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foreign your host founder of fixed notes and on this show I bring to you my knowledge of the secondary mortgage Market today's an important episode because we're talking about due diligence comprehensive due diligence from the top to the bottom so I'm really looking forward to sharing this with you let's get into it and we're gonna go through the non-performing waterfall evaluation that you may have seen before if you watch the show it's a little blurry now and we're gonna reveal the steps of this process as we go so let's start right away with the first piece of this the secured versus unsecured determination whether or not the loan that you're buying is secured by real property or is an unsecured liability to that borrower and this is an important factor because it's the biggest driver of pricing right off the bat if it's a secured loan it could go for close to par value that's the percentage of unpaid principal balance on the other hand if it's unsecured it might be worth a half of one percent 50 basis points or even less than that sometimes so first thing we're going to talk about is how to determine when a property is secured to a loan and the way we do that is by looking at public records for the property owner now if the property owner matches the borrower on the data tape then we can be pretty sure that that property secures the interests that we're looking at there's a collateral property that's protecting the lien that we're investing in or potentially investing in we're doing our due diligence process so how does the lien actually become secured uh unsecured rather and that is through the senior lean foreclosure process an unsecured lien essentially means if it was a mortgage at one point it means that that borrower no longer owns the property and they may have lost the property through the senior lean foreclosure process or through a tax deed sale or foreclosure sale or Sheriff sale and they no longer own the subject collateral now once a loan is unsecured there's a second Factor here and that's the personal liability when a loan is unsecured the borrower has signed a promissory note and they still owe the money however the statute of limited or a discharge bankruptcy can actually remove the personal liability so then an unsecured loan is potentially uncollectible and not worth anything so we'll shift back over to the secured side and there is an important thing to think about with regards to false positives and negatives in this situation so when you look at these different methods for determining property ownership like using protitl.com or protitlusa.com order which is a great free tool you can use before you even order a title report to see the estimated property owner on title you can also use data tree the dashboard there if you remember if you sign up for data tree you actually get that as a free search as well you can see who the property owner is on public record on title or you can go right to the County public records and if you see that the borrower name in the county record matches the borrower name in your data tape of the loan information on the asset that you're looking to purchase then you can be pretty confident that it's secured however there's such thing here as a false positive and a false positive is a situation where even though the borrower still owns the property the lien is no longer secured so one one potential there is that the lien has been released which you can also find that on the public records and in that case that would mean that there is no secure there is no mortgage anywhere that exists and that would be something you bring up to your seller but there's also false negatives and these are interesting situations because there's a lot of value to be added here as a note investor in your due diligence process if you find a loan where the borrower no longer owns the property but you look at the deed that was used to transfer the property away from your borrower and you find it is subject to so qcd is quit claim deed and if it is subject to your existing lien then your mortgage can actually still be secured even though the borrower no longer owns the property essentially you'd be enforcing the mortgage your security instrument against the collateral owned by a different borrower and you can show and it won't be your borrower it'll be the property owner at that point but you can show them the public records that they bought that property subject to the mortgage that was owed by the seller to them our borrower and also another potential false positive and negative is using services like uh the data tree dashboard or the pro title USA service these are delayed data sometimes 30 days or longer after the public records change do these Services reflect these updates so by going directly to the County public records you can be a little bit more confident that you're seeing the most up-to-date most recent information so once we've determined that a property is secured the mortgage note is secured by the real estate we can move on to the next step here and that is is it a first lean or a second lien and for the most part first lean versus second lean is something that your seller is going to tell you before you even start your due diligence process this is a field on the data tape which says what position the loans are in first lean senior liens or second liens Junior liens this is another pretty big driver of price and the main delimiter here is when we Value First liens we're typically valuing based on the fair market value of the home is it percentage discount to the collateral value versus second liens where we're valuing as a percentage discount based on the unpaid principal balance so that's where we see these pretty rough value ranges they're they're pretty large but seven to eighty four percent of value is where we're seeing the current market now with a cap on the unpaid principal balance so even if you're paying you know 80 percent of the fair market value if that 80 is more than 100 of the unpaid principal balance then we apply a cap there a Max formula in Excel to make sure that we're not paying