Master Note Servicing and Creating Notes | Real Estate Notes Show

Episode: Master Note Servicing and Creating Notes with Sohail Dave's Goals and Plans: - Buying notes for over 15 years in seller finance and note creation world - Looking to buy short-term/Fix and Flip notes and learning about hypothecation structure for fund management - Recommends new note investors start with $3,000-$4,000 of their own capital in a partial before seeking outside funding - Emphasizes understanding note valuation through the 14 points video covering origination, underwriting, and servicing Nathan's Goals and Plans: - Recently attended IMN conference in Florida focused on DSCR loans and RTL loans - Bought an RTL (residential transition/Fix and Flip) loan in December and actively learning that market - Planning to bring DSCR and RTL loan experts to DME (Diversified Mortgage Expo) for education - Encouraging others to learn about performing and non-performing loan opportunities in current market Key Recommendations: - Do not attempt to self-service note servicing as a beginner - hire professional servicers despite additional cost - Never use OPM (Other People's Money) on first deal - get personal experience with your own capital first - Start with partials to understand the business before scaling up to larger deals - Invest in proper education through conferences, courses, and expert consultation before entering note business - Understand note investing is finance/yield play, not real estate - different rules and regulations apply Topics Discussed: - Note servicing requirements, laws, documentation, and tax implications - DSCR loans (Debt Service Coverage Ratio) based on rental income - RTL loans (Residential Transition Loans) - Fix and Flip short-term hard money - Note valuation and factors that reduce note worth (interest-only notes, RAP notes) - Professional note servicing as essential business expense vs.

DIY approach Guest Insights: - Guest has 15-year history of considering servicing but was deterred by high GSE barrier to entry hey everybody welcome back to another real estate notes show I'm your host Dave puts alongside me as always it's Nathan Turner hello hello fix my camera there a little bit there we go all right so um I'm glad to connect with you for a few minutes this morning uh we're going to get into servicing and creating notes um but we have a lot of people who don't know we are as usual so just so you have an idea Nathan and I have been buying notes for over 15 years um we've been the seller finance World we've been the not creation world uh but we've also bought a lot of notes so the idea for us is really to kind of network with other people and talk about both sides of this thing I think people don't realize the marriage and we kind of press it on and we run this notes show we recorded it'll be on uh our YouTube channel and our podcast so definitely take a look at it and share it along but we really dive into the deep things of answering questions that we have and sharing with you guys and how many episodes up to we've done this three years now right four years well I think we're close to 100 episodes uh together I have a little more before but yeah together we're over I think we're around 90 episodes so guys please go back and watch it and if you have information if you have any topics or questions or guests you want us to bring on let us know about it yeah the whole goal of this like you say is is for us to learn stuff so we're happy to to talk about stuff we don't know anything about we're happy to have guests on that can help us figure out what we don't know and see you know expand our own Vision expand our minds so yeah please feel free yeah let us know what's you're looking for kind of special education for something you just say guys I don't know who to trust feel free to reach out to us we can make some recommendations of people that we've connect with throughout the years we speak at conferences and things like that so we could definitely help you on that end of hey I'm not sure who could you recommend for this education or that some things we can teach you but there's some things that we just non experts it and we share the wealth there so yeah so before we get started today um let's make the normal plug here uh Nathan has DME coming up uh feel free to go on to the Diversified mortgage Expo uh we got tickets coming up um we also have a uh conference coming up in about a month or a couple actually two weeks I'm sorry with Frank Tracy so feel free to take a look at that as well um and whatnot yeah cash flow Expo is a it's a free ticket you do have to register it's a free ticket or you can pay to get the recordings which I would recommend because it's four days like that's a that's a ton of information and you I don't know if anyone's got four days that they can take off in a row but there's a ton in there uh you're featured I'm featured and so Hal we're bringing on he's featured as well so uh tons I mean if it was only just three you should just come just for us three but there's there's tons of people on there lots of information highly recommend it yeah awesome so what's been going on in your world in the last last we haven't connected in a few weeks what's been going on with you what have you been doing since New Year's we had our goals call doing so last week I was in Florida I was at an imn conference all about dscr loans and RTL loans yeah so dscr debt service coverage ratio uh buying loans that are based on rental amounts like rental income so I'm still learning about that I'm actually after our call I've got another call with somebody I met there and very interesting and then RTL loans is uh residential transition loans which are basically fixed and flip loans uh short-term hard money whatever you want to call it but short-term loans and so I've I actually bought one of those last just in December and so I'm I'm learning more about that world as well it was a very interesting conference I learned a lot met some really great people so that's going to be good I some people I think we're going to bring out to DME and and teach us a little bit more about this because um it's it's another Avenue whether you want to do it or not you should at least learn about it and figure out you know if it's something that you want to incorporate so it's it's been very interesting this last uh week week and a half just learning about this stuff I think everywhere you look right now these loans are all over the place right Fix and Flip loan things like that are just out there so I definitely encourage you those who don't know about it to learn non-performing things will happen performing things will happen happen see how you can take advantage of the current curve in the market um and if you're looking if you have seller finance notes that you're looking to sell reach out to me Nathan we'd love to make an offer or even teach you how to which we have a website video recording on how to make a note more valuable right and that's key in either creating it if you're looking to sell it looking to hold it looking to take advantage of it to understand it we just saw a note on social media this morning that showed the fact that this person's trying to sell 65% interest only note for par and they just they just don't realize right maybe you could sell it but you just don't realize what what the hindrance to that is there's one I saw yesterday where actually I think soil responded and somebody was saying it was on a rap note and I think so was like I'll give you 20 grand for it oh it's not worth it I'm sorry