NIME 35 | Madison Management

 

Loans are the root of note investing. For someone who doesn’t know the ins and outs of mortgages, property taxes, insurance, and other processes that revolve around them, there are loan servicing companies that could help with the different administrative tasks involved. Kevin Cordell of Madison Management explains the role they play in the system. Kevin believes that no portfolio is too large or too small, and will happily work with note investors that are new in the business. Passionate about helping people, he creates ways for his clients to keep their homes so long as they’re willing to make payments and have the ability to do so. He also keeps an eye out for opportunities to create a win-win situation for sellers, borrowers, and Madison Management.

Listen to the podcast here:

Madison Management: Streamlining The Note Investing Process with Kevin Cordell

Welcome to the show, Kevin Cordell, with Madison Management Services. How are you, Sir?

I’m good. Thanks for having me on, Martin.

No, absolutely. It’s been a long time coming. I’ve been note investing since 2013 and I’ve been doing it full-time since day one. You’re always someone that I’ve looked to. I’ve read your posts. I met with you at conferences and you have such a wealth of information. I’m honored to have you on the program. I want to say thank you for coming.

Thank you for having me on. Just a little background on myself, I got started in 2007 investing in notes quite by accident. I had attended an event and one of the things I was looking for was how to set up a self-directed IRA. I was asking people questions about which ones they’re using, which one they think was best. One investor told me he was using a guy to help him facilitate a self-directed IRA where he had an LLC, but in his case, he had a corporation. I was looking into that and he said, “The reason I have this is I’m buying mortgage notes from the guy out in New York. Here are a web address and a phone number. You should get on the calls and check out his website.” The first time I got in there I was like, “I can buy mortgages from the bank and I can make money off of these. This is so cool.” I jumped in right away. They were all nonperforming seconds. The majority of them, you could get a pay-off and some you could collect payments for a little while and then get a pay-off. The whole idea was the person was selling with how to do settlements. This was at the time 2007. There was still equity in properties. You could get either a full pay-off or pretty close to it and make a nice little chunk of change and then just repeat the process.

Did you use any type of roadmap to go and do the borrower outreach or did you just literally get the file and see the phone number on the application and pick up the phone and try to get in touch with them?

The cool thing about this was we were getting training while we were buying the notes. We were buying the notes and the investor and he was holding bi-weekly calls. He would call us one-by-one and we’d go through all of our loans. We tell him what we were doing or what we weren’t doing. Sometimes he would yell at us for doing stupid things, but it was all for our own benefit. He taught us how to get in contact with the borrowers, how to work out deals, how to use attorneys for foreclosure. How do you skip tracing tools to find people? How to negotiate, don’t be afraid of the bankruptcy loans and we all just grew from there. I met a bunch of fellow investors through there. I met Dave Van Horn and Pete Eiseman.

I have a good relationship with Pete and I was thinking that was the same group you were a part of.

We expanded from there and at the time, we were all doing it on our own. I had decided that I was going to start my own servicing business. I had no idea of what it was going to take or what it would be like but I put on my hat and I said, “This is what I’m going to do and I just charged ahead.”

NIME 35 | Madison Management

Madison Management: Inevitably, borrowers can play on your emotions hoping to work a deal with you when they know you own their loans.

 

What was the why?

I had never used a servicing company. In fact, I had never owned any notes before. I bought the first one but work them out myself with relatively easy. Since it was my own money personally, I had to mentally turn around and whether I’m on the phone, pretend like I’m a representative of a servicing company contacting the borrower. If you let them know that you are the owner of the loan, now they’ll start getting at you emotionally to see how they can work a deal with you. They’ll start to play on your emotions. I have to push back and pretend that I’m working for a servicing company and I already had an LLC so I rebranded it as Madison Management Servicing and I just moved forward with that. As soon as I could hire somebody, I hired somebody to get on the phone to pull me away from the emotional attachment of the assets and guide somebody else on doing what needed to be done.

