Why UPB Doesn't Matter When Pricing Notes | Real Estate Notes Show

Welcome back to the real estate notes show. I'm your host Dave puts as always my co host, Mr. Nathan Turner. Hey man, how you doing? Real good. Real good. So we're we always get on this time of the year and we don't do as many episodes we usually do, but it's time we get together once in a while to talk and share some information and live life at the same time. We talk often about how weather is going, how family's going. But what do you do in these summer months when things are kind of a different vibe where you're not working as hard as you did in those winter months when you're stuck behind things, what's life like right now? You know what? It's really interesting.

I was thinking about this the other day where I see these posts where people are like, you gotta hit it hard. Da da da da. Yes, but like life is for living. So if all you're doing is working all the time, man, I think you miss the point. So that's my own take. I like to take things a little bit easier and like that. I think life is for living. So we go on vacations and we go camping and we do different things. And, and I think that's a, okay. You know, just obviously you don't want to let things drop off, but, uh, give yourself a break, man. Do you improve your systems during the summertime? Is that more of a winter time, fall time? No, we actually, it's funny.

There are several things, especially as we're getting ready for DME and just like everything's super busy. And we have like a couple of different things and we're like, that's the summertime project. Couple of different things that, uh, that are being worked on this summer. When things are a little bit slower, when things pace is just easier to get things done that are maybe outside of the normal day to day everything. So yeah, we've got a few things that we're working on just to tighten things up and, and, uh, change processes just a little bit. It's good. Just getting it all done while we can.

Yeah. And I'm with you there, right? That's something that we do in the summertime too, is we just switch things up. Um, we have a couple of cool topics guys for those who are seller finance and note buyers together of how we look at things. We'll be talking on a few episodes. Um, but yeah, this time of the year I'm redoing myself because when we get in the winter time, I'm plowing a head straight, right? Like it's no vacation time. It's, it's seriously getting in front of the computer and nailing down and just yeah, buying little things that I didn't do well last winter time, um, and do better, lie in August is kind of a lower time for me.

Um, I try to do too much because you never know when it's time to do something fun with the family. Right. That's the thing. Give yourself a minute. Have some fun going vacation, do some things. And, and I think that's, that's part of it. If you're just in the office all day, every day, then you missed it. Anything. No, I actually got it. I think I'm putting together a video series that I'm going to be putting out here as well. That's going to be a lot of fun and video series do like a post a month and then, um, I'm debating and I'll ask about this after, but, uh, but yeah, video series and then a couple of weeks later do like a live Q and a, uh, just why not? Look at you.

Look at you getting social. That's awesome. Um, deal flow and deal scenarios. Anything wild and crazy happening? You're doing like California stuff. Some you have some Chicago stuff that rounded up. And we are, we are closing by the time this airs, we should be closed on that nightmare property. I can't wait. For those who've been following on the show, this has been a multi-year headache that's just never gone away. Russ said we've gotten some cracks a little bit more in there. Um, we've been presented with some deals that, um, were just bad overall. Um, but we've been buying a little bit, not as much as we were, you know, year two ago, um, but we are buying still, we're creating more notes than we are buying, which is different angle.

Um, a lot of the SCR stuff right now. Um, and then we're buying some. Reperforming partials and stuff like that. Just people looking to get capital out, um, shift like that. Uh, for now, most of portfolio is performing right for those who are new creating great time to be a new creator right now. Oh, well performing. It's awesome, but don't be fooled. Presuming that performing notes means lifetime performing. Right. We've been through this cycle. I mean, we both came up through non-performing loans. I think that you and I both have the same perspective where like, eventually everything's going to fall everything.

Yes. We have a bad situation there, right? We, we expect that to be the exit strategy of everything. Yeah. So it's, it's always in the back of my mind. Anytime I'm looking at anything, what if, you know, and, and if we end up taking this back, is this still a good deal? So that's always there. Amazing. The life, you know, we all hear from older people saying the cycles are true. The cycles are real. And when you're living in as a younger person, you don't really think that's true. Yeah. And then you go through and go, wait a minute, I've seen it before. And you're like, wait, my mentor said that he saw less cycle before.

Yeah. And what that tells me and tells you, I'm sure is that when we speak to the people who have more experience than us, who've been through life more, we have this been a lot more attention, what their experiences were because that's going to come back and what next wave we're going to face is going to be a huge factor. Yeah. So, you know, when we, when we bring on guests. Guys, make sure you understand this as a seller finance person, we bring on guests that help you guys, but also help us learn anything with note buying. When we get a hold of someone that come, Oh, I want to learn as much as do, but we want to actually get some feedback.