whatever you think you've got you don't and so that's uh it's been interesting but and then that's what we're here trying to do is educate people we want to buy your notes we want you to help we want to help you make valuable notes that you can resell if you choose to if you want to hang on to it that's fine but you can cash out and go do it again and again and again and again that's what we're here for yeah I saw someone on uh LinkedIn we are streaming live on LinkedIn YouTube Facebook uh and the question was do we buy residential do we buy uh commercial we buy both right um so if you're curious about that stuff feel Reach Out out reach out to Nathan I have a for my website just posting the links feel free to take a look at that so you know I have not bought a short-term note yet or a rap note uh I mean a Fix and Flip note short-term kind of thing hard money haven't done it yet and I was talking to someone offline they said listen we can handle the draws if you buy the note and I think that's amazing right I could buy it you handle the draws and just manage the deal it's almost like a partial with some help from the person who originates it so we're see I try yeah I was trying to think of like it's not quite a partial it's not quite a h it's more of a hypothecation than a partial in this case but it's I mean Super interesting and for me as a fund um structure it works extremely well and so I'm looking at buying more of those and getting to know more people in that space and and uh like this girl that I'm going to talk to here after our after our call she's a broker and so she knows all these people that are creating notes I'm like yeah let's let's talk let's get some deals T so that's exciting it's good awesome so um one of the key things we talk about in our 14 points video is understanding two things understanding origination in the rmo world in the underwriting world but also on the same point is the actual how do you handle the note now if you're sophisticated enough and you know what you're doing you can selfservice but I Nathan and I both recommend if you're a newbie don't try it don't the headaches you know understand it's just not about adding numbers up and make taking payments in you must be sing a monthly statement out to these borrowers they know exactly what's going on all time you have to understand the laws on what you can and can't do the documentation the tax the end of the year it's just something you don't want to get involved with um and whatnot um I inexpensive it's I mean they will take care of so many things for you so yes yes yes yes you can make your borrower pay for it I mean come on guys right um I do see Orlando on uh LinkedIn asked a question who would you recommend to go for startup capital from inter note business I tell you right now go to yourself go get three $4,000 and invest in a paral get an idea what it is what the process is what it don't go to me and ask me for money on your first deal cuz you're going to get in trouble you're going to get yourself in a bad spot and if it's a family member or a friend you're going to you're going to ruin that relationship so OPM is just a dangerous thing to do on your first asset it just it's not pretty you're going to make a lot of mistakes expect that due diligence is difficult right calculating a performing note is very easy with a calculator my question is what happens The Faults that calculator goes out the window right and and get whatever education you can well go to the conferences take somebody's course whatever uh it's I can't recommend that enough just make sure you know what you're getting into because it's not real estate this is not the same as your rental that you've got this is not the same as stuff you've done in the past this is it's a different game you have to know the rules you have to know how this works it's it's not real estate it's real estate related it's real estate adjacent it's not real estate it's Finance yeah that's a big thing right we're not buying Roi right it's a it's a yield Play It's like a bank account right so yes you can borrow money eventually we do we've done it but you got to get understanding of what that looks like for right um so yeah absolutely um I would definitely get into a partial play with that I see Christina Fuller over on Facebook asked the question you know who's got partials that's a great question start asking around right ask around yeah talk to everybody post a lot ask around may have to ask two or three times and instead of asking who's got partial say I'm looking to get a 10% return who's got a partial give them a number to play with so they know what you're looking for because I'll take partial all day long if you can give me 20% but you know it's different so so when we talk about servicing I don't when I first got started in space servicing seems foolish it's an accounting system and then you realize all the laws and the struggles sitting down with people like shantee Duffy going holy God didn't know this didn't know that yeah yeah and you're for you guys out there you're not a servicer you're a no buyer no Creator stay inside your lane you wouldn't do your own accounting and taxes let the professionals do it make us a business not a job yeah and it's not worth saving a buck I it it's an inexpensive expense it is part of doing business my goodness and it will say you so many headaches so yes go ahead and spend whatever it is 30 40 whatever it is yeah for your servicing fee pay it pay it it's it's worth it well we have a special guest with us today someone we both respect immensely uh he's been around the space for a long time um and I think for me he's part of our private call we have on Wednesday with some special people the wealth and knowledge in our special guest is amazing so let me bring him in here so how how you doing man I'm doing well how are you guys doing good good good glad to have you join us thank you I probably asked you this question before is how'd you get started in the space um a very interesting story at least uh to me uh we my wife and I had been talking about getting into servicing for probably 15 years but we only thought about about it from a perspective of servicing for the GSC so the barrier to entry was just tremendous and real quick what the gsse for those who don't know the penny Freddy LS for servicing Master servicers for for being a master servicer for for those entities and you know the capital requirements the infrastructure requirements are just very cumbersome licensing not so much but everything else is very difficult so we we always wanted to get in the space just couldn't find and then luck with have it we were traveling back from a uh trip to Canada um and we stop had a stop over in Georgia and a plane change and when I we got back on on got on the plane the guy I sat next to is a local attorney here in Texas he is an expert in Creative finance and subt and wraps and things like that so I got a m class for two and a half hours from him on how those things work now I already knew majority of that portion of it what I had not thought about is how fragmented the servicing side of things are when it comes to seller finance private lending or just small lenders and the light bulb goes on and as soon as we get off the plane I I told my wife I look at my wife and go we've got it we we now have an entry into servicing um formed our entity applied for licensing literally within that week and we were up and running within 30 days wow there was a little bit of investment involved and things like that so we we put in the time the money