Note Seller's Expectation and Current Note Investing Pricing for Note Investors | Real Estate Notes Show

Episode: Note Seller's Expectation and Current Note Investing Pricing for Note Investors Dave's Goals and Plans: - SN Servicing's trading desk lists approximately 250 loans every single month for sale - Currently purchasing about 25 million in portfolios every six months - Comfortable working with lenders on lines of 25-75 million rather than the previous half-billion open lines - Planning to eventually list many assets purchased over the last two years on the trading desk - Providing direct deals from clients with verified documentation and reps and warranties backing Nathan's Goals and Plans: - Currently in raising capital mode rather than purchasing a ton of inventory - Planning to increase purchasing in early new year - Looking to purchase partial notes in the near future due to different structure - Monitoring audience questions during the live broadcast Key Recommendations: - Understanding tape structure and asking the right questions is critical when evaluating notes - Partials are an effective strategy for investors needing cash flow or capital for other purchases - Working with reputable sourcing companies like SN Servicing provides advantage of verified assets and documentation - Consider direct deals from established platforms over brokered deals for better asset verification Topics Discussed: - Fourth quarter inventory surge and seller motivation to close before year-end - Current pricing remaining high in the note market - Rising interest in partial note buying and selling for cash flow needs - Comparison between institutional-level and individual investor purchasing patterns - Evolution of SN Servicing from asset acquisition to third-party servicing to trading desk operations Guest Insights: - SN Servicing shifted from buying half-billion annually to selective 100 million annual capacity with more conservative lending lines - Lender landscape changed significantly - moved from open lines to fixed 25-75 million credit lines - Trading desk success built from client relationships requesting both acquisition and disposition services - Direct sourcing through established platforms offers significant verification advantages over brokered deals sorry guys so today we're going to talk about with uh dave poglio about some stuff before we do that i want to make sure that um we make sure that everyone can get idea what's going on this fourth quarter has been crazy um it's been interesting per se right because there's been a lot of inventory coming out the fourth quarter people are getting rid of stuff um and sellers want to get rid of stuff before the end of the year um so nathan what have you been experiencing with sellers for sewing same thing you know i've seen a bunch of tapes coming out that um i've been able to review which is great um and it's interesting because this is not unusual for fourth quarter we see this often where the the last quarter of the year uh all of a sudden there's a bunch of tapes people are looking to get rid of whatever other books that they're just looking to clean up yeah so it's been interesting yeah it it seemed like sellers you know kind of quiet and then all of a sudden they just jumped up like crazy right um i i don't know what's going on um and we expect it to continue into the first quarter of next year right um so we'll see we'll see how that looks um have you been able to lock down deals and make bid offers that are accepted i've had a few i've had a few that have gotten accepted um i'm more in the raising capital state right now so i haven't been purchasing a ton but uh but plan to in the early new year so looking forward to that i knew most people kind of shut down this time of year and kind of whatever but for us it's been you know sellers pushing getting things done getting deals happen um and vk starting to open up for some stuff for us we've also seen a lot of people getting interested in partials buying selling structuring them and whatnot because cash flow is needed and some people just want to raise cut money to buy something else some people just buy a partial to get their money moving yeah i've seen that come up a few times here just in the last couple weeks where people are looking for and selling partials which is which is interesting because it's something we talk about a lot i've never purchased one i'm i'm looking at doing that here in the near future and in the near future just because my structure is a little bit different so now i can't pasta i really wasn't able to yeah cool um so at least i'm out in harrisburg right now visiting a few friends who are in the space as well so it's interesting to hear from their you know large level they're buying institutional stuff and they're selling institutional stuff um and their inventory is the same way right they see a different track record but they're they're able to buy but pricing is still quite high um expertise in the sellers are a little different so i'm sure you guys have all probably seen polio tapes right they come out regularly they come out good um inventory from them is always accountable um they're reputable people they have sellers who they work with um so it's good to see that kind of information coming through and i think for a lot of people getting the information and understanding what it looks like um and what to how to work with you know with sm how to understand how the tape looks what questions you should ask what you should be doing so i wanted to bring polio david pogo on to answer some of his basic questions for a lot of people who are out there um for saying so um nathan have you dealt with a lot of people who didn't know who plio was or sn was for a while and now the sun's like whoa yeah sn team has done a good job of advertising and making themselves known which is great and that that helps a lot just in general like we want to see deals getting done all over the place and whether it's me or somebody else me would be preferable but but it's good to just keep the wheels rolling on everything and making sure the deals are being done in general and that just kind of helps everything keep moving along it's it's always good to see deals coming out and uh you know the more the merrier and it's we talk about this a lot but it's it's a it's a business where we're in competition but not really it's a friendly competition we we like to you know at the very worst we rip each other about deals yeah and you know but we need each other too um because without each other we don't know what's going on yeah okay so um again guys we want we're doing a little different feed here so if there apologies any kind of issues on facebook live uh but we are recording this for any kind of questions or concerns so uh nathan's monitoring that part of it for me so he'll monitoring all the questions uh he'll be monitoring all the questions coming in um any concerns or issues we'll post so without further ado i want to introduce dave polio from sn servicing um dave i appreciate you jumping on friday afternoon and joining us for a few minutes i appreciate you guys uh asking me to uh join you all again i appreciate that awesome so how did you get started because i know you've been around forever but where did you come from for wow forever um so yeah so i um i started um really an opportunity where right after grad school um you know it was back in uh 1990 and you know before that everyone thought geez if i've got a a graduate degree i can ask for do i want for a salary but apparently those last two or three years completely changed everything so um i just took a job in the uh bond department at bank of new england um and within two months the bank failed and so it was very interesting that um i had known someone that had said hey listen here's what's happening the fdic came in they took over the bank so they took over bank of new england connecticut bank and trust in all the main savings uh institutions and they set up so fleet bought the the failed bank in new england but said to the fdic listen um we'll buy it but we can't buy the eight billion of bet assets at that time so they decided to uh to start a company called recall management so again i was very fortunate that you know um i knew someone that was really saying this is what's going to happen they're going to start this in the next month or so and so i walked up 14 flights of stairs for two weeks straight annoying the guy that was going to be hiring people and finally he just said all right we'll hire you so um that was the start of recall management where it took us six years to liquidate the whole 8 billion of bet assets so you know back then it was getting everything started where you had to now get people to invest and sell wall street you know we use the wall street journal to advertise um we started doing sales after the first year and you know that's how i met um rob arkley uh from sn uh send servicing um probably 92.

wow okay so he was one of the first characters that we were dealing with that was coming in to boston and to look at all the different portfolios and files because we would do about probably 12 to 20 sales every month with the fdic um and so back then of course it wasn't digital so someone would come into boston and we'd have to you know if they wanted to look at two assets a lot of them were you know large commercial assets or you know some pretty tricky um um smaller commercial assets uh each each loan would have maybe 30 to 50 files and you just have to bring them all in and they would go through that was their due diligence they would go through page through page um and at a certain time they would do an uh a bid auction for them so we did that for six years um and you know sn with rob was one of the big buyers bought a ton of assets in new england where back then the market really changed quickly it was down for about a year two years but if you bought stuff back then at 30 cents 20 to 30 cents uh of the the outstanding balance um that thing turned around to 60 to 70 cents within two years so he really had a big jump start so once that ended he said listen since you're the one that actually helped me buy these deals from from recall why don't you come here and start my acquisitions desk so i did so about 90 it ended in 96 and started and i started in 96 with sn headed up their whole acquisitions group um we probably acquired about probably about a half a billion a year of residential distress portfolios throughout the country up until 2008.

um so we were a big buyer and you know we're buying commercial leases contract for deeds back then regular conventional loans it didn't matter to us um and so our system was created to handle every type of asset so our system was really flexible where we could have had a borrower that had 35 um investment homes in philadelphia and we could handle that on one on one line one asset code which was a bit which is a strong thing to do so in 2008 to ten of course the market didn't you know did another move there and so we decided to kind of hold back on all of our purchases and kind of give it a little time to see what the market was doing um so we finally decided that you know we're gonna stop buying for now um and you know let's let's go out and see if we can help the banks that we're buying from if they'll allow us now to for us to service their distressed assets and so they did so between a few banks they gave us about close to 3 billion to service which was great and so now our platform was holding over 200 000 loans about 3 billion in upb and for the next three or four years that's when the big hedge funds came in and started buying up these chunks of deals um as they would purchase the deals they would say listen um we really like how you guys are servicing the assets can you service for us so that kind of really kind of pushed us into the third-party service inside um the trading desk was really created out of those clients saying listen we don't have a business development group we want to buy more loans can you help us so i would take the relationships that i was buying from and then and match them up with the clients that we were servicing for so they could buy more loans which of course the more they bought the more that we got the service which then then turned into them saying listen you help me buy these assets can you now sell my assets after a couple of years of us servicing assets and that hence the trading desk for the last probably five years on average crazy enough it puts out about 250 loans every single month that are listed for sale um and the nice thing is is that as you know you guys are you guys have um have your own platform for training too is that they're direct deals you know these are deals that are coming directly from our clients we know all the assets are there we know the documentation is there we know they're legitimate they've got everything to back up the reps and warranties in the contract so you know a big advantage for someone just saying listen i got this from a broker from another broker which we hear a lot and we understand that i mean i've dealt with that for years it's out there um our on our own side we started buying portfolios about two years ago and our purchase now is really up to about 25 million probably every six months and so we're kind of a niche buyer which eventually will take many of the assets that we've purchased over the last two years and we'll put those on the trading desk so have you seen that change in the last few years 25 million a year you said about 25 every six months every every six months so then how's that how's that fluctuated over the last even the last two three years um for us it hasn't fluctuated uh we don't want to get you know we don't want to get to the size that we were before where we were buying a half a billion a year we're very comfortable with uh with working with our lenders for about 100 million and again that's also too a lot of the lenders these days lenders back when we were buying were willing to do an open line for a half a billion now we're doing lines of 25 to 75 million so that's that's changed quite a bit so when you got into this space and started dealing with smaller buyers what were some of the common issues questions and just understanding of where they were at what they were missing on yeah i mean it's um it's interesting to see um the one-off mom-and-pop buyer type um that went back probably about let's just say about six or eight years ago and that's when the big push whether through note school whether through other groups you know they're pushing how to buy loans um and you know for every 100 people they had uh signed up as a student as a buyer i would have been surprised if one or two of them physically did a transaction yeah and so the the initial concern back then was that they were afraid to they always thought they were buying too high they were afraid that they were going to lose too much money on a transaction not understanding that of course as the years went by the market kept going up so every time that they keep changing their philosophy of what they're looking at they're still they're still a few years behind really where the buy side is so as much as i can try to um educate for people to to to to go out there and make a purchase just you know you got to do the purchase to get the education to physically know what happens because it's it's amazing how many people just sit there and do nothing and it all it takes is one or two purchases you get the feel you know listen you may make a mistake i mean listen i i have asked people have you ever every time you buy stock does it always go up no sometimes you lose money so it's the same thing with the notes business you know it all sounds glorious because these big guys are buying like a thousand loans and they're hitting home runs on half of them and the other quarter they could be just losing their shirts which is very interesting you're not going to see that yeah um i see i hear some feedback now there you go yeah but i think for newer you know i think for new investors it's scary to approach you know people your size when you get one tape in november with 900 assets right they get overwhelmed um would you say for those people who are looking to get in you know submitting an offer is just making an offer right they shouldn't be fearful of submitting an offer because they can't take that entire tape what will happen and i think just doing it is a big step for a lot of people um yeah i get that and i i that's definitely a concern and so i i keep it wide open you know i i tell anyone that look to the assets number one is ask me any question you want ask me anything about the process i'm never going to put you in a situation where you give me an offer and i'm forcing you to fund the deal never we never do that uh the other thing is is that if you want to just test what you're thinking put a number on it let me know that you're testing it and i'll accept it as okay it's not a real bid but when all the bids come in i'll let you know here's how you lined up against everybody else so there's again i guess it depends what you're dealing with i'm sure not everyone will allow that um so it's it's much as we can educate the better they're going to be down the road for us on the other side of that though don't put in an offer if you have no intention of actually buying like right this is this is for real we're not messing it around if you put in a bid and you win you better perform unless there's something really you know weird or funky that comes up that kills the deal um you know don't mess around and don't pretend that you're gonna do something and then not follow through yeah don't bit don't bid with the understanding that you have another person that is going to be buying the asset for you or from you it's just it's never worked it has never worked yet not once with me that's for sure um and if you really don't have the funds behind it just don't bid it and if something happens during the process be upfront about it don't go radio silent don't hide just be up front and say here's what happened that's the best way to do it because in this business it is such relationship relationship is going to drive everything yeah absolutely so when someone makes an offer to you what is the typical process i know each seller is different right what is difficult process that goes through when you do make an offer with you and what expectations should they have to close a deal yep so um when all the offers come in uh it's my job to create a result fire for the for the selling client the selling client is going to look at those numbers and say okay dave on these 20 loans um i can accept these 10 and i need you to make a counter offer on these on these 10.

