Be The Bank
Be The Bank
022 - Quizzical Over Borrowers
Have you ever wondered how a 30-year conventional mortgage at an 8.04% interest rate impacts the real estate market? Join Richard Thornton and I for a lively discussion where we navigate the impact of this interest rate on the real estate market. We'll peel back the layers of this complex industry with humor and insights, leaving no stone unturned.
We then transition into the realm of foreclosure and property equity. Imagine a borrower halting loan payments, a lender reaching out for help, and the role of property equity as the lender's safety net. We reflect on the importance of understanding property equity and how it protects lenders from potential losses. We also tackle the complexities of property selling, eviction, and potential fraud. Don't miss this enlightening conversation where we shed light on the many facets of 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!
Connect with the Host:
Facebook - bethebank
Twitter - bethebank1
Instagram - bethebankpodcast
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, walk 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 Note Buyers. Now here's your host, justin Bogart.
Justin Bogard:Hey, hey, welcome back to another episode, number 22. In fact, of season five on the Be the Bank podcast, I am Justin Bogart. Today I will have Richard Thornton on again and we got some topics we're going to be going over as it pertains to the rising interest rate and where it's at today, as we're recording, and how the all the war across the Middle East and Ukraine and what the Fed is doing, how this all kind of ties together. We're going to have a conversation about that and give you some updates on some recent Arreo sales slash foreclosures that Richard and I are going through right now. So stay tuned, richard Thornton.
Richard Thornton:Mr Bogart.
Justin Bogard:I see you have your AirPods in today. I do.
Richard Thornton:I'm somehow, for some reason, my system is not liking my internal speakers, so I can use my normal mic, but I need to hear through my AirPods.
Justin Bogard:I don't know if anybody listening to this podcast does their own podcasting, but it does make a big difference, at least for me and since you're experiencing it today with, actually, you know, earbuds or headphones in, but I find it's easier to hear what's going on, because sometimes the ambient noise around you know, in your studio where you're at, kind of can distract you sometimes. So do you notice a difference?
Richard Thornton:Yeah, usually I just guess at what you're saying, I have no idea and I just I just sort of respond, you know, and it seems to work so well, my, my friend here is an idiot, so I'll just, I'll just respond, I feel necessary. I mean it seems to work. You haven't questioned it thus far.
Justin Bogard:So I guess I didn't realize you weren't paying attention this whole time. The flow has been pretty well yeah.
Richard Thornton:So, yes, it does block out the ambient noise.
Justin Bogard:As we're recording this, this is so I'm going to say yeah, it is Wednesday, wednesday, october 25th 2023. It's a very chilly day, windy day. It's not chilly, I'd say it's a cool day. Here in Indianapolis, I didn't get out to play some golf yesterday, which was nice. We actually hit Richard 78 degrees at the at the hottest point yesterday, oh my gosh. It was really nice and the sun actually came out for a little bit. So I think I got my last nice weather round of golf in for the year yesterday.
Richard Thornton:Well, we yeah, we went from 90 degrees this weekend to 55 degrees right now, and cold and blistering, like you said, and so we're getting a little bit of the same thing.
Justin Bogard:It got 90. Got the 90.
Richard Thornton:It got up to 96 on Saturday.
Justin Bogard:Is that unusually warm for a petal?
Richard Thornton:Yes, this is. We've had an unusually long Indian summer. We didn't have much of a summer, but we're having hell of an Indian summer.
Justin Bogard:So go figure. All right, my friend, we've got some more drama happening. The drama is unfolding with the interest rates, with the Fed, and does the Fed correct me if I'm wrong has it changed the rate or have the meeting every month, or is it every quarter?
Richard Thornton:I think it's every quarter, but I could be wrong.
Justin Bogard:Okay, I feel like it happens often, so I was wanting to get confirmation. I forgot to look this up. If it happened every month, or if they have planned, planned times when they meet and they and they get together, you would think it'd be like on a calendar schedule, but perhaps it's not so. Current interest rate national average interest rate, as I looked it up before we started recording this, richard, was 8.04% for a 30 year conventional mortgage and I believe that's been the highest in last 23 years, I think since 2000, 1999.
