Mastering Collateral Review and Legal Pitfalls in Note Investing | Real Estate Notes Show

Episode: Insider Secrets: Mastering Note Investing and Avoiding Legal Pitfalls Dave's Goals and Plans: - Transitioning available assets from Google Sheets to website platform with approximately 15 new assets added - Slowing down show production for summer with less frequent episodes to focus on travel and family time - Realized he didn't fully understand collateral review despite thinking he had good grasp on the topic - Had four defaults in last three months, two reinstated and two in bankruptcy behind on payments Nathan's Goals and Plans: - Currently catching up on business items after DME event with preparation work set aside - Recently had calls with newbies, experienced investors, and note originators across the spectrum - Observing more tapes with scratches and dents in portfolio, showing early warning cracks - Discussed first and second mortgage creation strategy with note creator to benefit note sale rather than selling 100% at once Key Recommendations: - Don't buy or create notes with expectation they will perform forever - prepare for defaults and property value loss - Consider creating first and second mortgages rather than selling 100% of an asset to retain equity and improve sale position - Partner with someone or learn the rules rather than giving up when facing complexity of state-specific regulations - Be aware that current market conditions may not continue - don't expect smooth performance indefinitely - Understand that secondary mortgage market is small and interconnected - networking and knowing regulations is critical Topics Discussed: - Collateral review best practices and legal pitfalls in note investing - First and second mortgage creation and origination strategies - Secondary mortgage market size and growth driven by consumer overleveraging - Current portfolio performance and signs of market stress - State-specific regulations and compliance in note buying - Economic pressures forcing consumers to take second mortgages for living expenses - Foreclosure litigation and note acquisition in different jurisdictions Guest Insights: - Dan Byman started in Ohio foreclosure practice in 2012 focusing on defaulted seconds, now licensed in seven jurisdictions - Secondary mortgage market driven by hedge funds and investors, size measured in billions outside government agencies - Current overleveraging is need-driven (bills, groceries) rather than greed-driven like 2005, making situation more dangerous - Seconds are complex - varying interest rates, payment application issues, and collateral problems require careful review before foreclosure - Many note investors underestimate importance of collateral review and legal exposure in foreclosure scenarios [Music] welcome back to n's real estate note show I'm your host Dave putz from jkb Holdings and today we're talking about collateral review before we get there my co-partner Mr Nathan Turner how are you hello hello doing well doing well how about you good man I hope you're getting this heat streak man this weather in Jersey 96 today holy goodness it's a good day to sit inside look at tapes of notes that's for sure we're we're on the opposite side of the country and so here 19 Celsius so what's that maybe 70 yeah so you're cool relaxed nice and cool everything's great oh very happy to me I had the kids stuck inside doing whatever they're doing on technology today and being that parent going okay just keep yourself busy stay out of trouble don't went for run this morning it was beautiful sunshine excellent nice yeah we I did bike ride earlier just before it get too hot right yeah so before we get talking about today's topic and bring Dan on how's an open business been for you been good been good takes a while to catch up after doing DME stuff and yeah that's a it's a lot of preparation going into it and then some things just kind of get set put to the side a little bit and so catching up up on a bunch of those things and yeah it's been good though yeah yeah we had I had a great call last couple days uh with some awesome people that uh are either creating notes learning to buy notes and just kind of feeling it out it's really interesting to hear from the spectrum of newbies to experience to those who are originating it and not understand the note buying World which is really interesting um where newbies may not realize that there's different states and different rules and all stuff um and then they don't realize that the note Community is so small and they realizing that we all know each other yeah there's there is a lot to learn and that can seem overwhelming at first um and so you can go one of two ways you can you well three ways I guess you can just give up and say nah it's not for me you can learn the rules and figure out how to do it and then go ahead and do it or you can partner with somebody absolutely so there's different ways you can approach it but there's not really a right answer I want to say just keep doing what you're doing yes absolutely uh we I was talking to a a note Creator today and we're discussing the fact of creating a first and second and how that can really benefit him in selling the note um that listen you don't got to sell you know 100% of a you know asset sell 70% by creating a first and second it was really interesting how they never thought about that because they just sold it at a really good yield and expect us to be able to buy it and they didn't realize the out side of it being hey if we had to foreclose in this where are we at in that process where's our thought process yeah what if what if and that it's a great strategy I remember way back when when H Corey and my old partner and I we figured that one out and we went wait a second we could do a first and a second oh that's brilliant and and yes it is it is brilliant and should do that yeah so it's amazing that we all talk about this stuff and realize the fact that that we got to network more every time turn around speaking to people we have a private call and we I'm always learning and it's amazing years later what we're learning is just amazing um in the note business what have You' been seeing recently in your portfolio how are things going in that portfolio world are you seeing performing bks defaults what are you seeing recently I have not seen a lot of defaults um I have seen I have seen more tapes that are scratching Dent which is interesting so that that starts to show some of the