so i'll go back out to the high bidders that have been accepted on the 10 and explain that your offer has been accepted now now please start your due diligence so we all know that there's going to be a due diligence period again i'm not the type of group that is going to say okay you need to fund this tomorrow here's the agreement sign it fund it tomorrow no we're giving a you know anything between a 14 to a 30 day due diligence period that whole due diligence period is your opportunity to do all of the third party research all the work necessary to confirm what was on the tape that's that's what it is it's confirming the information on the tape because your bid was based on the information on the tape so it's a process where the selling client is going to send you all of the files all the documents they have nothing's held back uh for that so if it's you know um nothing's redacted nothing is held back where they're not going to show you everything they have you're going to get that's part of your due diligence so at the end of that process yes you're going to come back to me saying great all of our information came in it matched up with what you said we're ready to go to closing at that point they're going to have a purchase and sale agreement and those purchase and sale agreements are are good you know they're they're agreements that i myself have used for the last 20 plus years and so i know what i want when i used to buy loans in my agreement so there's going to be some reps and warranties and uh some clear servicing um constraints in there that give you a comfort level on the second part of that is i will have clients come back saying okay i did my due diligence my valuation came back fifty thousand less than what you have on the tape and guess what there's ten thousand past two taxes that we found as long as i have that information and they present it to me and they show me the bpo or the valuation or the taxes you know eight out of ten times the selling clients gonna say you know what they're right the value is fifty thousand less there is ten thousand taxes so their reprice is now based on the new information and as i said eight out of ten times the client says you know what we can still sell it we'll move on where don't don't don't have that information and just walk away and say i'm done because you don't know you have no idea the client may still accept that offer yeah and again it's a process it's a process that the selling client looks at and says hey you know what that person you brought me did exactly what the right thing was to do i want to deal with them in the future yeah and it's not that the seller's trying to pull one over and and give you a 50 000 inflated value it's that something changed you know the the seller had that information from whenever they bought the asset in somewhere in that time something changed and so they're providing whatever they have if you find something new okay but but it's you know nobody's trying to pull it over on anybody like dave said it's it's relationship relationship relationship if you get burned by the seller you're never going to go back there and the seller knows that and vice versa so it's everyone's trying to be upfront as possible uh to get things done because we all just want to get deals done in the end yep yeah yeah let's let's talk a little bit about when things go right um funding escrow all the kind of questions that go along with that what can they expect when it happens um give me i'm not question what you're asking so when a seller when you agree to something and the moneys get wired is it going to someone in the middle is it going directly to the seller how is that working oh uh there's two ways you can do it um you know a lot of people like to use an escrow agent and so that escrow agent is going to hold the funds and their their job their goal is to make sure that before those funds are released to the seller that the seller has given the escrow agent all of the documentation needed to perfect their lien or collectibility so once that happens the escrow agent will release the funds to the seller on the other side of that this yeah we have many clients that have dealt with the same seller so many times that they know that okay i'm just gonna send you the money i'll get the documents uh in the next day or two or three days whatever and if there's an issue i realize that you'll you'll be there for me and you'll have some post-closing documents for me to perfect my uh my lien and again those are the same clients where if there's an issue and it's un it's it's uncurable it's a non-collectible loan they'll repurchase the loan back they're going to stand behind that because again it's their reputation also they're trying to try to present true yeah for a lot of people i think that that's they're concerned or worried but they understand these are sophisticated sellers right they know what they're doing and not make mistakes um they're doing their job and they're going to knock they're going to about to warrant because their reputation is online too if they sell something that has some bad paper they're going to stand behind that rips and warrants correct yeah correct and you know it's also my job and when you guys sell loans you're trying to make sure that your selling client is someone that you could stand behind because it affects us too if i if i start bringing you know i'm not gonna name any names or back back a certain time there was a few sellers that when you heard the name you're like oh uh never mind uh i'm gonna pass yeah so are all the all the loans that you're selling are they all serviced by sn good question uh about 75 of them are okay the rest are coming from um from other funds that we don't service for but they're a big buyer on our trading desk and then we get some banks or other institutions i say hey listen heard about your group can you sell my loans all right all right so one of the things i think um especially a lot of new people come in and they say well so what you're telling me is i'm buying somebody else's junk um what's the motivation why why do people sell loans and are they just selling off their junk yep so um you know you're you're dealing with a client that bought a large package and we all say that they all we're all buying them both so they're buying a thousand loans plus a thousand loans and there could be a good part of that where they're just buying they're just taking on these assets that are not in their territory or their type of asset just to get the big deal done yeah they could have a low reserve on those assets which then makes sense for a niche buyer in that territory where that this other group is not interested in dealing with um you know you're if if you're analyzing for based on what you can recover from that loan your pricing is should not be seen as oh my god i'm buying their junk you're you're buying opportunity for that recovery and that profit on your side right right yeah i know for example i prefer lower balance so i like i like loans where the property value is between 50 and 150 000 um so to me that's that's my goal but i understand that for a different hedge fund that has a different model that's their junk and that's fine because then that's a symbiotic relationship they don't want to yeah they don't want us they'd rather spend their time and money on the bigger assets yeah and to me if they break even on those assets it's a great deal for them right and to me those bigger assets uh number one is the bigger ticket and i i feel like i've got more eggs in one basket that i'm not comfortable with and then on top of that i don't like dealing with that demographic as much as i like the uh the lower value demographic and that's a matter of preference you know how you want to deal with it where you want to go and some of the junk loans are cleanup deals yeah if you're if you know it's a cleanup deal whether it's a closing of a fund or just a cleanup of someone going out the pricing is going to be reflected on that so there's the advantage there yeah and i've i've been on the receiving end of those kind of deals as well which is great and again it goes back to the relationship they called me because they knew i was for real and i was gonna buy so right it worked so it's would you say that because a lot of people would feel that exact way this is crap loans why am i dealing with stuff that someone else doesn't want anymore and i think people miss out on the fact that there's sometimes where they've already made the profit right and they're trying to get out of a situation where they're just done making their profit they can sell for a gain and they're going to buy something bigger so it may not be a situation where it's bad deal or crap deal it's just their time maybe they have to sell for whatever reason maybe they have some stuff on the books they have to get rid of um and sometimes bad i think it's your due diligence to make sure it's not a bad deal right i think people miss out on that opportunity and understand that every seller doesn't looking to make you buy a bad asset um are there bad assets absolutely but you can kind of figure that kind of stuff out by just going through the process of your diligence make sure the assets in good quality um one of the biggest things i think most people get into is you know the value right that's a hard thing to really go through and narrow down because no one knows the value of a property it's extremely difficult to actually have it right um when daring to do due diligence what are some of the typical things that buyers should be looking at and making sure that they're not buying something crappy right what are some of the key things that people do to make sure to prevent themselves from getting into a bad situation well the on the valuation part you always want to make sure you're getting pictures you don't want someone to do an avm you don't want someone to do just a um a data search you fit you need someone to physically get out there and look at that property and that bpo evaluation should have condition comments we all know we can't get inside the house obvious but some of these guys have the ability to say you know what there's a tarp on the roof there's a car in the in the in the front uh lawn there's just obvious things that are going to trigger um or on the opposite side it's going to save two cars in the parking lot uh looks like the place is well kept and looks like people are living there i mean these are these are things that you want to know um also on the three comp sales and the three cop listings it gives you your opportunity to say okay are they giving me comps that are in line with my property here because sometimes you know if they're just doing straight reo comps you got to watch that because of course all reo comps are going to be a lot less than the true value of that property it's just the nature of an oreo sale um and you want to see pictures also of the comps so that's that's on the valuation side of it this of course the next part is the tax title um uh reporting we call them what we call them um o e reports um and so you want to see that report that's going to explain to you okay here's my first lien i see it here's the chain how they got it there's an assignment from bank a to bank b i could follow it great it fit it matches up all the numbers that on on the tape that they gave me um i noticed that the the the town state uh the town uh school taxes are all current great or it may show me that they're in default um the one thing that's hard to see um is a tax lien that's been sold so that's a tricky part um it's tricky for us i mean i've gotten screwed many times where you know i knew there was a tax lien sale of maybe 5 000 but i didn't really realize that you know what they were still charging 18 percent rate for the last 10 years um that's probably the hardest thing to find my in my experience i mean you guys if you think there's new technologies or systems out there that can that can uh help with that that'd be great um but everything else should be fine you know you'll see the hoa liens um you'll see if there's any code violations um so everything is there those are the two most important things to me um other than you then digging deep into the collector comments and the pay histories you know it's a great point to make on the valuation and dave and i have had this discussion before with the bpos i do bpos all the time and dave has his own system but for me the bpo is not just the number that the realtor put on there it's the whole report and like you say then i it's what are the comps how far away are they uh you know what do the pictures look like did they take pictures of the neighborhood or just like the front door from their car window or did they actually get out of the car and give you some actual pictures and so it's it's really the complete report that i look at not just that valuation number the valuation number in fact if it's if it's you know significantly off of what i thought the body was then i'll pick up the phone i pick up the phone often anyway but i'll pick up the phone and call the realtor and say hey i'm not trying to sway your numbers i'm not trying to you know be right i'm just trying to understand you know i thought it was 75 you're saying it's it's 30 you know so what happened there why why are we so significantly different we'll come up with something there have a good day thank you so it it's interesting putting in a package santa claus right that's awesome so i you know we haven't got the the elf in the room question i think we'll leave that for kind of last um but i think for a lot of people you've seen the inflow of assets what have you seen over the course the last couple years of asset how many assets are available for sale how many actually selling do you see a lot of transactions or is things slow down from what it was five years ago um it slowed down a little bit but nothing major um what has slowed down is probably the executions of those transactions where as the years kept going by the pricing expectations kept going up higher and higher and then of course um you know everyone wasn't willing to to be at that level and so you know for all for the many of the loans that we were selling um probably about um probably about 50 percent actually physically would go through to the final funding part where about three years ago and earlier it was definitely about 75 to close to 80 percent were going through the transaction so everybody is willing to list their assets for sale but their expectations are following how they're trying to buy their assets they're realizing that they're now paying more for their assets and so they're saying oh you know what if i'm paying more i need to get more from my from my selling side um the interesting thing of course now is the second lien market where um it is the valuations that have that have really created um an easier sale uh for my clients because the uh the higher valuations now have created equity where when they bought these three or four years ago they were buying them with zero equity so that's an easy sale for them there's you know for a hundred i put out probably 90 do sell um it's the first lien resi side where that valuation is driving everyone's expectations whether it's the seller um on what they're willing to um to transact to to trade it at um but no the the amount of assets has still been um enough for me to keep saying it's about 200 300 every month that we can list for sale um now of course right now it's slow um for the holiday and it'll it'll be slow probably till probably till the end of january is my guess um and it'll probably start to kick back up uh early february so so you say 2-300 every month what do you say to those people that say oh there's just no deals up there um there is deals out there um you know a lot of course most of people that are saying that are the ones that don't want to pay um the market value for that asset yeah and so again they're the ones that you know a lot of people will pass i mean i've got 1200 people that will probably look at a tape and sometimes you'll see that you know i've got 70 to 80 people that have actually bid uh so it's it's showing you that there's always a consistent over a thousand people that have the ability to look at the tape but don't put an offer on it yeah which is i mean i don't want everyone to put offer on it that would really bog things down but how often when you do get some bids in are you going back and having the same you know multiple bits from the same diff you know the same offer from multiple different buyers how do you juggle that with the seller um and do you give preference those who buy a bulk package where if i'm buying 20 loans versus someone who might be buying two are those people getting a a different deal or is everyone across the board and if you have multiple offers are the same value same bid amount by multiple are you going back and asking for best and highest how does that process work yep so i don't i don't ever do a best since the best and final um what i will do is actually the opposite what you just really just said is that i typically go to the new buyer or the person that's buying one or two loans and say listen i'd rather go to them because again it creates more opportunity down the road to build up this more people that physically want to bid so i'm not i'm not pushing them aside just because they're a first-time buyer um or they're just buying one or two loans i'd rather give them the opportunity that i know some of the bigger clients they're always going to buy 50 to 100 loans it's not going to change me taking one loan away from them is they're not gonna they're just it's not it's a blip to them where it's more beneficial for me to work with the smaller client and get them some essence and so yeah i would go back and say listen we've got three people here that have the exact same bid you know do you think you have any room to come up a little bit yeah that's all right well if if i can get it for x then yes i can do it promotional sellers don't then go back to the next person and keep juggling different numbers back and forth i do it one time yeah are most of the sellers you're dealing with institutional small investors or a mixture of everything most of them are mid-sized uh hedge funds um most of them but again a good part of these sales when you see when you see me put some tapes out that have maybe less than 10 loans that's coming from investors like yourself that bought assets in the past and again they're they're the smaller type investors and i got some some that may have like one or two assets they just want to put put on the market for sale they don't realize that we'll do that uh for free so you so you'll list them for free and then what's your what's your take home on that like no sellers i mean you've seen every single email i've sent out i think you you know that answer it's a 1.5 on anything that is funded and you know that's a flexible number where if they're buying more than 5 million of course we're going to drop that down and if they're buying more than a certain amount we drop it down it's not it's it's it's um it's funny how um i get some emails from people that say hey dave this person is trying to sell your tape and they're asking eight points it's like it is mind-boggling um you know for us the the fee is good but really again it's the relationship because if someone buys an asset from us it kind of opens us an opportunity now to to show them us to show our servicing site for them so it builds up our servicing site also very cool so i another question we had well i've heard asked is if we buy this loan do we need to service with sn can we move servicers what's your requirement on that end never we never uh we never say that the loan has to be serviced by us at all um it's always an option absolutely we never i mean we have too many clients that have you know servicers throughout the different services throughout the country so it would it wouldn't work out um you know we have a lot of clients that we service for that only want to buy loans that are on our servicing system and for them i think it's more of a comfort level because they know when the loans are boarded into our system in eureka that they're pretty diligent on getting all the information that's necessary um to um to service the asset because again we're being scrutinized by the cfpb on how we're servicing assets so we have to follow every rule too so it's just that much easier if it's if you're buying something and keeping it with the same servicer man it's a lot easier yeah no fun no new phone calls no letters of you know stopping payments um yeah it's no no reinventing the wheel again if you have attorneys that you are you rather work with than the ones that we have we have we have no problem accepting that also right now very cool so where do you where do you see this going next year where we're talking about end of 2021 2022 and beyond um you know like like you said you you haven't really seen a ton of variation uh are you expecting more in the more of a variation in the near future the midterm future no i'm not and so i'm probably on that side where people don't like to hear is that you know i i think it's going to be another two years i really do i i don't see anything that is going to you know and again i'm looking at the mid-sized buyers to the small buyers i'm not talking the big large uh banks and hedge funds i mean they're gonna they're gonna find their opportunities all the time but as they have to pay more for their deals of course it's going to be harder for the mid-size and the small guy to buy an asset so it's going to be tough i think it's going to be tough next two years i mean that's that's my opinion um i think you're gonna see you're gonna continue to see product again it's the execution part that's gonna be on the slower side um i think we'll see a lot more second liens too i do believe that um they're starting to uh see that those executions are um at levels where you know it makes a lot of sense for them to move these assets off their books um i don't hear many people saying that listen i don't want to sell because i can't find those assets back in the market now i think they're saying you know what i'm okay selling because i want to have the cash for when something happens down the road yeah and i think you know one of the reasons that the inventory is not going to increase what you're saying is that these bayer players are really holding their own stuff they're not selling as they used to inventory is just not moving as much as they used to do you see two three years down the line that inventory changing or it's unknown because we don't know what these larger funds are going to be doing with the inventory um because like we both know 10 years ago the structure we that they have in place now was never in place 10 years ago there's more funds there's more sellers than there was 10 years ago yeah i i do believe that when i say two years yes my my understanding and my belief is that you know in that two after two years it's gonna open up a lot more uh ability uh for transactions to get done and for people to uh to to to start making some purchases um i think the issue now is also with a lot of these large funds are really driven by a manager and so they're fund managers so you know as a fund manager your job is to get the money out um and you know what you're paying for it it's not really held against the actual uh the fund magic because your your management fee is based on your your portfolio balance so there's not that big push where you know it used to be as a principal buyer with your own funds you had to sell because you had to pay back your warehouse line um so it's it's a different it's it's different you know there's these guys they're not pushed something's going to have to push them where whether maybe it's the fact eventually the funding goes well listen we're not getting the return or the velocity of these of these um these purchases how do we how do we change that um interest rates are start to go up which is good that's going to help because that's going to put a little more risk inside um with those rates being when they were at three percent you know you can't lose you know you can people are have ability to refinance and move around very easily there's no threat or risk on that side of it most of the launcher are selling how delinquent are they typically right reason i ask that is that in the coming years when the loans are created today go delinquent and they get trickled down the interest rates are really low comparison what they have in 060708 you know how do you see that changing things because you can't buy a loan that's a three percent coupon for what you buy it for no 807 which was a six seven percent coupon how would that change the game in the coming future when those loans trickle down and are purchasable yeah i mean um that time period's gonna be extended i i think each delinquent loan that we're gonna see going forward is gonna be 12 months plus easily um and you know we've all seen stuff and we still i list stuff that's uh five years delinquent so you know getting back to the due diligence part of it your due diligence is going to reflect you know is there any action or payments in the last five years because otherwise it's a statute limitation issue you can't find anything but um so i i think that delinquency is going to be a 12 month plus before they want to put it on the market um also what you don't see that we saw uh quite a bit from our original purchases back uh you know before uh before uh 2010 was that banks were more willing to sell assets that were 90 days delinquent because once that asset on a bank line hit 90 it became a classified asset that classified asset would be on a report every single quarter and that quarter report would be in front of management saying okay we've got these hundred loans that are classified assets which really meant they can't go back on the line they're delinquent and they would write them down whether 10 or 12 percent and those assets were were live to to be purchased you know banks i can't find a bank that will do that anymore that's it's a long gone where i can call up a bank and say listen can you show me your assets that are 90 days delinquent that are classified you know it just it's not out there it's not a big deal anymore to them interesting so after a while these bankers would be you know every single quarter would come up with the same 100 loans and eventually be like listen this is this is crazy let's just get rid of them so i'm gonna keep talking about it yeah yeah so i'm gonna ask that elf in the room question right how much your loan selling for nowadays what is marketing okay there you go that's easy that's really easy 50.