You had the why and you rolled up your sleeves, you figured out how to do it. At what point did you realize, “I’ve got to scale this up. This cannot be a small operation where I’m just doing it with me and my cohort for servicing?”

By the time we decided to scale up, I had acquired probably a dozen to two dozen loans of our own. I was at some conferences that were being put on by Dean Engle. Through that, I met a lot more folks and one gentleman came up to me and asked me to service his loan for him. We negotiated the price. I had to figure out where to start off with that and I came back home. At the point, I went and rented some office space. I brought somebody with me and then I got somebody to answer the phones and it started from there. First, it was probably about a dozen loans and then that grew to about a hundred. Through word of mouth, through other people, I started acquiring more and more investors and servicing their loans for them.

I assume that you were note investing as you were growing your business or did you switch gears and say, “There’s enough here just running this company.”

No, I’m an active investor. When opportunities come along, I’m always looking at note opportunities to buy, replace ones that pay-off. When I get some cash, I go start looking to buy some more loans or maybe partner with somebody and see if we can take down the pool. I didn’t just change into the servicing world and leave it at that. I’m still an active investor as well as running the servicing company.

When you do invest, I assume that if something comes your way, you’ll take it down yourself and self-fund it. If someone has a larger pool that they need help with like buying assistance with taking it down, are you someone that they can contact if you had a trusted relationship with them?

Yes, I would be open to that. I have done that in the past. At the very beginning, myself, Mike, Pete Eiseman, PPR and a couple of other folks, we pooled all our money together and we bought a pool alone and then we divided them all up. We’ve done that a couple of times.

Treat all your clients well. You’ll never know if they’ll quit back to their day jobs or be the next big thing in note investing. Click To Tweet

I know you’ve seen the landscape evolve in the note investing community. When I was buying in 2013, I could buy loose notes off the ground all day long. I could go to the same tape month after month and pick notes off and now there needs to be more collaboration within the community in pooling resources to go after take downs.

At that time, I honestly didn’t know who to call. I let an opportunity go by. I thought, “Here’s a nice pool of loans. They were being sold by a bank and they wanted a high price for them, probably in the 80s, they were all GDR loans. The loans had been in default and the people had lately gotten caught up because I got the tape. I could feed their pay history. As soon as they were all current, the bank wanted to get rid of them and get them off their books. They were willing to take somewhat of a haircut on them because they had originated all of the loans.

The paper was clean. That’s interesting. Let’s dive into Madison’s process a little bit. There are a lot of newer folks on board here and they’re maybe looking at their first note or they’ve purchased their first few notes. What would you say about Madison’s process for intake?

When you’re out looking for loans and you want to buy loans from a hedge fund or another investor, the first question is, who is your servicer? You should be able to get set up with a servicer before you go out shopping. When you’re buying a house, you get a prequalification for a mortgage before you go shopping for your home. The realtor is not going to think you’re serious unless you have a preapproval or prequalification. Getting fed up in advance, we make that easy. Either we have the forms on our website for people to fill out or they can contact Shante or send an email to us and we’ll help you get the forms filled out and set up. That gets you ready so when you get loans and you’re ready to send, then you can say send them over to Madison and you’re already set up here. Included with that are transfer instructions, which most large services would’ve had anyway. It tells the other people how to send the data over what we’re expecting as far as the data tape and the collateral files.

I know Shante handles a lot of boarding process for you, but at some point, the note investor sits back and the servicing company from the note seller kicks in with you, the loan servicer for the note buyer.

Correct.

You two have a conversation and data is pulled over from one service or to the next.

Either the seller or the buyer can notify the current company, they transfer the loan over to this seller servicing company. You tell them who it’s being transferred to. Since we all work together, we know who to contact. The first thing is the hello and goodbye letter. We send over copies. If it’s coming inbound, they send a copy of the goodbye letter for approval. They ask us if the dates work for us because the transfer has to happen at least fifteen days. The letter has to go out at least fifteen days before the transfer. The company that gets a loan transferred has until fifteen days after the transfer to send out the hello letter, but generally we would try to send them out. They crisscross in the mail and the borrower gets them within a couple of days of each other.