We'd love to get them. Two lakes and some spot of fun lakes. Make sure you leave us some reviews and give us some feedback where you're at. But how further do we want to bring our, our guests, our guests has multi decades of experience on different angles. If you brought this guy to me and I was like, who is this guy? This is the main information. And we connect the years ago and it's a small world, but when we get around someone with decades of experience, our best job is to shut up and listen. Oh yeah. Yeah. Oh yeah. We're we've got experience. Don't get us wrong, but man, oh man, there's always something to learn.

And so we're, we're more than happy to have people on and believe it or not, where did we meet Doug? Where did I meet Doug years and years ago? Guess what? At a conference. We'll start as well. We keep coming back to that. Well, without further ado, Doug, thank you so much for joining our show. We're excited to have you on this July summer day. I appreciate coming on. Welcome. Well, thank you very much. I think, uh, David, you and I should be celebrating because this is being shot. I realize it's not coming out for a couple of weeks. However, we are shooting this on Friday, July the third. Now leave it to our resident Canadian to schedule something.

You've already had your Canada day, Nathan. I'm telling you, you've already done that. David and I should be out, you know, blowing up fireworks. Uh, you know, tonight we're going to leave a six pack in Marlboro's for Kid Rock to come deliver fireworks, whatever that whole thing is. So without, I just wanted to, to, to say this, I brought this in because it is, it is observed and I'm going to stick it right back here. We'll see if y'all can see it in the background. And just to, just to remind Nathan, we are shooting this on the observed independence day in America. Absolutely. America. Wonderful.

So anyway, I'll tell you what, I am a massive fan of Nathan. I think, uh, I was speaking at a conference and he approached me and, and, you know, I'm just kind of getting into the note world, whatever. And, uh, um, I know you're going to ask me about my background. Shall I go ahead and give that right now? Yeah, let's learn about who are you? Yeah. And no one knows. Well, you know, it's funny, the, the last few years I've focused primarily on, uh, we have an MLS mortgage company out of Florida. Uh, so we focused very heavily on that, but, but, uh, I was a banker for 35 years and thank you very much for making me feel like Methuselah over here.

A thousand years old, decades of experience at 35 years. So I guess three and a half. Um, I was in banking, uh, and mortgage for a bajillion years and, uh, was actually working for a bank, uh, you know, I've worked with three of the largest banks in the world, uh, but I was working for a bank, uh, and I was handling special assets, which for those that don't know what special assets are, it's a big note term, meaning these are the people that, that actually have to work out all of the issues in a bank. So when we have a bank would have a bad loan, you know, they start to go south. Uh, it was one of my jobs was to try to figure out how to extricate the bank from that.

So basically it was the bank version of non-performing loans. And, uh, so right before the last crash, the big one, uh, we saw this coming. And by the way, Steve Correll and, uh, you know, he was not the, the, for the big short was not the only person that saw this coming in, in the real world. A lot of us did. And, uh, so we, we created Castle Rock, uh, which has gone through a few iterations, so to speak, but we did, uh, uh, commercial bridge lending. And we also bought, not bought and sold non-performing loans, starting with commercial, and then we kind of went bass backwards to residential.

So we started commercial and then went residential later, uh, which is when I started attending conferences. I think we met at IMN. I think I was on the very first, uh, note panel at a single family rental and then, uh, spoke the next year at the very first note conference. And I think that's where I met you. So it's funny because I actually worked when, uh, David's, uh, it was with Jim and I, and, you know, I knew Jack and all those guys from back in the day. So it's, it is a very small world and it comes back around, but yeah, 35 years of formal banking and we have three, uh, three companies really.

We I've mentioned the NMLS licensed mortgage company and we have Castle Rock capital management, which is really, um, I say private equity in reality. It's where we do our real estate or note investing, you know, those types of things. And then we just created the mad lender, which is sounds crazy, but the mad lender is actually, uh, a consulting company that works with, uh, private lenders, uh, small funds, uh, and, and note investors, including some smaller note investment funds to be able to handle the underwriting. So I'm not an educator, you know, I stay in my lane. Uh, but yeah, we'll, we'll, we'll work with, with folks that don't have our resources to be able to underwrite, uh, those private loans and the note investment.

