Latest / Real Estate Note Investing / Episode 56: Evaluating a Seller — Trust but Verify

Transcript

Episode 56: Evaluating a Seller — Trust but Verify · Real Estate Note Investing

• 0:00
  SPEAKER_00: Welcome to the show, where you'll learn how to invest in mortgage notes, the savvy real estate investor's secret weapon to create cash flow without tenants and property acquisitions for pennies on the dollar.
• 0:12
  SPEAKER_00: My name is Robert Haitha, founder of Fix Notes, and my mission is to make note investing ethical, profitable, and accessible for you.
• 0:20
  SPEAKER_00: In every episode, we're democratizing the industry to put these powerful Wall Street assets into the hands of Main Street investors like you.
• 0:29
  SPEAKER_00: So without further ado, let's get into the show where you're in good hands with my AI clone.
• 0:34
  SPEAKER_00: Let's go.
• 0:37
  SPEAKER_00: This program is for informational purposes only and should be independently verified before taking action.
• 0:45
  SPEAKER_00: In the secondary mortgage market, you are not just buying loans.
• 0:49
  SPEAKER_00: You are buying representations made by a seller about those loans.
• 0:52
  SPEAKER_00: The data tape they send you, the collateral files they deliver, the warranties they make in the purchase agreement.
• 0:58
  SPEAKER_00: All of it is only as good as the seller behind it.
• 1:01
  SPEAKER_00: Due diligence on the asset is necessary.
• 1:03
  SPEAKER_00: Due diligence on the counterparty is equally necessary and too often skipped.
• 1:08
  SPEAKER_00: The fundamental principle for evaluating any new seller is trust but verify.
• 1:13
  SPEAKER_00: This phrase sounds simple, but it has real operational meaning.
• 1:17
  SPEAKER_00: It means you approach every new relationship with goodwill and professionalism while independently confirming the most important facts before you commit capital.
• 1:25
  SPEAKER_00: It means you do not take representations at face value on a first transaction.
• 1:29
  SPEAKER_00: And it means you use publicly available information to check what a seller tells you before you sign a purchase agreement.
• 1:35
  SPEAKER_00: The first and most basic verification step is confirming that the seller actually owns what they are selling.
• 1:42
  SPEAKER_00: This sounds obvious, but it is where fraud most often appears in this industry.
• 1:47
  SPEAKER_00: When you receive a data tape, look up the assignment of mortgage for each loan in the county public records where the property is located.
• 1:54
  SPEAKER_00: Confirm that the entity selling you the loan is the most recent recorded assignee.
• 1:59
  SPEAKER_00: If the name on the data tape does not match the name on the most recent recorded assignment, you have a problem that needs to be resolved before you move forward.
• 2:06
  SPEAKER_00: A seller who does not actually own the asset they are representing is not a seller.
• 2:10
  SPEAKER_00: They are a middleman at best and a fraudster at worst.
• 2:14
  SPEAKER_00: Beyond ownership verification, search for any litigation history involving the seller.
• 2:19
  SPEAKER_00: A simple Google search of the seller's company name combined with terms like lawsuit, complaint, or fraud, will surface obvious red flags.
• 2:27
  SPEAKER_00: If the seller is listed on the Better Business Bureau, check their rating and read any complaint history.
• 2:33
  SPEAKER_00: Court record search tools can show you whether the company has been named as a defendant in civil litigation by other buyers.
• 2:39
  SPEAKER_00: The note investing industry is small enough that bad actors tend to generate a trail before they disappear, and that trail lives in the public record if you know where to look.
• 2:47
  SPEAKER_00: To build credibility on your side of the relationship, a vetting package is the professional tool to have ready.
• 2:54
  SPEAKER_00: A vetting package is a collection of documents that presents you as a qualified and trustworthy buyer, the kind of counterparty a seller can transact with confidently.
• 3:03
  SPEAKER_00: At minimum, it should include proof of funds demonstrating you have capital available to close, an overview of your acquisition process and due diligence standards, and any relevant professional credentials or industry memberships.
• 3:15
  SPEAKER_00: As your business matures, it can expand to include your policies and procedures, errors and emissions insurance certificates, letters of reference from prior sellers or servicers, and evidence of any required licensing in the states where you operate.
• 3:29
  SPEAKER_00: Institutional sellers, community banks, and credit unions in particular will often have their own vetting checklist and may require all of this documentation before they will even send you a data tape.
• 3:39
  SPEAKER_00: Having it ready in advance signals that you know how this business works.
• 3:42
  SPEAKER_00: When you are working with a loan sale exchange or a broker rather than a direct seller, an additional layer of caution applies.
• 3:49
  SPEAKER_00: Exchanges aggregate loans from many different underlying sellers, and the exchange itself may have limited direct knowledge of each seller's situation.
• 3:57
  SPEAKER_00: A seller who chooses to list through an exchange rather than selling directly may be doing so for legitimate reasons.
• 4:04
  SPEAKER_00: Broader market exposure, administrative convenience, or they may be creating distance between themselves and assets that have undisclosed problems.
• 4:13
  SPEAKER_00: This does not mean exchanges are bad deal flow sources.
• 4:16
  SPEAKER_00: It means your due diligence on the individual assets needs to be especially thorough when the seller is one step removed from the transaction.
• 4:24
  SPEAKER_00: The relationship between buyer and seller in the note market is not transactional in the same way that buying a stock is transactional.
• 4:31
  SPEAKER_00: A good seller relationship is ongoing, reciprocal, and built on a track record of doing what you said you were going to do.
• 4:38
  SPEAKER_00: Follow through on every portfolio you receive.
• 4:40
  SPEAKER_00: Give feedback on every tape you review, even if you decide not to bid.
• 4:44
  SPEAKER_00: Meet your closing deadlines.
• 4:45
  SPEAKER_00: Pay your invoices on time.
• 4:47
  SPEAKER_00: In a small industry where reputation travels fast, being known as a reliable, professional buyer is worth more than any single deal you will ever close.
• 4:56
  SPEAKER_00: Next time, we are going to look at the letter of intent, how to structure your indicative offer, what contingencies to include, and how to use it to protect yourself before you spend money on full due diligence.
• 5:08
  SPEAKER_00: Thanks for sticking around to the end, and thank you to my trusty Robot and the Fix Notes team for putting together another episode.
• 5:15
  SPEAKER_00: If you want to learn more and hang out with the real not AI version of me, join our free school community at school.com slash fixed notes.
• 5:24
  SPEAKER_00: That's s k-o-l.com slash f I X N O T E S.
• 5:30
  SPEAKER_00: In the meantime, we'll see you in the next episode.