NIME 35 | Madison Management

Madison Management: There’s always been fraud in the mortgage industry, and the best way to avoid it is to do your due diligence.

 

This is an example of a clean transaction. It was more so in some years back than it is now. There were a lot more note sellers they were self-servicing. When you went and purchase it, then it’s up to the note seller to fill in all the data that the loan servicer needs to get the loan set up. What I’ll say to that is, you have to be mindful of the note seller to make sure that they’re sending out the rest of the form. I would always have to ask for a copy of that and sometimes I would catch the one wasn’t sent out and all that’s important. Why is that important Kevin?

The reason that these letters are important is that years ago, there’s always been a fraud in the mortgage industry. A lot of fraud and I can’t tell you the exact dates, but HUD came up with the ruling that says that when a loan gets transferred, the transferring servicer needs to send a goodbye letter and the servicer that’s getting the loan has to send out a hello letter so that the borrower gets a letter that says, “Your loan is being sent to ABC company from XYZ Company. They say, “We’re ABC Company. We’re receiving your loan from XYZ Company.” Because there was a fraud where unscrupulous people would send letters to a borrower and say, “Your loan has been transferred to me. Send your payments to me.” Then the borrower starts sending their money and pretty soon they’re getting foreclosed on and they’re thinking all the time that they’re sending their payments into the legitimate company. That’s why this ruling came out.

To talk to your point when you were buying it from a private investor who didn’t have it serviced somewhere, other than you as the buyer making sure that you have all the correct data and correct balances, pay history and all from the person who sold it, you could send a combo hello and goodbye letter because that’s not uncommon either. A case in my point, my personal loan and my personal residence was being serviced by PHH and they transferred the loan to Flagstar Bank. I got a letter which was a combo hello-goodbye letter from Flagstar Bank telling me that my loan has been transferred and I don’t know the exact reason why but I think Ocwen absorbed PHH and PHH doesn’t exist anymore.

Doesn’t it go and play into the hands of the unscrupulous who are sending out the hello letter? They just have to send out a hello-goodbye letter.

It could play into that. That’s the case where you say, “Borrower beware,” and I would personally do this. I would check and make sure that whoever is sending me a letter like this, that they’re an actual real company and that they have a website. I can call somebody and they answer the phone. I can ask them all the questions. I can verify them so that I’m not getting spoofed. You know as everyone else that we got a lot of spoofed emails from people trying to get us to log in and give them our bank passwords or something like that.

I had someone create a phony identity for a member at my church and then they private messaged me telling me to do XYZ to get some type of loan out there and it was crazy the level of sophistication that some people are going through to get that done. I know in the second space there’s a lot of activity, the borrowers at times file for bankruptcy. How does Madison handle that when a note becomes active BK?

Before I get into that, when we board all the loans, we do a PACER scrub to check and see if anybody has filed bankruptcy. You don’t want to board loan and then start sending out debt collection letters to somebody and find out that they filed bankruptcy the day before it was transferred or two days and you were unaware. I mean you can tell the attorneys, “We didn’t know because we weren’t the servicer at the time,” and you can get a pass on that, but we try to make sure that we’ve checked everybody previously. What’s important when somebody has filed bankruptcy, depending upon what chapter and thankfully the Supreme Court squashed the Chapter Seven lien stripping that was starting to run rampant.

When you have a junior lien, that’s one of the things that you always want to watch out for is that somebody doesn’t try to strip your lien and claim that their house is worth $100,000 less than what it is and then you have to come in and prove that you have equity. The burden of proof is upon you to show the court that you have the equity in the property. Those are the things that we would be looking for and we’ll notify the investor if they haven’t been notified already that their borrowers filed bankruptcy, what chapter they filed and what information we’ve received so far. We look at the voluntary petition and make sure that they’ve listed the liens and are they willing to reaffirm the debt or whether they’re trying to strip it.

