, if you have more than five
you got to be licensed. And there's a regulatory requirements.
You know, you got to keep up to date on
changes to local and federal law. And if you escrow,
if you escrow, if you ask, if you're holding escrow funds,

(48:54):
you gotta be really careful with that. With a borrower
because sometimes you got to do refunds. Sometimes taxes and
insurance does get lower and you got to calculate and
refund the people. I've got a question here. Does COVID
monitor HOA payment status? So there's actually no electronic database
like there is for insurance on hoa's. However, what we

(49:15):
do do for no additional price, we escrow the HOA
as well. And we have some clients who have HOA
payments every month, quarterly, bi annually or annually, but we
prefer to escrow it to satisfy this concern from r J. Santiago.
So those are the cons behind servicing. And you know,

(49:39):
some people just want to control, some people want to
do it themselves. Some people want to you know, figure
it out. And you know that's the case. That's okay. Uh,
let me go ahead, and r J. I hope I
answered your question. Let me go ahead and talk about
some of the avoidable mistakes that I recommend. So when

(50:03):
you when you originate a loan or when you buy
a loan or portfolio, I really recommend reviewing and reading
the documents, and if you originate it, your documents should
be reviewed by an attorney. Again, I can't tell you
the borrower will pay in the closing costs. But even too,
if you buy a portfolio you spend a few hundred
bucks on an attorney, I mean it can avoid tens

(50:26):
of thousands of dollars a mistake. So I think getting
a good attorney to represent you, I think it's key
to running no a note business. Well, so getting doctri view,
reviewing documents, and having new documents prepared by attorneys. I
think it's key. One thing that we see a lot
of is, hey, we get loan documents from people and like, hey,

(50:47):
what's the borrower's phone number, what's their social Security number?
So you can report them to credit bureas, like what's
their email address? Not collecting borrower contact info, not asking
the seller to provide it. I mean this is stuff
that you know. One thing I'll say, when you buy
a loan, before you give the before you give the
seller money, that's when they're willing to give you stuff
and be and work with you. After you give them

(51:09):
the money, you'll never get a hold of them ever again,
see you. So make sure you get everything you need
prior to it, and you know borrow contact info. It
sounds so easy, but there's a lot of times we
don't get it. We talked about this earlier. Not requiring
escrow or being lax on escrow is one that I
think could be easily avoidable letting borrowers pay their insurance directly. Mmmmm,

(51:32):
I'm just I'm a known I'm skeptical now, so I
don't trust people, So I would not recommend letting them
pay the insurance directly if they're going to pay it.
You know, it's not like we make us spread or
you make a spread by collecting the phones. It's just
you know, the escrow the total amount, you know, divvied
over certain months with a little cushion, and there's no

(51:53):
profits made on the ESCRO portion. It's actually legal to
make money on the ESCRO portion. It's really just a
straight pass through miscalculateing the ESCRA payment. I'll talk about
this here in a second. Processing loan payments and excel.
I think we talked about this earlier. How I talked
about how there's certain interest calculation methods and you know,
I think it's it could it depends on how you

(52:15):
do it, but like it could be inaccurate either in
the barer's favor in the lenders favor and excel is
it's okay. And if you only have one loan, you
might be able to get away with it. But if
you start having multiple loans and it gets a little
complicated and you have regular, regular payments, you know, excel is,
excel is tough. And this is something I kind of
talked about earlier. You know, whenever you talk about buying loans,

(52:39):
your diligence is key, and you know, never let the
seller convince you to make poor decisions. Well the seller
said he was he's been paying insurance directly, so you know,
or the seller said it was okay in my state
that we could charge twenty five percent interests. You know,
like whatever it is, like, don't listen to the seller.
Your best ally is your attorney, and stick to your

(53:02):
dollunsents items and don't cave. You know, you got to have,
like bankers, you know, rapport and diligence and if it
fits your if it fits your box, buy the loan.
If it doesn't, either get a big discount on it,
or you know, move on. There's there's a lot of
bad loans out there to be bought, and I just
don't want you guys being one of them, let me
continue on here. So ESCRO formula is this is a