and it's been four and a half years almost five years now wow fantastic that's interesting so and then I I don't know that I've ever heard anyone say yeah I really wanted to get into servicing why servicing yeah so servicing as a whole um if you if you look at the business model um there are multiple revenue streams that you can Implement over time um just the growth factor the the valuations that I was seeing in the industry then and even now are just amazing you obviously have to have a a an unlimited supply of capital when you get that big but but the returns are just amazing and and I I I still call I still say servicing is a nickel and dimes business because it's very labor intensive very Capital intensive very you know from a regulatory environment it is just mind numbing but at the end of the day the the the results the the returns are are there where I want them to be all right interesting so in your course of work what do you think that the biggest mistake we'll start with the loan servicing side of it people make with Loan Servicing as investors of notes or creators of notes what's the biggest mistake most people make ignoring or not paying attention to what the regulations are and and understanding where to draw not understanding where to draw the line and and it becomes a challenge of course us um some of the things I'll tell you if you have retained a serer to service your notes um don't try not to reach out to the borrower if they're just a couple of days late number one you're violating the terms of your agreement with them and and give us time give us the opportunity to go through the grace period and then make contact with the borrower and find out what's going on we will do that that's part of our job um stepping on our toes doesn't really help because now you're duplicating the effort and and it could eventually lead to complaints with with with the state or the regulatory body for that state and we just so we we try to help educate investors lenders as much as we can but it does happen from time to time where they'll they'll approach the borrower day three and go hey why have you not made a payment no don't do that wait for the grace period to expire yeah it makes sense and I think we've all got it eager when a borrower stops paying and but most people don't realize that they're not in default until they're a couple months behind and and you can't really pressure them um it just we understand it's an investment on your side but it's still time the borrowers are real human beings um they have the right to be a few minutes late and pay a late fee um I get it right we get worried so what do you think that people misconception of servicers job is what the biggest Mis conception the biggest misconception in my opinion is that we're sometimes thought of as just a simple bookkeeper payment in payment out um the there's there's a lot more to it there's a lot more tracking to it making sure that the payments are applied correctly and and you know one of the biggest questions we get from some of the inexperienced uh investors lenders many times what happens is they will close let's say today is January 24th so they'll close have a closing today with the first payment due date February 1st so number one it's very close to the payment due date for for this to be set up but what's worse is when we will apply the payment when a payment gets applied on February 1st once it comes in majority of that payment guess where it goes it gets applied to principle yeah not interest because they didn't earn the the 30 Days full interest so we get a lot of questions around it and then it's it's just a matter of educating the folks and making sure they understand that had they given ample time or sufficient time then the amortization schedule would match the payment application makes sense I never considered that but yeah that makes sense I don't do a lot of originations and so I guess that's why it's not on my radar but that's that's an interesting point so you'd be better off if you're closing today you're better off to set first date as March 1st with one with one addition if you uh close today and obviously your first payment view date should be March 1st you will collect prepaid interest from the date of closing until February 1st okay and then you have 30 days or 31 days whatever the case may be and so then the payment application becomes correct and there there's there are no errors or the the principal reduction is not so significant that it impacts your over all entire schedule you know instead of 360 months now it gets paid off in 350 months gotta which makes the difference to us as we're buying the note then we're like well now the schedule's all off and what's all this about and and it gets all weird yeah I would say and I I don't know how much you get involved in this when I first got started I I made this mistake I started asking my servicer for questions on what I should do great for advice Hey listen should I stop payment should I hold off on the borrower catching up should I send my demand letters should I do a door knock and for those who don't know that they're not there for that reason right they're not there to give you advice on what you should do in your business right they're there to keep you regulated safe make sure everything you're doing is is correct by the law they're there to do that job not to give you advice true true make and you know although sometimes we have to be very careful when we give advice that we're not giving them legal advice because we're not attorneys but you know there there's time to time you know from time to time we will advise them if if questions come up just to make sure that they understand the process correctly now obviously if we're treading on to the territory where it could be true as legal advice then we will refer them to attorneys to speak with and because we we just don't want be in that territory where we called uh that we're law or anything like you guys can give us options Hey listen you can wait you can send demand letter you can do this you can do that you can do this right you can give us the options of what our choices are um it it's definitely possible um we did a quick question will service reject holding a note for servicing well you ever reject a note that a loan or this gets a loan origination kind of mixed will you ever say no to a note that someone wants to board with you boarding is just the process of of getting it onto their system and getting into the servicer we there have been instances where we've said no uh to servicing the note um basically when we do a an initial uh review of the note we do look to make sure that the note uh is enforceable we and and then if there may be there may be times when it's just minor issues that could Beed and then there are times when we've had a scenario especially with Texas RS um there there are significant laws around it so we had one where it was a kitchen table closing which is a big no no um had a three-year prepayment penalty and it was a I'm trying to remember uh it was a three-year AR so just all the big no those were in just that one note right there so we had to reject the the servicing of that note because it's not enforceable and and I never want to be in a situation where I'm answering uh phone calls or feeling questions from The Regulators so we we had to turn that down but in majority of the cases we can work with the lender to help them redo the note um provided the baller is cooperative and in majority of the cases they are so we can give those fix it so before we get before