Be willing to help a borrower in need even if it means having to tell them straight up that they need to sell their house. Click To Tweet

Have you ever had a case where they have not acknowledged the second on the voluntary petition?

Yes.

I’ve never seen that.

I’ve seen bankruptcy. I bought it at first and the borrower had filed bankruptcy and the homeowner did not put their loan in the bankruptcy. It’s like, “Why?” It’s illegal to not include all of your debts because that’s the trustee’s job is to find assets to sell to pay off the creditors. For the most part for your house, unless there’s a boatload of equity, the trustee is probably not going to tell you to sell your property. Unless you had $300,000 or $400,000 house in the first lien that was like $30,000 balance and then the trustee is probably going to make you sell your property and take whatever is above the homestead exemption depending upon your state and use that to pay the creditors. I don’t think that somebody would be filing bankruptcy if they were in that case, but you never know.

After the boarding process and you do the PACER scrub and everything checks out and then the borrowers files BK, let’s say Chapter 13, you’ll go look through the voluntary petition. All throughout the process assuming this is in your loss mit program, I assume that you have a recording that you do with the trustees or no?

Not really. If they filed bankruptcy, it’s a matter of finding out what’s their intention with the property whether you’ll have a first lien or a second lien. If you have equity, you’re going to want to file a proof of claim to secure your position. Even if there is no equity, you should still file a proof of claim if you are intending to challenge them to bankruptcy and expect to receive any funds out of it.

That voluntary petition is critical. Even if someone files BK a few years prior and it gets dismissed and you’re buying that note, you should still be all through that voluntary petition to get as much information as possible about the borrower.

That’s what I learned from my mentor. If you have been looking at past bankruptcies, you can find out information such as what did the borrower think that their home was worth? What are the assets that they had or what are they not including now or what is it that they potentially have, do they have any other properties anywhere?

NIME 35 | Madison Management

Madison Management: Think about your overall game plan before buying notes. Be specific about what you’re going to do with them and how you’re going to get paid.

 

If you have some note investors that they may want to get into the game and they found some good notes and they bought them, however, they don’t know what to do with them. They need loss mitigation support. How does Madison run that program?

What I teach and train my people is not to advise anybody on what to do and not tell you what to do. Just to explain what your options are and to promote the investor to come up with a game plan for their loans. The reason why I do this is if I told you to do something and then it didn’t work out, now it’s my fault because it didn’t work out. I always say, “Here are all your options. You can reinstate, you can refinance, you can do a payoff, you can foreclose, you can get a deed in lieu or those are the general options or sell the property. You should think about when you buy these notes, what’s your overall game plan at first with those? As I’ve heard Bill McCafferty say, “There are only one of three options.” I forgot what those ones were, but it comes down to either the house pays or the borrower pays and one of those two ways. Do the borrower want to keep their house and get workout some payment arrangement or are they going to fight you and you’re going to have to foreclose or somewhere in between. You should always have those things in mind and also think about, “With this loan, do I want to get cashed out or do I want to get cashflow?”

It’s a good point or hybrid. Cashflow for twelve months and then cash out.

I did that on a few at the beginning with the juniors. I got people to start making payments and this was before the market totally tanked. I work with them to get refinanced. My first one, I convinced them that they could get a new first lien, get a lower interest rate, pay me off in full and still be paying less money than they are on their current first mortgage alone. In the second case, I helped these two brothers. They were having trouble with Bank of America but I had to work with them for about 24 months to get a nice pay history going. They got refinanced. They got rid of Bank of America. They got a new loan. They got cash to put a new roof on their house and got a lower payment and I got fully paid off. That was truly in those two cases, a win-win for everybody.

You don’t hear about that strategy enough and that’s great that you brought it up is to encourage the borrower to make their payments for a twelve-month period and then refinance you out. You get closed out. They get a new loan. They do debt consolidation. They lower their interest rates or whatever the case. They get a new lower monthly payment. Everybody wins in that regard.