(53:25):
big one, and I think I'm gonna try and just
leave here for a second to talk about this. So
in this example, I get a lot So a lot
of people will say, well, man, you know the total
ESCRO obligations, you know, twelve hundred dollars year. Why don't
we collect one hundred bucks a month? Right? Well, what
if the taxes are due next month, we have no

(53:48):
money in our restro account. What if the taxes go
up like everything else in the world, do to inflation
and everything next year? What do we do? And the
biggest thing that I can say is, you know, you
have to use the last known number. So in this example,
the last known taxes are six hundred bucks. The tat

(54:10):
total annual taxes, the total insurance which either is paid
at closing or you had the last statement or a
premium manual. You should have a recent number that was
used in this example at six hundred dollars. So total
annual insurance is six hundred bucks, and the total ESTRA
obligation the TOE. I've spoken about the toe before. We
use this term every day in our office the twelve

(54:33):
hundred dollars. So there's two things you can do, and
one option is if the if the toe divided by
twelves one hundred, a two month cushion means you can
have two hundred dollars collected upfront into the Escro account. However,
that'd be nice and just a lot of people don't
do it, but that would be like Option A Number

(54:56):
one is just get sent two hundred dollars to the
servicer and then that would mean the escrow zero cushion
would be an accurate quote because you already have two
hundred dollars in the Escro count. However, what happens in
reality is we don't get any money. The bar doesn't

(55:17):
give it us any cushion up front. So what you
do is you come up with the zero CE so
the preliminary like the ESCRO payment with no cushion. Then
you multiply it by fourteen and divide it by twelve.
So that would pretty much say you add two months
in a year and divide it by twelve, and you

(55:39):
come up with a new Escro payment and Escrow with
a two month cushion E two c. That is what
we call it. And this is how you calculate what
the ESCRO quote should be. And this is just based
on last known numbers. Again, sometimes if you have a
known number that okay, next month is going to be

(56:00):
seven hundred dollars, you can like the taxes are due,
or they're coming up to or you just got an
international You can like monkey with these things based on
the most recently known numbers. But I think this ESCRO
formula it's so simple that you know, once you know
the toe the total estrial obligation, you divide it by twelve.

(56:20):
You multiply the E zero C times fourteen, and you
divide that by twelve, and this is your ESCRO payment
with a two month cushion. It's I mean, I'm not
a smart person, but trust me, this is easy math.
And if I can do it, you can do it.

Speaker 3 (56:35):
That's the truth, right, yes, And.

Speaker 2 (56:37):
This is so when you talk about a loan mod
I think we talked about earlier, or if you originate
a loan, I think this is imperative to quote properly
because what happens a lot with us is we'll get
a new loan package and also have one hundred dollars
quoted for ESTRO. I'm like, uh crap, you know, like,
how are we supposed to like we always this, we
require a two month cushion because trust me, not nine

(57:00):
point nine nine nine percent of the time these numbers
go up next year, right, and we foot the bill,
and we want to make sure that if the bar
is pain, you know, we don't want to make that
because if we don't collect enough money one hundred dollars originally,
you might go to like two hundred dollars next year.
And you don't want such a drastic entry increasing these
ESTRO payments because people get up in arms about it,
and even though it's not our fault, it has to

(57:22):
do with how the payment was quoted from the get go. Okay,
does anybody have oh some? I'm sorry? And then you
recalnclate SCRO each year, so there's actually something interesting, there's
no Some people think that an annual ESCRO analysis can
be only calculated once per year, and generally that's true. However,

(57:42):
there are circumstances that warrants and allow you to calculate
it more frequently. And for example, let's.

Speaker 1 (57:49):
Say you.

