NIME 46 | Dealing With Sellers


There are indeed so many ways to get paid in notes just as long as you know how to be resourceful and how to network. Sandor Lau, the Founder of Noted Financial, shares his journey through the note investment industry and how he started his own company. Sandor is actively searching for brokers and people who are selling promising properties. He shares a system he is using to hunt and deal with sellers who are selling commercial second space, as well as highlights the importance of building and maintaining relationships to keep everyone happy.

Listen to the podcast here:

Dealing With Sellers In The Note Investment Space with Sandor Lau

Without further ado, I want to introduce our guest, Sandor Lau of Noted Financial. Welcome to the program.

Martin, thank you very much for the opportunity.

I’m a pretty selfish investor. I love bringing folks like you on because I want to hear about all your horror stories and all the twists and turns that you’ve taken to get to where you are. I feed off of that. Let’s start out with a young Sandor. When is he starting? When does he catch wind of the note industry? How does his first transaction look?

Most investors I think are recovering real estate investors at varying degrees of recovering. As a youngish man, I had my Master’s degree from film school and some award-winning films under my belt that I made in New Zealand. I came back to the United States after I got lots of awards, I got lots of prizes and great reviews, but it was a good way to go broke. In my early 30s, my dad made a plywood platform for me to sleep on and a sleeping bag on top of the dashboard of mom and dad’s RV. That was what I came back to you. I’m like, “I got to make a change.” I went to the library, read books about investing and said, “All you need is a lot of money and then you can make more by investing it.”

I read this book, still one of my favorites, Real Estate Riches by Dr. Dolf de Roos about how you borrow the bank’s money and you pay them what you agreed, but you keep the profit on top of that and the tenants pay the mortgage. They pay the rent that pays the mortgage. This is genius. It’s a simple formula. In the world of business lending, it’s the only business you don’t have to tell the bank your business plan. Any other kind of business loan you want to apply to, you have to explain exactly how it works, what you’re going to do and how you’re going to repay them. You don’t have to explain. They know. They invented the plan. I got into rental property investing at the right time. I started 2009 and stacked up in a small portfolio of a few dozen units with a lot of spreadsheets that said exactly how much rent was going to come in and a lot of leases that said how much rent was going to come in. Those things that said you’re not supposed to break or steal stuff. It was just a piece of paper.

It stopped them from doing that and it didn’t make them pay rent. In 2013, maybe I was a slow learner. That’s 2009 to 2013 the last time I checked, was that four years, five years if we go back to when I read Real Estate Riches, I needed to think of a new plan. I read one line in a book about note investing like, “I’m all over that. How does that work?” I found out about Paper Source, watched every single video of Gordon Moss’ that explained how this works. I drank the Kool-Aid, highly-leveraged with high upside and limited downside like stock options. If you lose, you lose a little bit, but if you gain, you gain a lot. Compared to being a landlord, it’s good. I had tenants threatened to shoot me. I haven’t had any borrower threatened to shoot me yet. We did have a baseball bat attacker. We looked at the pictures on Zillow, we talked to the borrower since the time we had owned the note. I thought, “That’s great. Maybe he wants to sell. How did those photos get up there?” He was like, “No, that’s when I was in prison.” We still got very close to a full payoff on that one though.

Are you more of a yuppie note investor? Will you pull skip trace on that and see that he’s got the prison record and you’re like, “If he’s not as scared to go to jail, he’s not scared to pay me.” Will you pass on that opportunity?

The short answer is no. It was like a full equity note in a non-judicial state. The underlying value has regular real estate. You’ve got two ways to get paid: rent or sell. That is all. Notes, you have so many different ways to get paid. Borrowers could make monthly payments. They could pay you off. They could sell the property. They could refinance. You could take it back. You could foreclose and sell. You could foreclose and sell subject to the existing mortgage. You can foreclose and a third-party could bid for it at the auction. I like having all these opportunities and different ways to go about it. I try and think about having a mind like water. What’s your objective? Financial freedom is another word for freedom. If there’s a rock or an obstacle, the water responds perfectly and goes around it. I don’t care about the path. I care the achievement of the objective.

I was a liberal arts major too, so I found a harsh business world ahead of me. I went to business school after, but when you’re in business school getting your MBA, a lot of that’s academic babble. A lot of those financial formulas you’ll never use in life. Everything that I learned getting my philosophy degree still sticks with me.