everything's 50. 50. it's such a hard question to answer because there's so many different things going on right it's a struggle to get an answer because every seller is different a deal is different you know what are performing assets selling for what are non-performing assets selling for versus cfds all stuff what are you seeing a performing asset that's solid first position selling for as a yield price yeah so you're right that's a question that um i think people that know me probably don't ever ask that question anymore with me i get in my soapbox and i just say well if i say 50 and you all bid 50 that's a fun deal you know it makes no sense so i've always pushed the theory that don't ask me what the loan is trading for on balance or valuation you know understand that what is a loan trading at your projected recovery you know you have to have a sense of what you're going to recover from that asset and so if i'm going to recover 100 000 and i'm telling you that you can buy it for 75 cents of that okay that that's a conversation i can talk about i'm not going to say that they're trading for 50 of what the sm recovery is because that's too low i'm not going to say they're trading at 100 of sums recovery because that's too high and there's no profit there so that way each each person is going to have their own sense of a model of what they can recover and so that's why when someone says to me where they we know what is of upbeat it's changed completely because you could have a non-performing loans that have evaluation two times the unpaid principal balance but it's also still above what the legal balance is so i have people that will pay 125 percent over upb because they know they use the word they understand recovery what is my recovery going to be not what is it trade for upb or or or bpo um so i'm sorry to get off on that little tangent there um but so a good example is um let's use um re-performing loans because a truly performing loan if we're selling a truly performing loan it's a bank loan that someone's going to pay 100 as high as to 102 3 depending on the rate they're they're just rate driven they just want they just want to get the rate uh the yield on that and that's it they don't really care about the the asset type it is um so we you know when we sell those they're not part of our tapes what we're selling is re-performing loans loans that now are starting to make their payments you know whether they start to make six months to 12 months um those have been trading anywhere from um 85 cents of upb up to probably about 94 i get some people that will pay up you know a little higher than that uh based on the collateral value and the rates but that's a good sense so that's why people like to take loans that they've had from two or three years ago where they bought as mpls they get into rpl's they know that they're gonna get an execution 85 and higher um not performing loans that's that's where it's hard because again i have people that will do trades at 20 cents of upb and some that will do trades at 125 of upb so it's really going to be again based off on what they think they can recover um and some people have formulas where they say listen i'm going to pay 60 of value or what's less 60 of the upp so they they kind of bounce it off on that side um the second liens right now have been trading fairly aggressive um so um most of the second liens that we're selling have some life and some payment and equity in it and those have been trading above 65 cents of upv right now yeah wow yeah yep they love the equity that's the performance second that's like an rpl not you know sort of performing not not a true performing loan okay i'm assuming that's also what it you know first is performing and everything is clean everything looks good where that number is very high i mean first for selling high right but seconds for selling that i mean that's unreal it's crazy but i get it right um it's just real estate in general's time yeah we're talking last night about the fact that assets are selling so quickly that everything's selling higher so our numbers are gonna go higher right you're not getting the pricing you did a couple years ago um but you have to make sure it works for you right you're not gonna get the returns that you did but that's okay as long as you target the returns you need you're gonna get deals happening right you're just doing your homework getting involved um i think a lot of people get stuck on what should i bid versus what should i aim for my return if i hit my returns it's okay to bid 100 of upb if the coupon's at eight or nine of course you could bid that high i think a lot of people miss on that factor because that coupon rate changes everything um with the three percent or ten percent that percent of upb jumps um people just gotta do the homework and figure that out i think pricing is just what people want to pay especially if they're not able to buy a lot they're gonna price it high and make sure it assets because their cash is sitting there um a lot of times that the question i like to ask is um when they're when they're on the phone with me and they're saying well i can't bid that i said well okay so the the borrower has a upbeat of 100 000.