Speaker 2 (57:53):
Missed an item like let's say like in Houston and
over in Harris County. There's many tax offices. It's not
just one tax office. It's a non consolidated area. So
like in most in most counties and in most places
like where Scott is in Travis County. In Austin, Travis

(58:15):
County collects for everything, the school, the water, you name it.
They collect for the property taxes in Harris County. In Houston,
there's like one hundred and twenty taxing units, like different offices.
There's like municipal water districts, there's isds or schools. You know,
there's so many different ones that, like in Harris County,

(58:35):
collect for a lot of them. But like in Harris County,
someone typically has two or three tax bills to pay.
So for example, if you if you figured out you
missed one, you can recalculate es grow. If the taxes
increased more than a certain percentage, you can recalculatees grow.
There are scenarios where you can do it more frequently,
but yeah, like every year, you at least have to

(58:58):
do it once a year. Can sistantly and we do
ours in November and for most states, most taxes are
due like in the fall or in December. They say January.
In some states, but we say we pay him in
the same calendar year in December, just for like people's
income tax purposes. So by doing it and by doing
it in November, we kind of cover the new analysis

(59:22):
on the latest tax bill for like over ninety percent
of the US obligations, maybe more so, David, I hope
I answered your question there, yep. So yeah, And what

(59:43):
I can do is, I mean, hopefully all can like
take a screenshot of this, but like I can also
email it to Scott. It's really simple stuff. And Scott,
if I haven't given this y already, I meet you
and you're welcome upon your website. I think, yeah, we
have it someone in our website. So let me go
to the next tab here. I don't know, I just

(01:00:03):
got frozen or something. Oh, here we go. Here we
go so kind of quickly. I mean, I'm not really
a sales pitching kind of guy, but I think I
have to. So what we do is, you know, we
based on kind of how that first example I talked
to you about being just really mad about the fees
that I was charged from my servicing company. Early on,

(01:00:23):
I came up with a business model where we just
have one simple price. It's just from a monthly servicing fee.
And you know, we don't have any setup fees, no
laundry list of fees, no conditional pricing. You know, we're
only paid when money is collected. And you know we
we have online portals for borrowers and lenders. We got reporting.
But like the servicing world is set up in a

(01:00:44):
really bad way in my opinion, with all these fees
up front to everybody. Yeah, no calling fee on the phone,
that's right, Yeah, yeah, exactly, no, we we it's it's
it's a simple model, just based on being friendly and nice.
And you know, i'd probably say, you know, based on
the clients that we service. You know, we do a

(01:01:04):
good job overall. And I mean we have some clients
you just maybe not like how we word certain things
or don't like that we don't blow up people on
the phone after one day of delinquency. But we've got
a model that works, that's fair for everybody. And I think,
you know, the world's becoming nicer. You know, I think
you can no longer be, you know, an aggressive business.
You have to be a nice business because whenever if

(01:01:26):
you ever go in front of a judge, because people
get suit all time now. As you know, if you
ever go in front of a judge, you know, if
you appear as like a nice, friendly person, like, hey,
we try to work with this client, you fell delinquent.
You know, oh, we're sort of blowing them up with
certified letters after one day delinquency. Like it's just night
and day, and we try to be nice and friendly people.

(01:01:48):
So let me answer these questions here, Linda. So we
try to keep a decent sized portfolio with our clients.
And you know, we were open to starting earlier in
some business career and like you know, we've you know,
for instance, I'm not going to name names here, but
there are people on this call who have less than
twenty that our clients. But we know they're going to

(01:02:09):
grow and you know, maybe they don't get to twenty,
maybe they get to ten. But I think we're just
we're not good for someone who just has one loan
and they're only going to do one in their life.
If you if you're going to do you know, a
couple of year and get to maybe fifteen one day,
that's great. We'd love to serve you and talk to you.
But if you only planning on doing one and never
doing another one again. You know, we're not a good

(01:02:29):
fit do I service in all states, So licensing is
one and our and on our website. I'll pull up
our website here in a second. But you know, we're
expanding to Arkansas right now, We're entering North Carolina right now.
We're in a few states, and I think we even
need to update our website, but we're not nationwide yet.