we get into loan origination we want to stay with the servicing for now and we'll switch over because that's a huge topic goad no I was gonna ask because I was actually just reading something about this yesterday you mentioned the kitchen table closing is a no no why can you tell us a little bit about that because I was dining room should we move to the lake living room or where where should we go so the the rap rule sb43 in Texas went into effect on January 1 2022 yeah where there were a lot of changes that were uh that became La one of those reg requirements is that you must use a title company or an attorney to close your rap transactions if they are in the state of Texas um other states there are the regulations are still a little bit laxed but this is specifically for Texas where you you cannot close a WRA owner occupied loan not business business purpose loan or a commercial loan um in the borrower's home at your home at your office anything outside of an attorney's office or a title company is a big no no and that note can can can be nullified if challenged inter you have to be doing a legal process to avoid the kitchen table which means that you can't do it in a dining hall or backseat of a library or any of kind of stuff you need to do the proper way of doing we a question what is T kitchen table the generic phrase for saying not the legal process make sure you close correctly yeah I was just reading yesterday it was like um I I didn't know this but apparently in South Carolina uh since 2011 that's been the case where it has to be done with an attorney if you're doing some kind of a mortgage it has to be done with an attorney and so the challenge was It was kind of an interesting case the challenge was that somebody was challenging saying that this loan was created in 2001 and they wanted that extended back to 2001 and the judge said no and so that's good that's good for the lenders but uh but I didn't even know that that was a law that as of 2011 in South Carolina it has to be done with attorney and now as where New York where where you must use an attorney for for your closings yeah yeah so with servicing in part you know there are certain things that we do as investors to board the information what documents do you typically need when you want to board the note with you guys so we need the note for sure um we need we will need the deed of trust or the mortgage depending on whether it's a mortgage state or a deed of trust State um your closing disclosures the the warranty deed and and then our set of documents and things like that we have a whole checklist of things that are needed in in order for us to be able to board it correctly and not be chasing paperwork so we have that available and typic does that take a week does that take 10 days how long does that take to board a note if it's just so if we have all the paperwor uh two business days okay if we don't have all the paperwork and we have to chase after it then it just takes as long as it does until we have everything to do uh to keep it moving forward but yeah the two business days is the max that we take um for on the bre so the the stories you've heard about well my daddy and my granddaddy they used to do it you know right at the kitchen table that look that's probably great and that's probably true and it was probably even enforceable back then it's not now so unfortunately you are going to have to conform like that I know that's a bad word these days but look there are rules there there are procedures there are things you have to do so do it right yeah and what do you typically what states are you in and what do you typically charge fees wise for the Performing note on monthly basis cost sure so we are now Nationwide with the exception of um New York psylvia and Hawaii now we can service loans in those States we just choose not to do it I can't blame you what understood y the the setup fee is $100 $35 a month if it's a wrap then it's $45 a month um pretty simple process we don't nickel and dying we'll do the estros everything uh in that uh fee including uh delinquent borrower phone calls for the first 60 days wow now CE they yeah once they hit 60 days then it's treated more of a non-performing loan and and then we'll revisit with a lender to see where where they want to be um whether they want to continue for us to call and it's at a separate fee because that we do have to involve property press as well and and those charges are on on an as incurred basis and we pass the actual cost to lender that's great yeah I mean that's amazing that you guys got these fantastic and that's recent right yes October 1 yeah fantastic that's great now when you say that the the situation you're making the payments if they default will you help somebody go hire attorney how do you orchestrate that connection so we have the Rolodex of attorneys that we uh would recommend um currently it's still being built out for a majority of the states Texas Georgia Arizona Indiana we have a list of attorneys that we would recommend if the lender has their own attorney that's great um we're we're happy to work with them um as long as we are in the loop with everything because we still have to generate the reinstatement letters we still have to generate the payoff letters and keep the records updated so we just want ask that we're kept informed and in the loop and we're fine with that awes so I got personal request I guess on like on your website if I'm looking at my loan servicing can I just print out like a payoff statement right there or do I need to request that or how does that work so we we have a customer lender portal right uh that we launched about three weeks ago has it provides you a lot more information than what was previously available the one thing you cannot do is generate your own payoff State okay and so but you can just call in or email and within 24 hours we'll generate that for you you mentioned that the after 60 days you guys will do the before six days you'll do for normal cost what happened after six days what's that fee increase too so if we're just doing your basic calling and and keeping the lender updated then there's no change in the fee but if we're involving property preservation uh doing a bit more work um then the fee goes up to $65 a month okay that's actually still cheaper than most people out there yeah that is five 95 like $100 or $125 a month for that and we're we're not going there because that's it's not that much more work to do those things yeah good for you so one other question if I've got um oh I lost it I'll come back to it okay so with servicing you know I tell people use it it's a the backboard keep an eye on it and sometimes you have to reach out and say I don't want this I want that right we can turn off things turn on things door knocks all those kind of things can happen we recommend just letting your attorneys do their job let the servicers do their job um let's switch gears now right this is what I think people the the thick of thing what are some I can't say it top because there's probably too many tops top three or four no NOS in this origination world that's going on right now oh um not understanding regulations and doing a loan without really vetting your borrower um and when I say vetting your B making sure that they have the ability to repay making sure that you know the what what they're getting into their down payment for example not collecting sufficient down payment that's a recipe for disaster um not working with your borrower when the loan has been originated but that's that's after the fact but