05 May May 8, 2019 – Note Closer Scott Carson, Fit Beyond 40 Jesse Walker and Mental Health Michelle Jackson
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Our primary goal is to rehab the borrower.
Scott Carson is President & CEO of WeCloseNotes.com, a Austin based, defaulted note buying company. Scott has been in the mortgage, finance, and banking industry since 2001 and an active real estate investor since 2002. He has been actively buying notes on residential and commercial properties since 2005. He specializes in finding non-performing notes on residential and commercial properties and purchasing these notes for his company’s portfolio. He teaches Note Buying For Dummies, a 3 day workshop for investors on buying defaulted notes, was previously a Sr. Real Estate Coach for RealEstateProfitCoach.com and a Mortgage Banker and Vice President with JPMorgan Chase.
Jesse Walker – Fit Beyond 40
I figure out a way to make change a habitual part of clients’
lives. We create a plan for after we hit our goal. Once people
figure out WHY they want to make this change, when we build
those habits toward that reason.
Jesse Walker is a number one best selling author, speaker and Fitness Evangelist! His passion is sharing fitness in a straight forward, no nonsense way that helps you to overcome your health and fitness challenges and achieve life long vitality; even if you are burdened with an intense work schedule or overwhelmed with familial responsibilities. He cuts through and demystifies the confusing information surrounding health and fitness and provides simple and easy to follow solutions that are not geared toward short term use and quick weight loss, but are instead designed to be a step by step blueprint that anyone can follow for long term results.
Michelle Jackson – AVP of Market Development at Unum
Even the smartest of us have these challenges and we need to
reach out to research available to deal with the stressors that we are having.
Michelle Jackson has a passion for helping people overcome challenges. After obtaining her bachelor’s degree in psychology and a master’s degree in social work, she initially practiced clinical social work in Virginia, helping adolescents and adults dealing with behavioral health issues. Her work at Unum has involved managing clinical and vocational resources and return to work strategies for the company’s large clients. Michelle works closely with Unum’s internal teams and clients on absence management and workforce strategies. Michelle has been the guiding force behind the development of this mental health report, which will bring much-needed attention to this important workplace topic.
Highlights from Scott’s Interview
Everybody’s in the note game, whether they believe it or not. If you’ve got a mortgage or car loan, credit cards or student loans, if you’re paying a monthly payment, you’re just on the wrong side of the payment stream. What we do at We Close Notes is we buy new mortgages direct from banks and different real estate hedge funds. We buy that debt at a discount. More times than not, the borrowers are not paying on time or haven’t paid in a while. So we’ll buy the mortgage at a discount of what’s owed from the bank. And then we’ll reach out to the borrower and say, “Hey, we’re now your bank, let’s work out some sort of payment arrangement or modification or have you sign that property over to us and walk away.” Because if they owe $120,000, and their house is only worth $100,000, and they haven’t paid in two years, we’ll often pick up that debt or the receivable at 30, 40, 50 cents of the value of the houses. And that gives us a lot of flexibility to reach out to the homeowner and say, “Your existing payment’s $800 a month, I know you owe two years because you’ve been out of work, but you’re back to work. Let’s not worry about the two years, let’s start to get you paying on time.” Our whole goal is not to buy the note to take the property down. I’ve done rehab on plenty of properties in my day, but our primary goal is to rehab the borrower. That’s a big thing, buying the debt when somebody is living in the house that has some emotional equity, or is taking care of the property. Our goal is to buy that out, reach out to the homeowners, and try to get them to start paying on time again. And then we’ve got a performing asset, and we can keep our cash flow. If they can pay on time for six to twelve months straight, it’s reclassified as a mortgage, and goes from a non-performing note to a performing note. That adds a lot of value. We can then turn around and sell that note for 80, 85, 90 cents on the dollar. That’s primarily how we make our money, by either the cash flow, or reselling them. And if the borrower won’t play ball with us, then we always have the right to foreclose and sell the property.