(01:02:51):
We're working on growing, and I think the hard thing
about entering a new state for us is, you know,
we need like a decent portfolio that get in there
because it costs it's like three or four grand to
get set up. And if someone has one loan for
fifteen bucks a month, you know, I'll never make money
in that state and we'll be the loss. So it
just depends. And I think if you message me, I mean,
I got my email here, let me know what states

(01:03:12):
you're you're looking at. I can tell you, hey, we're
actually I've been asked one hundred times by different people
so we need to do it, or we're actually in
the application process, or hey, no time soon. I can
let you know directly, let me see, and then here
I've got my information here. Please feel free to call
email whatever it is you prefer. But you know, I'm

(01:03:34):
really good about checking my emails if anyone should be
an email. But I'm really open to any question of
any kind at this time. And you know, Scott, I'm
not sure if you have any experiences with servicers that
you want to share that I can comment on.

Speaker 3 (01:03:50):
Well, the trans if somebody's not happy.

Speaker 1 (01:03:53):
There's a servicing company that went out there and started
putting if you're going to be board or trains for
doing another services, they start charging fees to move the business.

Speaker 2 (01:04:02):
I know, you know, it's like a punching the teeth
on your way out here.

Speaker 1 (01:04:06):
That's yeah, that's it. I just think that's so unethical.

Speaker 3 (01:04:09):
Uh.

Speaker 1 (01:04:10):
In a lot of cases, Oh we did, we did
a shitt Josh for here's another two thousand dollars bill
per loan.

Speaker 3 (01:04:15):
You know.

Speaker 2 (01:04:16):
Yeah. No, another one that I've seen a lot lately,
and this is one is so legal. I've got a
client in New Mexico that we're working on onboarding, and
we've been working on for like a year. They've got it.
They've got a they got a decent they've got a
decent portfolio. They probab have like three hundred mortgages with
this kind of a respectable company, you know, not like

(01:04:39):
a bad one, like an okay one. And this company
is like refusing to release the borrowers escro funds to us.
They're saying, hey, you gotta get every single borrower to
have signed notarized documents authorizing it's released the funds. And
it's so wrong. It's so it's like it's their tactic

(01:05:00):
to keep the business and they're then and they're also
hitting them with a big d board fee. But like,
as I told my clients, I'm like, hey, like just
so you know, the loan servicing rights are held by
the lender, like the person on the DTA trust or
the mortgage you temporarily gave them like a lease, like hey,
you can service this for a term like whatever it is,
month to month or one year, whatever the contract says,

(01:05:23):
and like the loan, all the authorization belongs to you,
the lender. And like they're getting attorneys involved. It's like
turn into like a big nasty mess. And you know,
some of these servicing companies do just do outrageous things
and like they have no legal leg to stand on.
But like you know, they get away with it just
thinking that they can scare you. I think the Luckily
for my client, you know, they're like fairly big and

(01:05:44):
they were going to, you know, go toe to toe
with this client. But for someone like hey, if you've
got one note, five notes, are you going to spend
one hundred grand suing a servicing company over this stuff?
They're hoping you don't and they're counting on you don't.
And that's one of the problems with these servicing companies
is they'll feed the death, they'll play games with you,
and honestly, you got to remember, like these rights are

(01:06:07):
held by the lender, not by the servicer, and.

Speaker 3 (01:06:11):
They're supposed to work on your behalf. You don't work
for them in a lot of cases.

Speaker 2 (01:06:15):
Tiduciary, I guess means nothing. That's right.

Speaker 3 (01:06:20):
Good, good time. Now you also, let's let's talk a
little bit about.

Speaker 1 (01:06:24):
Some burrow because they've got Arnie Everson coming on and
talk about Texas tax sales stuff. Like they talk a
little about some burrow with what you guys do over
there too, because I know we get some folks that
are interested in that aspect.