more than the amount that's actually owed on the loan whereas with second liens we're price between about five and a quarter to 75 percent of the unpaid principal balance and the wide ranges are in the beginning of this waterfall because as we determine the different scenarios as we go down this waterfall list we refine the price and if we see positive results on some of these next steps then it's going to be higher on these percent ranges so let's talk about why first liens I believe are a better investment than second Lanes so on the senior lean side we're talking higher due diligence expenses 250 to 500 even more sometimes in your due diligence these can be wiped out by taxes or a homeowners association lien especially in super lean states where HOAs can be a little bit more of a risk now if you Google super lean States you can find those exact States and I believe if you go back to our episode uh 30 which was really specific Junior versus Senior you can get a little bit more information on that now property Centric resolutions are the reason why in senior liens we often value them based on the fair market value over the unpaid principal balance when you have a property-centric resolution that essentially means that you're more likely going to be taking back the collateral in senior lean situations where versus junior where we more often resolve with the borrower now you have something called forced Place insurance as a lender to make sure that the borrower is insured on the property then the lender is insured if the barber does not have property insurance now one second here let's take a look at the uh the fish and the birds are in wow there's just a lot going on right now I saw the koi are hanging out waiting for some food and I poke my head out the window and saw all of those little house sparrows so I wanted to share that with you and before we go on to the last step of the junior lean the last reason why I believe that it's not as good of an investment as Junior liens it's more expensive to buy a single senior lean and the collateral is often lower quality the loans that reach the secondary Market that are secured in first position are often secured by properties that are a hundred thousand dollar values or less whereas in junior liens we're seeing 250 000 and more collateral values securing our investments so on the junior lean side we're seeing 50 to 200 due diligence expenses so less money per asset when you're doing your research they can be wiped out by the senior taxes or the homeowners association but at the same time because they can be wiped out by the senior you've got a basically like the Block in the tackle in front of you you've got a Defender the senior lien holder is defending everybody below them's lean position by making sure taxes are paid and homeowners association bills don't go into default whereas in senior lean you're the one making sure taxes and HOAs are paid whereas Juniors you've kind of got that additional level of security of the senior lien kind of working in your behalf in that way a lot of borrower-centric resolutions for junior liens which means we can tap into emotional Equity where these Junior lien holders have uh the junior lean borrower has a lot invested in the property in the community and they want to make sure they get the property paid off these loans resolved or back on track and there's a lot greater discounts with Junior liens it's easier to diversify when you're buying second position loans so just at a high level here first lien investors need to be prepared for more REO situations higher Capital requirements and more involved portfolio monitoring whereas second liens offer greater diversity more autonomy better protection and a less expensive research process so that's why I believe that smart money prefers seconds so let's go on to the next phase of the due diligence waterfall and that is collateral value so on the senior lean side we're looking at lower property values as basically subsets now we generally create tranches within our collateral value on the first thing side where we're looking at like sub ten thousand dollar value properties which are often vacant land moving up to 10 to about 25 000 25 000 to 50 50 000 to 75 75 to 100 and 100 and up and generally the lower value band properties are worth substantially less as a percentage of the property value on the other hand with second liens we typically see these higher value collateral like I mentioned in the last slide higher value loans uh higher value uh actual collateral that's securing these loans 250 000 and more often is the average for the property value on the second lean side now determining the property value is such an important factor of your due diligence process and I believe that there are a wide spectrum of ways that you can analyze the property value on the free but less accurate end of the spectrum we're looking at avms automated evaluation models like Zillow the zestimate Trulia appraisalhomes.com the Chase home valuator um just Google any of those and you can pull up the website and search an address and get a potential value now we have paid avms like the outcome AVM the core logic Geo AVM or the house Canary products which give you a little bit more Assurance a little bit more honing in on the value with comps but I believe one step above that using recently sold comps and doing your own manual review is the best possible way to balance the expense with the time investment to actually spend nothing doing the work but a little bit of your time to get the accurate comps in that market to have the same size same beds and baths same general geography and determining what your property that's securing the loan you're looking at is worth based on the relevant Market you can look at loans that have been sold or have been recently listed and hone in on a value there you also want to make sure you look at a satellite a recent Google Street View as well so that you can determine whether or not the properties in worse condition than the neighboring properties based on those images now a desktop appraisal by a professional is a little bit more accurate than what you do