the property is worth 300 000 and the legal payoff which is legally due for a payoff is 200 000 so you buy that loan they call you up the next day and say i won the lottery i want to pay you off what are you going to ask for that payoff are you going to ask for the 100 only bringing us for the 200. like well no i want the 200. well okay that's your recovery they just can't get past that they're paying more than the the unpaid principal balance yeah yeah yeah i get it it's amazing you know um to have that conversation uh and making people aware that it's okay to bid what you feel is best for you um take in account the fact you're not gonna buy assets at 20 cents right that's not happening right um for the most part unless it's dirty and all that stuff um but i think some people are afraid to make an offer that's less how do you handle win off it comes in at 20 cents are you sitting at this seller or is that kind of getting pushed off how are you juggling that situation where if i'm making an offer at 20 nathan make an offer at 65 and but i'm the only offer on this asset are you squashing that bit because it's too low or how are you handling that no no i i present everything and so the reason i present is because they make counter they may carry out 35 gives you an opportunity all right you know what i think i can get the 35 for my 25.

yeah yeah no i i i would present everything there's no reason and you know people always say well i don't want to waste your time that's why i want to know what are these trading for and it's like it's not a waste it's not a waste of my time at all it's never a waste of my time and it should not be a waste of your time because it's an education like well i don't want to i don't want to go through these 10 assets if it's going to you know something that's too high for me well again it's an education go through the process it's not going to take you more than an hour or two just to open up the tape analyze it and come up with a number that you think you might want to buy for again you don't have to present the offer to me as a live bid you can just say hey dave i ran for the tape i think it should trade at 20.

it's not a waste of my time it's not a waste of your time it's it it's free education i think people miss out on that right we all most of us went to college right you spend a lot of money to not make any money while you're in school so if you're going to make an investment and something goes wrong that just the experience itself to to just do things is worth the money again college is something you paid for every single semester and you weren't making any money during that process so why are you taking this ain't differently right absolutely offer get the trade happen if you lose money on your first deal that's okay but you learned what to do what you did what you did wrong and you just have to adjust and speak and ask questions you guys have been awesome when an offer comes in you have no problem telling us what the winning bid is which helps us as buyers to know what we should look at and go hey that's way too high i could never offer it or oh wait all i get to do is just one or two numbers here and i can make that work yeah yeah i probably would like to rather hire somebody that said you know what i've analyzed 2 000 loans in the last year and a half where someone says yeah i've gotten 10 10 emails yeah open it up yeah well i'm gonna end it there i'm going to disconnect from the facebook live probably hang out for a few minutes um hey guys this feed will also be put on a youtube channel so make sure you check out that out i know we have some facebook issues but definitely tune in if you have any questions for polio reach out to us me and nathan and we'll get you in contact with them yeah they're friendly this is the atmosphere we're in right so check out the tapes tape's been flying around just get involved right get in there ask questions paulie has been awesome for asking any kind of questions you have the only question you want to answer is what should i bid right that's not the question for him um and just be understand that polio's not the investor right he won't tell you one of the questions we saw on facebook was how long does it take for a non-performing loan to switch over there's so many answers to that question that that he can't answer what situation is right he's not there to teach you the basics he's there to tell you trading platform he runs that these are the trade restoration so feel free to reach out to him shoot an email give him a call he's been really friendly so with that uh me nathan will be back in a couple weeks polio hang out for a minute um yep hopefully everyone tune in and we'll talk to everyone soon thank you people are looking for and selling partials which is which is interesting because it's something we talk about a lot i've never purchased one i'm i'm looking at doing that here in the near future and in the near future just because my structure is a little bit different so now i can't pasta i really wasn't able to yeah cool um so at least i'm out in harrisburg right now visiting a few friends who are in the space as well so it's interesting to hear from their you know large level they're buying institutional stuff and they're selling institutional stuff um and their inventory is the same way right they see a different track record but they're they're able to buy but pricing is still quite high um expertise in the sellers are a little different so i'm sure you guys have all probably seen polio tapes right they come out regularly they come out good um inventory from them is always accountable um they're reputable people they have sellers who they work with um so it's good to see that kind of information coming through and i think for a lot of people getting the information and understanding what it looks like um and what to how to work with you know with sm how to understand how the tape looks what questions you should ask what you should be doing so i wanted to bring polio david pogo on to answer some of his basic questions for a lot of people who are out there um for saying so um nathan have you dealt with a lot of people who didn't know who plio was or sn was for a while and now the sun's like whoa yeah sn team has done a good job of advertising and making themselves known which is great and that that helps a lot just in general like we want to see deals getting done all over the place and whether it's me or somebody else me would be preferable but but it's good to just keep the wheels rolling on everything and making sure the deals are being done in general and that just kind of helps everything keep moving along it's it's always good to see deals coming out and uh you know the more the merrier and it's we talk about this a lot but it's it's a it's a business where we're in competition but not really it's a friendly competition we we like to you know at the very worst we rip each other about deals yeah and you know but we need each other too um because without each other we don't know what's going on yeah okay so um again guys we want we're doing a little different feed here so if there apologies any kind of issues on facebook live uh but we are recording this for any kind of questions or concerns so uh nathan's monitoring that part of it for me so he'll monitoring all the questions uh he'll be monitoring all the questions coming in um any concerns or issues we'll post so without further ado i want to introduce dave polio from sn servicing um dave i appreciate you jumping on friday afternoon and joining us for a few minutes i appreciate you guys uh asking me to uh join you all again i appreciate that awesome so how did you get started because i know you've been around forever but where did you come from for wow forever um so yeah so i um i started um really an opportunity where right after grad school um you know it was back in uh 1990 and you know before that everyone thought geez if i've got a a graduate degree i can ask for do i want for a salary but apparently those last two or three years completely changed everything so um i just took a job in the uh bond department at bank of new england um and within two months the bank failed and so it was very interesting that um i had known someone that had said hey listen here's what's happening the fdic came in they took over the bank so they took over bank of new england connecticut bank and trust in all the main savings uh institutions and they set up so fleet bought the the failed bank in new england but said to the fdic listen um we'll buy it but we can't buy the eight billion of bet assets at that time so they decided to uh to start a company called recall management so again i was very fortunate that you know um i knew someone that was really saying this is what's going to happen they're going to start this in the next month or so and so i walked up 14 flights of stairs for two weeks straight annoying the guy that was going to be hiring people and finally he just said all right we'll hire you so um that was the start of recall management where it took us six years to liquidate the whole 8 billion of bet assets so you know back then it was getting everything started where you had to now get people to invest and sell wall street you know we use the wall street journal to advertise um we started doing sales after the first year and you know that's how i met um rob arkley uh from sn uh send servicing um probably 92.

wow okay so he was one of the first characters that we were dealing with that was coming in to boston and to look at all the different portfolios and files because we would do about probably 12 to 20 sales every month with the fdic um and so back then of course it wasn't digital so someone would come into boston and we'd have to you know if they wanted to look at two assets a lot of them were you know large commercial assets or you know some pretty tricky um um smaller commercial assets uh each each loan would have maybe 30 to 50 files and you just have to bring them all in and they would go through that was their due diligence they would go through page through page um and at a certain time they would do an uh a bid auction for them so we did that for six years um and you know sn with rob was one of the big buyers bought a ton of assets in new england where back then the market really changed quickly it was down for about a year two years but if you bought stuff back then at 30 cents 20 to 30 cents uh of the the outstanding balance um that thing turned around to 60 to 70 cents within two years so he really had a big jump start so once that ended he said listen since you're the one that actually helped me buy these deals from from recall why don't you come here and start my acquisitions desk so i did so about 90 it ended in 96 and started and i started in 96 with sn headed up their whole acquisitions group um we probably acquired about probably about a half a billion a year of residential distress portfolios throughout the country up until 2008.

um so we were a big buyer and you know we're buying commercial leases contract for deeds back then regular conventional loans it didn't matter to us um and so our system was created to handle every type of asset so our system was really flexible where we could have had a borrower that had 35 um investment homes in philadelphia and we could handle that on one on one line one asset code which was a bit which is a strong thing to do so in 2008 to ten of course the market didn't you know did another move there and so we decided to kind of hold back on all of our purchases and kind of give it a little time to see what the market was doing um so we finally decided that you know we're gonna stop buying for now um and you know let's let's go out and see if we can help the banks that we're buying from if they'll allow us now to for us to service their distressed assets and so they did so between a few banks they gave us about close to 3 billion to service which was great and so now our platform was holding over 200 000 loans about 3 billion in upb and for the next three or four years that's when the big hedge funds came in and started buying up these chunks of deals um as they would purchase the deals they would say listen um we really like how you guys are servicing the assets can you service for us so that kind of really kind of pushed us into the third-party service inside um the trading desk was really created out of those clients saying listen we don't have a business development group we want to buy more loans can you help us so i would take the relationships that i was buying from and then and match them up with the clients that we were servicing for so they could buy more loans which of course the more they bought the more that we got the service which then then turned into them saying listen you help me buy these assets can you now sell my assets after a couple of years of us servicing assets and that hence the trading desk for the last probably five years on average crazy enough it puts out about 250 loans every single month that are listed for sale um and the nice thing is is that as you know you guys are you guys have um have your own platform for training too is that they're direct deals you know these are deals that are coming directly from our clients we know all the assets are there we know the documentation is there we know they're legitimate they've got everything to back up the reps and warranties in the contract so you know a big advantage for someone just saying listen i got this from a broker from another broker which we hear a lot and we understand that i mean i've dealt with that for years it's out there um our on our own side we started buying portfolios about two years ago and our purchase now is really up to about 25 million probably every six months and so we're kind of a niche buyer which eventually will take many of the assets that we've purchased over the last two years and we'll put those on the trading desk so have you seen that change in the last few years 25 million a year you said about 25 every six months every every six months so then how's that how's that fluctuated over the last even the last two three years um for us it hasn't fluctuated uh we don't want to get you know we don't want to get to the size that we were before where we were buying a half a billion a year we're very comfortable with uh with working with our lenders for about 100 million and again that's also too a lot of the lenders these days lenders back when we were buying were willing to do an open line for a half a billion now we're doing lines of 25 to 75 million so that's that's changed quite a bit so when you got into this space and started dealing with smaller buyers what were some of the common issues questions and just understanding of where they were at what they were missing on yeah i mean it's um it's interesting to see um the one-off mom-and-pop buyer type um that went back probably about let's just say about six or eight years ago and that's when the big push whether through note school whether through other groups you know they're pushing how to buy loans um and you know for every 100 people they had uh signed up as a student as a buyer i would have been surprised if one or two of them physically did a transaction yeah and so the the initial concern back then was that they were afraid to they always thought they were buying too high they were afraid that they were going to lose too much money on a transaction not understanding that of course as the years went by the market kept going up so every time that they keep changing their philosophy of what they're looking at they're still they're still a few years behind really where the buy side is so as much as i can try to um educate for people to to to to go out there and make a purchase just you know you got to do the purchase to get the education to physically know what happens because it's it's amazing how many people just sit there and do nothing and it all it takes is one or two purchases you get the feel you know listen you may make a mistake i mean listen i i have asked people have you ever every time you buy stock does it always go up no sometimes you lose money so it's the same thing with the notes business you know it all sounds glorious because these big guys are buying like a thousand loans and they're hitting home runs on half of them and the other quarter they could be just losing their shirts which is very interesting you're not going to see that yeah um i see i hear some feedback now there you go yeah but i think for newer you know i think for new investors it's scary to approach you know people your size when you get one tape in november with 900 assets right they get overwhelmed um would you say for those people who are looking to get in you know submitting an offer is just making an offer right they shouldn't be fearful of submitting an offer because they can't take that entire tape what will happen and i think just doing it is a big step for a lot of people um yeah i get that and i i that's definitely a concern and so i i keep it wide open you know i i tell anyone that look to the assets number one is ask me any question you want ask me anything about the process i'm never going to put you in a situation where you give me an offer and i'm forcing you to fund the deal never we never do that uh the other thing is is that if you want to just test what you're thinking put a number on it let me know that you're testing it and i'll accept it as okay it's not a real bid but when all the bids come in i'll let you know here's how you lined up against everybody else so there's again i guess it depends what you're dealing with i'm sure not everyone will allow that um so it's it's much as we can educate the better they're going to be down the road for us on the other side of that though don't put in an offer if you have no intention of actually buying like right this is this is for real we're not messing it around if you put in a bid and you win you better perform unless there's something really you know weird or funky that comes up that kills the deal um you know don't mess around and don't pretend that you're gonna do something and then not follow through yeah don't bit don't bid with the understanding that you have another person that is going to be buying the asset for you or from you it's just it's never worked it has never worked yet not once with me that's for sure um and if you really don't have the funds behind it just don't bid it and if something happens during the process be upfront about it don't go radio silent don't hide just be up front and say here's what happened that's the best way to do it because in this business it is such relationship relationship is going to drive everything yeah absolutely so when someone makes an offer to you what is the typical process i know each seller is different right what is difficult process that goes through when you do make an offer with you and what expectations should they have to close a deal yep so um when all the offers come in uh it's my job to create a result fire for the for the selling client the selling client is going to look at those numbers and say okay dave on these 20 loans um i can accept these 10 and i need you to make a counter offer on these on these 10.

so i'll go back out to the high bidders that have been accepted on the 10 and explain that your offer has been accepted now now please start your due diligence so we all know that there's going to be a due diligence period again i'm not the type of group that is going to say okay you need to fund this tomorrow here's the agreement sign it fund it tomorrow no we're giving a you know anything between a 14 to a 30 day due diligence period that whole due diligence period is your opportunity to do all of the third party research all the work necessary to confirm what was on the tape that's that's what it is it's confirming the information on the tape because your bid was based on the information on the tape so it's a process where the selling client is going to send you all of the files all the documents they have nothing's held back uh for that so if it's you know um nothing's redacted nothing is held back where they're not going to show you everything they have you're going to get that's part of your due diligence so at the end of that process yes you're going to come back to me saying great all of our information came in it matched up with what you said we're ready to go to closing at that point they're going to have a purchase and sale agreement and those purchase and sale agreements are are good you know they're they're agreements that i myself have used for the last 20 plus years and so i know what i want when i used to buy loans in my agreement so there's going to be some reps and warranties and uh some clear servicing um constraints in there that give you a comfort level on the second part of that is i will have clients come back saying okay i did my due diligence my valuation came back fifty thousand less than what you have on the tape and guess what there's ten thousand past two taxes that we found as long as i have that information and they present it to me and they show me the bpo or the valuation or the taxes you know eight out of ten times the selling clients gonna say you know what they're right the value is fifty thousand less there is ten thousand taxes so their reprice is now based on the new information and as i said eight out of ten times the client says you know what we can still sell it we'll move on where don't don't don't have that information and just walk away and say i'm done because you don't know you have no idea the client may still accept that offer yeah and again it's a process it's a process that the selling client looks at and says hey you know what that person you brought me did exactly what the right thing was to do i want to deal with them in the future yeah and it's not that the seller's trying to pull one over and and give you a 50 000 inflated value it's that something changed you know the the seller had that information from whenever they bought the asset in somewhere in that time something changed and so they're providing whatever they have if you find something new okay but but it's you know nobody's trying to pull it over on anybody like dave said it's it's relationship relationship relationship if you get burned by the seller you're never going to go back there and the seller knows that and vice versa so it's everyone's trying to be upfront as possible uh to get things done because we all just want to get deals done in the end yep yeah yeah let's let's talk a little bit about when things go right um funding escrow all the kind of questions that go along with that what can they expect when it happens um give me i'm not question what you're asking so when a seller when you agree to something and the moneys get wired is it going to someone in the middle is it going directly to the seller how is that working oh uh there's two ways you can do it um you know a lot of people like to use an escrow agent and so that escrow agent is going to hold the funds and their their job their goal is to make sure that before those funds are released to the seller that the seller has given the escrow agent all of the documentation needed to perfect their lien or collectibility so once that happens the escrow agent will release the funds to the seller on the other side of that this yeah we have many clients that have dealt with the same seller so many times that they know that okay i'm just gonna send you the money i'll get the documents uh in the next day or two or three days whatever and if there's an issue i realize that you'll you'll be there for me and you'll have some post-closing documents for me to perfect my uh my lien and again those are the same clients where if there's an issue and it's un it's it's uncurable it's a non-collectible loan they'll repurchase the loan back they're going to stand behind that because again it's their reputation also they're trying to try to present true yeah for a lot of people i think that that's they're concerned or worried but they understand these are sophisticated sellers right they know what they're doing and not make mistakes um they're doing their job and they're going to knock they're going to about to warrant because their reputation is online too if they sell something that has some bad paper they're going to stand behind that rips and warrants correct yeah correct and you know it's also my job and when you guys sell loans you're trying to make sure that your selling client is someone that you could stand behind because it affects us too if i if i start bringing you know i'm not gonna name any names or back back a certain time there was a few sellers that when you heard the name you're like oh uh never mind uh i'm gonna pass yeah so are all the all the loans that you're selling are they all serviced by sn good question uh about 75 of them are okay the rest are coming from um from other funds that we don't service for but they're a big buyer on our trading desk and then we get some banks or other institutions i say hey listen heard about your group can you sell my loans all right all right so one of the things i think um especially a lot of new people come in and they say well so what you're telling me is i'm buying somebody else's junk um what's the motivation why why do people sell loans and are they just selling off their junk yep so um you know you're you're dealing with a client that bought a large package and we all say that they all we're all buying them both so they're buying a thousand loans plus a thousand loans and there could be a good part of that where they're just buying they're just taking on these assets that are not in their territory or their type of asset just to get the big deal done yeah they could have a low reserve on those assets which then makes sense for a niche buyer in that territory where that this other group is not interested in dealing with um you know you're if if you're analyzing for based on what you can recover from that loan your pricing is should not be seen as oh my god i'm buying their junk you're you're buying opportunity for that recovery and that profit on your side right right yeah i know for example i prefer lower balance so i like i like loans where the property value is between 50 and 150 000 um so to me that's that's my goal but i understand that for a different hedge fund that has a different model that's their junk and that's fine because then that's a symbiotic relationship they don't want to yeah they don't want us they'd rather spend their time and money on the bigger assets yeah and to me if they break even on those assets it's a great deal for them right and to me those bigger assets uh number one is the bigger ticket and i i feel like i've got more eggs in one basket that i'm not comfortable with and then on top of that i don't like dealing with that demographic as much as i like the uh the lower value demographic and that's a matter of preference you know how you want to deal with it where you want to go and some of the junk loans are cleanup deals yeah if you're if you know it's a cleanup deal whether it's a closing of a fund or just a cleanup of someone going out the pricing is going to be reflected on that so there's the advantage there yeah and i've i've been on the receiving end of those kind of deals as well which is great and again it goes back to the relationship they called me because they knew i was for real and i was gonna buy so right it worked so it's would you say that because a lot of people would feel that exact way this is crap loans why am i dealing with stuff that someone else doesn't want anymore and i think people miss out on the fact that there's sometimes where they've already made the profit right and they're trying to get out of a situation where they're just done making their profit they can sell for a gain and they're going to buy something bigger so it may not be a situation where it's bad deal or crap deal it's just their time maybe they have to sell for whatever reason maybe they have some stuff on the books they have to get rid of um and sometimes bad i think it's your due diligence to make sure it's not a bad deal right i think people miss out on that opportunity and understand that every seller doesn't looking to make you buy a bad asset um are there bad assets absolutely but you can kind of figure that kind of stuff out by just going through the process of your diligence make sure the assets in good quality um one of the biggest things i think most people get into is you know the value right that's a hard thing to really go through and narrow down because no one knows the value of a property it's extremely difficult to actually have it right um when daring to do due diligence what are some of the typical things that buyers should be looking at and making sure that they're not buying something crappy right what are some of the key things that people do to make sure to prevent themselves from getting into a bad situation well the on the valuation part you always want to make sure you're getting pictures you don't want someone to do an avm you don't want someone to do just a um a data search you fit you need someone to physically get out there and look at that property and that bpo evaluation should have condition comments we all know we can't get inside the house obvious but some of these guys have the ability to say you know what there's a tarp on the roof there's a car in the in the in the front uh lawn there's just obvious things that are going to trigger um or on the opposite side it's going to save two cars in the parking lot uh looks like the place is well kept and looks like people are living there i mean these are these are things that you want to know um also on the three comp sales and the three cop listings it gives you your opportunity to say okay are they giving me comps that are in line with my property here because sometimes you know if they're just doing straight reo comps you got to watch that because of course all reo comps are going to be a lot less than the true value of that property it's just the nature of an oreo sale um and you want to see pictures also of the comps so that's that's on the valuation side of it this of course the next part is the tax title um uh reporting we call them what we call them um o e reports um and so you want to see that report that's going to explain to you okay here's my first lien i see it here's the chain how they got it there's an assignment from bank a to bank b i could follow it great it fit it matches up all the numbers that on on the tape that they gave me um i noticed that the the the town state uh the town uh school taxes are all current great or it may show me that they're in default um the one thing that's hard to see um is a tax lien that's been sold so that's a tricky part um it's tricky for us i mean i've gotten screwed many times where you know i knew there was a tax lien sale of maybe 5 000 but i didn't really realize that you know what they were still charging 18 percent rate for the last 10 years um that's probably the hardest thing to find my in my experience i mean you guys if you think there's new technologies or systems out there that can that can uh help with that that'd be great um but everything else should be fine you know you'll see the hoa liens um you'll see if there's any code violations um so everything is there those are the two most important things to me um other than you then digging deep into the collector comments and the pay histories you know it's a great point to make on the valuation and dave and i have had this discussion before with the bpos i do bpos all the time and dave has his own system but for me the bpo is not just the number that the realtor put on there it's the whole report and like you say then i it's what are the comps how far away are they uh you know what do the pictures look like did they take pictures of the neighborhood or just like the front door from their car window or did they actually get out of the car and give you some actual pictures and so it's it's really the complete report that i look at not just that valuation number the valuation number in fact if it's if it's you know significantly off of what i thought the body was then i'll pick up the phone i pick up the phone often anyway but i'll pick up the phone and call the realtor and say hey i'm not trying to sway your numbers i'm not trying to you know be right i'm just trying to understand you know i thought it was 75 you're saying it's it's 30 you know so what happened there why why are we so significantly different we'll come up with something there have a good day thank you so it it's interesting putting in a package santa claus right that's awesome so i you know we haven't got the the elf in the room question i think we'll leave that for kind of last um but i think for a lot of people you've seen the inflow of assets what have you seen over the course the last couple years of asset how many assets are available for sale how many actually selling do you see a lot of transactions or is things slow down from what it was five years ago um it slowed down a little bit but nothing major um what has slowed down is probably the executions of those transactions where as the years kept going by the pricing expectations kept going up higher and higher and then of course um you know everyone wasn't willing to to be at that level and so you know for all for the many of the loans that we were selling um probably about um probably about 50 percent actually physically would go through to the final funding part where about three years ago and earlier it was definitely about 75 to close to 80 percent were going through the transaction so everybody is willing to list their assets for sale but their expectations are following how they're trying to buy their assets they're realizing that they're now paying more for their assets and so they're saying oh you know what if i'm paying more i need to get more from my from my selling side um the interesting thing of course now is the second lien market where um it is the valuations that have that have really created um an easier sale uh for my clients because the uh the higher valuations now have created equity where when they bought these three or four years ago they were buying them with zero equity so that's an easy sale for them there's you know for a hundred i put out probably 90 do sell um it's the first lien resi side where that valuation is driving everyone's expectations whether it's the seller um on what they're willing to um to transact to to trade it at um but no the the amount of assets has still been um enough for me to keep saying it's about 200 300 every month that we can list for sale um now of course right now it's slow um for the holiday and it'll it'll be slow probably till probably till the end of january is my guess um and it'll probably start to kick back up uh early february so so you say 2-300 every month what do you say to those people that say oh there's just no deals up there um there is deals out there um you know a lot of course most of people that are saying that are the ones that don't want to pay um the market value for that asset yeah and so again they're the ones that you know a lot of people will pass i mean i've got 1200 people that will probably look at a tape and sometimes you'll see that you know i've got 70 to 80 people that have actually bid uh so it's it's showing you that there's always a consistent over a thousand people that have the ability to look at the tape but don't put an offer on it yeah which is i mean i don't want everyone to put offer on it that would really bog things down but how often when you do get some bids in are you going back and having the same you know multiple bits from the same diff you know the same offer from multiple different buyers how do you juggle that with the seller um and do you give preference those who buy a bulk package where if i'm buying 20 loans versus someone who might be buying two are those people getting a a different deal or is everyone across the board and if you have multiple offers are the same value same bid amount by multiple are you going back and asking for best and highest how does that process work yep so i don't i don't ever do a best since the best and final um what i will do is actually the opposite what you just really just said is that i typically go to the new buyer or the person that's buying one or two loans and say listen i'd rather go to them because again it creates more opportunity down the road to build up this more people that physically want to bid so i'm not i'm not pushing them aside just because they're a first-time buyer um or they're just buying one or two loans i'd rather give them the opportunity that i know some of the bigger clients they're always going to buy 50 to 100 loans it's not going to change me taking one loan away from them is they're not gonna they're just it's not it's a blip to them where it's more beneficial for me to work with the smaller client and get them some essence and so yeah i would go back and say listen we've got three people here that have the exact same bid you know do you think you have any room to come up a little bit yeah that's all right well if if i can get it for x then yes i can do it promotional sellers don't then go back to the next person and keep juggling different numbers back and forth i do it one time yeah are most of the sellers you're dealing with institutional small investors or a mixture of everything most of them are mid-sized uh hedge funds um most of them but again a good part of these sales when you see when you see me put some tapes out that have maybe less than 10 loans that's coming from investors like yourself that bought assets in the past and again they're they're the smaller type investors and i got some some that may have like one or two assets they just want to put put on the market for sale they don't realize that we'll do that uh for free so you so you'll list them for free and then what's your what's your take home on that like no sellers i mean you've seen every single email i've sent out i think you you know that answer it's a 1.5 on anything that is funded and you know that's a flexible number where if they're buying more than 5 million of course we're going to drop that down and if they're buying more than a certain amount we drop it down it's not it's it's it's um it's funny how um i get some emails from people that say hey dave this person is trying to sell your tape and they're asking eight points it's like it is mind-boggling um you know for us the the fee is good but really again it's the relationship because if someone buys an asset from us it kind of opens us an opportunity now to to show them us to show our servicing site for them so it builds up our servicing site also very cool so i another question we had well i've heard asked is if we buy this loan do we need to service with sn can we move servicers what's your requirement on that end never we never uh we never say that the loan has to be serviced by us at all um it's always an option absolutely we never i mean we have too many clients that have you know servicers throughout the different services throughout the country so it would it wouldn't work out um you know we have a lot of clients that we service for that only want to buy loans that are on our servicing system and for them i think it's more of a comfort level because they know when the loans are boarded into our system in eureka that they're pretty diligent on getting all the information that's necessary um to um to service the asset because again we're being scrutinized by the cfpb on how we're servicing assets so we have to follow every rule too so it's just that much easier if it's if you're buying something and keeping it with the same servicer man it's a lot easier yeah no fun no new phone calls no letters of you know stopping payments um yeah it's no no reinventing the wheel again if you have attorneys that you are you rather work with than the ones that we have we have we have no problem accepting that also right now very cool so where do you where do you see this going next year where we're talking about end of 2021 2022 and beyond um you know like like you said you you haven't really seen a ton of variation uh are you expecting more in the more of a variation in the near future the midterm future no i'm not and so i'm probably on that side where people don't like to hear is that you know i i think it's going to be another two years i really do i i don't see anything that is going to you know and again i'm looking at the mid-sized buyers to the small buyers i'm not talking the big large uh banks and hedge funds i mean they're gonna they're gonna find their opportunities all the time but as they have to pay more for their deals of course it's going to be harder for the mid-size and the small guy to buy an asset so it's going to be tough i think it's going to be tough next two years i mean that's that's my opinion um i think you're gonna see you're gonna continue to see product again it's the execution part that's gonna be on the slower side um i think we'll see a lot more second liens too i do believe that um they're starting to uh see that those executions are um at levels where you know it makes a lot of sense for them to move these assets off their books um i don't hear many people saying that listen i don't want to sell because i can't find those assets back in the market now i think they're saying you know what i'm okay selling because i want to have the cash for when something happens down the road yeah and i think you know one of the reasons that the inventory is not going to increase what you're saying is that these bayer players are really holding their own stuff they're not selling as they used to inventory is just not moving as much as they used to do you see two three years down the line that inventory changing or it's unknown because we don't know what these larger funds are going to be doing with the inventory um because like we both know 10 years ago the structure we that they have in place now was never in place 10 years ago there's more funds there's more sellers than there was 10 years ago yeah i i do believe that when i say two years yes my my understanding and my belief is that you know in that two after two years it's gonna open up a lot more uh ability uh for transactions to get done and for people to uh to to to start making some purchases um i think the issue now is also with a lot of these large funds are really driven by a manager and so they're fund managers so you know as a fund manager your job is to get the money out um and you know what you're paying for it it's not really held against the actual uh the fund magic because your your management fee is based on your your portfolio balance so there's not that big push where you know it used to be as a principal buyer with your own funds you had to sell because you had to pay back your warehouse line um so it's it's a different it's it's different you know there's these guys they're not pushed something's going to have to push them where whether maybe it's the fact eventually the funding goes well listen we're not getting the return or the velocity of these of these um these purchases how do we how do we change that um interest rates are start to go up which is good that's going to help because that's going to put a little more risk inside um with those rates being when they were at three percent you know you can't lose you know you can people are have ability to refinance and move around very easily there's no threat or risk on that side of it most of the launcher are selling how delinquent are they typically right reason i ask that is that in the coming years when the loans are created today go delinquent and they get trickled down the interest rates are really low comparison what they have in 060708 you know how do you see that changing things because you can't buy a loan that's a three percent coupon for what you buy it for no 807 which was a six seven percent coupon how would that change the game in the coming future when those loans trickle down and are purchasable yeah i mean um that time period's gonna be extended i i think each delinquent loan that we're gonna see going forward is gonna be 12 months plus easily um and you know we've all seen stuff and we still i list stuff that's uh five years delinquent so you know getting back to the due diligence part of it your due diligence is going to reflect you know is there any action or payments in the last five years because otherwise it's a statute limitation issue you can't find anything but um so i i think that delinquency is going to be a 12 month plus before they want to put it on the market um also what you don't see that we saw uh quite a bit from our original purchases back uh you know before uh before uh 2010 was that banks were more willing to sell assets that were 90 days delinquent because once that asset on a bank line hit 90 it became a classified asset that classified asset would be on a report every single quarter and that quarter report would be in front of management saying okay we've got these hundred loans that are classified assets which really meant they can't go back on the line they're delinquent and they would write them down whether 10 or 12 percent and those assets were were live to to be purchased you know banks i can't find a bank that will do that anymore that's it's a long gone where i can call up a bank and say listen can you show me your assets that are 90 days delinquent that are classified you know it just it's not out there it's not a big deal anymore to them interesting so after a while these bankers would be you know every single quarter would come up with the same 100 loans and eventually be like listen this is this is crazy let's just get rid of them so i'm gonna keep talking about it yeah yeah so i'm gonna ask that elf in the room question right how much your loan selling for nowadays what is marketing okay there you go that's easy that's really easy 50.