Speaker 2 (01:06:34):
Yeah, So the tax lian business that we're licensed to
do here in Texas. It's unique to Texas. It's called
a tax lian transfer. It's like a tax property tax loan,
and unlike tax sales were like they will buy properties
from the tax sale. And I don't want to. I

(01:06:56):
don't know you all. I mean, I have my opinions
about it, and I just some one thing I want
to I want to respect your next presenter's stuff on it.
But there's there's some pros and cons to it. And
I think in two thousand and eight or nine, I
think that business was different, and I can just tell
you this, like my my sombrero business was different, like
you know, like in twenty twelve, it was like a

(01:07:17):
night and day difference. Today today it's really hard to
do those loans. The cost of acquisition is super high.
I'm actually thinking about getting out of the business just
because it's it's just it's just too not that it's competitive,
but the tax office offer more payment arrangements now the
ever before. You have those housing assistance funds that are

(01:07:38):
coming in pay helping people people pay their delinquent property taxes.
So it's nowhere near the volume as it was before,
but it's a good business. I mean, you know you
The problem is you have to make a lot, you
have to be licensed, you have to market, you have
to get the people. Literally, it's like a closing a mortarzone.
You have to look at the title, you have to
get loan documents prepared, and you've got to just comply

(01:08:01):
with the laws that apply to that business. And then
once you close alone, people have a three day right
to rescind, which they do sometimes, and then you've got
to fund it, get the taxes. You get a tax
Liane transfer from the tax office and that's your security instrument.
But you know, we it's it's it's a it's a
it's a tougher business now. And anyone who's interested in

(01:08:23):
the tax ling business in Texas, I'm happy to share
with you my experience. But what Arnie's doing with the
tax sales is his. They would buy the properties that
we would ultimately auction off. And one thing to be
you know, if you guys are interested in buying properties,
I would recommend you only buy the properties that are

(01:08:46):
non homestead in Texas because the homestead ones in Texas
have a two year right to rescind the sale. So
you might buy a property today and a prior homeowner
can come back and take the property. Sure, they pay
a penalty, but they'll come back and buy the property.
And you know, you you have like against your wishes

(01:09:08):
and you know you're kind of shit out of luck.
And any expenses you put into it, you may not
get back. If you rehab it, you improve it, it could
be a big problem. So it's a it's a it's
a tough business. But you know, I would. I mean,
I'm not one that looks at properties at the tax
saale just because they've gone through so many filters. But
every once in a while, something good comes up, like Scott.

(01:09:30):
You may not know this. A handful of years ago,
Fast Pro Shop here in San Antonio was an auction
that a tax sale. A guy bought it for a
guy I know, bought it for four million dollars in
delinquent taxes and in commercial they had a six month
right to redeem for a twenty five percent penalty. And

(01:09:53):
Wells Fargo, as a lien holder, had the lien holding
prior homeowner prior property owner has right, and the lien
holder came and paid this guy a million dollars and
that's the only successful one I've ever heard of out
of the many, many tens of thousands that have ever happened.
And I think it's a you know, there's a lot
of there's a lot of cobwebs that comes with those purchases,

(01:10:14):
and you know, there's no warranty, there's no guarantee. It's
as is, and you know, it may I mean, it's
it's it's sometimes can be very messy. But that that
sale that I was talking about, that was in like
twenty thirteen, you know, coming out of the Great Recession,
when I think these types of things happened of quality. Nowadays,

(01:10:34):
it's like finding a diamond in the run. It's very
rare that an item of quality comes up on an
tax sale.

Speaker 3 (01:10:39):
Yep, exactly.

Speaker 1 (01:10:41):
T asked a question, here, are there any red red
clauses of red flags to look forward to reviewing a
contract with a low service server?

Speaker 2 (01:10:49):
Yeah, I mean, yeah, absolutely. I think you got to
get a good understanding of their fees and their processes because,
like I think we alluded to some early term nation
fees that are like those gotcha hey, like yeah, you're
welcome to move, but go screw yourself. You got to
pay all these fees, and there's also all these conditional

(01:11:10):
things and all these things like you got to understand
what are they going to do for you?

Speaker 3 (01:11:14):
Yep?