within the origination just understand what the regulations are and allow or hire a loan originator a residential mortgage loan originator or a mortgage loan originator to have qualify your buyer and to make sure that the loan will perform and and major most folks that we come across do not hire MOS and then it it just it it becomes a nightmare after the fact yeah do it properly there's so many resources out there so just do properly and it'll be fine so I would say is you know one of the big misconception out there is that you need to what is the rule of thumb for how many you can do without is it underwriting is it the ralo side of it is it both is it neither what's the rule of three that goes around everyone talks about so the rule of three that people talk about has to do with the fact that let's say you're not really in the business of doing Lan originations for example you know you may be a seller who has one off deals or in a year maybe three um the way it works is essentially if you're going to do less than three you don't necessarily need a mortgage loan originator or a license to originate bills loans but once you exceed three loans in a 12 month consecutive period then you must use a rmlo or be licensed yourself with your company to originate those loans so that's that's really what the rule is so do I have to is there a Max minimum three before I underrate every one of them do I have to underrate every single person so the difference the way I treat it is you should as a rule underwrite every single borrow that you originated La um just don't skip on that step because you know at the end of the day and and I'll use this example right we we talked earlier about ability to repay there's no hard and fast rule on what those debt to income ratios should be it could be as little as you know on on the front and 10% it could be as high as 35 40% but be prudent in what you're doing in in the in how you evaluate your borers be prudent in the fact and understand that last the last few years we've had tremendous increases in property values we've had and because of those value increases the the taxes are going Insurance in the last three years my personal insurance has gone up 180% wow and yeah so you know I had bought my house three years ago and if I was maxed out on my debt ratios so let's say I bought this seller finance and my lender pushed the ratios to 55% on the back end guess what I would be in foreclosure today because just because my insurance and taxes went up so much right because I would not have that ability to pay so right now what what I when I have these discussions with people that uh call us for originations um the the the explanation we have is just be prudent in in your approach um make sure that your borrower has not only the ability to pay today but will have the ability to pay one or two years from now and and it it just becomes easier you reduce the risk of default one other thing to consider also within the ability to repay is also the down payment if you're accept anything less than a full 10% plus your closing costs your chances of default went up tremendously within the first year wow yes and and we have the stats to prove it where you know if the down payment was anything less than 10% plus the closing costs and and prepaids those loans defaulted about 50% of them have defaulted within the first year wow and and then they' had to do a workout for those points so you're saying that I can't show up in a in a you know diner with a checkbook and or sitting there and then my borrow come in a checkbook give me 30 grand and we're good that background check and then underwriting is not what you're talking right they can bility to pay today the question is can they pay next month or moving forward right so the the showing up at the diner and you extending the funds you can still still do it provided you know that your borrower has the ability to repay right now on the flip side if you have someone that just walked off the street and you have a property that's listed that you're selling and you will own or Finance it or you will be the private lender on that particular transaction it only makes sense to involve somebody who will take a complete application here's another example I'll give you um you know when we talk about ability to repay there's also Al a on the backend what we call and I'm actually drawing a blank on the actual terminology but is really how much money is left over for the family after making their mortgage payment and all other payments right now if it's a family of four for example and and everything else checks out it makes sense to lend uh the money if you know if their mortgage ratio is 30% the backend ratio let's say is 40% but if it's a family of seven then that Dynamic changes the the the we the term is residual income and with residual income what happens is if they have a family of seven what the ratios that would have worked for a family of four may not be prudent for a family of seven you may have to be a bit more conservative in lending funds to these people because you're not leaving enough money on the table for them to last them through the month and that's could potentially harm them down the line so just those things to keep in mind there's there are lots of creative ways to qualify the people but these are just some of the things that if you have these obvious signs in front of you and if it's a if a good loan originator takes an application they will be able to guide you the right way absolutely and you can do it all right your your company can do the underwriting arm alow um in how many states are you able to do that right now in so we can originate loans in all 50 states but we're currently only focused in in Texas and just to make sure that our systems are working the way we want them to before we roll them out Nationwide wow do you hear that everyone he can arm a load Nationwide eventually he's working on that system which I don't know anyone who can do that right now in the seller finance world right we got this pigeon hole people some people in our private call that can do certain States but they can't do Nationwide or they have a certain that's hug that's amazing um I did see a question regarding should the servicer handle the foreclosure process or should you or taking over the process with your attorney I would tell you you're working with your attorney you're making decision with your attorney keep your servicer in the loop of what's happening in that four quarter process this the servic is there to provide data they're not there to make decisions um we the other question was the note servicing companies not servicing companies there specific department toine or ask about buying distressed debt um do you have a place where a trade desk where you sell notes the hell if you do don't tell anyone but me and Nathan no I'm kidding yeah so we don't currently have an official uh trade desk but typically I will feel the calls they when they come in um either my director of operations or myself will receive those calls we currently just refer them out to the note buyers that we have relationships with um we don't look for any referral fees none of that stuff we'll just turn them on to about three or four maybe five note buyers and then they can deal with them um one of the good things then what happens is that the loan stays in our portfolio and not doesn't get transferred out but in in majority of the cases we'll refer them out and let them uh transact on the site whatever needs to be done that's awesome yeah absolutely guys I I love the