Latest / Real Estate Note Investing / Episode 58: The Full Due Diligence Process

Transcript

Episode 58: The Full Due Diligence Process · 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 mainstream investors like you.
• 0:29
  SPEAKER_00: So without further ado, let's get into this 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.
• 0:44
  SPEAKER_00: Once a seller accepts your letter of intent and grants you exclusivity, the clock starts.
• 0:49
  SPEAKER_00: You now have a defined window.
• 0:51
  SPEAKER_00: Typically 10 to 30 days, depending on portfolio size and seller expectations.
• 0:56
  SPEAKER_00: To complete your comprehensive research, confirm or adjust your pricing and be ready to close.
• 1:02
  SPEAKER_00: How you use that window determines whether you buy with confidence or get surprised after the fact.
• 1:07
  SPEAKER_00: The full due diligence process has a sequence, and following it consistently is what makes you efficient.
• 1:12
  SPEAKER_00: Every step depends on the steps before it.
• 1:14
  SPEAKER_00: You start with your data, you clean it, you submit it to vendors, you receive the output, you review and reconcile it, you update your pricing, and then you finalize your bid.
• 1:23
  SPEAKER_00: Skipping steps or running them out of order creates gaps that cost you either money or time.
• 1:28
  SPEAKER_00: The first step after exclusivity is confirmed is a thorough data review.
• 1:33
  SPEAKER_00: Go back to the seller's data tape and audit it for completeness.
• 1:37
  SPEAKER_00: Every loan should have a property address, a borrower name, an unpaid principal balance, a lien position, an origination date, and a last payment date.
• 1:45
  SPEAKER_00: Sort the tape by unpaid principal balance from highest to lowest and start your review there.
• 1:49
  SPEAKER_00: The highest value loans are going to drive the most significant portion of your portfolio price, and making sure the data on those assets is accurate and complete is the priority.
• 1:58
  SPEAKER_00: If you find bad addresses, missing fields, or obvious data errors, go back to the seller before you submit to vendors.
• 2:05
  SPEAKER_00: Feeding bad data into your vendor pipeline produces bad results that cost time and money to unwind.
• 2:10
  SPEAKER_00: The second step is the secured scrub.
• 2:13
  SPEAKER_00: Before you spend money on title reports, credit reports, and broker price opinions, confirm that each loan is actually secured by real property.
• 2:22
  SPEAKER_00: This means verifying that the borrower name on the data tape matches the owner of record at the county.
• 2:27
  SPEAKER_00: If the borrower does not own the property, or if ownership has transferred without you being notified, the loan may be unsecured, which changes everything about its value in your approach.
• 2:38
  SPEAKER_00: With confirmed secured loans, you are ready to submit your vendor orders.
• 2:42
  SPEAKER_00: The four core vendor products for non-performing loan due diligence are a title report, a credit report, an automated valuation model or AVM, and for higher value or tight equity positions, a broker price opinion.
• 2:54
  SPEAKER_00: Each vendor has a specific input format.
• 2:57
  SPEAKER_00: Title companies typically want a property address and the names of all parties with an interest in the property.
• 3:02
  SPEAKER_00: Credit report providers need the borrower's full name, social security number, and current address.
• 3:07
  SPEAKER_00: BPO companies need the property address and your contact at the selling institution if applicable.
• 3:13
  SPEAKER_00: Preparing these input files carefully before submission means your results come back clean and usable rather than riddled with errors that require resubmission.
• 3:21
  SPEAKER_00: While your vendor orders are being processed, which typically takes five to seven business days for a complete set of results.
• 3:28
  SPEAKER_00: Use the time to run your manual research.
• 3:31
  SPEAKER_00: Pull comparable sales for the highest value properties yourself.
• 3:34
  SPEAKER_00: Check county tax records on the assets that concern you most.
• 3:38
  SPEAKER_00: Run a Google search on the borrower's address to check for listings or recent activity.
• 3:42
  SPEAKER_00: This parallel effort means you are not waiting idly for vendor results.
• 3:46
  SPEAKER_00: You are building your picture from both directions simultaneously.
• 3:50
  SPEAKER_00: When your vendor results come back, the first thing to do is audit them for completeness.
• 3:55
  SPEAKER_00: Check every line item.
• 3:57
  SPEAKER_00: A blank field is not necessarily a failed order.
• 4:00
  SPEAKER_00: Sometimes the data simply does not exist for that property in that vendor system.
• 4:05
  SPEAKER_00: But a systematically blank set of results across a whole column is a signal that something went wrong in your input file and needs to be resubmitted.
• 4:12
  SPEAKER_00: Do not let an incomplete result set sit unaddressed.
• 4:15
  SPEAKER_00: Contact your vendor representative immediately and get the gap resolved before your due diligence deadline.
• 4:21
  SPEAKER_00: Once you have complete results, merge the vendor data back into your master spreadsheet using the loan numbers as your anchor.
• 4:27
  SPEAKER_00: Never merge on any field that can change between the tape and the output.
• 4:31
  SPEAKER_00: Addresses sometimes get reformatted and name spellings can vary.
• 4:34
  SPEAKER_00: Loan numbers are stable.
• 4:36
  SPEAKER_00: Use them.
• 4:37
  SPEAKER_00: After the merge, update your pricing inputs.
• 4:40
  SPEAKER_00: Your indicative offer was based on the seller's data.
• 4:43
  SPEAKER_00: Now you have independent verification of property values, lien positions, tax status, and borrower credit.
• 4:50
  SPEAKER_00: If the seller's data held up, your indicative price is confirmed.
• 4:54
  SPEAKER_00: If the results reveal material differences such as a property worth significantly less than represented, a tax delinquency that was not disclosed, a first mortgage in default, then you have the documentation to support a pricing fade in your final bid.
• 5:07
  SPEAKER_00: A pricing fade is a reduction from your indicative offer based on specific due diligence findings.
• 5:12
  SPEAKER_00: Take it to the seller with the supporting evidence.
• 5:15
  SPEAKER_00: Do not just tell them the price is lower.
• 5:17
  SPEAKER_00: Show them what you found and why it changes the number.
• 5:20
  SPEAKER_00: A fade supported by data is a professional transaction.
• 5:23
  SPEAKER_00: A fade without documentation is a negotiating tactic, and sellers know the difference.
• 5:28
  SPEAKER_00: Once your final price is agreed upon, you execute the loan purchase and sale agreement, wire the funds to the seller, or to an agreed escrow on the closing date, provide your servicing transfer instructions and collateral delivery instructions, and review the seller prepared assignments before they are shipped.
• 5:44
  SPEAKER_00: From funding to receiving your collateral files typically takes about 30 days.
• 5:48
  SPEAKER_00: When the files arrive, audit every document before you sign off on receipt.
• 5:52
  SPEAKER_00: Next time, we are going to cover closing the deal, the loan purchase and sale agreement, what representations and warranties to look for, and what happens from funding through collateral delivery.
• 6:02
  SPEAKER_00: Thanks for sticking around to the end, and thank you to my trusty Robot and the Fixed Notes team for putting together another episode.
• 6:10
  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.
• 6:19
  SPEAKER_00: That's s ko l dot com slash f I X N O T E S.
• 6:24
  SPEAKER_00: In the meantime, we'll see you in the next episode.