Speaker 2 (01:11:15):
Do they want you not to call them and you
just be an m a investor and they'll just handle
your money for you and pay themselves and you know,
do things. If that's what you want, just make sure
it says that. Or if you want to be involved
and you want to have an understanding of where money
is in when money's out and you have to authorize things,
definitely make sure it says that. You know. I think

(01:11:36):
I've seen all sorts of different varieties of things and
you just got to talk and negotiate and get what
you want and you know, make sure it fits you.
But I think a scope of work, scope of communication
and reporting, and authority to do things with or without
your approval and all listed fees are what you should

(01:12:02):
keep an eye out for.

Speaker 1 (01:12:04):
I also think it's important to look at how commutative
the borrowers can be with a servicing company, you know,
how easy easy to get somebody on the phone to
answer questions. Because there's been when we bought notes in
the past where the certain the existing servicer was horrible,
and that we actually said, Okay, we'll buy.

Speaker 3 (01:12:25):
More from the seller because their service is horrible. Because
we know if we just reach.

Speaker 1 (01:12:29):
Out to the bar or and just say hello to them,
we've probably got a sixty percent chance to modify, reinstake
that barer with just a phone call.

Speaker 3 (01:12:37):
Yep, you know what I mean.

Speaker 2 (01:12:39):
So it's like all things, the little things that will
make it all work out. Well, you know if you
just focus on like some big things, sending statements or
just little you know, just focus on things. I mean,
it's a culmination of all the little things that make
make a service good or a business good.

Speaker 3 (01:12:57):
Yeah. Yeah, well it's it's.

Speaker 1 (01:13:00):
It is, especially when I've been in business, you know,
as a note investor for fifteen years, and servicing companies
come and go and some are really focusing, and.

Speaker 3 (01:13:09):
Then it's then it's then it's becomes a money grab.

Speaker 1 (01:13:11):
Then it becomes oh, how the clients work for the
guy that or the person that owns the servicing company
versus being the other way around, And that's that's that's
the thing.

Speaker 3 (01:13:20):
You put the service back in servicing. That's why we
labeled this because you've asked questions and you know you were.

Speaker 1 (01:13:28):
Always saying, hey, let's do this, let's take a little
bit extra step here, let's call this, let's do this thing.
And that's not that is not the case. Not all
servicing companies are created equally. Uh out there, And I
really love your business model, your business plan, what you do,
and you've got fans here. Larry's bragging on here in
the chat roll for everybody. He says, let's see here.
What he needs to say is all I can say,

(01:13:48):
Kobe finn is the best everything company. And whenever I can,
I will one hundred percent move board my notes with him.
I've been one million percent with Cobe, but more importantly
with it. I'll print that out and send it to
you and you can use it as as a yep
orf you has that sound.

Speaker 2 (01:14:01):
A lot of area. I mean, you know there's times
where you know, we try our best to do the best,
and I mean, you know, there's there's only so many
things we can do. And I think what we what
our difference is, will make a level of effort. And
you know if we ever like there's times where we
mess up. I mean there's no doubt that like maybe
one of our you know, we're human and one of

(01:14:21):
our staff members for forgot to do something or didn't
respond to you, and the moment like anyone figures out
that we forgot to do that, Like we have about
three or four higher up people make sure it gets fixed.
And I think that's I mean, I'm not going to
say we're perfect. I mean, I'm not in any way,
you know, bad person. I don't walk on water, but

(01:14:42):
we try really hard and if we mess up, we'll
own it and we'll definitely fix it as quickly as possible.

Speaker 3 (01:14:48):
Or one that I love is solution aspect of things.

Speaker 1 (01:14:53):
If it's something you guys can't do, like you don't
handle the legal you're not giving legal advice uff like that,
but you're like, hey, reach out to this person, to
reach out to this person.

Speaker 3 (01:15:01):
Or like we talked about that portfolio of Arkansas.

Speaker 1 (01:15:04):
Notes that Catherine and Lauren and we're working on a
while back and frying, Okay, how can we make this work.

Speaker 3 (01:15:11):
In different ways?