Justin Bogard:You still got me, so the Fed meets eight times a year.
Richard Thornton:Oh, okay, yeah, fed meets eight times a year.
Justin Bogard:Eight times.
Richard Thornton:Okay, I was busy.
Justin Bogard:I was busy. I was busy. You are also a producer in the background, looking up information on the fly.
Richard Thornton:Yeah, you're doing a podcast. I was busy, come on.
Justin Bogard:I was talking Again, you weren't listening to what I was saying. You were just responding.
Richard Thornton:What you talking. What you talking? Did you ever watch the series Kim's Convenience?
Justin Bogard:No, but I have seen like advertisements for it. Oh my.
Richard Thornton:God, it's just hilarious. I think it's on Netflix from America. It's this Korean family in Canada, and so they speak sort of a little bit broken English and the husband keeps saying to the wife she talks to him and she says what you talking, what you talking.
Justin Bogard:Anyway, it's quite yeah.
Richard Thornton:We digress.
Justin Bogard:Interest rate keeps coming up. The Fed keeps raising it, so what's giving your spin on how you see this affecting what's going on?
Richard Thornton:Well.
Justin Bogard:I'm there it goes again. You're bat the thousand this.
Richard Thornton:I'm done. Yeah, the phone.
Justin Bogard:So I apologize to the listening audience. That's right.
Richard Thornton:The half of the duo is working here and the other half is just falling apart. I mean, it's got a head cold, his speakers won't work, his phone's coming in, he can't concentrate. I mean, come on, get your act together, dude. Ok.
Justin Bogard:All right.
Richard Thornton:Oh, I got it. I mean it's right, I got to turn my phone off, All right. So that was true. So the term I would use is wonkiness.
Justin Bogard:I mean I think Wonkiness, I like that.
Richard Thornton:Yeah, I think and that's a technical term I think that the all of the prognosticators are kind of broken if you look at what's going on out there. The Fed keeps increasing interest rates, hoping to slow down the economy. Well, economy is not roaring, but it's roaring away. But it's not really responding to what they're doing. So they want to keep raising rates, the market rate. I'm sorry.
Richard Thornton:The job market is just thumbing it's nose at the Fed and saying we're going to remain strong, nanny, nanny, nanny, and we're going to keep rolling ahead here, so we don't care what you do. And this is all in spite of the fact that we have a new outbreak in the Middle East. The Wall Street seems to be saying looking at that and going, yes, this is serious and yes, I'm sorry. I don't want to diminish this because people are dying and things like that, but in terms of an actual capitalistic point of view, it's a non-event. There's always tumultuousness in that market. We've already priced that in. And yes, there is Ukraine things going on in Ukraine that is increasing the oil prices because OPEC and other groups are playing fun with that and saying, hey look, we can make more money. And if we restrict production? So that's what they're doing because Russia isn't producing as much oil.
Richard Thornton:But all in all, the markets just aren't doing what they're supposed to be doing and traditionally what they would do if you pull one lever. If you pull to the right, it goes to the right. If you pull to the left, it goes to the left. Well, this pulling to the left and it goes to the right. So I get a lot of my investors say well, can I get higher rates on my private mortgage notes Because yields are going up, or I market uncertainty, and I go no, it doesn't quite work that way. We're in a different area. So it's more of a commentary, more of a. You have to sit back and sort of a zen sense and look at it and go all right, this is just Crazy.
Justin Bogard:I like what you said about describing it as wonkiness, because after you started giving your your spin on it, it makes sense, right. It's just, it's just odd, like when you expect one thing to happen with historical data and historical events that has happened, like what the Fed does. I'm going to do this because I know what's going to to pull back in a different direction. It's like it didn't move, it didn't do anything. Right, it raised the rates and it didn't do anything. It kind of made it worse. You know, to a certain sense, and yeah, that's why I agree with you. It is.
