Vendors and Alphabet Soup! Now What?
I hope you had a great 4th of July! Last week I shared with you some of my struggles I have had when purchasing our first assets. This week I am going to share some experiences and learnings I had when selecting vendors that RED was going to work with. Yes, I am doing this somewhat backwards! I set things up this way and I am writing in the same manner. I want you to learn from my mistakes that I have made along this journey. Let’s get at it!
I start off with some SERIOUS alphabet soup for your consumption. CFPB, FDIC, SEC, Dodd-Frank, TILA, RESPA, and FDCPA. I was fortunate to know what these soupy entities were before I started in the note industry. A lot of investors do know about these entities and laws, but do little homework on them to understand how they regulate the industry. And I am not just talking about note investing here, but all forms of investing within the real estate market! My first misstep that I made in this alphabet soup was on our very first owner financing deal. I had researched a Mortgage Lender that was licensed and bonded to underwrite owner financed deals in Indiana. All good there. Then I got a referral from the same individual for a Title Company that could close all our deals. Check and off to the races! As so I thought, after closing several deals with this title company the title officer called me on the phone and told me that there were some issues on all the transactions we have closed thus far. My first reaction was Holy Shit! She told me that each of the three transactions were missing critical TILA and RESPA disclosures. I asked how did those get missed. She flat out told me they thought they were not needed due to the type of transaction they were closing. We ended up going back to all three homeowners and letting them know this, and we were able to have them all sign the needed disclosure documents. Lesson here, is that you need to ensure that the vendor you are working with has the capabilities/knowledge of your niche. And do not be afraid to ask questions. Part of my failure here was that I “ASSUMED” that the title company was compliant. I could have been fined between $5,000 and $25,000 for each violation. YIKES!!!
The other big mistake I made was ensuring that two of our vendors could/would work together on non-performing notes. Specifically, around the initial contact phase after the note is purchased and transferred to us. The servicing company has several steps that they must complete to be compliant with Federal and State laws. Additionally, during this time no collection efforts can transpire for 30 days. The other vendor we started working with is a “Non-Profit” and can reach out to the homeowners during this period and discuss their intentions. The servicing company at the time we were working with did not understand how they could do this and thought it was all illegal. After our General Counsel sat down with theirs and discussed all the laws and regulations around the other vendor’s activities then they finally understood what was transpiring. By this point, we already had four notes purchased and no activity was being performed on them for almost 45 days. The first 30 days are the most crucial in understanding what the homeowner’s intentions really are. Lesson learned here: Make sure that if you have multiple vendors working together ensure you have worked out all the details prior to them working together. Financial impact: Unfortunately, one of the three notes we had to foreclose on, and with the missed time up front cost us an additional 60 days. Those additional 60 days ended up costing us $3,000.
Thank you for taking time out of your day to read this installment of my journey. Next week, I am going to share more on how I get tapes and what channels they come through. Not all tapes are equal! Until next time, have a great productive week! Let’s all be part of bringing Wall Street to Main Street!