Be The Bank
Be The Bank
015 - Palatial Property
Ever thought a land contract could land you in trouble? Join Justin Bogard, your insightful host at Be the Bank, as he narratively unpacks this dense topic with his seasoned guest, Richard. As they chronicle Richard's journey through a sticky land contract deal, you'll glean the raw truth about the challenges and potential legal consequences that can arise from such seemingly innocent investments. Listen as they decode the myth around unpaid sewer bills in St. Louis and how city department miscommunication could lead to unanticipated hitches that could cost you.
Awaiting a wave of foreclosures post-pandemic? Our duo breaks down this looming cloud and its possible impact on the housing market. With Richard's firsthand insights, glean how it might not be as dramatic as it's touted to be. The conversation takes a deeper dive into the effect of COVID-19 on homeowners and the government’s role in keeping them afloat. This episode promises an enlightening dialogue that will bolster your understanding and perspective on real estate investing and wealth creation. So, hop on to Be the Bank, and inch closer to your dream of achieving financial freedom through real estate investing.
About the Host:
Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!
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American Note Buyers - https://anbfunds.com/
Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Interested in real estate. How about wealth? Well, they go hand in hand, and here you'll learn all about it. Welcome to Be the Bank, a podcast where we discuss and debate the topics centered around real estate investing. Your host, Justin Bogart, shares insights into investing in real estate to create real wealth and passive income for you and your family. He'll share stories of real estate investments done right, Work you through the process of owning a real estate note and, most importantly, educate you so you can Be the Bank. This is Be the Bank brought to you by American Notebuyers. Now here's your host, Justin Bogart.
Justin Bogard:It is episode number 15 of the Be the Bank podcast, season number five. Today, I have just one question for you Can you actually get a warrant for your arrest for owning a land contract? Stay tuned, petaluma, richard, how's it going?
Richard Thornton:Pretty good Indy, Justin.
Justin Bogard:Yeah, so for those of you that did not have the pleasure of hearing our conversation, before we started talking, richard had referred to my virtual room here as a my palatia, palatial, palatial homestead.
Richard Thornton:Palatial homestead. You're a 5,000 square foot four bedroom apartment there, with eat in chef's kitchen and all the other accoutrements. Oh my gosh, how about that?
Justin Bogard:Yeah, I mean I couldn't stop laughing because I'm sure I needed. This word is probably a very common word that people use, but I obviously had never heard of it, so it it was quite humorous.
Richard Thornton:So palatial is not something you would attribute to your apartment. That's not a word that you'd usually say.
Justin Bogard:It would not be a use. I would you know, my God, I can't even talk today. It would not be a word that I use. That is correct.
Richard Thornton:I was very impressed, you know. For those of you who didn't tune in, last week I got to go to Indianapolis I hadn't been there in many years and and see Justin's abode, and we ran around and went to meetings and signed papers, did all sorts of things and actually it was quite enjoyable. He entertained me in his palace. It was quite nice.
Justin Bogard:I am a great host, aren't I?
Richard Thornton:You are a great host, very thoughtful. You put a little nightlight so I wouldn't trip at night. I'm gonna go pee, I mean, you know, come on.
Justin Bogard:You'll be getting the bills.
Richard Thornton:Home Depot bills for yeah gotcha.
Justin Bogard:So how was your trip back to Petaluma? My trip back was Long yeah, was my back in time, didn't you?
Richard Thornton:yeah, yeah. Well, it's unfortunately, as you were well aware of, the connection between San Francisco and Indianapolis stink, and so I had to Unless I wanted to make a eight to ten hour flight out of it, with Stopovers, I had to take a red eye out and a 730 in the morning flight. I'm sorry, I had to take a red eye to Indy and a 730 in the morning Flight back to SFO, which meant that I had two nights of getting about three hours of sleep.
Justin Bogard:Yeah, those of you that don't know, the time zone difference between the Pacific and Eastern is a three hour time difference. So he, he was throwing through a loop, he, he had left his plane, you know, close to midnight his time in San Francisco, then he shows up early in the morning at Indianapolis and three o'clock in the morning. Yeah, so well, pacific time. Right it was six am.
Justin Bogard:East Coast time. So basically if you can't sleep on a plane, you're kind of hose. You're basically up for, you know, almost 36 hours there, so Before you get chance to go to bed again. So he was pretty exhausted.
Richard Thornton:So yeah, I was tired bear.
Justin Bogard:How many days did it take you to get back to what you feel is normal?
Richard Thornton:To actually, you know, the first day I was kind of dragging in. The second day I was about 75% there. It kind of surprised me.
Justin Bogard:Yeah.