Justin Bogard:It's just really odd and I don't think anyone has the right answer, the solution. I think they're just going to have to try the things and maybe lower it back down and see what happens, maybe raise it up a little bit more. We don't really know what's going to happen. Everybody keeps saying and everybody really believes the path is going to be to start lowering it eventually, and it feels like we were talking about and at the end of 24, we were going to see a significant change, but it's probably going to be more like the 25 when we start seeing it closer to maybe five and a half percent and maybe that's the flat line of where we're going to stay for quite some time and be the new normal.
Richard Thornton:Yeah, I'd say I agree with that. I mean, the tsunami of defaults has not happened, as we have said, because of governmental programs and because equity is up. I may have mentioned on this program that, uh, and so here's another another wonkiness right, rates are up, people should not refinance. I've got more refinancing going on in my portfolio right now than I've ever had. I now have four properties that are being sold or refinanced. Um, I don't like that.
Justin Bogard:Now it doesn't make sense. Now let me jump in here real quick about that because that's interesting. So do you think it's, or do you notice in your portfolio of those loans that are happening that it's because they have a lot of equity and they're trying to tap into it?
Richard Thornton:Well, I think it's two things. These, these have been steady payers, okay. So I think these people have, uh, finally gotten on their feet and been able to prove to uh, either some interim or some regular lender, some local bank or something like that, that they are credit worthy. Um, they can, you know, they can say, look, I've, I've got a payment history here of three years. So that's number one, okay. Number two is you've got huge amounts of equity, like the one I mentioned to you this morning. I've got a $47,000 mortgage on it and the property is now worth $160,000. Well, you know, you can. You can lend to somebody who's only got a 650 or 675 credit rating, because they've been creeping up more than they were. If you're only at 30% loan to value.
Justin Bogard:Right yeah, this risk is significantly lower. Once you have the property value is going to buy it I totally agree with that.
Richard Thornton:I mean, even if you've got a huge deflation in the market come on, it's interesting.
Justin Bogard:You say that I'll. I'll do a quick little sidebar because it's an interesting little case study. That kind of happened today and so there is someone in our kind of American note buyers sphere of influence type of network that reached out to me and was asking me questions about a foreclosure and they had lit money on a rental they had in Florida. I'm not sure where it's out in Florida, but the person was able to bring significant cash to the table to basically pay off his underlying mortgage. I think it was like a hundred or 150 K type of mortgage, so that property, I think, was you know over 200 at the time. So they brought a bunch of cash, they paid down his mortgage, so he owned a free clear and then, he care, he still carried back like um, I know, I think it was like a 90 K, and so the person was supposed to be paying you know um, their payments monthly and then a bloom came. It was going to happen after a few years to owe the rest.
Justin Bogard:So what happened was, after about uh, three or four months of payments, the person stopped making the payments because what I remember from this conversation from earlier was that they just couldn't afford it at the moment, and so they got about four or five months behind and so he was trying to ask me questions. You know what? What do I do in the situation, or where do I go from here? And when I started asking him questions and getting this story involved, I was thinking, oh my gosh, like this person, the borrower put down significant cash and they owe. You know, to your point, when you're talking about a lots of equity in there, like if the house is worth maybe 300 K today, as is, and they only owe, let's say, you know, 80 plus the juice on it, so let's call it 85 and 90 on it, I mean, that's, that's like less than a third of the property value you know so why couldn't they just go to the bank?
Justin Bogard:And that was my first question. I was like, why can't they just go to the bank and get a loan to pay you off? And if this seems so simple? So I was thinking this, the guy that was concerned, the lender. I was just trying to tell him, like you are in a great position here because there is so much equity here that you're hoping it goes to foreclosure, because you're going to get definitely full value for what the judgment is, you know at that time. But you know it would be nice if the borrower was able to, you know, keep the property and, you know, go get some sort of loan.
Richard Thornton:Yes, I mean. And so what beyond that are you drawing from that?