Your question is, “Am I a yuppie note investor?” What I target is people. I always joke with my internal team, Sandor cupcake. I always believe what people say, “I’m going to pay tomorrow.” “Really? Okay.” I look for the high middle of the market. Regular rental properties, you want the low middle of the market. You don’t want rough neighborhoods, but if you get anything past the low middle of the market, it’s hard for the rent to cover your mortgage expenses and have any profit if you don’t sit on it for a decade. Notes are like other real estate investing. I used to think it’s fast profit and occasionally you get those, but it’s much more like regular real estate.

You make your money in decades. If you’re patient, that’s usually when those full payoffs come. If you need your money now, the bank which sold the note in the first place, they wanted money now and they sold it at a big discount. If you wait, you can get that full payoff. I’m a seconds guy. Seconds come first because you have the first mortgage that if you’re buying right, you’re buying that first mortgage current then taking care of taxes. They’re making sure the property is insured and people paying the first mortgage are invested homeowners. It is much more like a business partnership when they’re taking care of the house and paying both their mortgages, they win. Tenants who are so much more likely to walk away, they’re not invested. You can look around the neighborhood.

I’m looking for properties in the middle of the market. My ideal property is between $250,000 and $500,000. It’s nice enough that these people are doing a great job. Their neighbors are homeowners and God forbid you had to foreclose. Out of 200 something notes through the portfolio so far, we’ve only had to foreclose on roughly a dozen, but you’ve got to think about that. The transactional friction of property changing hands causes so much loss. Foreclosure destroys value. If you have to do that, you need to have a little cushion. If you got a $100,000 house, the first mortgage is $80,000 and your second is $20,000. If you have to foreclose on that house, they stop paying the first mortgage. They stopped taking care of it. Zillow may say it’s $100,000, but it’s probably less than $80,000. If you got a $250,000 to $500,000 house, you got a little bit of a cushion and they’re paying down a lot more in principal.

That’s why you say you know your seconds guy because if you’re a first-person, then you’re saying no, the value is through the foreclosure. You get back the property you’re repositioning and you’re saying no, the value is in creating the loan modification and is the cashflow play. I’m all in as a second guy, but I’m denouncing being a seconds guy as of yesterday. I’m now a loan modification guy. That’s all that I want to be. I was thinking the other day. I have some business notes. I have some first mortgages that are paying. That’s all I care about at the end of the day. Will they pay me money monthly?

When I started this business in 2013, there are a lot more notes available to regular investors in the marketplace, note sellers. They had exhibitor booths at conferences, but not so much now. I went to Paper Source and not quite every participant in the conference, but nearly every participant is asking me, “Where do I buy notes?” There’s no one answer. The answer is to build relationships of trust. I could tell you where I buy my notes, but you don’t have that trust with that person. Ultimately, people think it’s about money and it’s about trust and relationships, staying out of court, making it easy, having a pleasant and pleasurable business transaction that you have real and personal relationships very much like collecting. It’s a two-way street and there’s risk on both sides of the transaction. People think sellers just want money. Sellers want money, but it’s not the only thing. They want to know that this is going to be a clean transaction and it’s not going to be a headache for years in the future.

They can go back to the well with you and transact with you again. I started in 2013 as well. I have to ask and I’ll tell you a little birdie put this in my ear, knowing that while I was going to be speaking with you. We’ll call that little birdie MK for the initial. He said, “Ask Sandor about the Oregon property, your first note transaction.” If you don’t mind, tell us about the first. I think it was like a BRRRR Strategy where you moved into the property.

Here’s one of the many options. I didn’t know which one he’s talking about. I learned this business. I have been going through a very thorough financial examination of my entire life and had to explain all this stuff to my banker. Finally, a few years after I started this business, I’ll be moving. I got a new triplex that I’ll be moving into, but at the time I started this business, I want to buy regular real estate also. You should have a balanced portfolio. Rentals are a huge headache. Notes are much more profitable, considerably easier, less risky, but ultimately there is going to be a day when borrowers make the last mortgage payment. There’s never going to be a day when the last rent payment comes in. There are so many more tax advantages for real estate.

NIME 46 | Dealing With Sellers

Dealing With Sellers: The transactional friction of a property changing hands causes so much loss or closure and destroys value.