Richard Thornton:I mean I've had, you know, jet lag from 15 hour time zone changes throughout Southeast Asia and there. That was just almost as bad as that and that kind of surprised me because usually you know used to be that I would. When I had my mortgage company I would do every other week I was on a plane Flying to someplace in the country looking at some large apartment complex to see if we could make a loan on it.
Richard Thornton:Yeah but I didn't have to. I could you know, I could catch a flight on East Coast time at like nine o'clock in the morning and get to get over here late and do my work and come back, and if you're not doing it, I'm During on red eye hours. It's a whole lot easier than if you are flying it when you should be sleeping.
Justin Bogard:Yeah Well, I don't read I one time, and I don't envy anyone that has to do that very often at all.
Richard Thornton:So no, it's, it's a. It's appropriately named. It's what it's appropriately named. It gives you red eyes.
Justin Bogard:Yeah, well, we're glad you made it back.
Richard Thornton:Mm-hmm, and it's warm Finally. Yeah, we had some really fun Lightning and thunderstorms. Why is it your place? I had forgotten about how much fun those are because we don't have them here. Oh yeah you know it's. It's nice to have some warm weather out here in California.
Justin Bogard:Finally, good, we get some wet weather recently, hmm, and Speaking of weather or storms, there was talked of a tsunami. Hmm, of foreclosures coming down the pipeline nice, segue dude yeah.
Richard Thornton:I like that the weather, just you know, easing right in there.
Justin Bogard:Okay if we had the next to each other, we could just fist bump right now, but we have to do it.
Richard Thornton:Three-hour time difference. Oh no, they go the other way.
Justin Bogard:There you go. But those of you that are listening, we do record this on our on our YouTube channel, american note buyers, and you catch the video stream of that and all of our podcasts and all of our broadcasts that we do monthly as well on our YouTube channel. Mm-hmm tsunami of foreclosures? I haven't seen any.
Richard Thornton:You know, I I've missed that tsunami. To me it's sort of like the tide is rising, that's it, yeah. So you know, I would say this is kind of a non event. So why do you think it's a non event?
Justin Bogard:There could be a myriad of reasons why. I think at the time, around the 2018 2019 timeframe it was the talk about I'll do air quotes here the bubble, the real estate bubble, and people were thinking what goes up must come down, and I think it's kind of done a little bit of both. I think it's gone down a little bit and come back up and, but for the most part, I think we dodged a major real estate recession bubble and just kind of stayed steady, eddie. After that, covid obviously hit and screwed a lot of things up, and I think we're back to what normal is after COVID our post COVID real estate life here. So I don't see how it's going to be a tsunami of non-performing loans coming on the pipeline.
Justin Bogard:As we mentioned before many times already, and during the last couple of years, we do see a larger amount of non-performing loans coming through as more like a slow drip, and I think it's still the best way to describe it, even two or three years after really COVID, that we've been saying it's gone that way.
Justin Bogard:Now, obviously, we can look in a rearview mirror and be accurate in everything that's happened right but we can't look forward and really know what's going to happen. So I think at the time, the information we had in front of us was kind of like I can see there being a real estate bubble, but I'm not really sure what's going to happen, and we all thought it wasn't only going to be like 2008, but we were being told by many people that they could see a lot of foreclosures happening. Now there was eight and a half million people that went into forbearance during COVID and the knee jerk reaction was oh, those are all going to be foreclosures. You know? Goodbye economy, say hello to another 2009 real estate recession. And it was nothing like that because, quite honestly, richard, as you know, 85% of those forbearances started re-performing or the homes had sold because of the super appreciation in home values that happened here.
Richard Thornton:Proceeding COVID, Right, and so I mean, obviously there was a number of government programs that eased people. We've been the benefactors of that where we had several loans in our portfolio that they were not caught up and all of a sudden wham, we got nine months worth of payments, you know, thank you very much, and so they are now current. I think we have seen a few or a little bit of a pickup in terms of loans that were in the pipeline for forbearance I'm sorry, for foreclosure pre-COVID, and so they just couldn't get processed, yes, so they had to sit on them and those aren't eligible for the government programs, as far as I know anyway. So we are seeing a little bit of an uptick there, but I'm still seeing some crazy pricing going on in the defaulted world and even our world. I do not think the pricing has eased up the way a lot of us thought it was gonna be.
Justin Bogard:Yeah, it definitely has not been a tsunami. I think we can say that there's been a set of small waves come through and I think they're gonna continue to be like that for a couple of years. There's just gonna be a longer what they call that in the disease world decay, like there's gonna be a lot of decay that happens, kind of a slow, logarithmic movement in the direction of foreclosures and stuff. So I think we're gonna see more steady stream of it. But it's not gonna be anything like hey, you're gonna have leftover inventory after a share of sale. It's gonna, you know, because home prices really haven't dropped, they kind of keep growing.