everything's 50. 50. it's such a hard question to answer because there's so many different things going on right it's a struggle to get an answer because every seller is different a deal is different you know what are performing assets selling for what are non-performing assets selling for versus cfds all stuff what are you seeing a performing asset that's solid first position selling for as a yield price yeah so you're right that's a question that um i think people that know me probably don't ever ask that question anymore with me i get in my soapbox and i just say well if i say 50 and you all bid 50 that's a fun deal you know it makes no sense so i've always pushed the theory that don't ask me what the loan is trading for on balance or valuation you know understand that what is a loan trading at your projected recovery you know you have to have a sense of what you're going to recover from that asset and so if i'm going to recover 100 000 and i'm telling you that you can buy it for 75 cents of that okay that that's a conversation i can talk about i'm not going to say that they're trading for 50 of what the sm recovery is because that's too low i'm not going to say they're trading at 100 of sums recovery because that's too high and there's no profit there so that way each each person is going to have their own sense of a model of what they can recover and so that's why when someone says to me where they we know what is of upbeat it's changed completely because you could have a non-performing loans that have evaluation two times the unpaid principal balance but it's also still above what the legal balance is so i have people that will pay 125 percent over upb because they know they use the word they understand recovery what is my recovery going to be not what is it trade for upb or or or bpo um so i'm sorry to get off on that little tangent there um but so a good example is um let's use um re-performing loans because a truly performing loan if we're selling a truly performing loan it's a bank loan that someone's going to pay 100 as high as to 102 3 depending on the rate they're they're just rate driven they just want they just want to get the rate uh the yield on that and that's it they don't really care about the the asset type it is um so we you know when we sell those they're not part of our tapes what we're selling is re-performing loans loans that now are starting to make their payments you know whether they start to make six months to 12 months um those have been trading anywhere from um 85 cents of upb up to probably about 94 i get some people that will pay up you know a little higher than that uh based on the collateral value and the rates but that's a good sense so that's why people like to take loans that they've had from two or three years ago where they bought as mpls they get into rpl's they know that they're gonna get an execution 85 and higher um not performing loans that's that's where it's hard because again i have people that will do trades at 20 cents of upb and some that will do trades at 125 of upb so it's really going to be again based off on what they think they can recover um and some people have formulas where they say listen i'm going to pay 60 of value or what's less 60 of the upp so they they kind of bounce it off on that side um the second liens right now have been trading fairly aggressive um so um most of the second liens that we're selling have some life and some payment and equity in it and those have been trading above 65 cents of upv right now yeah wow yeah yep they love the equity that's the performance second that's like an rpl not you know sort of performing not not a true performing loan okay i'm assuming that's also what it you know first is performing and everything is clean everything looks good where that number is very high i mean first for selling high right but seconds for selling that i mean that's unreal it's crazy but i get it right um it's just real estate in general's time yeah we're talking last night about the fact that assets are selling so quickly that everything's selling higher so our numbers are gonna go higher right you're not getting the pricing you did a couple years ago um but you have to make sure it works for you right you're not gonna get the returns that you did but that's okay as long as you target the returns you need you're gonna get deals happening right you're just doing your homework getting involved um i think a lot of people get stuck on what should i bid versus what should i aim for my return if i hit my returns it's okay to bid 100 of upb if the coupon's at eight or nine of course you could bid that high i think a lot of people miss on that factor because that coupon rate changes everything um with the three percent or ten percent that percent of upb jumps um people just gotta do the homework and figure that out i think pricing is just what people want to pay especially if they're not able to buy a lot they're gonna price it high and make sure it assets because their cash is sitting there um a lot of times that the question i like to ask is um when they're when they're on the phone with me and they're saying well i can't bid that i said well okay so the the borrower has a upbeat of 100 000.

the property is worth 300 000 and the legal payoff which is legally due for a payoff is 200 000 so you buy that loan they call you up the next day and say i won the lottery i want to pay you off what are you going to ask for that payoff are you going to ask for the 100 only bringing us for the 200. like well no i want the 200. well okay that's your recovery they just can't get past that they're paying more than the the unpaid principal balance yeah yeah yeah i get it it's amazing you know um to have that conversation uh and making people aware that it's okay to bid what you feel is best for you um take in account the fact you're not gonna buy assets at 20 cents right that's not happening right um for the most part unless it's dirty and all that stuff um but i think some people are afraid to make an offer that's less how do you handle win off it comes in at 20 cents are you sitting at this seller or is that kind of getting pushed off how are you juggling that situation where if i'm making an offer at 20 nathan make an offer at 65 and but i'm the only offer on this asset are you squashing that bit because it's too low or how are you handling that no no i i present everything and so the reason i present is because they make counter they may carry out 35 gives you an opportunity all right you know what i think i can get the 35 for my 25.

yeah yeah no i i i would present everything there's no reason and you know people always say well i don't want to waste your time that's why i want to know what are these trading for and it's like it's not a waste it's not a waste of my time at all it's never a waste of my time and it should not be a waste of your time because it's an education like well i don't want to i don't want to go through these 10 assets if it's going to you know something that's too high for me well again it's an education go through the process it's not going to take you more than an hour or two just to open up the tape analyze it and come up with a number that you think you might want to buy for again you don't have to present the offer to me as a live bid you can just say hey dave i ran for the tape i think it should trade at 20.

it's not a waste of my time it's not a waste of your time it's it it's free education i think people miss out on that right we all most of us went to college right you spend a lot of money to not make any money while you're in school so if you're going to make an investment and something goes wrong that just the experience itself to to just do things is worth the money again college is something you paid for every single semester and you weren't making any money during that process so why are you taking this ain't differently right absolutely offer get the trade happen if you lose money on your first deal that's okay but you learned what to do what you did what you did wrong and you just have to adjust and speak and ask questions you guys have been awesome when an offer comes in you have no problem telling us what the winning bid is which helps us as buyers to know what we should look at and go hey that's way too high i could never offer it or oh wait all i get to do is just one or two numbers here and i can make that work yeah yeah i probably would like to rather hire somebody that said you know what i've analyzed 2 000 loans in the last year and a half where someone says yeah i've gotten 10 10 emails yeah open it up yeah well i'm gonna end it there i'm going to disconnect from the facebook live probably hang out for a few minutes um hey guys this feed will also be put on a youtube channel so make sure you check out that out i know we have some facebook issues but definitely tune in if you have any questions for polio reach out to us me and nathan and we'll get you in contact with them yeah they're friendly this is the atmosphere we're in right so check out the tapes tape's been flying around just get involved right get in there ask questions paulie has been awesome for asking any kind of questions you have the only question you want to answer is what should i bid right that's not the question for him um and just be understand that polio's not the investor right he won't tell you one of the questions we saw on facebook was how long does it take for a non-performing loan to switch over there's so many answers to that question that that he can't answer what situation is right he's not there to teach you the basics he's there to tell you trading platform he runs that these are the trade restoration so feel free to reach out to him shoot an email give him a call he's been really friendly so with that uh me nathan will be back in a couple weeks polio hang out for a minute um yep hopefully everyone tune in and we'll talk to everyone soon thank you sorry guys so today we're going to talk about with uh dave poglio about some stuff before we do that i want to make sure that um we make sure that everyone can get idea what's going on this fourth quarter has been crazy um it's been interesting per se right because there's been a lot of inventory coming out the fourth quarter people are getting rid of stuff um and sellers want to get rid of stuff before the end of the year um so nathan what have you been experiencing with sellers for sewing same thing you know i've seen a bunch of tapes coming out that um i've been able to review which is great um and it's interesting because this is not unusual for fourth quarter we see this often where the the last quarter of the year uh all of a sudden there's a bunch of tapes people are looking to get rid of whatever other books that they're just looking to clean up yeah so it's been interesting yeah it it seemed like sellers you know kind of quiet and then all of a sudden they just jumped up like crazy right um i i don't know what's going on um and we expect it to continue into the first quarter of next year right um so we'll see we'll see how that looks um have you been able to lock down deals and make bid offers that are accepted i've had a few i've had a few that have gotten accepted um i'm more in the raising capital state right now so i haven't been purchasing a ton but uh but plan to in the early new year so looking forward to that i knew most people kind of shut down this time of year and kind of whatever but for us it's been you know sellers pushing getting things done getting deals happen um and vk starting to open up for some stuff for us we've also seen a lot of people getting interested in partials buying selling structuring them and whatnot because cash flow is needed and some people just want to raise cut money to buy something else some people just buy a partial to get their money moving yeah i've seen that come up a few times here just in the last couple weeks where people are looking for and selling partials which is which is interesting because it's something we talk about a lot i've never purchased one i'm i'm looking at doing that here in the near future and in the near future just because my structure is a little bit different so now i can't pasta i really wasn't able to yeah cool um so at least i'm out in harrisburg right now visiting a few friends who are in the space as well so it's interesting to hear from their you know large level they're buying institutional stuff and they're selling institutional stuff um and their inventory is the same way right they see a different track record but they're they're able to buy but pricing is still quite high um expertise in the sellers are a little different so i'm sure you guys have all probably seen polio tapes right they come out regularly they come out good um inventory from them is always accountable um they're reputable people they have sellers who they work with um so it's good to see that kind of information coming through and i think for a lot of people getting the information and understanding what it looks like um and what to how to work with you know with sm how to understand how the tape looks what questions you should ask what you should be doing so i wanted to bring polio david pogo on to answer some of his basic questions for a lot of people who are out there um for saying so um nathan have you dealt with a lot of people who didn't know who plio was or sn was for a while and now the sun's like whoa yeah sn team has done a good job of advertising and making themselves known which is great and that that helps a lot just in general like we want to see deals getting done all over the place and whether it's me or somebody else me would be preferable but but it's good to just keep the wheels rolling on everything and making sure the deals are being done in general and that just kind of helps everything keep moving along it's it's always good to see deals coming out and uh you know the more the merrier and it's we talk about this a lot but it's it's a it's a business where we're in competition but not really it's a friendly competition we we like to you know at the very worst we rip each other about deals yeah and you know but we need each other too um because without each other we don't know what's going on yeah okay so um again guys we want we're doing a little different feed here so if there apologies any kind of issues on facebook live uh but we are recording this for any kind of questions or concerns so uh nathan's monitoring that part of it for me so he'll monitoring all the questions uh he'll be monitoring all the questions coming in um any concerns or issues we'll post so without further ado i want to introduce dave polio from sn servicing um dave i appreciate you jumping on friday afternoon and joining us for a few minutes i appreciate you guys uh asking me to uh join you all again i appreciate that awesome so how did you get started because i know you've been around forever but where did you come from for wow forever um so yeah so i um i started um really an opportunity where right after grad school um you know it was back in uh 1990 and you know before that everyone thought geez if i've got a a graduate degree i can ask for do i want for a salary but apparently those last two or three years completely changed everything so um i just took a job in the uh bond department at bank of new england um and within two months the bank failed and so it was very interesting that um i had known someone that had said hey listen here's what's happening the fdic came in they took over the bank so they took over bank of new england connecticut bank and trust in all the main savings uh institutions and they set up so fleet bought the the failed bank in new england but said to the fdic listen um we'll buy it but we can't buy the eight billion of bet assets at that time so they decided to uh to start a company called recall management so again i was very fortunate that you know um i knew someone that was really saying this is what's going to happen they're going to start this in the next month or so and so i walked up 14 flights of stairs for two weeks straight annoying the guy that was going to be hiring people and finally he just said all right we'll hire you so um that was the start of recall management where it took us six years to liquidate the whole 8 billion of bet assets so you know back then it was getting everything started where you had to now get people to invest and sell wall street you know we use the wall street journal to advertise um we started doing sales after the first year and you know that's how i met um rob arkley uh from sn uh send servicing um probably 92.

wow okay so he was one of the first characters that we were dealing with that was coming in to boston and to look at all the different portfolios and files because we would do about probably 12 to 20 sales every month with the fdic um and so back then of course it wasn't digital so someone would come into boston and we'd have to you know if they wanted to look at two assets a lot of them were you know large commercial assets or you know some pretty tricky um um smaller commercial assets uh each each loan would have maybe 30 to 50 files and you just have to bring them all in and they would go through that was their due diligence they would go through page through page um and at a certain time they would do an uh a bid auction for them so we did that for six years um and you know sn with rob was one of the big buyers bought a ton of assets in new england where back then the market really changed quickly it was down for about a year two years but if you bought stuff back then at 30 cents 20 to 30 cents uh of the the outstanding balance um that thing turned around to 60 to 70 cents within two years so he really had a big jump start so once that ended he said listen since you're the one that actually helped me buy these deals from from recall why don't you come here and start my acquisitions desk so i did so about 90 it ended in 96 and started and i started in 96 with sn headed up their whole acquisitions group um we probably acquired about probably about a half a billion a year of residential distress portfolios throughout the country up until 2008.

um so we were a big buyer and you know we're buying commercial leases contract for deeds back then regular conventional loans it didn't matter to us um and so our system was created to handle every type of asset so our system was really flexible where we could have had a borrower that had 35 um investment homes in philadelphia and we could handle that on one on one line one asset code which was a bit which is a strong thing to do so in 2008 to ten of course the market didn't you know did another move there and so we decided to kind of hold back on all of our purchases and kind of give it a little time to see what the market was doing um so we finally decided that you know we're gonna stop buying for now um and you know let's let's go out and see if we can help the banks that we're buying from if they'll allow us now to for us to service their distressed assets and so they did so between a few banks they gave us about close to 3 billion to service which was great and so now our platform was holding over 200 000 loans about 3 billion in upb and for the next three or four years that's when the big hedge funds came in and started buying up these chunks of deals um as they would purchase the deals they would say listen um we really like how you guys are servicing the assets can you service for us so that kind of really kind of pushed us into the third-party service inside um the trading desk was really created out of those clients saying listen we don't have a business development group we want to buy more loans can you help us so i would take the relationships that i was buying from and then and match them up with the clients that we were servicing for so they could buy more loans which of course the more they bought the more that we got the service which then then turned into them saying listen you help me buy these assets can you now sell my assets after a couple of years of us servicing assets and that hence the trading desk for the last probably five years on average crazy enough it puts out about 250 loans every single month that are listed for sale um and the nice thing is is that as you know you guys are you guys have um have your own platform for training too is that they're direct deals you know these are deals that are coming directly from our clients we know all the assets are there we know the documentation is there we know they're legitimate they've got everything to back up the reps and warranties in the contract so you know a big advantage for someone just saying listen i got this from a broker from another broker which we hear a lot and we understand that i mean i've dealt with that for years it's out there um our on our own side we started buying portfolios about two years ago and our purchase now is really up to about 25 million probably every six months and so we're kind of a niche buyer which eventually will take many of the assets that we've purchased over the last two years and we'll put those on the trading desk so have you seen that change in the last few years 25 million a year you said about 25 every six months every every six months so then how's that how's that fluctuated over the last even the last two three years um for us it hasn't fluctuated uh we don't want to get you know we don't want to get to the size that we were before where we were buying a half a billion a year we're very comfortable with uh with working with our lenders for about 100 million and again that's also too a lot of the lenders these days lenders back when we were buying were willing to do an open line for a half a billion now we're doing lines of 25 to 75 million so that's that's changed quite a bit so when you got into this space and started dealing with smaller buyers what were some of the common issues questions and just understanding of where they were at what they were missing on yeah i mean it's um it's interesting to see um the one-off mom-and-pop buyer type um that went back probably about let's just say about six or eight years ago and that's when the big push whether through note school whether through other groups you know they're pushing how to buy loans um and you know for every 100 people they had uh signed up as a student as a buyer i would have been surprised if one or two of them physically did a transaction yeah and so the the initial concern back then was that they were afraid to they always thought they were buying too high they were afraid that they were going to lose too much money on a transaction not understanding that of course as the years went by the market kept going up so every time that they keep changing their philosophy of what they're looking at they're still they're still a few years behind really where the buy side is so as much as i can try to um educate for people to to to to go out there and make a purchase just you know you got to do the purchase to get the education to physically know what happens because it's it's amazing how many people just sit there and do nothing and it all it takes is one or two purchases you get the feel you know listen you may make a mistake i mean listen i i have asked people have you ever every time you buy stock does it always go up no sometimes you lose money so it's the same thing with the notes business you know it all sounds glorious because these big guys are buying like a thousand loans and they're hitting home runs on half of them and the other quarter they could be just losing their shirts which is very interesting you're not going to see that yeah um i see i hear some feedback now there you go yeah but i think for newer you know i think for new investors it's scary to approach you know people your size when you get one tape in november with 900 assets right they get overwhelmed um would you say for those people who are looking to get in you know submitting an offer is just making an offer right they shouldn't be fearful of submitting an offer because they can't take that entire tape what will happen and i think just doing it is a big step for a lot of people um yeah i get that and i i that's definitely a concern and so i i keep it wide open you know i i tell anyone that look to the assets number one is ask me any question you want ask me anything about the process i'm never going to put you in a situation where you give me an offer and i'm forcing you to fund the deal never we never do that uh the other thing is is that if you want to just test what you're thinking put a number on it let me know that you're testing it and i'll accept it as okay it's not a real bid but when all the bids come in i'll let you know here's how you lined up against everybody else so there's again i guess it depends what you're dealing with i'm sure not everyone will allow that um so it's it's much as we can educate the better they're going to be down the road for us on the other side of that though don't put in an offer if you have no intention of actually buying like right this is this is for real we're not messing it around if you put in a bid and you win you better perform unless there's something really you know weird or funky that comes up that kills the deal um you know don't mess around and don't pretend that you're gonna do something and then not follow through yeah don't bit don't bid with the understanding that you have another person that is going to be buying the asset for you or from you it's just it's never worked it has never worked yet not once with me that's for sure um and if you really don't have the funds behind it just don't bid it and if something happens during the process be upfront about it don't go radio silent don't hide just be up front and say here's what happened that's the best way to do it because in this business it is such relationship relationship is going to drive everything yeah absolutely so when someone makes an offer to you what is the typical process i know each seller is different right what is difficult process that goes through when you do make an offer with you and what expectations should they have to close a deal yep so um when all the offers come in uh it's my job to create a result fire for the for the selling client the selling client is going to look at those numbers and say okay dave on these 20 loans um i can accept these 10 and i need you to make a counter offer on these on these 10.

so i'll go back out to the high bidders that have been accepted on the 10 and explain that your offer has been accepted now now please start your due diligence so we all know that there's going to be a due diligence period again i'm not the type of group that is going to say okay you need to fund this tomorrow here's the agreement sign it fund it tomorrow no we're giving a you know anything between a 14 to a 30 day due diligence period that whole due diligence period is your opportunity to do all of the third party research all the work necessary to confirm what was on the tape that's that's what it is it's confirming the information on the tape because your bid was based on the information on the tape so it's a process where the selling client is going to send you all of the files all the documents they have nothing's held back uh for that so if it's you know um nothing's redacted nothing is held back where they're not going to show you everything they have you're going to get that's part of your due diligence so at the end of that process yes you're going to come back to me saying great all of our information came in it matched up with what you said we're ready to go to closing at that point they're going to have a purchase and sale agreement and those purchase and sale agreements are are good you know they're they're agreements that i myself have used for the last 20 plus years and so i know what i want when i used to buy loans in my agreement so there's going to be some reps and warranties and uh some clear servicing um constraints in there that give you a comfort level on the second part of that is i will have clients come back saying okay i did my due diligence my valuation came back fifty thousand less than what you have on the tape and guess what there's ten thousand past two taxes that we found as long as i have that information and they present it to me and they show me the bpo or the valuation or the taxes you know eight out of ten times the selling clients gonna say you know what they're right the value is fifty thousand less there is ten thousand taxes so their reprice is now based on the new information and as i said eight out of ten times the client says you know what we can still sell it we'll move on where don't don't don't have that information and just walk away and say i'm done because you don't know you have no idea the client may still accept that offer yeah and again it's a process it's a process that the selling client looks at and says hey you know what that person you brought me did exactly what the right thing was to do i want to deal with them in the future yeah and it's not that the seller's trying to pull one over and and give you a 50 000 inflated value it's that something changed you know the the seller had that information from whenever they bought the asset in somewhere in that time something changed and so they're providing whatever they have if you find something new okay but but it's you know nobody's trying to pull it over on anybody like dave said it's it's relationship relationship relationship if you get burned by the seller you're never going to go back there and the seller knows that and vice versa so it's everyone's trying to be upfront as possible uh to get things done because we all just want to get deals done in the end yep yeah yeah let's let's talk a little bit about when things go right um funding escrow all the kind of questions that go along with that what can they expect when it happens um give me i'm not question what you're asking so when a seller when you agree to something and the moneys get wired is it going to someone in the middle is it going directly to the seller how is that working oh uh there's two ways you can do it um you know a lot of people like to use an escrow agent and so that escrow agent is going to hold the funds and their their job their goal is to make sure that before those funds are released to the seller that the seller has given the escrow agent all of the documentation needed to perfect their lien or collectibility so once that happens the escrow agent will release the funds to the seller on the other side of that this yeah we have many clients that have dealt with the same seller so many times that they know that okay i'm just gonna send you the money i'll get the documents uh in the next day or two or three days whatever and if there's an issue i realize that you'll you'll be there for me and you'll have some post-closing documents for me to perfect my uh my lien and again those are the same clients where if there's an issue and it's un it's it's uncurable it's a non-collectible loan they'll repurchase the loan back they're going to stand behind that because again it's their reputation also they're trying to try to present true yeah for a lot of people i think that that's they're concerned or worried but they understand these are sophisticated sellers right they know what they're doing and not make mistakes um they're doing their job and they're going to knock they're going to about to warrant because their reputation is online too if they sell something that has some bad paper they're going to stand behind that rips and warrants correct yeah correct and you know it's also my job and when you guys sell loans you're trying to make sure that your selling client is someone that you could stand behind because it affects us too if i if i start bringing you know i'm not gonna name any names or back back a certain time there was a few sellers that when you heard the name you're like oh uh never mind uh i'm gonna pass yeah so are all the all the loans that you're selling are they all serviced by sn good question uh about 75 of them are okay the rest are coming from um from other funds that we don't service for but they're a big buyer on our trading desk and then we get some banks or other institutions i say hey listen heard about your group can you sell my loans all right all right so one of the things i think um especially a lot of new people come in and they say well so what you're telling me is i'm buying somebody else's junk um what's the motivation why why do people sell loans and are they just selling off their junk yep so um you know you're you're dealing with a client that bought a large package and we all say that they all we're all buying them both so they're buying a thousand loans plus a thousand loans and there could be a good part of that where they're just buying they're just taking on these assets that are not in their territory or their type of asset just to get the big deal done yeah they could have a low reserve on those assets which then makes sense for a niche buyer in that territory where that this other group is not interested in dealing with um you know you're if if you're analyzing for based on what you can recover from that loan your pricing is should not be seen as oh my god i'm buying their junk you're you're buying opportunity for that recovery and that profit on your side right right yeah i know for example i prefer lower balance so i like i like loans where the property value is between 50 and 150 000 um so to me that's that's my goal but i understand that for a different hedge fund that has a different model that's their junk and that's fine because then that's a symbiotic relationship they don't want to yeah they don't want us they'd rather spend their time and money on the bigger assets yeah and to me if they break even on those assets it's a great deal for them right and to me those bigger assets uh number one is the bigger ticket and i i feel like i've got more eggs in one basket that i'm not comfortable with and then on top of that i don't like dealing with that demographic as much as i like the uh the lower value demographic and that's a matter of preference you know how you want to deal with it where you want to go and some of the junk loans are cleanup deals yeah if you're if you know it's a cleanup deal whether it's a closing of a fund or just a cleanup of someone going out the pricing is going to be reflected on that so there's the advantage there yeah and i've i've been on the receiving end of those kind of deals as well which is great and again it goes back to the relationship they called me because they knew i was for real and i was gonna buy so right it worked so it's would you say that because a lot of people would feel that exact way this is crap loans why am i dealing with stuff that someone else doesn't want anymore and i think people miss out on the fact that there's sometimes where they've already made the profit right and they're trying to get out of a situation where they're just done making their profit they can sell for a gain and they're going to buy something bigger so it may not be a situation where it's bad deal or crap deal it's just their time maybe they have to sell for whatever reason maybe they have some stuff on the books they have to get rid of um and sometimes ba....