Justin Bogard:That, I think, the inexperience of the person I was trying to help. They were overly concerned about the situation because of how you put it, the big D right? It seems ominous, it seems bad, it seems negative. But when I was trying to spend this for them and I said you don't own anything on this property, so why does it matter if it takes six months or a year and a half to go through foreclosure Like you're not losing any money, right? You're going to get that money because, basically, you have an Apple iPhone worth $1,000 and you got $250 into it. You're going to be able to resell this thing and get plenty of money back and plus profit.
Justin Bogard:So I think after they heard that and they were reassured about hey look, you know, because what's going to happen in Florida is, honestly, if they have to foreclose, it may take a year or two to foreclose, if you know there's pushback from the borrower just because it's things can be slower in Florida. But you know it doesn't really matter because property values are coming up so much and they're going to continue to rise even more that the property may be worth Richard 330,000 by the time it's done, you know, through foreclosure. So it's just, it's just really interesting how you come across these deals and they end up going a little bit sideways because things aren't going well in the economy. A lot of people are just struggling to because everything is more expensive. But us as lenders, you know if we're buying these things right and we're getting good loan to values when we originate them or when we buy them from somebody, I mean you're still sitting really, really, really well and appreciation is helping that even more. Put you know, more protection, it's more safety net for us lenders.
Richard Thornton:That's true, and you might get an iPhone right.
Justin Bogard:I might get an iPhone. Yeah, it just happened to be right in front of me as I was trying to think of what's something. I can compare it to, even though we know the iPhone doesn't appreciate in value.
Justin Bogard:But that's true, but but yeah, and I think a lot of people, especially when they're novices, they don't take that they don't know what they don't know, and that was smart of this person to try to contact somebody like me. I'm glad that they could contact me because they actually are from, you know, close to where I live here in Indiana, so I was a local person to them. But yeah, they got reassurance of like hey, look, man you're, you're sitting really well, it's not like they owe you $90,000 and the property is worth 95. Like you know then, then you kind of have a problem.
Richard Thornton:And I'm glad they contacted you, Justin, because you're so smart.
Justin Bogard:Yes, yes, I am.
Richard Thornton:We, we, we kibbutz with each other. We have fun.
Justin Bogard:Well they're. They're thinking I'm so smart but I'm thinking like man. There's like 12 other people I probably would have called he got the. He got a short end of the stick today.
Richard Thornton:Yeah, yeah, short end, which is a good segue into the other thing we were going to talk about, right?
Justin Bogard:Yeah, this is your, your foreclosure that you got going on.
Richard Thornton:Yeah. So I mean, I'm not getting the short end of the stick, I'm getting what I'm owed. But yeah, the reason that we thought this was worth bringing up just a little bit is that I've got another note that's being paid off is because I mentioned earlier and it's a hundred and sixty thousand dollar house. It's a forty seven thousand dollar note and I've gotten four calls today and yesterday from the title company Because they can't believe I'm selling this house for $47,000 and it's got $160,000 value and they are concerned about fraud. They have had DocuSign fraud twice and gotten stung twice on the title and had to come up with insurance funds. So they've called me on my business line. They've called me on my mobile line. They've asked all sorts of questions about my articles of incorporation and gee, why was one signed in 2017 and another document was signed in 2020. These are documents regarding the formation of my company.
Justin Bogard:Yeah.
Richard Thornton:Blah, blah, blah. I don't think I've ever been grilled for over an hour.
Justin Bogard:That's like the two businesses I would never get in real estate would probably be a title company and a loan servicing company, because that just seems like a lot of chances for failure.
Richard Thornton:Yeah, we have a loan servicing company that I'm not sure is going to make it.
Justin Bogard:I know we don't need to talk about names, but Well, there's actually a lot of loan servicing companies out there. Some of them are state specific, like they may work in just one state or a couple, and some of them work almost every state. Right, it's a tough business.
Richard Thornton:I think it's a very tough business for very low margins.
Justin Bogard:And you've got to deal with people like Richard Thornton.
Richard Thornton:That's right. It's right. Who can't think keeps things straight.
Justin Bogard:If you guys want to check out the video feed that we do on this podcast, please go to our American Notebuyer's YouTube channel. You can check out the playlist called Be the Bank. You can see all of our recordings of the podcast we do for the last five seasons.