Thinking creatively and using what that evil genius or MK as we’ll refer to him taught me and other greats of the business like Gordon Moss had taught me. I want to have a home. I want to live in, moving this new city, Portland. I own plenty of loans in my portfolio, but I’m not going to be able to convince a banker to give me a loan. I don’t have regular W-2 income and I’m investing in these things now for great gains in the future, lots of promises. I got the foreclosure list. I went knocking on twenty different people’s houses in a weekend. I knocked on every door of a house that I thought this could work for me. One guy threatened to shoot me. Most people ignored me and I found this house and I didn’t have to knock on the door.

A nice lady was carrying a laundry basket of her possessions out to the car because she was already moving. I had this big presentation plan. I’ve got a brochure explaining some of your options, one of which if someone wants to stay in their house, I’m not going to try and convince them to do otherwise. We want to make solutions that work for everyone just like with our borrowers. Everyone you want to do business with, you want them to be happy with interaction as well. We wanted the same thing. She wanted to get rid of this house and rid of the burden of the mortgage payments which she hadn’t made in nine months. The bank was going to give her $3,000 for a deed in lieu. I’m like, “How about I give you $3,000?” I didn’t even have to say that.

She’s like, “Will you give me $3,000?” “Done.” It was like so many things in the field of business are not about money, it’s about liking and trust. She liked and trusted me. She did business like interactions between note buyers and sellers. I made it simple for her. I got her out from under the burden of these mortgage payments and I owned it subject to the first mortgage like if you foreclose from second position and you’ll often have to explain this to borrowers and frequently to their lawyers. If you foreclose from second position, you own that house subject to the first loan that didn’t qualify for, that is not on your credit and they’re not personally obligated to pay. If you don’t pay it, the bank is going to foreclose, but that’s all they can do. The seller could see this is a good deal for her. She had been walking money and we still have a good relationship. This was 2015, we saw each other in February of 2019 to clean up some title paperwork and we’re still happy with each other and we still have that relationship.

That’s interesting you say that in the relationship angle because you see it on the frontend when you’re doing deal flow generation and you’re creating strategic partnerships and alliances and whatnot. You see it when you’re doing trade buys with other note investors on the due diligence side and then on the back end when you’re working with the borrowers, when you’re working with the attorneys. Great relationships with attorneys are highly valuable in this space if you want them to work on your file with a smile. If you want bad service, pay the attorney late and then you’ll see your case will get dropped to the bottom of the pile.

The one other thing I have to add on these relationships and those are all great points, everyone’s looking to raise capital in this business. We typically do it with collateral assignment lending. It’s like private lending against a property except we’re using our notes as collateral. Anything can be collateral for borrowing money, car, house, UCC filing against intellectual property or business assets. A note can also be collateral. There are collateral assignments where a lender lends money to us and if we don’t pay, then the consequences they get to collect on that note that’s got a lot higher balance than what they originally extended. I used to think I would explain this to people and all the details how it’s very secure, made videos about it, I worked out all the legal paperwork and realized I was wasting my breath. All of our private lenders are people who liked and trusted me and knew this work. That was pitching like the rate we offer, it’s probably better than you’re going to make in the stock market long-term, but that wasn’t what they’re much more concerned, “This is someone we can trust and we have a good relationship with.” It blew my mind.

The trickiest thing in this space is when I talk to people and they’re out raising money, my thing and I’ve heard other people in webinars and they’re like, “Go to your local country club or go to an art show, charity event or whatever.” To me, the hardest thing in the world to do would be to educate a new person in terms of what we’re doing and then ask them for money. I see what you’re saying. You have a relationship with them. That’s a different take on it, but to me, it makes sense to go to a hungry note investor that has money, but they don’t have any sweat. They don’t have any hustle. Bring them in on a deal, because they’re already in the mix. They know what’s what.

Preaching to the choir already and also go speak at conferences. You’re doing this already. Anyone who’s going out and tell the world and when people come to you then they’re already motivated. If you’re in a position of chasing something or a position of people coming to you, it’s so different. Frankly, that’s why I like the note business too. Most retail businesses in this country or any country, you have to be constantly selling whatever your product or service is. In the case of the notes business, you have the most motivated buyers in the world. You know before going into the deal, they’re 100% committed. They’ve been in their home. The seconds that we’re investing, they’d been in this home probably a decade or more. You think they like that house, going to an association where the other side’s cards are well-established and on the table for you to read. It’s on the credit report and the title report. Frankly, it’s on Google Street View. You can tell how much they care about this by what shape the lawn is in.