Speaker 1 (01:15:11):
So it's always good to pick your brain and stuff
like that on on different transactions.

Speaker 3 (01:15:15):
Portfolios makes things happen.

Speaker 2 (01:15:16):
So yeah, I mean, hey, I mean I'm here as
a resource, and man, I'm here to serve my clients.
And Neil Larry, I think he and a few others
have actually taken me up on that stuff. And like,
I'm not I'm not going to tell Larry what to do,
but I can just point out some things that I've
seen that I've personally been involved with, and if he
takes me up on it or not, that's up to him.
And if he and I think luckily, I mean, I

(01:15:37):
think he knows pretty early on that I'm not bsing
him like I've got no skin in the game for
him to make a bunch of money or now. I'm
just here to service his loans and if his if
his servicing goes well and his clients do well, like
that actually makes my life easier. So we're on the
same team.

Speaker 1 (01:15:53):
Yeah, Well, David asked a question, how do you, uh,
what did you say here? How how would we find
whether the borrowers are s say I with a service
or not?

Speaker 3 (01:16:01):
So here's the thing.

Speaker 1 (01:16:03):
Every serviceing company's got a phone number. Call call a number.
You know, it's one of the things that we did.
We we saw in the servicing notes because that's what
you should be requesting. It's part of your due diligency,
what's going on? And saw statements and stuff like that.
So we picked up the phone and called and acted
like we were the bar were calling in and it
took forever to get a hold of somebody to talk to.
And I couldn't imagine. You realize, if you're buying non

(01:16:25):
performing notes, especially lower balance, it's probably not the most
financially savvy individuals out there. I mean, somebody doesn't have
a debit card, at credit card. They're probably using money
orders well. They you know, they want to set up payments,
and a lot of times with folks that are working hourly,
not making most of my money, just adjusting the payment
date a lot of times can help people.

Speaker 3 (01:16:46):
You know.

Speaker 1 (01:16:46):
When we saw that with One with one servicers, this
bar was consistently late, consistently late, we reached out to them.

Speaker 3 (01:16:52):
I'm like, listen, I would.

Speaker 1 (01:16:53):
Love to I just need to change my payment date
to the eighth instead of the fourth, because most of
the time the servicing compans is trying to pull a
payment out and saying I'm late and I just don't
have the funds yet, haven't cleared.

Speaker 3 (01:17:05):
My account so I can set this up.

Speaker 1 (01:17:07):
But I just need a little help, one little change,
five minutes was fixed.

Speaker 3 (01:17:11):
And that bar has been on track since.

Speaker 1 (01:17:13):
You know, there's just you just got to talk to
the bar loop case and a lot of people don't
want to talk to people, and in servicing, you gotta
talk to people, I think more than anything else.

Speaker 2 (01:17:21):
Oh yeah, and I answered David's question, you know, David,
to get to figure out borrowers are satisfied or not,
like you know, I recommend use the lender. You know,
you should have some level of interaction with your borrower
and like you know, check in with them once a year,
once whatever it is. However, you often you want and
asking your own borrowers what they think and yes, sometimes

(01:17:41):
you know, if they're bad actors and bad payers, like
of course they're not going to say nice things, but
like you know, if they pay well and they have
an honest review, like actually they're terrible, here's why, like
it's hard to pay them, and I figure it out,
like okay, that's a that's a genuine review. But online
reviews are really helpful. I mean I like looking at them.
And granted a lot of online reviews use like you know,
or real some or not. But you know, talking Jo

(01:18:05):
and Borrower reading online. That's a good way to get
real feedback.

Speaker 3 (01:18:09):
Yeah, yeah, exactly.

Speaker 1 (01:18:11):
Now where I'm gonna ask this question, I mean, I
know you don't have a crystal ball.

Speaker 3 (01:18:17):
Where do you see opportunities?

Speaker 1 (01:18:20):
Where do you think is the number one, number two
opportunities for note investors over the next couple of years.
I know, if we had a crystal ball, we'd be
in Vegas of course.