Richard Thornton:Right, I've got a really quick another, just anecdotal thing, that's a question. Another property I'm selling. I'm buying this one. Actually, this is going from self-directed IRA to self-directed IRA, being sold by a self-directed IRA and I'm buying it by self-directed IRA. Well, we've got the Elanj and all the other, the assignment and blah, blah, blah, blah. Hold on. I've shown all that to my company. My company is saying we want to sign docs before we'll fund the sellers. Ira company is saying no, we want you to fund before we send you the signed docs.
Justin Bogard:You've got two people pointing in different directions.
Richard Thornton:Yeah, I don't have resolution yet. I'm still working on this one, folks. To be continued. Next podcast.
Justin Bogard:It's almost like you have to have an escrow company in between so that the signed documents can go to the escrow company, the funds can go to the escrow company and they hold it until they show both parties Look, it's all legit here.
Richard Thornton:But I get it.
Justin Bogard:You bring up a good point about the potential title fraud and how diligent they have to be with verifying who you are, because that stuff can get messed up pretty easily nowadays, because it's so easy to manipulate things electronically, because everybody's trying to go to online stuff only Everybody's trying to do online closings, only virtual closings, because it's just a lot more efficient.
Richard Thornton:Yeah, yeah, I don't know about you, but I think there's somehow that the bad guys figure out that we're using DocuSign or whatever. I'm not that technically oriented, but I get a lot of DocuSign requests and closing requests that are total phishing scams that look very much like DocuSign. So you do have to be very careful.
Justin Bogard:Yeah, if I don't recognize the name, I just delete the email. That's been my habit for a very long time because I see a lot of those invoice blah, blah, blah. It's like invoice. I don't even recognize the name, so I just delete it and if they want their money they'll call me. I made a mistake and be like, hey, okay, I deleted it and they understand. But I haven't had an issue with that as far as after I delete some of that stuff, somebody calling me because typically you're already dealing with somebody and they you know you recognize the invoice or the company that you're working with. So you do it to be careful.
Richard Thornton:If you start to date somebody named Sally Invoice, you're in real trouble because you're going to be deleting their emails. Delete, that's right.
Justin Bogard:That's right. All right, richard, there was what else happened. Okay, here we go. That was揪三。. So I've got an eviction. I had a note in Michigan and I foreclosed on this loan because I had basically no response from the borrower. The borrower is still living in the property after I foreclosed on it, so I was required then to go through an eviction process and then so.
Justin Bogard:I submit to the courts the documentation or my attorney does, and then they have a court hearing and then the person dwelling there did not show up. So then the judge delayed it by another week to have another hearing. The person didn't show up again and then they ordered the the writ, and then the sheriff got the order from the judge to say, yes, you can go get them out of there. And in this particular county in Michigan they actually go in and can remove all the stuff and throw it away, because by this time the person has been warned to get their personal belongings. And so they had several dumpsters full of junk in the house, in the basement, in the detached garage, and they actually cleaned it all out for me. However, they did not change the locks. Oh no, they said, well, it's open. And I said, well, I guess I'll be getting somebody out there to change the locks ASAP. So that was kind of funny.
Justin Bogard:But I've got the eviction part done. But I think this process has taken. It's been over a year since I had to start foreclosure. I think I started in. I want to say July of 22 is when I started the process, and then it's taken circle all the way back to now, almost a year and a half, with going through the foreclosure you know all the all the proper things and then going through the eviction. The eviction actually took a couple of months.
Justin Bogard:Some of the delays actually were on the attorney side for not getting the stuff to the courts you know for a couple weeks.
Richard Thornton:It's interesting, though, that they did the complete clean out, because my experiences, I've had to do the clean out myself, so how much did they charge for that?
Justin Bogard:I haven't gotten the bill yet, but I suspect it's gonna be between four to five thousand dollars.
Richard Thornton:Ouch it was just a clean out.