It’s interesting because being a junior lien investor, you do focus so much on that promise to repay from the borrower to the lender. You hone in on the borrower’s behaviors and their ability to pay. Whereas if you’re just buying to obtain the property, you’re pulling O&E, you’re pulling a BPO and getting back that property to do what you need to do. It’s a whole different mindset. I think the people that get attracted to our space and it sounds preachy, but it doesn’t mean to be. I get people that are like, “I want to invest with seconds because I like the idea of keeping people in their homes.” To them, ethically, they feel like that’s where they’re at.

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It’s a great thing. It does feel good, but I got to be clear, that’s not the only reason. Having your interest align and as I talked about before, being a business partner with them. If you’re investing in first mortgages, inherently what I would consider more adversarial position like if they don’t pay, they’re losing that house now. Seconds, you have options and you have time. If there is a sandwich and seconds are the filling and sandwich, the bottom slice of bread is the balance of the first mortgage that as they’re paying over time, they’re paying that down. This is like rate. It’s perfect regular real estate investing. The first mortgage gets paid down. The value of the property over decades goes up this year, next year. Anyone knows in the middle is the filling of the sandwich is your second that if they’re paying, good for them, it’s getting paid down. Regardless, as long as they’re paying that first mortgage, the equity’s securing your position and seconds is increasing. If they’re not paying, the debt that they owe on the second is also increasing.

I know there are many companies who were thinking about the velocity of their capital. They want to turn these and make a profit. I’m much more of a long-term investor and sitting tight and frankly we’ve had excellent results on these notes that we didn’t touch for years. We could see the borrower’s behavior that if they were going to make a big fight if we brought it to foreclosure, but bringing it to head, to force action and cost those legal costs. If you wait for a while, they build equity in that property, maybe something in their life changes. We’ve had many times they voluntarily decided to refinance. Refinance to me is the Holy Grail. Most people want to keep their homes. The way to get a full pay-off, they get what they want, you get what you want is they refinance the house. When we’re doing our payment plans for borrowers that we talked about, this is what you like to do as modifications, but we like to do is think of payment plans with borrowers as a step toward a different future.

Lenders and borrowers are inherently in a situation of different risk. The borrower gets everything they want upfront and all at once. In exchange for what they’re giving is a promise to pay every month, a promise they could break every single month. If I wanted to have monthly payments, you could do private lending, first position liens on regular real estate with the most reliable borrowers in the world and have mailbox money. Reperforming loans have a tendency to be re-nonperforming loans. If we can get a refinance, then that re-nonperformance can be the new bank problem. We can get that cash back out and either put it in super stable, almost guaranteed to pay private lending or invest it in new defaulted notes at a discount.

It’s interesting that you take that long-term view at the borrower. I got on a $212,000 UPB note in Virginia, fully covered equity second, got a loan modification with the borrower through negotiations with no legal, that’s the home run. That rarely happens for those of you who are just learning about note investing. The idea is that I’m talking to them about a credit repair game plan so that by the end of this year, there’ll be positioned to refinance their property and pay it off which is good for them. They’ll get a lower interest rate. They’ll tie in the first and second and everything else. Good for me because it’s a full payoff.

I’m always trying to follow the law. We can’t give borrowers legal advice. We cannot questions point to facts. What I like to try and do is point out facts and say, “You loan with us.” I don’t want to give borrowers such favorable terms that they’re comfortable and sitting on this loan. If the original interest rate was 10%, that’s what they’re keeping. You can simply ask the question, “Have you taken a look at, LendingTree or other sites? What do you think your monthly payment would be if you refinance this with a bank?” If they’re rational, they look at it and they could save $200 to $500 a month, like I was talking about with private lenders.

The way people take action is not by being sold on something but making the decision internally. No one wants to feel like someone else convinced they did something. They want to feel like they made their own autonomous decision. I like it. You like it. Every single human being wants that sense of autonomy. If you can ask the right questions that lead them to come to that conclusion on their own, then everyone’s going to be happier like dealing with homeowners versus tenants, they’re internally motivated instead of externally motivated. Instead of being motivated by loss aversion and moving away from pain and fear, they’re moving toward a positive reward.

You coupled that with you treating them humanely and it’s all good. In terms of giving advice, I agree with that. I’m a proponent to give them some connections to credit repair services. If the conversation goes where they want to get back on their feet, they want to pay this off at some point, I’m going to help them and let the credit repair people do their part to see if it happens.

That’s something they’re never ever going to get from the big bank. They get the phone menu anyway. It’s impossible for them to reach a real person who knows their file and knows their case and cares about them in the first place.

NIME 46 | Dealing With Sellers

Dealing With Sellers: Re-performing loans have a tendency to be non-performing loans.


Let me ask you a question, a different topic. Sandor starts in 2013 buying nonperforming notes, Sandor buys the nonperforming notes, self-service and then service with a licensed servicer once the loan modifications struck.

When I first started this, that was exactly my plan. I’m like, “Why am I going to go pay a servicing fee when nothing’s happening in the loan?” After one time, managing legal on one borrower, having a phone around law firms. Will you do this for me like Joe Investor who’s at the time $5,000 of legal in let’s just say a judicial state in the Midwest. That’s a lot of cash out of pocket. I’m expecting some customer service. You go to a retail store and it’s like, “Yes, Mr. Lau. No, Mr. Lau. Three big bags for Mr. Lau.” $5,000 of the law firms, I can barely be bothered to pick up the phone. It’s a real favor for you even to return your call.

After that one, it was a short payoff. We did one where we did our first modification on our own. After that, I found Allied Servicing Corporation in Spokane, Washington, who I love to death. They do an excellent job. We have most of our loans serviced by them. They are experienced people who I can trust and I can focus on all the calculation’s and exactly how much back interest on HELOCs. They got systems for this, for compliance, licensing and everything. What is the greatest value you can add as an investor? The number one greatest value is finding, seeing the value that others don’t and acquiring that. The bank didn’t see the value in these loans. They let them go at a discount. You saw that value and found a way to realize that value.

We’ve had Melissa Bolling on and so her video’s on the site if anyone wants to check that out. This will be an inside question here between us here because of no one’s listening. Will Melissa Bolling even support you when the seller has zeroed out interest rates on HELOCs that they sold you? There’s no calculation for past due interest arrears.

We’re still working on that one. People think all banks have got everything all lined up and figured out. Robo signing after being in the notes business, nothing’s shocking anymore. The bank made a mistake. They ignored the borrower. They did so many things. They had the opportunity to add value and refused or they’re not set up to do this. We can be set up to provide value when large lenders can’t. I fear that we have a lot of state legislation putting more and more restrictions on small note investors. I think that is going to squeeze out more and more. That cost of compliance is going to squeeze out the people who can and do make real solutions and it’s going to push it more and more to large institutions and people are going to be looking to an automated phone menu to solve their problems and it’s probably not going to work.

Thank you, Ohio. It’s not even just about the money, but have you started the registration process with Ohio?

I started this process called sell my Ohio notes.

I understood. It’s crazy. It’s not going to help anybody. Everybody gets hurt as a result.

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There’s something that we chatted about a little bit before that I wanted to bring up and to try to think about the future of this marketplace, the overwhelming majority of seconds in the US real estate market now. Those originated in the real estate boom of ’07, they are making more seconds still far fewer of them and tightly underwritten since ‘08, ’09. Since the day, people have been making loans. People have also been defaulting on loans. There will be bank inventory coming out of that, but I’m trying to think about next step, new chapter. I see there are many people in our space at conferences that are continually looking for seller carry notes, primarily first notes that there’s a lot of marketing from companies buying those and a lot of competition. I’ve had some excellent results in this commercial seconds space.

It’s not like these are out there in a great volume. Also, not like there are many people out there hunting and looking for those. I’m actively searching for brokers and people who are selling these and also working on systems to go hunt them down and contact the sellers directly for something. All the same principles for residential seconds also apply to those commercial seconds. I’ve written a couple of articles for the Paper Source journal about this and have lots of other advantages such as its commercial loan. They did this to make money. There are fewer regulatory restrictions on this in terms of consumer protection laws.

The borrowers that I’ve dealt with on the ones I’ve seen so far, they’re business people. They’re much more likely to take a rational approach to this. Dealing with people’s emotions in this business is the skill that almost outweighs the logical rational side of it when people have in their head that this is true, I haven’t paid my mortgage in a few years, therefore it went away. You can believe that the law is different, but I’m going to have to spend $5,000 in legal to prove it. If you can use the power of your voice and your mind to convince someone of that, edit $5,000 of value by talking.

That’s the golden hour before you start legal or when you send the notice of default. That’s your window to shine because it’s going to get costly after that. You bring up a good point, to keep your possibilities open to different types of note opportunities outside junior liens attached to primary residences. Let me ask you two questions in regard to State of the Note Industry for 2019, which has been our focus the past few months. What do you say to the veteran note investor that was sleeping on sourcing for a number of years because deal flow was so abundant and now they’re finding themselves looking for deal flow? What do you say to that person?

Think about when you weren’t a note investor and you had to hustle. That’s the main thing I can think of. Sources are still out there cultivating those relationships. It’s about a lot more than just offering cash. It’s about adding value. You can add value online, demonstrate what kind of a person you are to do business with, demonstrate things that show you’re a likable and trustworthy person. Nothing beats being there in person, shaking hands, breathing the same air and sharing a few jokes with the real people who do have a product to sell. Ultimately, notes still trade at discounts and not as much as when we started in 2013, but the bank is not selling them at these discounts for a lark. You are still doing the same fundamental thing we’ve done since the notes business was invented thousands of years ago.

You are taking a problem off their hands. They need to get rid of it. I was sick a couple of months ago. It’s the only time I watched TV and I watched this show, Medici on Netflix. Sure enough, Dustin Hoffman is playing the founding father of the Medici family of bankers in Italy and he was trying to take down his enemies. He talks about buying notes at a discount in renaissance Italy. These principles of banking and investing have been here for centuries. The exact details of the market go up and down a little bit, but the opportunity has been here for hundreds or thousands of years. Someone who is determined to succeed will find a way.

That brings me into the second question. What do you say to the person just starting out in the note space and they’re bombarded because there are a lot more webinars, a lot more white noise and they don’t know where to go? How should they best get started?

I’m prepared for this question. They should get started, go to my website Noted Financial, read all the books and my reading was there. The difference between now and when we started 2013, I read every book about note investing I could find publicly available, all both of them. There are dozens. They’re all on my list. It’s on my website.

NIME 46 | Dealing With Sellers

Dealing With Sellers: Some people who have been making loans are also people who have also been defaulting on loans.


What was it? Invest in Debt and Gordon Moss?

I’ve met Gordon and he said, “How do you find the paper? Add value.” I was begging Gordon to give me an advanced copy so I could help him. I was also a liberal arts English major. I could probably help you with the copy. I understood that it was private. He didn’t want to do that. Everyone time you try to add value, it may work, it may not, but in a consistent pattern of adding value to others will produce extraordinary results. A consistent pattern of having the courage to go talk to strangers and see what you can do for them will yield results. For new investors, read everything that’s publicly available and then use that information to discern who you want to be, your teacher, your mentor or your guru.

You’re not just going to be able to learn this business by reading. Find someone who will teach you and then get stuck into it. Buy some loans. It has never been easier to buy retail notes. Frankly, I’m a big fan of the website Paperstac, a transparent, simple exchange where one can understand them, make the steps so easy. It’s never been more convenient to buy paper reliably. They have vetting systems and you can buy affordable paper on a one-off retail basis there. You overpaid a little bit on one note. You paid $5,000 for something that maybe is only worth $2,000. That’s so much cheaper to learn from that experience than to pay for an expensive class. It’s so much cheaper to learn from that experience on a low consequence note. Even if you lost all that money, now you know what you’re doing. You have a lot more writing.

We’re still there. We’re so in synch because that’s the advice when I’m mentoring folks. I’m like, “Let’s look for low-dollar UPB notes. Let’s start there.” In that way you’re not sticking your neck out with something large and you’ll have your money for when you need it. On the subject of books, I put this out, but almost look at some folks that come into the space and it’s almost like going and buying a book on Amazon. You don’t want to pay for the book, but you look at the table of contents, you read the epilogue, you read the executive summary, you read the reviews by other people that have read the book. You’re somehow trying to piece it together which can take a lot of time and energy versus just going and paying for the book.

Paying for formal education, wherever it is, I think people should take several types of formal education with different people, find out who they truly connect with and then go from there. If they don’t take formal education, they need to have total immersion into the space probably either way. At the end of the day, I know Matt Kelley always rags on me for saying this, when I talk about mindset. People are not going to make it until they first have their life in order financially and also time management-wise, because you need to put so much of both into this space. If you’re not good with money, making more money is not going to make you better and same with time.

I do agree with you. You have to start out. It has to start out with your why, your purpose. It starts out with your beliefs. If you believe that money is bad, rich people are bad, you could be broke forever. You can’t become successful without believing deserve success. If you have a powerful why, the how will come along. We both have our particular field. There are people succeeding in every single field of business in the world. If someone else can do it, then you can learn. You can’t teach determination. You can’t teach internal locus of control. You can’t teach motivation. Tony Robbins is still working on how to be a better teacher of motivation. Human nature doesn’t change that much.

Human behavior in aggregate is so predictable. To me, we’re talking about a lot of the mechanics of the particulars of note investing but focusing on success and specific steps toward success. I focus as much in my reading and my personal continued study on personal development study and coaching as I do on specific business knowledge. The inspiration and the why has to start with that. All the how, it’s out there. This is not the only webinar that teaches the mechanics of second note investing. All these books are out there. Dustin Hoffman is teaching you how to do it on television. Knowledge is not a barrier. Once you have your purpose defined, the knowledge is almost like a foregone conclusion.

Let me ask you a philosophical question. One of my favorite authors is Bill Bartmann. He wrote Bailout Riches! He became a billionaire off of buying notes and creating a collection agency that worked out these notes. One of the best books you’ll read, but it’s not on the Amazon list. I heard him speak with my wife in 2005-ish. I wanted to shake his hand and I didn’t. He passed away a few years ago. It’s always been weighing on me that I didn’t do that. I didn’t take action. Bill talked from a perspective of negative motivators being good for you, people that are against you, you’re focusing on negative motivators to drive you. You have Tony Robbins and a bunch of other people that say positive motivators should push you forward. What do you think? Which way or the other?

Investing in first mortgages puts you in a more adversarial position. Click To Tweet

One of my favorite books, it’s called Thinking, Fast and Slow by Nobel Prize winner Daniel Kahneman. It talks about human nature, that people like us as a species were more motivated by loss aversion, by avoiding the bad than we are seeking gain or seeking good. It comes from our ancestors. If there’s a tiger attacking the tribe, that’s got to be your number one focus, drop every single thing. Even if we’re working on the sweetest piece of art you ever made, you got to focus on the tiger. We’re in a different space now. If you can overcome the tendencies that came from our ancestors that don’t suit us anymore, we have so many things. I love the great outdoors and adventures. Skiing’s my metaphor for this. It feels so weird because our ancestors didn’t evolve skiing. Usually, if you’re going downhill and you want to stop, you push your heels down and they’ll stop you.

Try that on skis. Let me know how it works for you. It’s hard to fight against all your genes and human nature for so many centuries, but if you can just overcome that and adapt to new circumstances, you can succeed in skiing. It’s the same in investing, people are so worried about loss aversion. “I don’t want to lose money,” but if you focus on what you don’t want, you’ll always keep getting more of what you don’t want. I was giving some coaching to a hiking friend. She was like, “I want to find a guy who doesn’t cheat on me and doesn’t lie to me and isn’t out of a job.” I’m like, “That’s why you keep getting these people in your life.”

If you focus on someone, the characteristics that you do want, what do you want? Loyalty, stability, success, motivation, you focus your mind on these things and you can succeed. Seconds in notes, defaulted notes in general and defaulted seconds in specific are available at discounts because of loss aversion. The first thing people ask me about when I say I do this, they’re like, “Isn’t it risky?” If we pay full price, it would be very risky. Use your logical mind to overcome your lizard brain that says, “Risk, fear, aversion, afraid, I don’t want,” and you can see how you can create value in something beautiful that other people can’t. You can live a life of freedom and abundance focusing on what you do want instead of what you don’t want. That is the way to live richly.

That was pretty deep stuff. Let me switch gears here. Wall Street Journal article, would you do it again if you could?

I would do it again. There’s a post about it on my website. There’s one consistent behavior that I always try to do that has yielded me tremendous results is going talk to strangers. Every single person that you know and trust now came because you broke through fear and discomfort to talk to a stranger. At one time, your own mother was a stranger. At one time, your own father was a stranger. Everyone that you love was one once a stranger and extraordinary things come out of adding value. Everyone else is afraid to talk to strangers too. If you will come out of that shell and just introduce yourself to someone, most of the time, it’s just going to be a pleasant conversation. You talk to someone and it’s extraordinary.

I think where the comments were more geared towards is not the person you talk to at the Wall Street Journal, but then you know how other people can interpret that. If they see a letter, a borrower outreach letter from Sandor and they Google search and they find you wrote an article and I think you came across like very sincere. You were like, “I’m trying to help people.” The article I think went down, but sometimes I have to foreclose. I think that was probably something that it would have been better having that not be included in the article. That’s just my thought.

Here’s what I think. I went to a conference. There was a guy from the Wall Street Journal. I broke through some fear and went to talk to him. He’s a reporter from the largest business publication in the world. He’s going to write about this business. The choice I have to make is, do I want him to hear it from me or I want him to tell me about it to the world from someone else’s point of view? I was so conscious while doing this. This is going on in public record forever and frankly this is probably the reddest piece of writing ever about the note business. I’m constantly thinking this is going on and not just representing me here. Most people are motivated by loss aversion. Most people are more strongly motivated by not losing than by gaining, that’s why people pay their mortgage. There’s an excellent Market Watch article done from Federal Reserve study. People pay their mortgages because they don’t want to lose their home. My goal is not to foreclose, but it is what produces results. It is how we get borrowers to talk to us. I sleep well at night.

They don’t want to lose their home versus someday they’re going to have this home paid off and it’s going to be theirs. Their thought is more, “I don’t want to lose my home now, that’s why I’m making my payment.” We have a question, “You are encouraging people to talk to investigative reporters.”

NIME 46 | Dealing With Sellers

Dealing With Sellers: Use your logical mind to see how you can create value in something beautiful that other people cannot.


I am encouraging people to choose carefully what media they talk to and be good with the consequences. I made a choice. It could have gone many different ways, but also by being in the center of it and managing it. I didn’t write the article, I didn’t direct the video, but I had a great deal of input into how it came through. Imagine this is someone else out there taken out of context that I have no control over. Yes, I would do it again.

One last question, what are some of the daily rituals that you have in place that help you win on a regular basis?

Number one, I get up and exercise first thing virtually every day. I might miss a day once every three weeks and meditate on a very regular basis. Not every day, probably every other day, consistent commitment to continued learning. I didn’t listen to the radio or music. If I am not doing something that requires my full attention, I am listening to an audiobook and primarily an audiobook that is going to teach me something to improve myself, choose and cultivate relationships and just like curating, just like practicing good nutrition and eating healthy, feeding what you feed your mind is equally important as what you feed your body. Cultivating relationships with people like Matt Kelley, other people who are also committed to success, you’re going to be like the five people you’re closest to in terms of income, religion, education and success. I want to be surrounded with people who are better than me, so I have something to look up to, not surrounding myself with people who I feel better then and feel like it makes me feel good because I feel good and superior. I want to feel like I’m chasing something, I’m after something. I’m seeking something positive instead of avoiding something negative.

It’s very well put. To that point, I think in line with everything you’ve been talking about, you’re not so much looking to chase that. You’re looking to be pulled towards it. I think if you’re in alignment with advancing yourself with the people around you that are connected with and are much further along, there’s almost like the gravitational pull that’s pulling you towards them.

That’s it and always add value. Every interaction you come to, think of what you can do for others. The world is full of takers. Everyone wants to take, get and receive. It’s like dust in the wind. It’s the most common thing. You’re talking about how to find note buyers for new or experienced people. People can sense who is there to take and who is there to give. People can smell a taker from a mile away. They’re already running. They’re already not listening before you start talking. People see that you’re someone who wants to add value and give. You can surround yourself with the finest people who will probably want your company because it feels good, because it’s fun, because it’s enjoyable. That is one of the easiest ways to add value not only at no cost, at something that makes you feel good and live a happy life as well.

Sandor Lau of Noted Financial, thank you so much for being on the program.

Martin, thank you very much.

Take care, everyone.

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About Sandor Lau

NIME 46 | Dealing With SellersSandor Lau was born in a good mood. He’s the founder of Noted Financial, investing in creating value through resolving nonperforming second mortgages, allowing hundreds of homeowners to address their debts and keep their homes.

Sándor is a regular speaker at Paper Source, IMN, and REIA conferences and was the primary subject of the recent Wall Street Journal article on note investing, “I Can Be the Bank: Individual Investors Buy Busted Mortgages.” He’s also a recovering writer and filmmaker threatening to relapse and is based in Portland, Oregon. When he’s not climbing mountains in business, he’s climbing them for real.