I’ve read some of your case studies that you got them to perform and I’ve done the same. I got loans. I got them re-performing. I got a nice, twelve, eighteen-month pay history on them and then sold them off as a performing loan to somebody else and then took the cash and went and reinvest it into some more notes.

If I could do it again, I wouldn’t have sold those notes.

I have a few that I wish that I would not have sold because they got replaced with something, a few things that weren’t too good.

When dealing with something personal as people’s homes, you’ll need to learn to separate your emotions to find effective solutions. Click To Tweet

That’s usually what it means when you say you wish you wouldn’t have sold the notes. Where does Madison Management go from here as a company and where are you looking to take it?

I’m looking to expand, to grow larger, increase our book size, increase the staff so that we have more people and I’m always investing in our systems to improve our fifth and both the online and internal so that we can do our job more efficiently and that we can provide all the information more efficiently to both investors and borrowers.

What do you guys do well right now?

I think that one of the things that we do well is we answer the phone and we respond to our emails. When people call, there’s always somebody here to answer the phone. I mean, there may be times where it seems nobody’s answering the phone. That’s probably because everybody’s already on the phone. I try to make sure that people respond to their emails in a timely manner so that people are responded to. We’re expanding our licensing footprint slowly but surely. I’m not sure if we’ll ever be 50 state license, but we’re slowly expanding as our portfolio grows and investors bring loans into new areas.

Are you not in certain states?

Yes.

What states are those? Just so everyone knows.

We are not in New York. That’s the absolute toughest state to get a license in. We are not in California, Nevada, New Mexico, Oklahoma, Nebraska, South Dakota, Montana, Maine, New Hampshire and Mississippi. I think that’s about it.

NIME 35 | Madison Management

Madison Management: There is always a need for somebody to help the little guy get started.

 

You’re in most of the states. The states you didn’t name are big note players or have a lot of note inventory. You see yourself growing in your book size and then growing and you’re licensing across as well and having those two things parallel?

Correct and expanding our own portfolio personally.

How are you set up to work with the smaller note investor as they’re getting started?

I’ve always gone with the premise, no portfolio is too large, no portfolio too small. If you’ve got 1 loan, 10 loans, 100 loans or 500 loans, I’m not going to treat you any different. The person with 1 loan and the person with 100 and 500 loans because there is always a need for somebody to help the little guy get started. The person may start off and be a onesie-twosie note owner and it can go either way. They can decide that’s not the business for them and they want to go back to doing rehabbing or owning rental properties or going back to their day job or something. There are fellows who they’ve got the taste of it and they’re like, “I’m all in,” and they’re looking to expand like gangbusters. If you got one loan, that’s fine because I know that your goal is to expand your portfolio like that was always my goal to expand my portfolio.

With one note, they’ll get a login, they’ll get access to your dashboard.

Everybody gets access to the portal and they’ll see their loans and then they can drill down to each of their loans. I have few reports out there and I add reports as I get requests if they’re not too difficult and that they’ll meet the majority of people’s needs. You can run a collection journal and see the pay history on your loan and it’s a date-driven so you can enter dates and go forward and backward. I believe there is a report that shows the last twelve months of a pay history on a rolling basis. I created a report for somebody so that they could enter in a date range and get the call logs for all their loans by date range instead of drilling down to each individual loan and reviewing the call logs. You could look at the call logs and say, “What happened yesterday? What happened two days ago?” and see what call logs were there.

With regards to call log, will you allow for any assistance from the note owner? If they do skip tracing, they find a better telephone number, they can have a dialogue with you to give you some additional resources for connecting with the borrower?

That’s one of the other things. We practice SPOC here, Single Point Of Contact. No matter what the SPOC is with the borrower, the same goes with the investor. Your loans are sitting with one of the reps and that person is going to be working on your loans. You have direct contact with them via email or a telephone and communicate back and forth on your loan and guide them or they can provide you feedback on your loans.