yourself but but I believe that you guys are all aspiring mortgage note professionals real estate professionals that can do just as good of a job as a professional who's not going to the property themselves and that's what makes the difference between a BPO broker price opinion this is boots on the ground a realtor or a broker going to that property taking some photos and doing their own evaluation of the marketplace and their local Marketplace so they have maybe have some more information that you don't have being a member of that local community so that's more expensive around a hundred dollars or so to order a broker price opinion and I believe for the most part you're going to be fine with your own research and then maybe when you're buying these more expensive notes especially in first position you can move up and order some bpos and just as an aside here we do not use broker price opinions on really any of the junior liens we do a lot of broker price opinions on senior liens and look at that there's a little little red bird out there I think that's like a purple finch what a cutie and some fish always got to look at the wildlife to keep the blood pressure low as we talk numbers and collateral valuation methods all right so let's jump over to how to run your own desktop appraisal just to give you guys an idea on how to do this yourself so first off go to zillow.com the seller Landing pricing tool has some really great information all laid out for you really nicely basically what you're seeing here is the side-by-side comparison of different properties that are comparable you're seeing beds and baths square footage what year it was built the lot size as well as the price and if it was sold recently or recently listed so very very cool process tool to to get your information quickly um so after you've done that another option is to find the subject review similar recently sold homes and you can do that by scrolling down to the bottom of a Zillow listing and see the loans the properties that have been sold recently that look and feel similar to your property so that's another great way and I believe there's an option three here and that is to find the subject property on the map and then select the toggle for sold loans not for sale so if you click that yellow toggle for sold then you'll see all these little yellow dots and you can see how close they are to your subject property and you can get an eyeball on how big the lot is and what kind of you know if it's Corner louder if it's across the street from a park that kind of thing you can put that all together to determine your value so make sure that you consider a couple things here consider the location the square footage of the lock and the home the beds and baths the sold date and the construction date and when you look at Google Street View confirm the image capture date in the bottom right hand corner then check the condition of the subject property and the surrounding homes CPC tarps on the roof or overgrown Lawns and you can do a lot of information you can use that information to really get an idea on the on the area so here's a street view and you'll see in the corner there this was image capture July 2011. so there we go this is 10 plus years ago at this point we'd have to take this with a grain of salt and that is it for how to run your own desktop appraisal let's jump back over to the waterfall evaluation and move on to the next category which is bankruptcy now in the senior lean side we're looking at the bankruptcy chapter and the current status whereas in the junior lien side where there's a possibility to have your lien stripped in the bankruptcy we need to also be looking at Equity uh possible motion for Relief filed by the senior lien holder in the docket so here's an overview of that bankruptcy process first chapter seven chapter sevens are what's called a liquidation of debt and there's an equity limit of around twenty three thousand dollars on your Homestead Property so the borrower's income must be low enough to pass a means test and there's typically three to five months until you are discharged so in a chapter seven the trustee is selling all the non-exempt property uh the things that aren't owner occupied the properties that aren't really required for the borrower to live and and those are used to pay the creditors so chapter sevens are generally a little bit better for note investors in one sense of the word because you do not have the risk of getting your lean stripped without a little bit more of a process whereas in Chapter 13 which is a reorganization of debt the borrower actually can have a much larger amount of unsecured debt up to 394 000 of unsecured or 1.18 million of secured debt and this process discharges the bankruptcy when the plan payments are all complete so whereas the chapter 7 is discharged very early the chapter 13 can go on for years and to all the creditors have been received all of their monthly payments through the trustee now the problem with that chapter 13 is that you can lose your lean position at Junior lien which is not protected by any Equity can be stripped or crammed down in the voluntary petition you'll see that under the schedule D and that's what we're going to look at right here the Tactical approach to analyzing bankruptcy situations as a note investor so first off look at the social security number on pacer.gov case locator you'll find find a case at the barber has filed bankruptcy you can click through and go to the history and documents this is the docket of all of the filings for that bankruptcy now you're going to be looking for schedules and motions especially motion to release or motion uh to cram down there's a couple there so first though on the voluntary petition you'll click through to that specific document it's normally the first document that's been filed under bankruptcy and find the schedule d That's a schedule of all of the secured claims now it's nice to skim through a through c as well you're going to see the borrower's income expenses and unsecured claims and all that but Schedule D secured claims is where we're going to find Arlene the lean the subject lien