A friend keeps you from making poor decisions, is there in your times of need, and can be a good source of information. Based on this criteria, I consider the internet to be my friend. Yes, the cold, impersonal, most definitely non-human internet has my back. Best thing is, it can and will be your friend, too.
I’ve written several articles about the wealth of information online that can help you make a decision about whether to buy a real estate note or a property. County records and real estate-related websites can help round out the due diligence process. Many if not most real estate investors know how to efficiently utilize these sites, so they are not the subject of this article.
But how often do you do research on your note holder or property seller? They seem nice enough the first time they call you, right? Could it be they might have something to hide? After all, people normally only sell discounted notes and/or properties for two reasons: They need money or they need to be rid of a problem. Maybe, just maybe, the internet can allow you to fill in the blanks when the seller isn’t being entirely forthcoming. What? You’d like a real-world example? Funny you should ask – I received a call this morning that prompted the writing of this article.
An older gentleman called me looking to sell a small note. In 2008, he loaned his son some money after the son had depleted his savings by buying a new house. What would be your first question here? The terms of the note? The timeliness of payments? How about whether the note was secured by anything? If you answered the last question, you are correct. As is often the case of loans between family members, there was nothing securing payment except the possibility of being ostracized from the next family reunion.
Without detailing the conversation word-for-word, I told the note holder the note would have to be secured by something with real value. He told me he owned a mobile home on ten acres that was worth about $120,000 more than he owed on it. He was willing to give me a 2nd mortgage on it as security should his son default on the note. At that point I was noncommittal, but said I might try to run out to the property and take a look. First, I asked him to fax me a copy of the note, the pay history from inception (it was serviced at a local title company, which was a good thing), and a copy of the appraisal he had recently gotten on the property.
After we hung up, I do what I always do at this point in the transactional life: I did a Google search on the seller. If you’ve never taken this step, you might be shocked at the volume of information available at your fingertips. In the past, I have uncovered sellers who are convicted criminals, slumlords in the midst of class-action lawsuits, and those in the throes of bankruptcy. Think back to the reasons mentioned above why sellers sell – now do you understand why a little ‘seller intel’ might be in order?
Immediately my screen filled with news stories about my seller. Turns out he had been criminally charged with a very serious offense in 2009. Twice he had summoned the court to plead guilty on the charges, then rescinded his plea at the hearings. One of his attorneys requested that the court administer a mental competency test to his client. Another attorney resigned from the case due to non-payment of legal bills. Several other sources who had prior business dealings with this seller called him a crook, liar, cheat, and worse. In fact, there have been over 20 prior court cases involving this seller and bad business dealings over the past several years. I guess now we at least know why our seller needs some cash, right?
What do you think? Should I move forward with the deal? Some of you might think I don’t have any worries – first, the son, not the seller, is making the payments. Second, if I have collateral securing my note, what do I care if the seller is a crook?
What if the seller is trying to liquidate his assets because of a civil lawsuit being brought by the members of the family he committed his crime against? What if my seller is in bankruptcy, and the court has jurisdiction over the property he’s offered as collateral? What if my seller goes to jail if and when he’s convicted? Do you really think I want to get involved with so many unknowns floating around out there?
It took me less than two minutes, or about the time it took to read the first news story about this character’s crime, to determine I wanted no part of this seller or his note. This brings me to one last thing about the internet: It doesn’t let me waste my time on deals that are bad news from the start. Now THAT’S a good friend.
About the Author: Clint Hinman is the President of Proficient Note Buyers LLC, a buyer and broker of non-performing notes/loans and REO. With over 17 years of experience in real estate-related cash flows, Clint is part investor, part broker, part consultant, and part plain nuts. Contact him at firstname.lastname@example.org or visit his website at www.pronotebuyers.com.