Richard Thornton:Plus, as we know from a recent mastermind that we went to in Texas, there's a lot of large funds that are sitting out there with billions of dollars that want to scoop up a fair amount of this product in bulk, which you know what is out, which for what is there I'm sorry I can't speak either and so they are talking to the banks directly to pick up a lot of that. So the little guys are just gonna get crumbs if that, and they may be able to pick up as a secondary purchase, but I just don't see that. Much of you know the market is much more finely tuned this time than it was. I mean, people know the game right, they know how to jump in, they know how to fine tune, they know how to fix up, they know how to sell, and all the management companies are set up to do this where we didn't have anything before, and so it changes the whole playing field.
Justin Bogard:There's better guidelines to on people getting loans much more tighter, stricter guidelines, which helped a lot as well. Right my opening remarks, richard. I had asked a question to the potential listening audience and that was can you get a warrant for yourself if you own a land contract? Can you?
Richard Thornton:get a warrant. Rest a warrant. A rest a warrant. If you can get a warrant, that's something, that's a type of stock that you buy. But yes, I know that you deliberately want to embarrass me, so I can say that, yes, from what I understand, I have two warrants out for my arrest in St Louis, missouri. So I'd better not go there and get a traffic ticket or anything like that, because they'll run my name and who knows what would happen. I ended up in the Pocke for a land contract deal. I don't know.
Justin Bogard:You're outlaw, thornton.
Richard Thornton:That's right, that's right. So how did that happen, Justin?
Justin Bogard:Well, I don't know how that happened. This is all coming from the director of marketing and sales for American Dope Fires here. I'm so excited. I know that you did this outside of our portfolio, obviously, and it was a non-performing loan that you've had maybe a performing loan. I better let you tell a story. So, Richard, how did you get to this point?
Richard Thornton:Oh funny, you should ask. So this is a story of somebody trying to do good for somebody and just kind of not working out. So I've dealt with this borrower on and off for three or four years. They got behind the sewer bill. Their payments have been on and off. You have to call it almost a sub performer, but at this point the guy is current, so his ex-wife moved out of the house.
Richard Thornton:When they did that, that triggered an inspection from the city of St Louis. They got into it and they A they said you didn't require, you didn't call for permit, which the owner did not and then they got after us after that. But then when it was inspected, what I'm finding out now surprise, surprise was that the owner didn't really let the inspector do the inspections that he needed to do. He needed to open up some walls and things like that and because he's got a lot of deferred maintenance in the house, so they wrote him up and they put it with the municipal court system and the municipal court system was sending me since I'm the registered owner under Adelaide contract notices to appear in court. Well, unfortunately they were going to my old address.
Justin Bogard:Okay.
Richard Thornton:So they sent me two and I have not appeared. So now there is a warrant out for my arrest.
Justin Bogard:So let's get back to the property. So you said the ex-wife and left the house, or that they got a divorce, and what was the reason why there was an inspection being called? I didn't catch all that. Was he trying to do a fix and flip renovation?
Richard Thornton:No, he wasn't, and a number of us may have run into this. A lot of cities don't really know the technicalities of a land contract. So since we, as the mortgage holders land contract holders, I'm sorry are the registered owner, it reads in their system as if it is a tenant situation landlord-tenant. Okay. As soon as that person moved out, somebody flagged the property they have some system for flagging it and they said we have to have an inspection, you have to apply it for a permit.
Justin Bogard:Got you.
Richard Thornton:He did not do that. We finally got him to do that. He didn't do it very well, and then he also didn't cooperate fully with the inspector, which is pretty stupid as far as I'm concerned.
Justin Bogard:Okay. So then they tried to send you mail and they obviously sent it to an address that you aren't at anymore and the forwarding on your mail address, I assume, had expired. So it couldn't forward to your new address, because you obviously would want your mail to be forwarded to you. So at that point that makes sense. That's why they don't have updated information on you, so they couldn't get a hold of you.
Richard Thornton:Right. So I had changed the address with the city, I had thought, but apparently the two or two or more groups in the city don't talk to each other, so the assessor's office was never notified when they were sending the tax bills. They got them to me, but the actual assessor my old address showed up.
Justin Bogard:I don't know the intricacies of the system and how that happens, but it's not the first time that the oh, I think we all can agree this is a very plausible story that the two departments don't have a system that maybe links to each other, which is unfortunately probably more common than we think.
Richard Thornton:Yeah, can you imagine the right hand not talking to the left hand? I just toggles the mind.