that you're doing your due diligence on or maybe you already own the loan and you're making sure that that bankruptcy is proceeding as you'd expect and you want to make a note of the collateral value in the senior lean balance this is particularly if you're in junior position now if the senior lien balance is more than the collateral value that the borrower has evidenced as the value of the home then you're at risk in a Chapter 13 of of being stripped or crammed down whereas if the senior lean is less than the collateral value then you have equity and it's very unlikely that you're going to be stripped or crammed down in that situation now if the collateral value is way lowballed it's way less than you think that properties actually work worth then you do want to have an attorney file a motion to re-value the collateral to make sure that you are not put in a position where you could be crammed down because of negative equity now finally if you keep scrolling you'll find the barber intentions regarding the subject property if it's owner occupied it's likely that they're going to retain the home and continue making payments but if it's an investment property their intention might be to sell the property and pay off the creditors so you want to make a note of that and then finally check on an order for the motion for relief from stay essentially that's part of the docket it won't be part of the voluntary petition it's a separate filing and basically it's what a lien holder will file in order to foreclose on a property that's currently in the bankruptcy process essentially when a bankruptcy is filed there is a stay in place a stay means that nobody can foreclose or file any legal they have to work through the bankruptcy but if a motion for relief from state is granted then the lien holder can pursue foreclosure even though the bankruptcy is currently ongoing so if you're a junior lien holder and you see that the senior lien has been approved for their motion for relief from this day then you can very well expect that that senior lien is going to start their foreclosure process you want to make a note of that all right so let's Zoom back out back to the non-performing waterfall evaluation and move on to the next step here which is occupancy so both sides here we really want to know if it's owner occupied tenant occupied or vacant what is the situation here and it definitely factors into the bankruptcy process but it also factors into just emotional equity and the borrowers likelihood of making payments on an account so we do this occupancy research by triangulating the potential occupancy through a variety of different sources so although an unknown result is still possible due to unavailable information the more data points you've compared the better owner occupancy increases the likelihood heard of a successful resolution to these non-performing loans that we're looking at they can see may result in a deferred maintenance Township fees violations and strategic default so it's not good to see a property that's vacant and tenant occupied isn't quite as good as owner occupied but it is better than a vacant property so a couple data sources to look at County tax records will have an address where they mail the tax bill so if that address matches the collateral address it's good I could think that it's most likely owner occupied your bankruptcy petition if the borrower has filed bankruptcy will have an address on it as well see if it matches just a simple Google search can often give you look up information on a specific homeowner or a specific property that you can triangulate you'll also be able to look at social media sometimes to see if the borrower has a social media account that shows where they are located and if it's the same town or same city maybe it is likely owner occupied credit reports normally have three addresses on them with dates so you know the most recent address is likely where they live and if it matches the collateral address its owner occupied and then finally a skip Trace can be super useful and probably the best triangulation data point we have here to look at a borrower's skip Trace report to see where they're paying the utility bills and where they're getting their mail so skip Trace is great and you can also use the skip Trace to search a specific property and see if maybe it is an owner occupied but rather tenant occupied now some potential results here it's either owner occupied or non-owner occupied to start you don't really know if it's non-owner occupied if it's vacant or tenant occupied you just know that the owner lives somewhere else but then you can refine that a little bit more by finding especially through skip Trace whether it's a vacant property or it's tenant occupied or maybe it's a second home a vacation home of your borrower so really important to understand occupancy because then you have an idea on what the next steps of the resolution process are going to be so waterfall evaluation we're moving quite along here and we're going to jump down to the first lean side of the next step which is title are there other liens and judgments and did you confirm the assignment chain so back in episode 34 we talked all about title reports and we went through this actual sample title report it's called an o e or ownership and encumbrance report on protidal USA so you can check that out and actually look at the report go back to episode 30 and I'll walk you through the entire report myself but essentially here the owner and ownership and encumbrance report is a more cost effective way to check title than a full title search it's about ninety dollars to order an o e and a title search can cost several hundred now the difference with the full title is you can actually ensure title if you have a company that runs the entire process and they're also a title insurance company but the o e is just a way easier way way cheaper way faster to just get an idea on what's on title now this o e report essentially reviews public records through the last property transfer versus a 30-year review of a full title search so it's quicker and easier and it often also includes property taxes