ideas um it's just they're servicer right they're not I know there's some servers out there do trading I get it um but right now so how's building this company up um that's only been around for a year and a half I guess it is 18 months so proba um we started on July 1st 2023 yeah okay and so 18 months 19 months now yeah um we did another question what is the armo cost for a originator oh good question so typically uh we charge $200 upfront application fee to offset the cost of pulling credit and doing the work and $1,300 at closing so a total of $1,500 in 99% of the cases this is paid by the Bor so after the the application if for some reason the transaction does not close that's all the charge has been uh collected from the B and and the lenders are not held responsible for it there's one here from uh Goodwin Goodwin ye says how can lenders best be prepared to help you help us before during and after servicing alone how can we help you help us very good question um I I I think the in in my opinion lenders should ask questions and and based on that follow the direction that they've been given um we will try to lead you down the right path um actually we will lead you down the right path because it benefits you and ultimately it benefits us as well um there may be times where we may say look don't do this don't don't originate this loan because it's not going to work or don't buy this pH because it's not you know not not a good idea but we'll we'll do our best to guide you as much as we can to make sure that it it works for all parties involved yeah good one good let's hear some more questions guys feel free to share question thoughts ideas as we keep talking so hell um what are some of the important things and I think me Nathan stresses that should be in a note what are some of the biggest factors numbers uh that should be in this note that people are creating oh yeah good question because I've seen things missing um the prince amount financed the interest rate the term of the loan the first payment due date and and obviously the maturity date um we've seen these things messing from notes and it you know I I heard I just can't understand why but the attorney should have known the one other other thing I will tell you when creating a note and including all these things it's it's perfect it's great makes our lives easier what we also is payment errors the payment that's calculated on the note is sometimes Incorrect and and that needs to be fixed you example what that looks like what would it would it appear what's wrong look like so when they create a note the principal and interest payment calculated should have been one amount but the amount placed in there is just completely off like it it doesn't match what the the the term that's stated on the Note we've also had scenarios where the payment calculated also includes escros and then it says payment may change over time which you know disclosing to the borrower that the payment may change over time is great that's perfect but the idea of including escros as part of the payment on the note is incorrect right just be sure to just have the principal in interest not taxes and insurance because those things can change there there there can be a variety of changes but you don't want to be held if if the note gets challenged there's a good chance that you will be held to that payment regardless of whether you said the payment may change or not and so it's always better to have that disclosure separate from the principal in interest said well said that's good and I've seen that before where and it can be it can seem like it's not a big deal payment in the you know in the paperwork or something it says $750 when you actually calculate it out it's $748 79 like and I know that seems small but it makes a difference and it over time that will make a huge difference so it just it has to be precise it has to be exact exactly it has to be precise and and most borrowers will be more than willing to work with you if you can identify the error with them yeah and and to fix the now they we've never had that issue before please don't round like that's a big thing like oh it's 1492 and 38 cents well it's, 1500 it's not right that's the problem it sounds Petty but you have to be precise on this stuff right yeah I see that a bunch too yeah somebody's pitching me a note and they said oh the payment is 700 bucks and I'm like is it exactly 700 or is it like3 one of the things we realized when we do this math right is the payment's way off right and we come to find out there's a balloon yes and that's why the payment appears to be just totally different what are the rules behind having a balloon in a Celler Finance WAP whatever new so typically when you're if you're creating a balloon and if it'ss to a homestead borrower some of the things to keep in mind would be that number one hold one second what's a homestead borrower for those who don't know sorry yeah so a borrower or a buyer that's buying the home to live in versus use it as an investment property okay thank you and so having a balloon automatically makes your loan a nonqualified mortgage now non-qualified mortgages have their own regulations and and they're own secondary market and you know there's still you know individual investors will buy and sell those but the the things to keep in mind is if you have a balloon in a homestead um note the minimum term you must give them is 5 years you can't do it 12 months you can't do it 24 months it must be 60 months before the balloon comes through um typically I recommend not having a balloon for Homestead borrowers because you're just creating an undo burden on them because remember these borrowers are not your traditional home buyers but people all people for the most part are creatures of habit if they can't qualify for a traditional mortgage today there's a very good chance even 5 years from now they will still be in that same situation yeah but it's always better to th on the side of caution and just go 30 years fully amortized no balloons and and you value do 20 years or 25 years but we get your point absolutely right exactly we would tell you in no Buy's World though when I hear a balloon I'm hearing default exactly yeah that's been my experience is those those balloons they don't work I I understand the principle behind it and I've had people pitch me on that and they said oh but there's a balloon in three years so as of as if that's a good thing and I'm like actually that's negative because that it it doesn't work people come up to that balloon time and you're exactly right they're they don't qualify any better today than they did three years ago or five years ago or seven years ago they're it's going to be the same story so then it's then as the note buyer now I have to do something about it now we have to go back and rewrite the document and whatever and again it's not that big a deal it's not the end of the world but it's just something I have to do now and it's like it becomes a process so just my advice for anybody who's creating notes just don't put a balloon in there it's it's far better just to stretch it out over the 25 30 years exactly um someone asked questions how do you clarify uh can you clarify how to detail the the taxes and insurance inside the note how should that be clarified the the taxes and insurance can be as simple as saying um taxes and insurance to be collected with the monthly payments there's not really there's there can be a separate disclosure that shows what the taxes and insurance are obviously you have to do a tax certification uh to get the exact amount and and always uh many times people will buy homes where there are disability exemptions retirement exemption you know over 65 exemptions uh when you're selling a buying a home from a veteran who happens to be 100% disabled then there are no taxes so you have you must always account for those things and the best way to do it is do get a tax Ser it will itemize your full taxes without the exemptions and and that's that's where I would start use the full amount um and then when you're a homeowner when the buyer moves in and files for a homestead exemption then we can always adjust the payment based on on that amount yeah but use a separate disclosure make sure you've done that some of your and and I'll get to it in a second but hopefully that answers the question yeah and they're two separate payments I yeah the borrower will often make that payment Allin one yep but on the back end it's actually two separate payments it's principal and interest and then taxes frankly it's taxes and then insurance so they're all separate charges even though if they're their total payment is you know a th000 bucks we subtract that out so yeah just being aware of that so and also make sure you don't make it fixed and that's one of the big problems we're seeing is people assume that the they'll make a pi TI and fix all together right and that's dangerous because it doesn't fix those things are always changing exactly one of the other things um that that we see frequently is at after closing um you know in when you're originating and then when you are the tiley to do the closings the some of the things that we see from sellers or lenders are offering giving uh pro rated taxes as credits to your borrowers that is a big no no because then we have to chase after your borrowers to get that money from them and in case if there's an escro short shortage guess who we will go to to get that advanced from it's going to be the lender yeah so issuing them a uh per rated tax credit is something I would always advise against I will also advise you to when originating get your homeowners the buyers to prepay for their insurance for the entire year and then when we collect insurance monthly payments in escro we have enough funds upon renewal to make that renewal payment if there's a small shortage at that point we're okay with that we'll Advance the money for you but but if you've done it right then we will not come to you for funds to advance for your borrowers escrow for taxes or Insurance yeah and and that's something we see frequently where it doesn't get done right and then we have to chase after the funds yeah that's good so when we talk about all these originations and whatnot from your guesstimate what type of notes are the ones that fail the most besides the one who not underwritten perfectly are WS doing well in the scheme of things on performance are they doing better or worse than the typical seller finance what are you seeing short notes yeah you see them so actually the short term notes that we we service um we don't really service hard money loans for lenders but we have one that we service hard money loans for where draws are not involved we're doing it based on a fully advertised schedule you know funny thing is those have been our best performers and but the others you know if they're originated correctly it doesn't matter if it's a r or if it's a standard seller finance or a private lender loan if they followed your the the criteria of the down payment the closing costs closing it right creating the note correctly they all perform exactly the same way um with we have been seen is we service a lot of WPS and and many of the wraps are just not originated correctly for some reason and and those have currently that those have the highest default rate with us they they took somebody's course and they got all excited and yeah and and we have scenarios where the the lender really didn't have the funds or does not have the funds or the reserves and where if their ball were becomes a slow pay or stops paying they don't the lender doesn't have the funds to front the money for the existing mortgage and and now we have a scenario where there's there are two foreclosures going on one for their borrower and one on them and and it's it's not a happy experience you had to look at rap notes yeah you have to look at rap notes be like a rental landlord scenario right if your tenant doesn't pay you're not going to pay under lineing debt and you just need to have that cash reserve and just not play the yield play and say oh it's a 3% 10% because there's a point where it made default and it may be a couple months and if you don't keep that paying up you're ruining your underlying debt at 3 4% whatever you're at yeah so here's what I always recommend and and I will I'll I'll push this as much as I can because it is very important if you're borrower if you're running parallel your borrower monthly payment so if your underlying lean is due for February 1st and your borrower payment is due for February 1st that is a recipe for disaster you must be paid a month ahead so if they're due if your borrowers due for February 1 be paid for March 1st on your underlying lean or be paid for up until April 1st the reason for this is well there a couple of reasons number one if your borrower starts to go into slow pay mode and they're late you're going to be able to address this ahead of time versus incurring late charges on your underlying lead and and it it just it happens like clor it's very frequent where borrowers will run behind on their mortgage and in turn cause a ripple effect the other issue that we've also seen is many times we're not notified of a payment change on the underlying link now we're depending on the lender to tell us when a payment change happens and we'll send the funds to the underlying lean many times were not notified and guess what we send the funds the funds get rejected or placed in a suspense Reserve account with the underlying lean and we're not made aware of it now what H what's happened and we've actually experienced this a few times we have set the funds the fund for replacing reserve the next month's payment comes in from the borrower we send the funds the serer takes that money the previous months and the current they will apply to the full payment whatever's left is applied to a principal reduction guess what happened you have now fallen a month behind on the underlying lead because of that you do that three four six months in a row you will be in foreclosure on the underling wow so it is always best to inform us of a payment change as soon as you find out about it because we're only as good as the information that you give us that's really interesting we do have a question here too do you pay the underly debt in part as a as a note servicer will you payline debt as a fee is that wrapped into that WRA fee that you charge it is included in that fee the $45 covers our um the it covers the fact that we will take the money from your borrower we will pay the underlying lean and the remaining p&i goes to you so that's all included when an escro analysis happens a payment change happens we are legally required to notify your borrower of that payment change 30 days before a payment change is supposed to take place so it is very important to get that escro analysis so we can make the changes on our end and update the payment records for the Borrowers we don't charge anything extra I know some of my competitors do for the esro analysis our 35 or the $45 fees are all inclusive there's nothing extra yeah that's really good very interesting yeah so I encourage you guys reach out to so how ask questions be curious things like that right because it you just don't know what you don't know even us we we run to things we're like oh didn't know that and years of experience doesn't equal success all the time it means the fact you have years of experience and that's where it stops so I encourage you guys reach out to soal his information is also in the chat um I'd also encourage you guys who are first time listeners to us little plug feel free to add we have a calendar where you can literally listen to everything we do and say and follow along and join our future calls um and go from there and for me we want to make sure we reach out to everyone and answer all questions so please feel free to answer you know there's a link click on that thing ask whatever questions you may have um and whatnot so how when we go to these conferences and whatnot will you be speaking anything coming up soon any conferences you'll be attending that you maybe people can check out so I am on the panel for the cash flow Expo which is coming up soon um I've not been invited by Nathan yet to be on the panel but you are going to be there yes I will be there we are sponsoring a booth and I'm just waiting for Nathan's invite to be maybe a speaker I'll have to get on top of him I'm still figuring out schedule it was funny I got an email from Fred the other day said and at the bottom he said how many emails have we sent out so far about cash flow Expo and it was like something like 580 something and I'm like yeah that's about right like it's it's insane how much um yeah just back and forth and figuring everything out there is but yeah definitely you're on list we'll see we'll we'll here so is there any other resources or suggestions you have for people who are looking to reate notes so they can turn and and you know ask questions or look up is there any good resources out there that you can recommend um there are a lot of resources obviously you guys are a very good resource um outside of that there are quite a few different resources there's one thing I'm happy to share um which is called a closing instructions template that it's something that we created for our use when we have lenders that will use RM our rmo services to close loans the closing instructions template basically walks you through on how to get your closing documents done um it'll give you some instructions on CL uh creating the note uh what what things to include it will tell you about prepaid interest taxes Insurance um and how to get that set up it is in work format it can be customized to your fit your needs we don't need to take credit for it we're okay with that but it's important most people don't understand this when you go to a title company and for the closings the title company is only as good as the instructions you give them so if you don't give them the right set of instructions on creating the note and collecting the prepaids and things like that they they won't be able to do it and and it's because they don't represent either party they're a neutral third party just for the sake of that transaction so I'm more than happy to provide the clothing instructions template and and then if anyone has questions there're more than you know I'm more than happy to take their calls answer questions I I've been doing this for years and and I'm always happy to answer questions so those who looking for that document that link that we have in the chat hit that b link to send them uh there's a form your fill out sharing information and put in the comments I need this form that will be sent to all three of us and so I can get that and respond to it so please fill that question out we had a question regarding uh Hazard policy I'm presuming you mean like lender place if you're Nat tell you if that's not correct uh please comment on insured through Hazard policy is that part of servicing so and I I'll I'll I'll try to answer it both ways um Hazard policy must always be in your borrower's name with the servicer being the listed as the mortgagee um now if your borrowers Insurance cancels for whatever reason we will attempt to get them to renew or get get us a new policy if they fail to do so within a certain amount of time we will place Force placed Insurance on on on that property and it will be retroactive to the day the original policy cancelled so this way your asset is protected at all times now if in case I didn't answer that your question more I'm more than happy to answer it feel free to message me and and we can go into more detail absolutely that's awesome absolutely so so hell where do where do you see Market going like what did you you kind of having a unique perspective because you get to see how servicing is going um you know defaults whether they're happening or not and what kind of notes are defaulting given all of that what do you see going forward where are we heading in this next year I see growth and and I see at least 10 to 15% growth in the seller finance Market um more and more people are turning to non-traditional lenders uh private lenders so I do expect that market segment to increase versus your traditional uh Banks and finance companies and things like that so I do expect our business also to grow at the same time um you know self-servicing I always advise against it I've seen some major messes and I've also been an expert witness in some of the cases where lawsuits will were involved due to self-servicing so I always advise using a serer if you're not using us which is not a good thing um use use another serer um there there are a few of us out there I think and I can say this content that we are better than just about everybody that's out there a little bit of AAG on myself but I I my team is amazing and I will tell you that we will we do an amazing job so I'm brief good for you that's awesome very good well so how it was a pleasure having you on today uh again if you have additional fob questions please hit that link and then fill your information out and share with soow so how will be a DME down in Ash pH um and we'll be hanging out together feel free to approach him asking any questions there's no stupid question besides one that's not asked um you will hear some amazing information uh I encourage you guys to go check out Providence Loan Servicing again the link will be in the after you hit the bity link it will send you an email make sure you check that out uh I encourage you guys to follow up with our our show uh you can add our calendar thing uh to your calendar either Outlook or whatever you can follow our podast or YouTube channel make sure you just get engaged uh we have some really great shows coming up I think the 7th or 14th next month some really good shows coming up but I encourage you guys to get out there and talk to so how if you have some notes you want to look to originate or even have now you're not happy your current servicer which is oftentimes it is uh there was a chat earlier today that how it was amazing how quickly so how team communicates and responds to people's questions which is an admirable job it's awes aome situation it makes you feel good as a lender that your service is responding and has credible answers so Bravo to you for that if you have any questions please reach out to them you have some notes you want to ask questions about or reach out about reach out to Nathan or I and we'll be happy to go over that definitely everyone else have a great weekend enjoy your Friday and stay warm thank you so much guys take care thanks.