Richard Thornton:Yeah so, yeah, I'm monkey in the middle. The way the situation is right now, because so now I have a court date, I fortunately can do this virtually. So I have an August court date and what I've been told is that they will at this point and actually this brings up another point. So St Louis, in particular for sewer bills and things like that, they just sort of let them ride. It's not like I've got a property in Flint and if you don't pay your bills in Flint, michigan, they just walk in and say sorry, you're out of here, we're turning off the water, turning off the power and sewer and go fish. St Louis, they don't do that, and so it makes it.
Richard Thornton:So you have these situations where these bills get unpaid and awkward situations, which is exactly where I am right now, because what I've been told by the inspector is that they will probably turn it over to the sheriff's department, which has the right to finally turn off all the utilities, and will physically go up and board up the house If nobody's in it. They will enter it by force if necessary. They don't care if the person has their goods out or not, just as long as there's no body in there, they're going to go board the door, board the door and windows and shut the place down. So now what have I got? I've got a house that's got diminished collateral. I really can't foreclose on the guy because he's current, he's in technical default, but I think I would have a hard time getting a judge to give me a ruling on that. So it's going to be interesting.
Justin Bogard:So the taxes are paid, the borrowers current, there's probably insurance on the property, so there's no real legal breach inside your lane contract. These are just general ideas that I have in my head after reading. Mostly in contracts that's pretty much what a cause of breach of contract is. Those three things.
Richard Thornton:Yeah, the only breach of contract that puts him into technical default is that he hasn't maintained the property properly. I mean he's got some broken windows. I had current pictures taken. The house looks a little bit ratty, but is it terrible? No, but the bigger thing is is it doesn't meet code. It's got electrical that's substandard and I'm told it may have foundation problems. We don't know.
Justin Bogard:Okay. So this is another excellent case on why you don't want to have a lane contract, because how much time has this taken from you for just being the lane contract owner and not really truly in the situation, but you are the byproduct from it.
Richard Thornton:Yeah, that's very true. We've been both in note school and around a lot of other note buyers and they say, oh, lane contracts, why would you want to convert it to a mortgage that you need to trust? Just stay with it, because it's going to cost you a thousand bucks to convert it, and blah, blah, blah. Well, this is why I would have gladly paid a thousand dollars. Yeah or whatever it costs yeah or whatever it cost long ago to not have to, because this is a huge time suck.
Justin Bogard:Yeah, one of the many reasons why land contracts should be just abolished. There is a time and place for it and we have unique situations where we do prefer it. But more than likely, if it's an originated note that we're creating, it's going to be a note mortgage or note deed trust, depending on what state you're on, right, let's say you're in, sorry, the properties, right. Well, that was an interesting story. Thanks for sharing that with us and I'm glad that you are going to get resolution with that after your hearing. I know it's possible you might have to delay that hearing because they got lines with your pulse surgery from getting your knee knee replaced there. So we'll maybe, maybe another month or so. We might have some results.
Richard Thornton:Yeah, stay tuned for the next exciting adventure of. Is Richard in the pokey Unable to walk because of his knee?
Justin Bogard:now for the listening audience. I did tell Richard that he has to make sure they have Wi-Fi there so he can bring his laptop to work.
Richard Thornton:That's right. That's not letting you off keep and stay away from all the bad guys.
Justin Bogard:Get your own private cell.
Richard Thornton:Yeah, that's likely to happen.
Justin Bogard:Well, I don't think you'll you'll have any issues after they. They realize what's going on. So but that is an interesting story and it's unfortunate that it sucked a lot of time out of out of your life to Get this thing rectified, and the pain of not being able to do anything because the borrower is not taking care of the property. So let's we look forward to hearing an update on that pretty soon.
Richard Thornton:Yeah, I mean it's. It is interesting to me just on an intellectual Viewpoint, because I mean I will explain my situation to the judge and I'll say look, you know, I am perfectly willing to do anything and everything. I'd rather not be in this situation. I'm not fighting the system here. Given that's facts, what would you suggest, mr Judge? Ms Judge, that we do, how do we work the system to resolve this issue? I mean, I feel sorry that the guy has to sell his house, yeah, but he's obviously been struggling for years, cannot make them. I mean, he can make the payments just barely, but he cannot do the repairs. He just does not, you know. So what do you do?
Justin Bogard:We'll find out. Stay tuned for more. Stay tuned. This episode is sponsored by American note buyers. I'm Justin Bogart, I got Richard Thornton as my co-host today and, as always, and we will see you guys on the next episode.
Richard Thornton:All right, Justin.
Justin Bogard:Take care Bye.
Narrator:Thanks for listening to be the bank. We hope you learned something from today's show. If you enjoyed this episode, please rate and review us. Plus, check out our channel on YouTube and follow us on Facebook and Twitter at be the bank, and on Instagram at be the bank podcast. Be the bank is sponsored by American note buyers. Thanks again for listening you.