Justin Bogard:Yeah, and it's to my understanding it wasn't a negotiation. It's like this is what happens. This is what happens when you go through eviction. I was like, okay, well, you know, it is what it is. But they did leave a hot tub because they said the hot tub was too heavy to move, so this could add value. So, anyways, I'm able to put the property in the market today and I think I'll be able to sell it for twice as much as I have into it. So I'm still okay.
Richard Thornton:So you have to wonder. I mean, I think that we all sort of get quizzical sometimes about a lot of the property owners, but you have to wonder what was going on with that person. I mean they really they had an asset, whether there was perfectly good asset. They somehow let it go in the toilet, but it but still was worth so much more and basically they're walking away from how much money.
Justin Bogard:I think they probably. They probably could have made maybe ten thousand dollars after paying off the full judgment. They probably could have had some money in their pocket. Yeah, so I do know the situation about this and we can talk about this because it was a. The original borrower actually stopped living there because their parents passed away when they were paying us the mortgage and so then he moved into his parents house, which was nearby to where this house is, where we have the mortgage on. Are you saying?
Richard Thornton:that somebody stopped making their mortgage payments after they died.
Justin Bogard:No, no. So the borrower has parents that have a separate state in a separate house. So they passed away. So he moved into their house, so he put his son into the house that we have the mortgage on. So his son was supposed to be paying him the mortgage payment, so then he could pay the mortgage payment, and so then that stopped happening and the son just pretty much squatted there for rent-free, mortgage-free, for over a year.
Justin Bogard:Wow, and the original borrower. It was actually his childhood home. So he was telling me on the phone this was. You know it was, this was an emotional thing for him, that to keep the house. But you know he was not able to make the payments and he was unreachable as well. But yeah, there again they walk away from money that they could have had for whatever reason.
Richard Thornton:Money and memories, and it's. There's a lot of disconnects in this business.
Justin Bogard:Yeah, it's amazing to me how many reach-outs there were to the borrower and the person dwelling there about hey, you know you need to pay this, you're going to lose your house. We have to evict you now. Do you need your belongings? Like I mean, obviously I've been telling you. It's been going on for over a year. It's like I mean, times are tough. I get it, but at the same time I think I'd want some of my belongings, or at least try to figure out how to how to salvage my you know childhood home, to save it.
Richard Thornton:Yeah, yeah so anyways.
Justin Bogard:So that's. That was one of the more recent things. That's just kind of it stinks not getting the cash flow At the same time. You know, we do always want to try to figure out, like, if the borrower wants to stay there, like let's figure out a solution, but when they're just non, they just don't communicate and they don't respond. After many, numerous times of reaching out through email, through phone you know multiple phone numbers and sending out people to the house or sending letters in the mail, like it's just like, what do you do beyond that?
Richard Thornton:Yeah, yeah. And if you've got an investor on the deal and you're having to keep them whole, then you're sort of getting a double burn.
Justin Bogard:Yeah, and we would kind of move their, their protection to a different asset. This one didn't have an investor on it, this was just our money. So you know, there you have it.
Richard Thornton:Okay, well, this has been a a broadcast of sort of everyday experiences and things that we're going on in our our lives.
Justin Bogard:The bad is not so bad at the old cliche. At the end of the day, we're still making money, and we're still actually making more money than we would if this, if these people were paying for the past over over a year. So I'm actually going to be making more money. It's just I had a dead time of no cash flow for over a year.
Richard Thornton:Yeah, and can you? Can you survive that period? And you know, in my case, these payoffs, I can complain about them. One is one reason I would complain about them I'm just losing the cash flow. But the bigger reason is most of them are partials, so I actually don't have anything in them. As a matter of fact, I've got minus basis because I made money on selling the partial, yes, but there was 10 or 15 years of income that was going to hit in a year or two here that I'm not going to get, so bummer.
Justin Bogard:All right, there you have it. Richard can lend out money now.
Richard Thornton:That's right.
Justin Bogard:That's right. This is episode number 22 on the Be the Bank podcast. He's number five. I'm Justin Bogard here with Richard Thornton and we will see you guys on the next episode, take care.
Richard Thornton:Stay tuned.
Justin Bogard:Yeah.
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.