Speaker 2 (01:18:28):
Yeah, I've buy a lot of ticket right now.

Speaker 3 (01:18:31):
Yeah.

Speaker 2 (01:18:31):
So note investing is really tough, and I mean, I
I have my moments where I think I'm gonna make
all the money in the world, and I've got moments
where i think I'm gonna go broke. You know, it's
it's a tough business. But I think, you know, I
see a lot of people have success. And I think
marketing is huge in this business. And what I mean
by that, Larry's figured out a good se O way,

(01:18:52):
and SEO is pretty good, and like he also does
the cliictic mail, which I love. I think that's great
advice for people who don't direct mail. I mean, I mean,
what's that There's there's a lot of other panelists, big
banks on this on this thing that market heavily to
deed of trust hoolders and note holders, and there's way
to buy data from like certain companies to say, hey,

(01:19:15):
I want to list of all the mortgages, take out, banks,
take out blah blah blah, Like I just want individuals
or whatever, and you can sort them buy loan size
and maturity date, and like, okay, these loans are maturing soon.
I'd love to buy these notes. And that's how a
lot of people do in the business in addition to
SEO marketing. But I mean, I think the trick is

(01:19:36):
there might be some good opportunities here. As interest rates
rise and people have got some low rate loans, they
want to just liquidate and cash out for a fraction.
But it's hard to say. I mean, I would focus
on like the good metro areas of the world, you know,
make sure your dilences is good and market heavily, and
like what I'll say is, stick to your guns on diligence.

(01:19:59):
You you know, just because you have a deal and
you haven't really heard much, don't cave on your items.
Like just make sure that you buy the loan for
the price you want and the yield you're looking for,
and A great way to do loans too, is talk
to realtors, try to originate loans in your noco community.
Just you know, say hey, if someone ever has a
hard time get a mortgage and they're good people, let

(01:20:22):
me know. And that's a good way. I mean. Right now,
loan rates are higher five six percent for a thirty year.
You know, as a private investor, you might be able
to sell it in an eight or a nine, borrow
some money from a bank, and make like a double
digit return.

Speaker 3 (01:20:36):
Yeah, I love it. I love that strategy. I think
it's a phenomenal thing.

Speaker 1 (01:20:39):
Especially Yeah, a lot of tired landlords don't want to
be in the landlording business anymore, but would be glad
to sell owner finance a deal to you. And that's
I think it's one of the best strategies out there now.
And they don't take a huge tax hit in an
owner finance deal versus a traditional sale. In a lot
of cases too, I think that's some opportunity to pick
up some debt that pays well as well.

Speaker 3 (01:20:58):
Yep, I love it.

Speaker 1 (01:21:01):
An, you got the questions before we let Eric get
back to his Saturday.

Speaker 3 (01:21:05):
This has been great, Eric, Thank you so much for
coming on.

Speaker 2 (01:21:07):
Hey, I love doing this, Scott, anytime, let me.

Speaker 3 (01:21:10):
Know we'll do Buddy, well I will. I'll shoot you
a text message here in a few minutes with the
details for next weekend.

Speaker 2 (01:21:16):
We'll go from there, all right, buddy, all right, everyone
have a good Saturday. Thank you, Scott, thank you, thank
you very much.

Speaker 3 (01:21:21):
Eric. All right, everybody, Hey, don't go anywhere.

Speaker 1 (01:21:24):
We've got just our next speaker coming up here in
just second for part two. If you tuned in yesterday,
you had your mind blown.

Speaker 3 (01:21:33):
From Meryl chandlay. Now this session is a little bit different.

Speaker 1 (01:21:36):
He's gonna be sharing how to use insider bankings used
to help you help you in your investing advantage.

Speaker 3 (01:21:41):
Stay tuned.

Speaker 1 (01:21:41):
We're just gonna take a quick, short, little break, so
you guys can run to the restroom, grab a fresh
cup of coffee or whatever.

Speaker 3 (01:21:47):
But we'll be on our next speaker here at no
Camp

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