homeowners association and other potential liens I really like Pro Title Service because they not only provide the PDF that includes property taxes and HOA details but it also provides an Excel sheet that you can merge into your data tape to get all that information already populated in a spreadsheet super useful so this is most often utilized when purchasing senior liens or high value Juniors I will be honest most of the Juniors we buy we do not order on E we do kind of our own cursory title review by looking at public records manually so that's kind of this next Point online public records offer the comparable manual research and you can do that independently and then finally only data from vendors like Pro title USA give you that spreadsheet which I mentioned I really like so let's move on to the next phase which is on the junior lean side here first lean status whether or not the senior lien in front of your junior is foreclosure initiated delinquent the rolling payments or maybe they're currently making payments as agreed so looking at a credit report here we're going to find a trade line for the senior lien now if you go back to episode 35 actually review a credit report with you and essentially what you'll find there is the senior lien has an origination date which is part of the trade line uh that's earlier than the junior lien and when you find that trade line which you'll see at the Creditor the amount that's owed the monthly payments that are due and you also see a payment string and the payment string will be a series of 12 numbers representing the last 12 months of the borrower's track record if it's current it's all ones and it's also called as agreed which means they're paying as agreed one means every single month they're making their payment on time two means they're 30 days late so a semi-current senior lien would essentially mean that they are rolling 30 days late making their 30-day due payment today so they're late but they're making their payments late consistently a 60-day rolling payment essentially means they're three months behind but they're making that three-month payment every single month so they're not caught up but they are consistent now delinquent is when we get to fours and fives which four is 90 days late and then five is 120 days late or even foreclosure initiated and since these are reviewed in reverse order from right to left we can see that 12 months ago they were current current 30 days late 30 days late oh they caught up with a double payment they missed the payment they call back up again and then look they slipped two three four five this borrower was not making payments since six months ago and is now in a foreclosure process potentially and often when you'll see all fives that means the foreclosure process has been going on for over a year and and also you'll see a remark often called foreclosure collateral sold which is needs to be confirmed with the secured scrub that we talked about in the first step of the waterfall but essentially this means that the borrower no longer owns the collateral and there is no security instrument protecting this particular note so a few other things to look at the balance of the loan the past due amount that's owed so you can add them up and get the payoff amount the payment amount which is how much they're making every monthly payment and finally the reported date which is critical because if this has been reported two years ago then all this data you're looking at is stale anyway so you want to make sure the reported date of the trade line is within maybe 60 days so you know you're looking at fresh data and then there's a bunch of other things that credit reports are useful for FICO factors which is your credit score and what goes into that your occupancy status like we mentioned before employment details most credit reports will show where the borrower is employed you also have public records which show things like bankruptcy and finally lifestyle and spending when you look at a credit report you can get an idea of a borrower's uh their their style of living are they financing a vehicle do they have medical debt what's going on with their credit cards so you can see much more than just a senior lean status and this is an important part of your underwriting process all right so let's move on to the next phase of the due Daily News waterfall which on the senior lean side is taxes the status the balance and the Redemption deadline so doing property tax research is especially important for senior liens because on senior liens you're often resolving through the property and your Equity position is directly reduced by the amount of unpaid taxes that are owed it also reveals the future liability of the asset's secured status if the taxes are on their way to a share of sale for being unpaid so best case scenario here when you go to the county tax you'll see a bill and it'll show you exactly what's going on complete records the best case honestly is that all the taxes are paid or at least the current year is the only year that's unpaid and we haven't hit the deadline yet but even still it's still a best case scenario if all that data is there and you're able to determine what the updated Equity position is based on the unpaid tax situation so that's the best case is having all the information a little less ideal is when there's limited records online and you need to call on the phone like the old days the County tax assessor or The Collector and get an idea on the unpaid balance of that specific property and then the worst case is when there is a Sheriff's sale already ongoing so you can check the property tax deeds or certificates in public records to determine whether or not the delinquent taxes have been sold and that foreclosure process has already started so a couple of different vendors you can use for this protidal USA like I mentioned their o e report has tax data some counties require certification which just takes a couple extra days but for many counties you'll get the tax data on the onu report that they deliver within a week CoreLogic has a residential Tax Solutions product which you can't really use on a one-off basis it's really for bulk volume but then first American Tax source is a more one-off service you can access through data tree or using their API so just three vendors that you can use to research property taxes so a little bit more information here when property taxes are delinquent and you already own the loan you need to learn how to protect your secured interest or if you haven't purchased it yet to price it properly so if you're already in due diligence and your seller has represented the taxes as current and they're actually not current then you need to apply pricing Fades because of that delinquency status which essentially means you need to recalculate the equity and then you need to reassess your bid based on the updated Equity position and if it's delinquent and headed to foreclosure you can expect that the tax balance will continue to increase and you can bake in some of those costs into your purchase price if you net out the delinquent taxes from the fair market value like I mentioned that changes your Equity position and you can recalculate and finally negotiate with the seller to potentially bring the taxes current some loan sellers will pay the taxes prior to moving forward especially if they've told you that hey the taxes are current there's a zero balance owed and you show them that that's not true if they want to stand behind their original statement then they'll pay the property taxes for you to move forward with the sale and then finally if you already own the loan you need to understand the specific counties process there's tax certificates and tax deeds there's a Redemption period surrounding that so you need to understand by calling them and talking to the sheriff or the tax collector to understand what the steps are in their tax process especially knowing the Redemption period because that's the deadline and essentially means that if the taxes have been sold already and they're headed to the Foreclosure they can be Redeemed by the lien holder or the borrower before they reach the end of the line there and you lose the property it becomes unsecured so if a payment is necessary you can work with your loan servicer to make sure that the tax bill is applied to the balance owed on the loan essentially it's called a recoverable Advance the lender can advance property taxes and then the borrower will have to pay that into the future and if it's foreclosed that'll be part of the payoff balance that's owed by that borrower all right so we're almost through the waterfall here we're moving on to the last step which is equity and this is really important for second liens and first liens but we're going to first look at this from the second lean perspective based on full partial or no equity and you value this based on the fair market value of the home minus the senior lean balance and any unpaid taxes or HOA bills that can find but generally we just look at senior lean and the value of the property and see if that deduction is more than the junior so this is a really awesome Equity formula that we put together to determine whether it's underwater no equity partial Equity or full equity and essentially when you're looking at a large data tape of loans and you're seeing numbers instead of just really really easy to understand um stratifications here it can be difficult when it's just numbers so what we like to do is first calculate Equity coverage is a simple formula fair market value minus the senior lean upb or rather the payoff balance divided by the Junior upb and you can see here what this will essentially tell you is how much Equity divided by the amount that is owed to your Junior lien as a second position investor so let's say the senior let's say the term market value is a hundred thousand the senior is 50 and the junior is 50. then this equals one Equity coverage equals one 100 minus 50 is 50 divided by 50 is one and in that situation we'd be not looking at at that great of a deal in this case it would be if Equity coverage actually this formula should say if Equity coverage is less than or equal to one then we're going to call it partial Equity so it kind of looks like a full Equity deal but to be conservative if it's one we're going to call that partial equity and and on the other hand if it's less than negative 0.25 we're calling it underwater if it's less than 0.25 we're saying no equity then we mentioned the partial equity and then finally if the equity coverage is greater than one it's full Equity so here's an example there fair market value is 200 000. senior lean is 100 and the junior is 50. so 200 minus 100 is a hundred thousand dollars divided by 50 000 is two so an equity position coverage of two means that we're able to fully cover our equity and you can see this basically uh visualization of it here where the senior upb and the junior upv combined um Can can fall into a partial Equity if they're 100 and above 100 is where we see this full Equity now if this is something interesting to you um and you want to know more next episode in uh our upcoming uh next month's episode we're going to be reviewing all about Excel and this is going to be one of the formulas that will actually calculate together on a spreadsheet or you can go back to episode 36 where we talked about this in more detail as well so that wraps up the non-performing waterfall evaluation this is the complete waterfall from top to bottom you can go through all of these steps and determine exactly what the status is of the asset that you are reviewing and if you'd like to learn a little bit more about this the mortgage note Mastermind is where you can really hone your skills learn this from actual practical application and we'll talk about the mortgage note Mastermind in just a minute after we mentioned assets for sale so some assets for sale that we have available are all listed on the aggregated trade desk for mortgage note Mastermind members and in 2022 so far we've facilitated the sale of 8.6 million dollars of non-performing first and second position mortgage notes two exclusively to our mortgage note Mastermind members so in before the end of the year we have an additional five plus million