The one thing I like what you said is if someone’s coming into the industry, they need to get set up. I’m sure it’s a master servicing agreement you have, it’s probably titled something like that. They need to get that set up and in place in anticipation for flowing notes through to Madison and versus the alternative which is, “Let me just chip away and do things as they’re coming to me. Let me buy the note and then figure out what to do next. Let me set up the goal setting and exit strategy and then let me set up the service.” Hopping here to there, it’s better to have everything in place. Let’s talk about payments. The borrower makes the payment on the 1st of July, when does he get to see money? All that fancy camera services and all these hired hands following him around with his reality TV show, that costs a lot of money so he needs the money to come in.

That’s something that we heard our investors. Way back in the beginning, we started cutting checks once a month and then we bumped it up to twice a month, the fifteenth and the end of the month. We heard everybody who was saying that one of our competitors was paying faster so we thought it over and I’ve done a lot to help automate this process. We’ve decided to go to weekly processing. That means that I’m looking at the calendar in front of me here that we’re in the week of the fifth through the ninth. Let’s just that’s from the 29th of October to the 2nd of November. If a borrower makes a payment on the 29th, we’re going to on Wednesday, November 7th cut checks. If you’re signed up for ACH, you should have that check in your bank and the money in your bank on the 12th from our provider. If you’re on a manual check, I don’t know how much longer it takes for a manual check, maybe 13th, 14th, however long it takes for the mail to get there.

You need to get you head checked if you’re on the manual check.

Basically, we’re doing a cutoff. Friday would be the cutoff and the reason we don’t process until Wednesday is we’re giving time on Monday and Tuesday for all the bounced ACHs or bounced checks to show up. By Monday or Tuesday, we’ll know if the ACH that went out on a Thursday and Friday whether they were returned NSF and the bounced checks from the bank will show up almost as fast. I do all it check deposits every day. Sometimes when I’m entering the checks into the ATM, it will kick it out and say the bank won’t accept this check. There’s been a stop payment on it or something or somehow their banks already communicated that it’s an NSF, which is good so I don’t get charged for it.

How it feels to note investors and I’ve had a servicing company whereby if the borrower makes the payment on the 1st of November, I’m not going to see that ACH until December 15. What that makes me feel like is somebody is playing with my money, overnight investing or whatever the case. I assume that what your policy ensures you’re a good steward of investor’s money and when it comes in, you just want to make sure it’s cleared. There are no non-sufficient funds and everything checks out and then you’ll issue payment.

It’s probably no secret, we use The Mortgage Office and by default, I think it was set up at ten days. I don’t use The Mortgage Office to cut checks but I do use the rest of their systems. I do make use of that and have a five-day window there which I used for my automated process on how to calculate a date range of the checks that I’m going to pick up and process. If I said, on the seventh, I’m going to generate a check file and our accounting department will go through all the checks and before noon on Wednesday, they’re going to upload that to our ACH provider. It will get downloaded to their system on the 8th and by November 12th, everybody will have the money in their account.

That’s great and then you’ll issue out the loan account statements. What time of the month do you do that? Assuming the payment’s due on the 1st?

The borrower statements go out fifteen days in advance and that’s my personal feeling that I could have gone with this standard, which is like 30 days or 25 days but I felt personally that if somebody gets a statement, I mail it out and however long it takes for them to get it and it’s due within fifteen days. It’s right there in front of them. They couldn’t just, “I’m going to throw it on the desk,” they might do that and forget about it but if it gets there about in time for them to say, “I’m going to make my payment.” It’s there in time for them to write their check and send it out in the mail or better that they get set up on ACH so we can debit their account on the due date when it’s due.

NIME 35 | Madison Management

Madison Management: Credit reporting is critical in note investing. It’s one of the things that you can get from a servicing company.

 

That makes perfect sense and where do you stand on credit reporting? Do you offer that as of yet?

I’ve been credit reporting for over several years. Everybody gets credit reported unless some investors don’t want them to be credit reported.