cracks uh that are starting to come up how about you what are you seeing uh last three months we got four defaults uh two just reinstated thankfully um another two are be behind in BK little weird stuff going on um and I was listening to someone we met over at DME that came for an interview with you guys and I was listening to a show she didn't she was showing the fact that there's a lot of debt on the world and the fact that the Banks jumping on the second market and creating seconds and really stealing the equity not stealing but offering that to give Equity to people who have Equity just so they can afford their bills and the fact that the grocery is adding up so they need to take out the second on the equity and kind of take money because they have no money in their in their bank account and that part is scary to hear about yeah that's really interesting and that that's setting everybody up for a lot of you know hard times coming ahead so it'll be interesting to see we were talking about her I'd like to have her on the show at some point yeah absolutely well definely yeah yeah she's been from different from the high level to low level and she was really interested in at the DME to see what our level's doing and talking and feeling and all that stuff um she was amazed how many people were um expecting the continuation of what's happened the last four or five years of yeah things are smooth everything's great it may not be as great as we thought it may be maybe so real quick before we get our yeah one of the things she was asking and I had a really hard time with the question is how big is the secondary mortgage market and I was like oh gosh hundreds of millions I don't know yeah absolutely it's massive but i i y I don't know and we have to Define what secondary is right outside the government agency the Fanning Freddy so like that and that a lot of it is in the hedge fund the world but there's a lot of people are level or one step above that are in there soow I see on Facebook saying billions um yeah probably yes yeah it's nuts out there so I totally agree with you guys that you know collaboration understanding that there's a lot of opportunity out there coming about and the fact that people are probably going to start overleveraging themselves similar to 05 and not because they want to but because they can't afford their bills right now and that's that's different than in5 back then I think it was more greed driven now it's yeah so I I'm hopeful that we can kind of be aware that um and and stress that just because things look good now don't expect that it will not go well in the future and don't buy notes or create notes with expectation and it's to perform forever um this may trickle into a you know spot where the that the property start losing value we don't know if that's going to happen but it could and you have to be prepared for that kind of stuff yeah yeah yeah and we we you know you and I we've talked about this before we probably a little jaded we everything you bu is gonna default everything yeah yeah our first 10 years doing it it is what it was and I'm sure it will go back to that right um I'm sure it will go back to faults the Cycles will continue um so just a reminder everyone we're actually switching I'm switching over uh our available assets are still available we just add like 15 or or so on there um you know and we'll be getting into our website so it's not strictly on Google Sheets but it will be available so let us know if uh you have any questions about that we're just transitioning to that um we will be kind of slowing out a little bit for our show for the summertime just because summertime right and we're g to be doing some shows here and there but I don't think we'll be doing bi-weekly but that's okay right kids and travel and all those things yeah you know and just spending some time with everyone is the key here right so awesome well without further Ado let's bring our friend Mr Dan BM how are you man doing great doing great fresh out of court this morning so uh a much friendlier audience so I'm happy to be here oh hey I got I would say we're jealous but there you go there's the right there nice oh that's awesome yeah so Dan this world of collateral review and we we walked off air before you know I guess a month or so ago and I was I you know I always go in a mindset that I don't know everything um but I felt pretty good about my understanding of collateral review and I think the first thing you shot me Nathan we said what wait what like that's and I was shocked and amazed of I didn't know about that um it seemed sensible but I think what you said was perfect was that you know you can play the defense attorney and know this stuff and really get us in a bind and and get us in a big thing before we dive into that give us a little background who you are how' you get involved in the Creditor right stuff and how you got to become an attorney yeah so um well how I got to become an attorney um I was a very H bored sales guy for a Plastics Company and I decided you know I I wanted to kind of scratch the itch and go to law school so six years after graduating from undergrad I uh I don't know what I did right but I got into Vanderbilt law school um so I was a little bit late to law school um but I graduated in 2007 took a job with a large firm in h Ohio so I started my practice in Ohio and um it was right around 2009 um when the bottom started falling out of everything and um our Law Firm actually let go like 20 people and it was a law firm that had been in existence since the 1800s and never laid off anybody so there I was and uh I was like well you know I've been in sales for a long time I could probably go out on my own so I did I went out on my own um by happen chance I got connected with a uh note investment fund who wanted me to cover some of their uh summary judgment hearing in Ohio and following that they said well we like what you're doing will you take all of our Ohio work so in 2012 I started my foreclosure practice focusing on Ohio uh defaulted seconds um so um there was a lot of seconds in the marketplace around then a lot of large F funds were um buying them up um and then doing training or education sessions and then student would then pick up the notes learn to work them and then they'd buy more notes and so there was some lwh hanging fruit there um so I got into doing foreclosure work sort of cutting my teeth on sort of the the grimy hairy nasty uh second mortgages um not like some others some folks who start doing the uh like the fanny Mayon sort of firsts and there the collaterals pristine they just sort of stroll into court like no got no problem and they foreclose and so I had to kind of scrape and scratch through all the problems of collateral uh to to get to a foreclosure a lot of the time so um but I found that I liked it um it it gave me an opportunity to sort of combine my business knowledge with uh litigation and that's cool and I got to help small business owners and investors in the process so that's sort of being a nutshell yeah and seconds are are an interesting yeah well they have always been because because because not all seconds are created alike as you know right yeah some are you know some are fixed interest rate notes some are adjustable um some are helocs or so you're trying to figure out sometimes whether the payments have been applied right you know have you calculated the right payoff amount you know a floating interest rate so those are some of the things that uh that present themselves in that second Marketplace and I know a lot of people chasing the seconds and just say oh they're real easy just great returns yeah there's a lot of gotas yeah what took you to T to Tennessee after that yeah yeah good question so um several of my investor clients when I was in Ohio asked me hey can you help me in Wisconsin can you help me in Minnesota can you help me in Massachusetts so I just started getting licens in those jurisdictions as time went along so I got licensed in seven jurisdictions now and Tennessee is one of them we came back to Tennessee really more of a a lifestyle Choice um it's funny Tennessee is not really a hot bed of foreclosure um but the foreclosures that are done here are very easy and quick y nice um I guess it's sort of hard to say in your backyard you wish there were more foreclosures to do but you know a lot of my work still is in Ohio Illinois Wisconsin ma Massachusetts but I get to do it from here in Tennessee where we sort of created a home while I was in law school here and then we just decided to move back because I mean just like this just like we're doing now I mean this is how I interact with my clients uh phone it's zoom and increasingly courts too so I really don't have to be in a particular place just a good place to live absolutely absolutely so you got shift gears you're in the space like that and you really focus on being the credit attorney um but there are times where you flip roles right you go on the deader side sometimes very rarely um if we have a client of the firm who is having a difficulty I can think of one in particular where a client and a friend here in Williamson County had some trouble with a builder who had a mortgage um on his property and the Builder when he owned the property he had a mortgage to a first mortgage so Goa okay there was some there were some difficulties there and so I actually did sort of step in the role of the uh the debtor Council it was really to unwind some procedural things um that uh that the builders had uh maybe say some take some Liberties uh for instance you should not try to sell a foreclosure uh or a property at foreclosure in the wrong County um so that was one of the things um but those those deor side things are are really few and far between I do a lot of other non-foreclosure litigation though both on Plain of side and defendant side so makes sense um that keeps me sharp in other ways so with that said have you guys seen an increase of defaults and foreclosures or decrease recently or be or bankruptcies or Bank yeah it's a it's a good question I think can I say I'm I'm anticipating a wave maybe not a wave maybe a small wave not a Title Wave maybe the Tide's coming in yeah um some of the stuff you guys talked about already um people are borrowing money against their home on you know these pre-approved you know hey you're pre-approved for $40,000 to pay needs and when that runs out and they're borrowing at these high rates I think something is going to be on the horizon we're not seeing it in sort of our incoming files yet we are seeing more land contracts contracts for deed that are moving around in the marketplace which create some really interesting um I wouldn't say challenges just interesting pleadings interesting title Curative issues sometimes um I don't know if that answers your question but it yeah you know are you are you seeing subitos and rap notes a lot at all or are you getting involved in that or have opion about that it's not something that's really presented to our firm that much not I mean I I would welcome it you know be be very happy to look at that um we're mostly busy right now unwinding on the tail end of of a good pool of heckum second or reverse mortgages that we got y the land contracts and then um we have some traditional first but um but no I mean am I open to doing the work yeah we're just not seeing a big flow in our firm right now Gotta Have you seen owner fance paper written not so well yes and what are some of the biggest issues you've seen owner fance paper that written incorrectly common things even and why why do it matter if it's written incorrectly for those who are new to the show so when I think of seller finance paper the the stuff that we're seeing a lot is is we're seeing land contracts or contracts for land contracts is what they call them in Ohio so I tend to that but it's contracts for deed yeah that um that carry with them a note and I don't know that in every state that's wrong per se but I do think in some states you're going to have some courts when it gets litigated seriously bulk at that a little bit um so so I would say be very careful when you do that I understand why you would want to do that you want a promisory note that you can enforce and you're looking for a way to secure that promising promisory note with an interest in the mortgage or in in the um but a land contract is actually intended to be a glorified rent to own yep lease option yep um so and even even in the enforcement of of that Most states have a threshold where below which you just it's a forfeit your action like an eviction but above which if there's more Equity paid or they paid over a longer amount of time then it's an actual foreclosure yeah um I I worry sometimes about the the homemade um drafting of those contracts Most states fortunately give you um a a statutory form for a contract for deed or a land contract wow so um I would I would love to sort of be on the front end with some investors who are looking at doing the deal and kind of consult and advise hey let's look at how we want to do this in Tennessee or South Carolina I'm not licensed there but my associate is but we have a lot of work there you know how do we want to structure this sort of deal so we can get you security Y and get you a promisory note so so let me let me get technical for a second because I agree with you going way back when I was doing land contracts in Ohio and uh I I would do a note because I'm like it's it didn't seem appropriate to do both so and then when I sold that just that land contract then um they're asking for Lunes and I was like but there's no note right so why would I give you an laune for a note that doesn't exist and I always thought that was so weird but I start I mean I like sure I'll sign it for you if you'd like but well you know the great thing about a land contract is you own the property yeah I mean so it sort of seems a little CC circuitous to try to then loan money and get an interest in a property that you already own I mean you are already secured because when you bought that land contract you you should have I guess there's a feasibly a way to do it differently but you should have gotten a quick claim deed of the property to you yeah then you have assignment of rights under the land contract so you are now the asse of the vendor of the land contract but you own the property too and if they don't pay you under the land contract you can either you know make them forfeit it or you you foreclose well that's interesting I don't think I ever did that assignment of Rights but that that makes sense well I think that's what a lot of people are doing when they're trying to do an just an assignment of mortgage that they just take word mortgage off of it they write land contract or contract for Eed in there right and functionally it's probably doing a lot of the same thing sure there be a unique and a sort of custom tailored um document to meet that solution yeah I think so um but I also understand too that you know not everybody's excited to pay an attorney for a half a day's work to do that you know you've gotta watch you got to watch your your budgeting especially a lot of these contracts are are lower uh value um so I don't I don't fault anybody for making a business decision as long as they're doing it with good advice on what the risk and reward is of that absolutely so um yeah I you know those are my general thoughts on that but um so we had a quick question over on LinkedIn from Don M uh mccalpin I apolog I'm bring your name but what type of title Curative issues are you seeing with cfds and are they State specific so uh so yes so most cfds land contracts have state specific requirements Most states require in the statute that it be recorded uh so one of the things I see a lot of the time is a land contract or a land contract that has a modification and either are recorded or the modification isn't recorded it's depending on the state some people will say hey look you know you as the vendor under the land contract had this responsibility to do it and if anything in the transaction looks questionable or even even is presented to the court as fraudulent um you may run into a problem now we're not trying to defraud anybody we're just trying to get somebody to pay us to live in the house right but recording that land contract up front can sort of cut that argument off at the needs okay um so I'm seeing that um I do see some something that we've already mentioned to answer his question is you know how are we assigning that land contract to the next guy you know are we we doing that with if we do have a true note if it's a true negotiable instrument then yeah and a laun would probably be appropriate for the note but not for the land contract correct yeah so um those are some that pop up I'm sure there are others out there that just I'm not thinking of yeah and typically you do a quick claim right is that typically how you do the transfer of the cfd yeah I mean you could do a quick claim deed which is probably the cleanest for you as the transfer or because what you're doing in a quick claim deed is you're just quitting any claim you have to the property you quit it's yours whatever whatever I owned you now have you could potentially do a special warranty deed so it's not a general warranty D you're not saying I warranty this property against any claims of third parties but you might say you know hey I own this free and clear all except for this land contract and I do a special warranty deed you do that maybe there's a chance you get title insurance to cover the transaction awesome something to think about so let's dive into the dirty stuff here right give us one scenario that that most note investors think is fine and easy that a collateral file review that you know goes into but before we actually before we go there what does collateral review actually mean in your words so it's it's something that I was asked to do starting a about six or seven years ago um somebody said hey will you review the collateral file for us and give us an opinion um rarely do I give a full legal opinion but I will give some advice I'll point out some red flags when people come to me and ask me to do that um so when I think of collateral review it is opening what's usually a zip file that contains everything that the seller of a note is presenting either for review by a potential buyer or to the actual buyer what they have they've got usually the note in there or whatever the obligation is based on land contract they've got maybe a copy of the deed maybe it's' got an old title report uh they might they should have a copy of the note and the mortgage at minimum with assignments and Alles um that assign that mortgage or transfer that note um love to see a payoff statement and a payoff history if I can see that and then the service or transfer letters so oh that's sort of the the the package deal that it would be great to see usually about half of those things are missing right yeah so and and you know that's the business right you're you're going in and you're trying to evaluate um what do I have what can I ask for and if my seller doesn't have it where do I go to get it and why does it matter to have those items what's the you know I'm playing the the the the that it's a great question question what if I don't have this stuff so what yeah who cares yeah so who cares so that's that's the great question um the court May care if you're trying to uh enforce it so what you have to do when you go into court on a forclosure matter or you do a non-judicial foreclosure you're representing that you have standing the standing the legal term of art means you're the right person to be enforcing this interest you have standing to foreclose you can't establish standing uh if you don't have rights to enforce the note or rights to enforce the mortgage and each state has a little bit different definition of what's required for standing so that's the first thing you have to establish your standing to foreclosed the second thing is you might have standing and foreclosed but you might not know how much is due um if you don't know how much is due are you going be comfortable going forward is your attorney going to be comfortable going forward on a homemade calculation on on a napkin sometimes the napkin calculations are better than some of the others I've seen but um are you going to be willing to go into court and swearing before a judge that this is the amount that's due because we all know if you get that wrong then the dtor can come back on you for consumer law violations sure those are some of the red flags that's why it matters the other reason it matters I think mainly to your audience uh on the front end is it helps you value the amount of the the um the asset right yeah course so if it's if you look at it and it's missing a lot of stuff are you gonna have to pay somebody like me you know for six seven hours of work to fix that so you can then go and force it or is it pristine if it's pristine then you don't have to pay me to do any of that stuff we can just go right through proc so those are some of the reasons those are some of the why uh that why collateral review matters but in my world it's really about avoiding the red flags before we go into court or before we file for a non-judicial foreclosure do we have all our ducks in a row or are we going out there um risking um an fdcpa claim or a state law claim I also make sure when i s over that kind of stuff the o report you know uh is in there because it shows the chain of recordings uh in the county records just so that the attorney can see the quick chain and say yes yes yes yes whoa why is this missing and that kind of stuff so I had that in there and we've said this before but I'll get your take on it most things are fixable it's just gonna take time and money and effort I think that's right um you know even a I've had one where you know the mortgage was gone and the note was gone wow Oh missing or released no gone missing so and no lost note affidavit we just you know had some very barebones information that we could say okay well there are mortgages and assignments of record so we tiptoe into court and we do a quiet title and declaratory judgment action we're not seeking to EST you know foreclose we're not seeking to collect we're seeking to just clean up the record now this was in Massachusetts you got to do that first before you go to landport and you foreclose non- judicially but we did that and funny enough nobody could understand why we were there everybody thought we were trying to foreclose and we're like no no we're trying to fix things well we got the declaratory judgment that the note existed here's the amount that's due and our client was a party entitled to enforce the note we got the quiet title action that the mortgage exist existed it was assigned eventually to us and we got an order that we were able to record in the the register of deeds that said that so we were able to sort of put Humpty Dumpty back together again wow and go to foreclosure but it took a long time it's not cheap but it was fixable to your point amazing so that's that's a that's a good example of like that's a pretty messed up file when you get that no Mortgage in there that's first thing I'll skip it because I'm like there's no way right that would or I don't want to deal with a hassle unless it's I'm getting it for a really good price but yeah you know the good thing about mortgages is that they're usually recorded on the front end but you know if you're missing any assignments of mortgage um and you don't you you don't have a you know Mortgage in the file yeah I mean it can create some roadblocks but most of the time you can get around them so in in a situation you know similar to that like something like that where it's a missing note or something like that do you ever use a stopples and are there any limitations and what is a stopple before just for those who don't know yeah so a stopple certificate is something where um another party has agreed to provide you with evidence or subordination or some other rights uh or proof of rights in the in the property um it's Nathan it's not something that really not something that's come across our desk to be honest with you I mean really I could sit here I could sit here and tell you you know and make something up but I'm not going to it's just they're not common I've I've only like in files I've bought every once in a while and it'll be something so TP the way that I've had them in the past is um I think they do it as a matter of practice but I had some people that I buy notes from in Texas and they're seller finance notes and before they sell me the notes they'll go and get an esole so an esole signed by the borrower and signed by the lender both attesting to you know we both agree that the unpaid balance is X that's awesome so that there's no so in case of in case you're going through and and having to prove something well then you've got that stop lean back on and be like well da said this was this we said it was this we both agreed to that point so there you go judge we'll take it from there kind of thing well I'm writing that one down because that's great usually I see uh stole certificates in our commercial leases that we do for our non-foreclosure clients so okay you know you're doing like a a lease for a shopping center and the parties agree that if they ever need to cooperate to um permit a a new loan to be had on the property or against the property the stoppable certificate comes into into play that's awesome they're certainly not common but uh but I do see them every once in a while so let's get into the dirty stuff here right give us an example of something that us note buyers may not realize okay um so I I used to have a radio show and what the guy the producer told me is don't be afraid to keep telling folks stuff you've already told um so I'm gonna tell you guys some of the stuff that I talked about at DME so yeah one of the things that I I don't see as much anymore but it pops up is home equity lines of credit and AES so you have to understand that in order to and aou I'll just I'll just do it like we're all new at this right so Lun is the document that you would attach to a note to transfer that note from yourself to the next person it takes the place of a stamped endorsement on the note it has to be fixed and attached to it it's supposed to travel with the note so just real quick before we go there so just imagining a check for those who are you know our age and you know older and in the back of the check if someone signs it they then sign and you endorse it right below it and you that personel signs it now they are the barrier of it that's exactly the kind of concept we're talking about just imagine the fact that instead of signing the back of the check you're attaching a paperwork and saying I'm now assigning it with this paperwork with that check go sorry yeah no I mean personal checks and notes are in the same family it's kind of like uh kind of like an otter and a beaver right they're in the same sort of family um on a note on a check you write pay to the order of and you pay to the order of that person and then on the back when that person endorses it they can then endorse it pay to the order of David and then David pay to the order of Nathan yeah same thing with notes you can stamp it on the note you can or you can create an Al that basically says pay to the order of this next person the reason you can do that with notes and checks is because both are covered Under the UCC sort of as a negotiable instrument and but home equity lines of credit under many states rules are not in the same family so you've got the otter and the beaver and then you've got this like like uh I don't know alligator over here it's the home equity line of credit he's not in the same family he kind of does the same thing he swims in the water but he's he's a different animal so a home equity line of credit for instance in Illinois um is not deemed a note it's not even deemed a written contract even though it's on paper we can talk about that later but and aun only can a can transfer and negotiate a note you have have to do something else to transfer a home equity line of credit the reason it's different that home equity line of credit it might say I can I'm going to loan you up to $240,000 but it doesn't say I have loaned you this gotta it'll say you can pull down this credit line for a period of 10 years and that's the first draw period and then the second draw period and then there's different interest rates but you never really know how much you're going to pay each month until you get a statement not so in a note a note tells you here's how much you got to pay each so notes are cleaner they're more like a check they can be assigned by an a launch now why do I say all this most of the time when I see a home equity line of credit come in there's a stamp on there or there's an all and they've just sort of said okay pay to the order of so and so it doesn't work in a lot of cases now sometimes um you just put your proof on in your pleading foreclosure case here's our home equity line of credit here's our mortgage we say this amount is due you know we've attached all the documents it might include AES if nobody asks if the borrower doesn't raise a defense based on that a judge is likely going to go ahead and Grant you judgment but you know the minute you say that the minute you feel un comfortable about that you're going to have have a clever borrower attorney come come up and he's going to have done his homework and he's going to try to knock you down so you may have to do some other pleading in that complaint like I mentioned earlier like a declaratory judgment action to say hey look I got this he this home equity line I should be deemed the right person to enforce it judge in addition to my foreclosure counts give me declaratory judgment that I'm the right person to enforce this so there are ways around it but that's something a lot of people wow it's a pitfall um you think you've got everything lined out you're feeling really good you got AES from the first person through all five assignes and then you might not realize that those might not be as effective to transfer that home equ line to you as you thought is that something that could come up like the the heck loans that I've bought the the home micro conversion mortgages um I've only ever bought non performing and the reason they went on performing was because the borrowers passed away right so so I haven't had that argument and I I I had never thought of that but I I see where you're going right so it's it's an interesting question it's really not come up in our firm that we've had a collateral issue with heam heams are reverse mortgages they're the interesting thing about them is that there are every heckum loan has two mortgages who know mortgages because HUD comes back in in and they secure um and have a mortgage to the property in the event that um the first mortgage the lender has to make a claim against HUD for reimbursement so there's that most of the time though it's a good question because it is sort of a home equity loan yes I do think that it's going to be hard to get a state court to say that the way HUD or the original lender acting under the federal statute has assigned their notes and mortgages to the next person is going to be ineffective under state law I think I could make the argument that the federal law trumps the state law doesn't mean to be sloppy with your heams but at the same time I think there are some more protections built into the heckum um circumstance than with standard home equity lines of credit interesting interesting right so what other scenarios do you see that we have to be kind of watching out for or you've seen used in the courtroom that had standing and either you were able to be a Savvi attorney to get around it or you took note of it and said o I gotta make sure I watch out for that uh payment histories if you're in your collateral review process and you have a a payment history that's very helpful if you don't have a payment history but you do have a good chain of service or transfer letters then that can give me a little bit of ammunition if the issue comes up a lot of times we'll see when a borrower does get an attorney what they'll say is hey look yeah he's in default but you can't prove how much he owes because you don't have a full payment history there's it's funny what the assumptions are on the other side of bar so you know we know that well a payment history is what it is and if there's no payments there's nothing to put in the history and if it's been in default since you know 2016 and it's change servicers a bunch then each servicers has been nothing for them to record a zero but a lot of times especially um sort of the midlevel in in size servicers and below there's nothing to really record there they just correct but you have now three servicers that have gone by in your chain since somebody had a pay had kept a payment history and it might have been so long ago I mean if this this known mortgage was originated in 2005 you know they might have paid for the first five years and then it got transferred 15 times and then you're trying to figure out the pay history well so that's why pay pay history is great to have if you don't have it you can we can at least subpoena the prior servicers and say provide us your pay history we're way down the road and we're trying to foreclose on this this mortgage um so but the opposing Council for the borrower were some TR sometimes try to make it seem like you're defrauding the court because you don't have a pay history when their client is sitting right there across from you and they know they haven't paid anything in 10 years you know um so there are ways to get around that nobody likes to spend the money on deposing somebody but I've had to do that before um I tell a story that one time we were getting really kicked around on a pay history issue and in a lot of States you know there's the judges handle criminal law they handle business law cases and this might be one of types of cases so they're not really well versed on foreclosure law um so the the judge in that case was really giving some Credence to this well the plaintiff doesn't have the pay history argument I deposed him and then I showed him uh in the course of the deposition his own bankruptcy petition that he filed where he listed the second mortgage and he said exactly how much was due on the second mortgage in his own bank and very soon thereafter after he ad aded what was due I had solved my payment history problem because I didn't have to I got an admission that here's the amount that was due then yeah then was about five years ago at that point then I just had to do math you know what's not rate you know late fees all that kind of stuff and I go to the court we ended up settling that um after that deposition which wasy I know that a lot of times we get notes you don't get the full pay history NE I don't know if you have the same experience where you may get the last three years you don't get the last 25 years of payment and it in the beginning that that kind of concerned me but it was like listen you saw where it was when you first got three years ago and today it made mathematical sense where that's where it should be if it was so I've never had a problem with that um I see Cindy had a question um have you dealt with notes outside statue limitations yeah I have um it is not a not a great place you want to be and I'm I'm glad she brought that up because a we're working on sort of a 50-state survey of Statute limitations David I know you keep some records your files on what statues limit but we're going to sort of roll it out in blog posts and talk a little bit nuances um but um a great question statute limitations very difficult to get around so real quick what is statute limitations for those who may not know yeah good I'm I'm glad you slowed me down so um each state has a period set by a state statute um after which you cannot enforce in a foreclosure action a mortgage or after which you cannot seek payment on a note um it varies it's all over the place and it's always changing uh since I've been practicing uh well since I've been doing foreclosure work in in Ohio 2012 the statute limitations has come down three times wow or gu it's come down two times it started at I think 10 and then it went to eight now it's six so six years uh from What's called the acral date now here's the big misconception it's not always in fact in my States it rarely is the date of default it's not the date on which they started paying so if you have a situation where you're looking at a collateral file and you've got a demand letter from a prior servicer that's dated 2010 yep and it says hey you know you haven't paid since so and so and and the that's what the payment history indicates it could mean that your time bar could mean that you can't move forward with foreclosure on that here's what it doesn't mean it doesn't always mean that the lean goes if the borrower dies or wants to sell the property they may still have to clear out your lean sure so that's the first thing to think about the second thing is the default date is not necessarily the date on which the statute limitation start that acral date is usually the date on which the loan is accelerated if you dig into your mortgage and your note you'll see some language in there that says you know if you are in default the lender shall send you a notice that you are in default and that you have no less than 30 days to cure your default or the lender May accelerate the amounts due when that happens then you basically said okay this is due and that is your acral date for the statute of limitations in in most in all my States in Most states I know about so those are the considerations you get around that it's not there different states have different parameters with you know I I have my list here I'm looking at real quick is that the last payment received maturity date due date acceleration start a foreclosure origination um under seal judgment and we always look at the fact that the ability to advance due date and also the non-merger in D de Li I'm glad you mentioned the the maturity day too because the maturity date um is the sort of the adjunct to the uh acceleration date so if somebody goes into fault and you have let's say it matured that next year and then you didn't send a standard demand letter until several years later well you there's really nothing to accelerate on maturity maturity is an acceleration amounts so you would want to look at the earlier of maturity or acceleration that makes sense yeah yeah awesome it can be a tough one for sure yeah as far as like advice talk to the attorney because every State's just a little bit different they're gonna handle a little bit differently yeah I'm glad you said that because everything I say today is educational purposes only I'm not getting legal advice yeah I should have done that the outset and some states allow you to do certain things that other states don't it is States specific so just keep an eye on that and laws are changing all the time right we've used the ability to advance due dates and Florida and stuff like that where some states don't allow you to do that to avoid the statue limitations again speak to your attorney make sure if you're buying notes that have a long due date that you're making sure and if you're outside the if you believe you're outside the tach limitations ask your seller what they've done to avoid it right hey they may have said listen yes we send a demand letter and we start this and this and this happened which may Kick the Can down the curb with statute limitations to avoid it one one point on that real quick because yeah if somebody is looking at a demand letter in their collateral file and it and it says and it's stated 2010 and you think okay well if they sent this on January 1 2010 then 30 days after that I'm you know started the statute of limitations period I must be Time bar that's not necessarily the case because look very closely at the language of that demand letter if it says if you don't pay within 30 days we may accelerate the amounts to it's a very different meaning than we wow right so if it says shall you're probably more in danger of being time bared it says may then really what you've done here is you've sort of shifted the burden on the the defendant to show that somebody along that line some servicer actually did uh take some sort of internal accounting efforts or other evidence of acceleration that they can bring to bear now it's not a get out of jail free card the the May versus the Sha but it is something to to look at closely and maybe not give up on a collateral file just because you think you're sunk on the statute limitations oh cool I know we're getting to our Witching Hour of an hour so we're going to let Nathan kind of uh ask we kind of hit on it before but Nathan what's your your no and I I appreciate the discussion because it's just like it's a big deal we're buying we're buying this collateral file so we better understand it know how it works and then know what some of the potential pitfalls are so that's really good and why they owner finance and seller finance people need to understand why their paper has to be in line because when we have to or may have to foreclose on it if it's not in order we can't foreclose and you basically have a junk piece of paper yeah yeah even yeah collectibility all those things I makes such a difference so yeah we want to make sure it's done properly upfront that just saves us time and energy and money and Dan doesn't get paid so and we've seen all kinds of stuff out there with collateral being so bad where start dates weren't on the on the actual note right where the Piti was fixed um we we seen like missing payment amount like all kinds of stuff has been seen on the S Finance world that just is dangerous and they don't see it because hey they're paying who cares so yeah it matters yeah so yeah we kind of talked about this a little bit but H you talked about seeing a wave coming maybe not the Title Wave but maybe more just like the tide coming in what's what's kind of your prediction what do you see coming up so it's hard to get attorneys to make predictions right um depends right yeah it all depends um so um you know I think I think probably if I had to guess um the defaults are going to sort of ramp up um I think there are people who we've already talked about it they're needing to borrow money to meet their basic needs right now it's um I think I think it's like 11% more expensive to live than it was four years ago and uh salaries have stayed relatively flat so that's going to catch up um I do think though that in the from a just a general real estate market perspective there's going to be some opportunities probably in this seller financing world um you're going to have a lot of younger people entering into the home buying Market I say younger they might be first Hometime home buyers but they've been locked out because of interest rates and down payments um so if if I was looking to to place a bet I think that the sort of the unique seller financing models will probably create some opportunities for them to buy but also will eventually result in a in a wave of foreclosure don't and don't sleep on the the reverse mortgages I I think the reverse mortgages are going to be big for probably the next 10 years or so yeah baby boomers um you know right now what they're not doing is they're not borrowing the $40,000 on the loan that comes in the mail I think they're going to start getting very comfortable with reverse mortgages and if you get them they're they're very I mean sometimes they carry a high price right but course you know you can get them the foreclosure process is made relatively Easy by the fact that you don't have any threatening borrowers on the other end I don't mean to be Co but if we're talking economics it seems like it makes economic sense there so I don't know I kind of danced around it um I would I would love to get busier um yeah usually um you know what happens though is when the market is bad for everybody else we're really busy so um and and I guess also last thing don't discount uh the fact that some of these student loan borrowers are not getting the Forgiveness that they had hoped to get true you know they might have been sort of on you know stringing this along bit by bit um but if they end up you know not paying their mortgage one month to pay a student loan bill or they go into bankruptcy the post bankruptcy foreclosure options will be there too so yeah abely yeah Dan interesting we appreciate your time if guys will have the link for get his information in the chat if you had any questions for Dan please reach out to him he's really easy it's all to very friendly he'll he was a DME last year I'm sure he'll be there this year uh next year um but he have a boo so Dan I appreciate your time hang on for after hours but uh it was awesome information and really broke it down for a point that everyone can understand the importance of the understand of the collateral review being one of the crucial points in due diligence yeah thank you so much yeah thrilled to thrilled to help awesome thanks Dan.