dollars of non-performing loans that will be listed to our members so I'd highly encourage you to join today the mortgage note Mastermind is the best value Network in the industry um there's two seats currently left at 140 per month and that's going to give you access to these purchase opportunities our Master Class courses the private events that we run the monthly Zoom calls vendor databases forums activity feeds case study details I mean there's so much here I'm not going to read them all but there are three spots for every price bracket until we move up to the next price so once these two seats are filled at 140 then we move up to the next three at 150 per month here's the current Master Class courses that are available secrets to sourcing bulk due diligence and 90-day note investor so these are all included for free from ask for my members and can really get you into the Tactical approach of sourcing loans for sale analyzing loads and really getting from zero to a thousand dollars per month of passive income in 90 day note investor so we've done tons of members only call recordings now so you can get on our Zoom calls and hear from members and experts in the business on their experience in this business and things that they've learned along the way a lot of great content there so I would highly recommend that you go check out The Mastermind group at fixnotes.com Mastermind get in those two seats left before it goes up to 150 per month so without further Ado let's go on to the next phase here which is Tech tips we're going to review the tech stack that makes this business work from anywhere in the world and using a capable computer a decent phone and fast Network to the internet and all these web services we're able to run this business from anywhere podio for our CRM Pacer for bankruptcy reviews Citrix podio workflow automation to make our podio system more automated write signature for contracts Gmail all the time zapier to connect various web services like write signature back to our podio workspace CoreLogic for bulk due diligence data tree for loan level due diligence Zillow for that one-off collateral research protidal USA for title reports and then we've got Google Sheets or Excel and then finally TransUnion for credit reports and TLO XP for your skip Cherry services all right so that is it for the tech stack let's jump over to our case study first case study of the day is a non-performing first lien secured by a mobile home and we've resolved this one with a full payoff of 4 445 now this particular deal uh started at a fair market value of 62 121 we had zero dollars in taxes owed which left us that full fair market value as our Equity 62 000 protecting four thousand dollars when we bought this non-performing loan for 12.50 which worked out to about 28 of the unpaid principal balance see as you know there's three questions we asked the borrowers to get into these resolution situations what happened where are you now and what do you want to do and the answers to those questions can help us craft a win-win resolution so in this case the borrower was in rehab for alcoholism and the Barber's sister told us that he may end up in the hospital it's pretty serious situation so fortunately the sister was helping out and they got the last back taxes paid three years of back taxes were brought current it and they quit claim to the deed from the borrower to the Barber's sister since she was a little more responsible taking care of the property she was now the owner on record and this is a great example of what we talked about earlier in this episode secured versus unsecured if you pulled this loan up in the public record it may look unsecured because the borrower does not match the owner on title but if you look at the transfer type of the last deed instrument you can see it was a quick claim deed subject to our mortgage so even though the sister owned the home they still owed the mortgage on this mobile home and they had signed a third party authorization to allow us to speak with a sister without getting the account paid off so she actually had the funds to settle the principal balance in full and as an incentive here we offered no arrears or late fees added to the balance just pay the 4445 bucks for a prompt payoff and everybody wins so in this case that's what she wanted to do settle the account with the full payoff clear the title make sure the taxes are paid going forward and get the property back on track so really great situation that resulted in only four months 420 of expenses and we definitely learned a lot here first of all internal rate of return is the time value of money so a four month turnaround is a huge Boon to your rate of return now if we had done this over a year the return would have only been around 70 percent but because we did it in four months the internal rate of return was over 200 percent and that can even go higher if you're able to redeploy those funds and turn around three of these a year that would have created amazing return Returns on an irr basis now in this situation the tax situation is is really important to understand so in the due diligence process understanding that those taxes has been had been brought current gave us a lot of confidence that basically just like if we bought a junior and the senior is current if we buy a senior and the taxes are current we have a really good idea that the barber wants to keep the property and work it out get the loan paid off so current taxes made us very confident in this deal as a senior lien holder so at the end of the day the return on investment on this one was 215 internal rate of return with that four thousand four hundred forty five dollar payoff in four months after spending 12.50 on the loan now this Roi this does not account for the 400 bucks of um expenses on the loan so deduct that a bit to calculate um your net Roi there all right one more case study for us today this is a non-performing first link secured by vacant land which was sold via an REO sale for 10 569 so the property was worth around eighteen thousand or so we thought taxes were four thousand six hundred and twenty dollars delinquent the equity that leaves us is 13 380 securing our upb of 42 643 so totally underwater from everybody's perspective here so we were able to buy this loan for 4 500 bucks 10.5 percent of the unpaid principal balance which worked out to about 33 of the equity as we mentioned about pricing considerations on first liens this farm market value of 18 000 really isn't that strong of of a value so 33 percent of the equity position is is reasonable whereas if this property was worth a hundred and eighty thousand dollars our percentage of the equity expected on this deal would be more like 50 um accounting for the upb of course to not go above the 42. so what happened on this deal where are we now and what do we want to do well in this case the borrower was struggling Plumbing business and he was late on all of his bills and in this case he couldn't even handle keeping this property so we found on title there is a final notice and level Levy of tax sale received and there's a deadline imminent the borrower's about to lose this property to the taxes so he was actually willing to Quick Claim D the lot back to us but in order to do so we required that the borrower pay the property taxes first so essentially this is a win-win for him because by paying the property taxes instead of owing this forty two thousand dollars he could avoid a deficiency Judgment of upwards of forty thousand dollars and we'll explain that in the takeaways a little bit more so what does he want to do here uh well what do we want to do really we want to take back the deed and then sell the REO help the borrower out he wasn't a property he could handle retaining this one took a long time though 18 months and over a thousand dollars of expenses to get to that payoff and some takeaways to review here the deed in liver foreclosure process Dil or the quick claim deed process the qcd can be a very useful tool for underwater borrowers to relinquish control of the property and avoid a substantial deficiency judgment so if a borrower does not make the entire full payoff on a loan even in a short sale process technically the amount that they still owe is is a deficiency judgment against them or can be garnered into a judgment against them it's still a liability that they owe so essentially if we sold this property for ten thousand you deduct the 10 from 42 he still owes 32 000 that we could pursue as an unsecured debt so instead we basically worked out a deal where we would waive the right to pursue the deficiency balance if he paid the taxes prior to getting the property back to us and that worked out really well in this situation I mean not really well because the return wasn't as strong as the last deal but it did allow us to start from scratch with a zero tax balance when we took back that deed so as you can see here our leverage as an underwater lender here allowed us to compel the borrower to pay the property taxes prior to granting the deed back so like I mentioned instead of paying forty two thousand dollars a principal balance or what would amount to 32 after the 10 000. um all they had to do is pay for four and a half thousand four point six thousand of taxes and in this case we would have preferred a short sale to never even take the deed to the property but in this case just this situation really didn't allow it so we had to do the dean Lou and REO sale and it did make more sense so you got to have a lot of tools in your toolbox as a note investor to understand which ways you can pivot based on the current situations so not as good of an Roi on this one only a 25 internal rate of return When You account for that long time Horizon that it took to get there so that is it for the case studies today do want to share with you the giveaways if you guys would like to get on a free consultation with me 15-minute consultation call you can go to robymax.youcanbook dot me to get on my calendar so please subscribe to the channel like this video leave a comment with any questions or your feedback and then get on my calendar and we can talk more and of course definitely want to encourage you to check out the mortgage note Mastermind our website is all free a research for the industry The Mastermind group is awesome for Savvy entrepreneurs and eventually is going to go up to 990 per month and you can consult with me as well the consulting rate just went up actually so ignore that but but the rate for the mortgage note Mastermind right now is only 140 per month and it goes up by ten dollars for every three members now this is new we did have it as 10 and this obviously hasn't been updated um every three members that join the price increases by ten dollars and the reason we made that change is because the group is growing so fast and so so well I mean there's so much value that's being provided here with the new masterclass series and everything else we've got going on with the zoom calls that doesn't make sense to go 10 every 10. it makes sense to go every three so definitely check that out you'll get 50 off Consulting with me uh which that is accurate at 250 per hour that's 50 of my regular consulting rate for those of you not in the Mastermind group so check it out fixnose.com Mastermind and then if you're in the group go to Podium Mastermind to get all of the backend information to get your business up to speed so that is it for today's episode of be the bank it's always my pleasure to bring to you the industry overviews the tech tips the vendor reviews the assets for sale case studies the giveaways and so much more on be the bank on the last Wednesday of every single month so we're gonna sign off here by taking a look at the no birds at the fish I'm gonna go out there feed the fish a little something and hopefully they'll be hungry for a little snack and um in the meantime I hope you enjoy the rest of your day hit me up in the comments with any questions and get on my calendar robymax.youcanbook dot me see everybody have a great day foreign [Music] [Music] foreign so enjoy it it's getting to be cold out here they're going to be hibernating so say goodbye to the koi until spring everybody and I'll see you guys next month for another episode of be the bank later