So that's what we do. Yeah. Nice. Yeah. It's been a while. And I remember us meeting then and we've just kind of kept in touch over the years and phone calls every once in a while. And I remember once when I was down in Florida, we went out for what? It was just out, out for drink or whatever and hanging out. But yeah, it's just, it's been good just to get to know you and what you're doing and keeping on top of things. So yeah, it's been awesome. Well, and I wanted to go to DME for a little plug. Uh, I tried to, my daughter graduated the same day that you had the show going, by the way, I think you should move it to January and just do it.

You know, there's snow in Canada. Just, just come on down. We'll, we'll have a mahi though. It'll be great. So I'll be there this year. I promise you. You've done a lot in the, in the lending space and buying in, you know, you adjust to yourself. Um, I think when we get captive in, in our world, we get stuck in a lane. It seems to me you've able to adjust as you felt suited. How would, did you adjust so well when markets change or did you not kind of fall into the next chain? Um, I, there were times we went contra. I remember when I resigned from the bank, um, to start, we, you know, as myself and a couple of other people started this, this company and, uh, it was before the note, it was before the crash.

Um, so I walked in the guy that hired me, you know, I considered a mentor and he had moved up a little bit. I wanted to tell him before I went to my actually boss to resign and, and I told him what I was doing and he kind of giggled under his breath and he's like, you're doing what you're, you're going to get, like, well, I really feel like, you know, there's the, the note world loans are going to really start to tank. Banks are going to get in trouble. And, uh, I'm going to step away and we're going to start buying bad loans out of banks. We're going to start making these loans, uh, to, to companies that are good, good, you know, people, but they can't renew their loans because the bank banks are losing liquidity.

So that's what we did. And, uh, so have I had a crystal ball? No, but, uh, I just pay attention to what the markets are doing. Um, I think there's going to be a tremendous opportunity in the note world coming up. I really do. Yeah. Um, you know, one of the guys that, that works with Castle Rock now, it came from a bank. He was an SBA specialist, a formal commercial background like me. And, uh, he, uh, his bank said, Hey, we don't want you lending anymore. We want you to go out and gather deposits because we're a little afraid to put capital back on the street, which means that's a great opportunity for folks like us.

And when I say us, I'm talking about all of us and even the people watching this to be able to have opportunities to deploy capital in sensibly, uh, into the right investments. And that's why people like, you know, uh, you guys, uh, you know, David, I know you do education, uh, you know, it's critical, uh, the conferences, you know, like, like DME, um, attending those learning, soaking it up and not doing, not investing in really dumb things, I think is, is, is the key. So that education is huge. Absolutely. So one of the things before we get on a call, you mentioned two phrases that I'm not familiar with.

I'm curious about them. You mentioned, uh, capital holders versus creditor credit operators. I'm a little bit about that. Yeah. Um, I think there's two different terms in banking. When you say you're a banker, what does that really mean? Um, if you're a wall street person that is really great at raising capital, you're an investment banker. Uh, or you might be in a banker like me who, you know, I was in, you'd walk in and get a car loan from me or an equity line back in the day, and then working with businesses and formal credit backgrounds. So I'm, I'm from the lender side, the actual bank bank side, and then, uh, capital, uh, holders, uh, can be those people that really raise capital.

It doesn't mean that the two are even the same. And I think the banking term, uh, where you throw banking into both of those terms really misleading because the wall street people, I, listen, I, I admit, I'm horrible at raising capital. I'm the worst. I'm terrible. Uh, but I know credit, so stay in my lane, you know? Uh, so, but a lot of times people start to step outside of that where they, they're great at raising capital, but they may not have the formal credit backgrounds to, to, to be able to properly underwrite a note investment or a private loan. So I think there's a big difference between those folks that, that actually hold capital and those people that are credit operators, credit executives.

That's me. I'm, I'm the latter. I'm certainly not the former. So in your models and you've built over the years, um, and what you've, you know, stumbled across, have you had any scenarios, what kind of taught you a lesson, anything you realize? You know, what have you learned? What lessons have you learned? Any real life scenarios? Uh, I, you know, it's funny. I, when I wrote, so you mentioned the book, uh, a book just came out, the Mad Lenders guide to private lending and note investing, a plug now available on Amazon, so, uh, and you guys are getting a copy of it, it's coming, but inside of the book, I do tell several stories that really happened to me where I was really stupid.

Um, I, you know, early on in the, the, the book, I was working at a bank. It was a community bank. And by the way, community banks have board members that aren't necessarily credit people or bankers even they're really local business owners that are plugged in, that can drive business into the bank. So you might be a widget manufacturer or the president of the, the local chamber of commerce or whatever that knows everybody you might get on that board, not because of your credit or banking background, because you can drive people in the door. Well, a good, uh, uh, story about that was, uh, one of those guys used to refer regularly to me at a, at a bank.

And he sent me a, uh, uh, one of his friends who he felt was a great credit risk, but keep in mind, the board member had zero credit background. And I looked at the application and there was no way I was going to let the bank get into that deal. It was a bad deal, but I knew that this was a board member. So I'm in a little bit of a precarious situation. I went and talked to the chief credit officer and the bank president said, listen, this is a million dollar loan. This guy expects us to make. It's a bad deal. We can't do it. They looked at it and said, yeah, we 100% agree with you back here. So I went and told the board member and he went ballistic.

He said, fine, I'm going to go pull money out of my own account. He had a million dollars in the bank. He had more than that. I'm going to give it to this guy and show you that you were wrong. He lost every cent of it. The whole thing blew up because he didn't have a good credit, but you know, the credit background. So I think over the years I've learned through trial, you know, I, listen, I've been bloodied left and right. I even get bloodied today. But when I first started, there were so many mistakes that I made being a very trusting kid that grew up in a small farm town in central Illinois, you know, we, we used to help people, you know, somebody, somebody passed away.

You go take their crops out, help them out, you know? Uh, the world doesn't work that way now. So I learned, I learned a lot. I got beat up and that's just maybe one story that, that I told if you guys saw something in the book that you guys want me to hit on, I'm happy to do it. I had the same kind of thing. I'm going to plug the book. Yeah. And the same kind of thing, especially the early days where I, man, I just want to trust people and I, I know I'm still guilty of that today, but that's my natural inclination is to trust people. And so like, oh yeah, sure. They say they're going to do this.

I say they're going to do that. And then they didn't. And then I got burned. And so I'm, I'm much better at that today, but, uh, but yeah, that's a tough thing, just getting over that. And yeah, yeah, I was thought that I was, I was thought Nathan was just super nice turns out he's just Canadian. So, uh, there's so it's different. Some of our additional notes here, you know, you've mentioned something that Nathan and I talk about a lot, um, that people bid certain ways either a, they're not educated or B it's too hard to do the math. And one of the things that we got in a book was that the UPB is not the price.

And sometimes it doesn't matter. And for some of our listeners out there who are note sellers going, what do you mean the new P B nothing or are note buyers going, I price everything off of value or ups this is doesn't make sense. Can you share a little bit about what that means? And does it always apply or only sometimes? Oh, sometimes certainly. And it's a consideration. It's not, but it's not the end all be all. And I think we talked, uh, in our pre-call, uh, about a situation where I was getting heat from a note seller, uh, because he, well, this, you know, we're pricing at a certain percentage of unpaid balance, UPB unpaid balance on the notes.

But what we were looking at were upside down, non-performing loans that hadn't paid in a couple of years. So if you think about it, if I'm a borrower and I go delinquent and I haven't paid in a year and a half, two years, and my property is worth 150,000, but Oh, 200,000. The 200,000, I wouldn't say is irrelevant, but it's pretty darned irrelevant. You're going to really price that off of the collateral and come back into your pricing. So we always priced two ways. We, we think about what happens if the person pays us and what happens if the person doesn't, and we tend to skew towards the, the, you know, the likelihood.

So in a situation like I described where you've got somebody that's severely delinquent, uh, somebody that is upside down, uh, that then UPB really, uh, is almost out the window at that point because you're upside down, you can't get blood from a stone. Somebody hasn't paid us in year and a half, two years. Uh, what's the likelihood of us foreclosing on the property, having a $50,000 deficiency balance and then knocking on the door and say, Hey, uh, cut me a check for 50 grand. Yeah. They might be able to cut it, but it's going to bounce. This is why you can't get blood from the stone. Yeah. This is why we tell people out there, price your stuff based on the desired return, nothing else, right? So your desire return is say 10%.

You back into it with every scenario you possibly can and figure out if this person is really far behind, what's a re even possibly look like in that percentage comes in, if it's performing, what's a chance of defaulting, right? There is a small chance to it. So when we tell people out there, your first price should never be based on percentage of UPB or percentage of BPO. It's first and foremost, what is your return desired to get this to work in all this scenario? So when you buy something as a performing note and say, this thing will stay performing and I'll get a 13 yield or our 13 IRR day.

If it stops performing, that yield means absolutely nothing. And if it's upside down, the UPB means nothing. Then your factor is what can I happen if I go to auction, seller auction, or take it back and fix and flip it and, you know, seller owner financing or whatever you do with it. It's huge. Yeah. You have to annualize that return too, because there's a big difference between, well, let's use the, you know, Nathan's nightmare note. How long have you been, how long have you had that in, you know, collection? So let's say you resolved that in three months, you know, that's 12 months in a year divided by, you know, so basically you've only got one quarter's worth of, of, of, uh, not, you know, it non performing, but if you've got five years, there's a big difference between yielding 12% over a five year period and 12% over a three month period.

So you have to think about that and you have to back into the parking place. So that, that does definitely, that definitely does enter into the calculation as to what you pay. And we always look, what if they pay, what if they don't? And then we tend to skew towards that worst case scenario. When I was first getting started, I think what, you know, not knowing anything about anything, my first way of calculating anything was just looking at ROI and time was not a factor, just what's the ROI. And I, and I still see that today with a lot of investors, especially just like the, the regular real estate, if you want to call it that, uh, all they look at is ROI and I'm like, well, that's, that's one way to look at it, but how much time does that take? And, and I mean, that's besides the headache, that's besides all the other, you know, effort that goes into it, but just time alone is a major factor.

And if you got it, if you're ignoring that, then you're missing a huge piece of the, and we see this so often ROI, easy calculation. I get all that in IRR and all those fancy stuff is a lot harder. The problem is that if you go into this mindset, that yield is my goal and it stops performing gills out the window. If you go into a deal saying, why ROI is this, and you have a non-performant that does takes 12, 15, 17 months to get a payment, your ROI is skewed and your returns. Guess what the problem is. If I borrow money from Doug at 8%, I have to pay him 8% on that money going further. Now, if I don't get money for eight, 10 months, I still have to pay him on a monthly payment or yearly payment.

But you have to do that kind of math. And I think that the only way that falls apart is when you do it and mess up and learn the hard way. Let me throw one more in there. It kind of goes along with this are people that say, instead of a percentage, you say, I want to make five grand on every deal I do, regardless that, you know, whatever I do. Well, you know, I've bought notes over $2 million before, right? You know, or I can go buy a note at, you know, 50 grand. There's a big difference in the percentage yield on those things and the risk it's involved. So what happens if, yeah, what happens if I say, Oh, I'm going to make five grand, regardless of whatever, and I pay two million for the note or 50 grand for that.

That's a big difference. Right. That's a big difference. So yeah, you got to think about your overall return, including time, value, money, and all the fun stuff that goes along with it. That's a good one. I have heard that one too. And like, I want to make it, you know, a 20 grand on every deal. I'm like, good, maybe. Right. But then how much did you pay? That makes a huge difference. What's your percentage of actual return? Right. So we want to just dive more into this idea in people often. We mentioned before the call about this idea about a dual pricing. And I think that's what we're talking about here that you have to price it both ways, correct? And I think you're talking about this in your bike or your book is that pricing it in one way, taking a financial calculator, powerful things, calculators the world and saying, this is my return.

I'm going to buy it for X. This is not a lot. It will make a lot of mistakes. Yes. Because you don't know things change. Um, you know, uh, uh, borrowing might pass away. They might lose a job. You know, they might be paying like a shot right now is what we used to call it. In banking, they're paying like a shot, but something might change. They might, there might be an illness. So you really have to think about those. And, and, you know, I preach in the book and this is more towards the lending side of the ball, as opposed to the note buying side. But I was looked for primary, secondary and tertiary repayments when we're lending the money, when we're originating.

So a lot of times you'll get a hard money lender, which I always call it bridge lending hard money is I'm just lending on the collateral loan to own. Right. I'm just lending on the collateral. I don't care about the individual. What's a collateral worth? I'm more of a, of a, and this is kind of leads into the performing loan side is that you're, how is this customer going to pay you back? You know, are they gainfully employed? And we talked a little bit about doing, I wouldn't say skip tracing is the appropriate term, but trying to figure out what you know about the person. Do you, uh, do you know if they're employed somewhere gainfully employed? How does their income coming in? Is it consistent? Uh, what kind of backup do they have when you're looking at the, at the note file and the collection notes, you might see that, you know, they've got quite a bit on reserve here and in bank accounts, or at least they did when they bought it.

Um, you know, how, how, how do you, you look at that? But to me, the, the capturing the collateral is your tertiary or your third way of repayment. I I'm not big on stealing, throwing grandma out on the street. I like to, to make sure that, that there is an exit plan that is tasteful, uh, to all parties involved. Not only the investors that are putting the money up for the deal, but also for the, for the borrower. And that's just my take. Well said, Doug. Well said. I, you know, and I think, uh, one of the things we're talking about today is, is. Big. We just literally had something recently on social media talking about this is the pre due diligence people get due diligence is a scary word for a lot of people in don't get it wrong.

I hate due diligence because I'm always worried about what I missed. And that's something you can't ever get over. Um, and are you due diligence is not only the borrower, which you can look on social media, we talk about all time. Doug talks about to go on social media, find out the story. You may find out more information about the borrower there than anywhere else. Right. Divorce job loss, job gain, medical situation, all those kinds of things come in play. And when we do this due diligence, that's a nice way of doing it. Before we get to do diligence, we have two different things. We have a lot of data.

And one of our data points is we call a spreadsheet, which we call a tape or data sheet of potential assets. But like, I think you're in your book. You put it well, that a data sheet is not the same as a collateral file. No, no. I think in David, I know that you, you're heavy on automation AI. And whatnot. I think it's brilliant. When I started, you know, we had to basically take our, our Fred Flintstone dinosaur and chisel into the stone when we were doing, doing our due diligence. But, you know, now one of the biggest problems I had when we first started was we would get a spreadsheet. And I'm sure that a lot of these, the folks that are watching this have the same problem, you get this long spreadsheet with all these numbers and you're going, you're, you're crossing your eyes.

How do I organize the data? Okay. I don't want to do business in this state, so I'm just going to throw all these out. And how do you organize it? And I think you've gotten really great. Uh, it's something that I, and it's so much easier today with, with automation is to take that whole tape and dump it into the top of the funnel to be able to, to, to skew it down. And that's probably something I would, you know, here again, stay in my lane, do what I know best and let you talk about that. But I think that is a big issue is to make sure that the data tape is a very, I use the word Pollyanna a lot, you know, the movie about a very happy go, like everything's wonderful world, but man, the note world is not a wonderful world.

Uh, there's a lot of problems. Otherwise they wouldn't be selling them likely, you know? So you got to dig into that. So yeah, the, the, the file itself, I take the tape and that's how I, I, I slim it down, but then I look at those, those ones that I identify on the tape that I want to look at. Now we go in, do we have a proper assignment and a launch chain, you know, from all the way through? Uh, are the, are the documents that are in there something that will hold up? Um, you know, I, I love the collection notes, the collection notes are key. And I think people skip that. They look at these, but they don't say, you know, uh, hey, uh, you know, uh, the customer called in, I will say some of these services, man, some of these servicers, they're, they're, they get paid on an a la carte basis.

You got to watch your service. I wrote about that in the book, but, uh, you know, are they, are they actually working through, Hey, I get, I get paid a lot of money as a servicer to get a reinstatement. So I'm just going to take this customer that has absolutely no ability to pay me. And we knew it in the collection notes, but I'm going to do it so I can collect the reinstatement fee. They make one payment, they default again. Now you're back to square one. So I think you have to really look at what the notes are, the calls that the person previously had, what kind of collection efforts had they had, you know, they were paying very well.

And then all of a sudden Timmy fell off the bicycle and they're having a problem. And maybe you can say, Hey, why don't you skip a payment? We'll work this out, whatever. And they're back to normal. Or is it a permanent problem? So I want to read, read words. Something you said before that I'm trying to think for those who are listening or watching us, we're newer in space. She talked about assignment or, or a launches. Those don't show up in data tapes for those who have no clue what that means. Explain to them what a difference between this. What, what are they and what's the difference between the assignment chain and a launch and why, you know what? A perfect, a perfect example is endorsing a check.

And so let's say that you receive a check. My daughter receives a check from somebody for her graduation. So she's going to flip it over. She's going to sign, she's going to assign that to the bank to go collect it. So she's going to sign it over to the bank to collect it, to put that into the account. That's really all it is. A loan, a note and a mortgage or deed of trust, depending upon the area you're in is transferable, you know, how many times everybody on here that owns a home is probably signed a loan with somebody. And then two weeks later, they get a letter in the mail saying your new loan is serviced by this company over here.

They just sold the loan or they transferred services. So in order to transfer the, the mortgage or deed of trust, you use an assignment of mortgage or an assignment of deed of trust. Basically it's a piece of paper that follows that, that endorses that, those rights over to the new owner. So if I'm selling that to David, a note, I'm going to pay the order of, you know, JPK, da da da da da, whatever. And then you now own it. So you have to make sure though, it's almost like the book of Deuteronomy. You have to make sure that so-and-so begat so-and-so you have to make sure that that chain from the original person that made the notes, you know, sold it to this person and that assignment is in place, you know, and so that's what they call an assignment chain where they're all linked together and you make sure that you could trace it back to the original person.

And for those who don't know, this was a huge problem when we got started in the business. Back in the day, man. Assignments were recorded. They were skipped. Allonges were there. Allonges attached to the note. Those who don't know, it just shows the fact that the IOU is attached, right? It is chained together, but we'd had missing stuff and you had to go back. If they're out of business, you hope to find as there's somebody who used to run the company is still alive to sign it. So that was a big problem. Those who are just not sure about this, none of this data stuff is on your tape. This is not going to show up.

If you do a cloud review, that's when you'll start seeing these things and they'll say, Hey, we see the order, but how to go from Doug to Dave, but missing Nathan, but Dave's endorsement shows Nathan to Dave, but there's no endorsement from Doug to Nathan. What happened? Yeah, correct. You got to make sure. Yeah. You got to make sure those chains are intact and the people miss the Allonge. They know about the assignment. It's basically endorsing the note, your promissory note or the notes. Which is the whole note business is I'm selling note. Well, you're selling more than that. You're selling the entire file that goes with that note.

So when you're signing the note, that's an Allonge, fancy word. Uh, basically the equivalent when you're assigning the security agreement, the mortgage or the data trust is the assignment of mortgage or data trust. So, and then for people that have, we're talking about this because we've all lived it, but for people that are like, what on earth are you talking about? Is that something that Mad Hatter does? Will you go through and make sure that's all correct and in line and all that? Yeah, we do that. We make sure that for note people, we make sure that we're, that everything is the assignment chain makes sense and it is connected and we have everything in the file and often that is broken.

So, and then I want to go back to it because we were talking to me before, did you like the data tape versus the collateral file? And, um, something you talked about in your book that, that I've always thought that from the beginning is I look at the data tape and the file and I'm looking for the story, what's going on with this person, what has been, what has been going on, how did they start? How did they get off the rails? If it was a non-performing note or, or maybe they haven't, maybe it's been paying like a shot and it's been great, but I, you get all of that from the numbers and the file and you look at all that together to get the story.

Who is this person? How likely is it that they're going to continue to make payments or not or whatever? Right. The, the, the tape is an advertisement, right? You know, it's, it's, it's a seller that says, here's what I want to sell. Yeah. Uh, I want to sell this car today. You know, I want to sell these cars. These are all the cars on my lot. Come take a look at them. Then you go in and say, I want my mechanic to look at this particular car and this particular car. That's the file. So the advertisement is really the tape. This is all we have to sell you. And then after that, you, you, you're going to kick the tires a little bit on the, on the car and that's really going through the file with the fine-tipped cone to make sure that it's correct.

And also you have to make sure that there's things that are not in the file. For instance, I'll give you an example. There was one severely delinquent loan that I remember. Nobody could find the guy at all. And you got people posting on social media, what they had for dinner last night. Well, this guy was doing it and nobody at the service or thought to look. And he's like, Hey, I got a new job. See where I'm working now. And here are my hours. Come serve me. So it was, uh, you know, that's basically, we, we found the guy just by him looking at his social media, which. You know, um, there's more, there's more out there.

You have to kind of look under the surface a little bit and don't just take what the customer tells you or what's in the notes as gospel. Think about it. Does this make sense? Yeah. And then finding that story. And I think that's a huge piece of it is behind every note is a person. And I understand that like we're, we're buying a piece of this person's life in a way. And so understanding what brought them to where they are today. And like I say, whether that's performing or non-performing. And sometimes we can solve the problem. Sometimes we can't help them. Absolutely. No, we can't help everyone.

Right. No, Doug, I, one of the things I want to make sure we hit on before we close out here and get to Nathan's last question, um, talk about the resolution toolkit. Tell us a little about this toolkit you built for. Reperforming didn't lose what you won't do versus what you can't do. Oh, won't versus can't. Yes. They're two different things. I always get a kick out of when you talk into somebody, I can't do that. I mean, can't, or you want you can. Yeah. Let's be honest here. You can, but you won't. So I think that we always try to find a way to, to make it, um, ethical. Um, I, you know, we, I, a couple scenarios come to mind, uh, you know, Robin Williams took his life and, uh, you know, everybody thought he was just happy and funny.

And he was always out there, but underneath the surface, there was a lot going on in that guy's head and, and, and, you know, it was horrible. We, none of us knew, uh, there's a, I'm so happy Ted Lasso is coming back on, I don't know about that, but there's a scene in that and I'm not going to repeat it because it was Roy Kent and he says some very bad things. So some bad words, but there was a one where one of the players melted down and went into the stands after somebody and, and Roy Kent is sitting there talking and about, uh, whether he supports, uh, you know, this, this person, he's like, none of us in here know what's going on in anyone's life, you know? And I think that's key to remember, you know, to, to us, uh, to a bank, to a collector, that person might just be a number, but to them, um, this is their life, this is their home, this is where they brought their child home from the hospital and raised them, you know? So, so I think we have to be very compassionate.

So the toolkit really is more or less, uh, uh, you know, how we go through the process. Uh, how do we, uh, how do we look at a deal to say, is there a way to get this to re perform? Do we identify, can we identify whether this is a permanent problem the customer is having, or is it a temporary problem that we can easily fix? If it's a permanent problem, we need to start figuring out how do we extricate, uh, not only us, but also the customer from this bad situation. Uh, one thing I have never, I've never paid cash for keys and I know that's weird, never, never. I have, because what I have found is to say, you know, Dave, David, I know that life is tough for you right now.

Things aren't good. We've talked about that and I have no interest in causing you more pain. So I'll tell you what, why don't you sign that property over? Um, we'll do a deed and Lua foreclosure. I won't show up as a, as a foreclosure and credit report. You leave it in broom, swept condition, good condition and, uh, and just, you know, walk away. I will waive the remainder of that deficiency balance and it's not going to ding you, um, you know, would that work for you? I've never found cash for keys to be necessary. And I know people throw that out there left and right, but I find that being able to, to allow a customer to exit gracefully with some of their dignity and their credit intact is more important.

So very controversial by the way, but yes, that's how we roll. I've done cash for key for someone who just dug their feet in the ground and had no other option where it's like, listen, how can I get you out? And you know, sometimes these people don't care. It's like my cash keys doesn't work. I'm Nathan's duration. No, you couldn't pay them the leap. Right? Yeah. Yeah. We try. Yeah. You run into those. You run into. Yeah, I know. I, and I've done it in the same kind of a situation, but I've had it where that, you know, they're so destitute. I, you know, they don't even have money to pay for a moving truck.

I'm like, look, I'll pay for the moving truck. How's that? I have done that. Yeah. I have done that. I paid for the moving truck. Yeah. So I cash for keys. Yes. Yeah. Okay. Yeah. Yeah. I have done that. I have fessed up, but it just, same thing. We're not here to hurt people. That's not the business and, and if you are, I don't want to work with you. Right. And I think the vast majority of note people are not in that business. We're here to help people and weren't generally, I think we're very, we're making money and helping people. I mean, how much better is that? It's amazing. That's a good way.

There's a way to do both. Yeah. Well, Nathan, let you ask your famous last question. Yeah, man. We always like to get just, it's awesome. It's talking to people, especially that have been in the business longer than we have and have been through more than one cycle. So with, with your background and you've made those pivots when it was necessary, you mentioned earlier, you see there's some opportunity coming up. What do you see coming up here in like the next 12, 24 months? I still see more delinquency happening. I think that home affordability is, is perhaps hit. It's, it's, it's become such a problem that people can't buy houses.

People can't buy houses. People can't afford houses. You know, I'm in Florida. They're trying to do an amendment. I don't think it's going to pass. I, it's got to go in front. It's got to get 60% of the voters to vote on it. And, you know, the municipalities are doing a really good job of selling the fact that Homestead, they're trying to give her a Homestead taxes in Florida. So if you own a home, they're trying to give her to the fact that you don't have to pay them, it will never pass. So it was great idea, but taxes keep going up insurance, Florida for crying out loud with hurricanes, they just keep skyrocketing home affordability is so hard.

I do think we're going to see more non-performers. I really do. I think there's going to be a lot of opportunity for private lenders that, you know, with bank liquidity starting to, to maybe falter a little bit, to be able to step in and do sensible lending. Um, so I think that's the direction we're going. Interesting. Awesome. Well, Doug, I appreciate your time, your energy, your effort, your excitement in your stories, uh, wealth and knowledge. Make sure you guys get on Amazon. I'll put the link in the chapter, the mad lenders book, uh, it is available on Amazon, um, and if there's anything else you have a question for Doug in the show notes below will be a link to get all of his information, his bio and his access to him, oh, that we will see everyone shortly again, once again, Doug, thank you so much for coming on soon.

Yeah, I enjoyed it..