We’ve got one to ten strategies. So it’s a variety of different ways. I’ll get lists sent to me from banks, and for the first strategy, a lot of people just wholesale. Well, they’ll get it under contract, and then sell the contract off to somebody else for a wholesaling fee of $5,000-$10,000. That’s pretty common out there. Everybody can wholesale anything. If we go, we buy that out next week. And then our first thing is to try to get them to start repaying on time, “Hey, you haven’t paid ABC bank, but now you’ve got to pay the Bank of Carson. And I was just getting you started paying your existing payment.” If they can’t afford to do that, then we start talking about a modification or a trial payment plan. We can adjust the interest rate, reduce the mortgage payment a little bit. The next thing we say is, “Do you have somebody that can come in and help you make the payment?” A brother or sister, a father, child, uncle, best friend, or neighbor down the street that wants to take over the mortgage will let them assume and take over the mortgage. If that doesn’t work, then we’ll talk about doing a short sale, where they can sell the property off, and forgive some of the debt. They can sell it to an end buyer if they don’t want to do that. Sometimes we’ll get a cash pay off from people cashing out an IRA or 401k, or people get money from somebody else and then pay the loan off to us. If that doesn’t work, and they don’t want to deal with us, then we’ll sometimes offer up cash for keys, and we’ll pay them to walk away. Like “Hey Mr. or Mrs. Bar, you can’t make your payments on time, we tried to modify this loan with you. You’re not following through, let me just give you two or three grand to walk away from the property, because you can’t afford it.” If we can’t do that, then we’ll look to foreclose. Unfortunately, that still happens about 40-50% of the time. We try to negotiate with the home owners, but when they won’t work with us or won’t follow through, we’ll turn the deal over to our attorneys and then foreclose. In some cases, where we don’t want to foreclose or it’s a longer state, like a year or longer foreclosure, we’ve added some value to the asset by understanding that it’s not going to be a reperforming loan or the borrower is not going to modify, we can sell the note to somebody else who wants to deal with the headache of foreclosing and rehabbing a property. The last strategy is to sell the reperforming loan. If we get to reperforming on the front end, and hold on to it for six to twelve months, then we can turn around and sell it at a premium back to Wall Street or back to other investors. There’s a lot of different strategies, and you never know which way it’s going to go. Sometimes you think the borrower is going to reperform immediately, get modified, and start paying. At times other times they don’t, then you just have to send it to legal for the foreclosure process.
When the market was hitting the fan, this is all that I focused on. I also teach it, and have been teaching since 2011. We will put a couple thousand people through our workshops or online training every year, so I answer questions all the time. It’s like a Choose Your Own Adventure book sometimes, when it comes to working it out with homeowners.
Unfortunately, most borrowers that are upside down or behind don’t know their options. They’re getting phone calls and certified mail at their house every day, the bank’s not telling them what their options are. And, we’d like to give them options. Because the best thing for the borrower to do once we become the bank is to work with us. The worst thing they could do is hide their head in the sand, and not answer our phone calls or emails that our staff and our vendors are doing every day of every week. It’s in their best interest to work with us, because we can really create a win-win scenario for them. It’s a win for us, and it’s a win for them as well.
At the peak in 2010, with 15 million homeowners underwater, where they owed more than their mortgage was worth, I was buying debt at pennies on the dollar–literally 5 to 10 cents. And if you’ve ever watched the movie, The Big Short, that’s kind of what I was doing. I was buying all this stuff at a fraction of the value. And then I was working it out with the homeowners, and the market recovered. It’s been great the market recovered strong there. But there’s still roughly three and a half to 4 million homeowners underwater since then, and 1 in 10 Americans are a month behind in their mortgage. That’s scary to think about. And then what you think about is, what’s the market going to do now? Nobody asked me how is it going to change. And if we have a big downturn in the economy, like I’m expecting us to see, yes, it means I have more mortgages that I can buy, and there’s more inventory. The thing that I love about the note investing side is I’m seeing real estate deals 6-12 months before your traditional real estate investors are going out there and looking for a rental.
You mentioned a couple days ago we were talking and you’re doing some flipping with our buddy. Well, he probably picked us up as REOs, which means real estate owned, which means at one point at a borrower wasn’t paying, and they had to foreclose and take the property back, it’s real estate owned by the bank itself, you’re going to see a lot more of that over the next 12 to 24 months. And the thing driving it, besides default rates, as you look at what other types of debt instruments that everybody’s behind. Everybody’s behind on record credit card debt, we’ve got record student loan debt, the auto industry, we have record defaults in the auto industry on auto mortgage payments. So there’s a lot of stuff. It’s like a paper house that were built up on a house of cards, that really is collapsing and taking another downturn. For a lot of people, that’ll scare them. For me, I kind of get excited about that.
I did not start with a golden spoon in my mouth. I actually was a deadbeat borrower. At one point, when I got started, in 2002, I had a couple investment properties that went south, and didn’t know how I was able to get my assets out of a sling. And then I worked my way towards it in 2009, 2010. I left the mortgage company that created this at the ideal time, when the shit hit the fan. And so I just started marketing, I started marketing on Facebook, I started doing an email out to my email connections, I started going to local real estate investing clubs, and networking with people. Last night I spoke at a real estate investing club here. There’s investment clubs all across the country where people get together on a monthly basis, and that’s a great way to raise private capital 90 to 95% of the stuff that we have bought in the last decade has all been funded with other people’s money on either a flat return, or they’re making the above average return on what their money is making right now. Or we’re doing a joint venture where they’re funding it, and then we’re splitting profits.
We use a lot of vendors, we have a servicing company that’s doing the outreach, we’ve got attorneys in every state. But yeah, you can reduce your risk dramatically by buying a discounted debt, you’re in the first lien positions, which means you have the right to foreclose, you have all the same rights the bank has, because you become the bank when you buy that. And then you work your butt off. So you’re buying a discount, you make your profit by buying discounted. So if it’s worth $100,000, and you bought the debt at $30,000, there’s a lot of flexibility that you have to make that deal profitable between 30 and 100 grand.
I’ve had really good mentors along the way that taught me this business. I had a guy that I learned business from, he made a lot of his money during the in the 80s, during the resolution trust corporation, the RTC days of the savings and loan crisis. And so when everything was going south in the mortgage industry, I was very fortunate to learn a lot from him. And he took me under his wing, and I was able to apply a lot of the theories that I learned from him in the market. Some days I’m on early, making phone calls 50 to 100 times a day, calling asset managers at banks, trying to track down these deals. And what I love is the fact that once I make a connection, and a bank is an inside connection, the bank will send me their lists.
When we were buying at 50 cents on the dollar, and were able in a year to sell it at 75 or 80 cents on the dollar, we just made 30% on that deal in profits. But if you to figure out that we’re splitting that profit with our investor, it’s a pretty good ROI. You know, sometimes the deals take six months, sometimes they take two years to build. So we always like to shoot, if we ever got an active joint venture partner who’s splitting the profits with us, to make sure that they’re getting at least a double digit return on their money. If somebody wants a flat return on investment, they want to see quarterly payments on their money that they’ve got aside, that’s fine. We just talk to them, see what they’re looking for. They need to live on that cash flow, hey, that’s not a problem, we can figure out something, because we’re constantly buying and selling on a regular basis. I’ve got 412 assets on my books right now that we own, that are in some sort of phase of either performance or non-performance. You know, some people just want to target notes or performing notes. And they can buy performing notes for 12 to 15% ROI, or if it’s generating cash flow to them. But the reason I like the nonperforming side is we see a lot more deals, we get a lot bigger discount, which can result in a lot bigger returns if you’re working it out from start to finish.
I was very hesitant to do a podcast, because I was already doing webinars. And we do a lot of regular webinars to our audience and our students. And I didn’t want to add any more work to my workload. And a buddy of mine said, “We can help you out with this.” He approached me, and I was like, “Yeah, you’re right, we’ll do that.” And it has absolutely exploded our business, because it helped us change what we’re doing in a variety of ways. Now we use the podcast, since we’re doing almost a daily episode as a training tool. Half the time we do interviews, the other half the time I’m sharing some nuggets, or teaching aspects of this niche of note investing. And note investing is a very small niche anyway, maybe 10 to 15,000 true note investors are out there across the country, compared to half a million fix and flippers, or a million plus landlords. But what’s helped me with this is that, since we do it on a regular basis, there’s hardly any competition in my space. There were a couple of students that started a podcast different to ours who just stopped doing it a year ago. But there’s another small one, it updates once a month, as opposed to us being regular, everyday for the most part. We’ve become the go-to for information. I’ve always been teaching, I was educated in my field a few years back, but it has revolutionized our business in a variety of ways. Not only are we seeing an increase in our students, it’s also an increasing our capital. It’s also helped us streamline what we’re doing. So I’ve backed away from the other things that I was doing to focus on podcasts. And because it’s become a whole lot easier for me. It’s a lot of fun actually, my early days of being a college radio DJ are coming back into helping me a little bit, but it’s a lot of fun. I get to communicate and meet great people like yourself and others. And it’s added a whole new kind of invigoration to what we do here on a daily basis. So I absolutely love it. We usually do at least five shows a week, unless I have a travel schedule, where I’m traveling to a convention or something like that, or I’m taking a vacation. But last year, we averaged three and a half episodes a week. I just filmed Episode 4440.
The book is just meant to be a starting point, it’s 73 pages of information to give you a good foundation, but I would highly recommend people check out a ton of our videos on YouTube. We’ve got almost 1000 videos and webinars and training programs and our podcast episodes are there, too. If you like the video or listen to the podcast, and if you feel like after watching a lot of videos, you want to sign up for a class, great. Then we’ve got an online, home study course called The Blueprint that you can invite at that point. But I’m a big believer, I was very fortunate to have some good people mentoring me early on. So I’m a big believer that you give people the tools to run with it, or they’ll ask for some help. So we do a lot of education, a lot of stuff online and free.
They just have to go to weclosenotes.com, where they’ll find a list of everything that we offer.
My big goal is I want to have 500 notes that are sending me a split of the income, at least $250 a month. That’s what I want. And my big goal is the next $1.2 million.