Everyone needs to understand this. The power of credit reporting is you can’t put any words on it. It’s the difference between a borrower who’s not having their credit reported on with their seconds that’s in default for five years, go out to a BMW dealership and buy a vehicle. The car dealership has no clue that they haven’t made their payment in five years. It’s the difference between that person riding that car off the lot and having the credit manager tell them they cannot get the BMW because they need to go home and make the mortgage payment that they haven’t made in five years. You can’t put words on that motivation to have that borrower want to go and rectify the situation.

They call and they’re upset and we get a lot of letters. It’s like, “You haven’t made your payment. I don’t have a pay history. Can you show me that you made payments and I’ll correct the records? Otherwise, it looks like you haven’t made any payments for the last six months or six years.”

We have a question, “What’s the cost for the credit report service?”

Currently, I’m not charging for it.

There you go. You heard it here first. Kevin with Madison Management, you could have one note or you could have 100 and he’s taking you on. His credit reporting, he is not charging for it now. He has loss mitigation so he can go and pound the pavement to get the borrower to the table. Credit reporting is critical. It is critical. I’ve gotten loan modifications because of credit reporting but that’s good stuff. Probably, on some of Fuquan’s notes, he’s having credit reporting done and doesn’t know. That’s an automatic. We can’t forget our friends who are first mortgage notes. Are you escrowing?

Yes. If they came over and they had an escrow, we send out a letter to everybody asking them if they have a tax bill or insurance bill and if their payments had been escrowed. Sometimes it comes over with the previous servicer. We get that information and that they were escrowing so we continue forward. We collect their taxes, their insurance bills and collect the funds and disperse the payments.

If there’s no insurance, do you guys have force-placed insurance option?

We have force-placed insurance for those people who don’t have any insurance. If the investor wants, we can tie them up with our provider and put their loan on force-placed insurance.

Let’s say a loan mod happens on the first and the note holder wants to get escrow set up. Do you do the preliminary, going to the county records, find out how much taxes are or do you ask the note owner to go and provide a real estate bill? How would you play that?

I can do it either way. If they’ve had force-placed insurance then at that point, we would tell the borrower they need to go out and get an insurance policy and give us proof that they have an insurance policy and then we can escrow for it. If they don’t have the money to pay for it, they should find somebody who can let them get set up on a payment plan so that we can pay it going forward. Because people who haven’t paid their mortgage, they should have been saving the money but they don’t. They spend it all. You would think, “You haven’t been paying your mortgage for twelve months or whatever.”

You only have twelve months’ worth of payments and taxes and everything. No, they don’t have a dime. They spent it all partying or whatever. They don’t have any money to pay for that. I have a borrower and I have force-placed insurance on the property. I told the borrower several times to get an insurance policy and they’re like, “It’s too expensive,” but my insurance isn’t covering you. If your house is on fire, I’m going to get paid but all your stuff inside is not covered. They don’t seem to care and even if I tried to tell them, “Here, I’ll advance the money for you to go get a policy. I want you to have insurance.”

It’s interesting because you read the news and everything’s talking about so much of the news like we have a great recovery. We have the lowest unemployment. You hear all that cheerleading stuff and then you actually see the people and they’re like, “I can’t afford insurance. $70 a month is going to break me.” They’re living that much on the edge of things and you realize there are a lot of people that still need a lot of help out there in our country.

Not to bash our wonderful capitalism but the billionaires have gotten richer and the thing is that in some places people think Walmart is great because the prices are so cheap. I don’t remember this because they didn’t pay any attention, but somebody told me when Sam Walton was alive, nothing in a store with made in China but as soon as he died, they got everything made in China. I don’t know if that’s true or not but I know that people who work at Walmart don’t make high salaries and you’re on your feet all day. A lot of these areas where we’re buying these loans, all of us are in these areas where the largest employer may just be Walmart. People aren’t making a lot of money on these and these people need help. I know personally when I buy loans, I will bend over backward to work with somebody as long as they want to keep their house and they’re willing to make payments and they have the ability to make payments. I can’t work with somebody who wants to stay in their house but doesn’t have the means to pay.

Let’s talk about that person in that situation, they can’t afford the house. Are you helping them through the short sale process where there’s less equity?

NIME 35 | Madison Management

Madison Management: People in desperation will tell you what you want to hear just to stave off the responsibility of making payments.

 

In that case, if somebody can’t afford the house and somebody has to have that conversation with the borrower that it’s time to sell the property. It’s a hard conversation to have to tell somebody. I don’t like to call people and tell them that they have to sell their house but if that’s how it comes down to. If the person, Devin, have any means to pay them, then you have to tell them, “Why don’t you sell the property and find a less expensive place to live? We can work with the investor. Maybe the investor can give some money to help you move out at someplace else and you can get on with your life instead of having this burden over you.”

That’s a very real conversation because the person’s always going to be like, “I want to stay at my house.” You look at their financial situation and it’s not so much a want, it’s that they can’t afford to stay in their house.

The other thing from my personal viewpoint is I don’t always think of modification is always in somebody’s best interest. I’ll say that if I’m dealing with a first mortgage, my first question with the borrower is, “Can you afford the monthly payment? If its $679 a month plus your escrow, can you afford to make that payment every month?” If the answer is, “Yes, I can afford to make that payment.” I don’t have to go change the payment. I can do something with the arrears. I can put it on the backend. I can leave it like a balloon payment. I can forgive it over time but then with I’m dealing with a second, then I want to look at their financials and say, “How much can you pay? Let’s look at your finances and see whether that number works for you or not because I don’t want you to give me a number that you think I want to hear and I want to put you on a payment plan that you can actually afford. Not when you think you can pay.”

That’s a good sentence because people in desperation or what have you, they’ll tell you what you want to hear just to stave it off. I’m switching gears here. What are some daily rituals you have in your life that have helped you be successful as you are now?

I get up every day at 6:00. I have a coffee, relax a little bit and I work out every day. One of the reasons I do, that if I had a bout of sciatica that was bad. I was laying on the floor of my bedroom to sleep. It was painful and some of it has come back and I have been working out getting on the treadmill and walking for 30 or 40 minutes. I realize that doing a lot of the yoga and stretching exercises is important for that. Keeping my weight down too so I don’t have to take medications. That’s what I do every day and then I come and I used to open and close the office. Now, other people open the office for me and I get here when I get here, but generally I close the office every day. I started enjoying some hobbies.

Such as?

I enjoy shooting. Some people may not like that but once a month I go down to South Jersey and there’s a steel challenge. It’s a match and I participate every month in there. I have a lot of fun. I came up on this a few years ago and I enjoyed that and that’s something I look forward to every month. It’s something that I’ve gotten into doing and it’s enjoyable and fun.

Kevin, when you sell your billion-dollar company, you should come to check out Virginia because there’s not a house that’s packed full of guns. We enjoy shooting down here, concealed carry and all the things that they don’t let you have fun with up there in New York. Kevin, I learned a great deal about Madison Management. I tell you, everybody reiterating, credit reporting is not done by a lot of loan servicing companies. It is smoking hot. It is needed to help get the borrower to the table, if your exit strategy is through the borrower which it should be. That’s the compassionate way to go with note investing in my opinion. He’s in most states. Check him out. Get set up. Kevin, I want to thank you so much for your time. It was a great honor having you on.

Martin, I want to thank you for having me on and having this great discussion about note investing. I know you’ve got a couple of books out there on Amazon. I purchased one last time and I read your book. That’s how I knew about some of the deals that you had because you have the appendix there was with quite a few of your deals that you did.

I was never thinking of writing a book and then I did. As I joke with people, I’m popular now. I was never popular in my life, for better or worse. Thank you so much, Kevin. I hope a whole bunch of people check out Madison. I want to thank everyone for reading the blog. Take care, everyone. Be good and God bless.

Important Links: