1. Be the Bank: 12 Keys to Nonperforming Second Loans
Sándor Lau, Chief Inspiration Officer
StewardshipCapital.com

2. Imagine Real estate investment:
Single family home, down payment like FHA 3.5%.
No application, no credit, you don’t live there.
Occupants completely committed to your housing product. 10 years no vacancy.
You can enjoy monthly payment stream, appreciation, or cash payout, sometimes all three.
If it goes south, all you’re into it for is down payment.

3. Case Study: Mile Wide Never Should Have Worked: House upside down
Borrowers bankrupt
Hadn’t paid second mortgage since 2011
But…paying first mortgage

4. Case Study: Mile Wide BORROWERS:
Married couple with kids, KC suburbs. $11k/mo.
Borrowed against house to start business 2007.
Previous chapter 7 bankruptcy.
Living month to month but paying first mtg.

5. Mile Wide Numbers: Example photo only, not borrower’s house
Value: $360,000
1st Mortgage: $400,000
Payment on 1st: $2,000/mo
2nd Mortgage: $55,000
Arrearages: $30,000
Our Cost: $6,000+$2,500 lawyers (2.4% of property value)
PAYMENT PLAN: $350/mo, $4,200/yr, 10-year balloon, Sándor’s insurance
RETURN: 50% (improves at balloon). Resolved in 6 months.
Never should have worked. Works all the time.
Example photo only, not borrower’s house

6. 1) Emotional Equity Trumps $ Equity
House=Asset (IRS)
House=Doodad (Robert Kiyosaki)
House=Investment (real estate investor)
House=Home where kids and pets live (homeowner)

7. Please Raise Your Hand if You Have Previously Invested in Notes?

8. Money is Debt
US currency is a promise to pay.

9. Shift Your Paradigm
“If you want small changes, work on your behavior; if you want quantum-leap changes, work on your paradigms.”

10. 2) Stack the Cards in in Your Favor
We buy discounted nonperforming second mortgages behind performing firsts on residential properties.
I have income
I want to keep
my home

11. Online Underwriting: Credit Report
To get a good mortgage, you need great credit
To get an awesome mortgage, you need horrible credit.

12. More Cards:

13. Title Card: First lien, modified, paid off, foreclosed?
Other liens (contractor, business, third, private)

14. 3) People Do Not Grow Tired of Living Indoors
Real estate appreciating for the past 10,000 years.
Not everyone needs car insurance, pet reiki, iphone or psychotherapy. Everyone needs a place to live.
One of my favorite books is Guns, Germs and Steel by an anthropologist, Jared Diamond. It’s a history of the fate of human civilizations in the last 10,000 years that have been largely decided by guns, germs and steel. The reason is it’s on the last 10,000 years is about 10,000 years ago human beings in the Fertile Crescent first developed agriculture. They discovered that life cultivating and harvesting your own food was infinitely better than hunting and gathering. For agriculture, you need land. Which is why land has steadily gone up in value for the last 10,000 years. The downturns are tiny blips in a long upward slope, and the last one is very likely to be the biggest in our lifetimes. Housing ranks a close third behind breathing and eating. Not everyone needs car insurance, iPhones, pet reiki, psychotherapy or Photoshop. But everyone needs a place to live.

15. Case Study: Fields of Green
BORROWER:
Milwaukee area, Greenfield, WI.
Single dad raising two kids in house they were born in.
Dramatic income loss, divorce in recession.
Living month to month.
Previous chapter 7 bankruptcy.
To make this more real, I’m going through case studies for most of the 12 keys. They all have nicknames. 1, because it’s very difficult to memorize loan numbers and 2, because we want to respect our borrowers and their privacy. These are human beings just like all of us.

16. Fields of Green Numbers:
Value: $165,000
1st Mortgage: $170,000
Payment on 1st: $1,000/mo
2nd Mortgage: $25,000 (reduced from $40k)
Arrearages: $5,000
Our Cost: $3,500+$1,000 lawyers
PAYOFF: $12,000
RETURN: 266%. Resolved in 10 months. Intoxicating asset.
Example photo only, not borrower’s house
Beware curse of knowledge.

17. Case Study: Cement Mix Midwest fourplex, $80,000 $500/mo. mortgage
$2,000/mo. rent
What could possibly go wrong?
Mortgage due no matter what happens
Not example: Real House

18. 4) Be the Bank, Not the Landlord
No tenants, no toilets no termites.

19. 5) You Make Your Money When You Buy
Discounted real estate=exceptional
Discounted notes =standard
2nds most discounted
Sweet spot: under 20 cents on dollar UPB

20. Case Study: Home on the Range
1982: 18% interest
No loan: paid cash
Furnished from garage sales
How to know real estate garage sale?

21. Bank Paper vs. Seller Carry Loans
Needle in haystack
Haystack made of needles

22. Banks are the World’s Most Motivated Sellers
Large institutions
Strict rules
Move slowly
All or nothing
US:
Small and specialized
Win-win creative solutions
Fast decisions
What can you afford?

23. 6) Seconds Come First 2nds pull the strings
2nds can FORECLOSE like 1sts
Lower price point (smaller loans, bigger discounts).

24. Firsts Come Second 1st can foreclose—if we let them.
We can own property subject to 1st loan.
Not in our name, not on our credit.

25. 7) Diversify Buy pool of notes, $4k to $20kish each. Spread risk.
Strike Outs
Singles/Doubles
Home runs
In investing, you never want to put all your eggs in one basket. It’s difficult to do this with real estate investments because of the cost of each one, but a pool of notes costing maybe $4k to $20k costing an average of about $7k is much more within the reach of the average American investor. You can also make this investment in a self-directed retirement account.
Unlike investing in property, you don’t need to just invest locally. We’re the bank, not the landlord. We don’t need to have our own boots on the ground everywhere. We use note servicing companies with national footprint who have people everywhere, know the laws in each area and have legal people everywhere.
We spread out the portfolio risk across multiple notes, and I want to be very clear, they will not all work out as you would like. You will have strike outs. But you only paid a small percent of the face value of those. You will have some singles and doubles. I’d consider the Georgia Peach a single. And you will have grand slams. Those would be early payouts, even if at a discount. If you can make a resolution quickly, you can maximize your returns by turning that money over.

26. Tape =
In investing, you never want to put all your eggs in one basket. It’s difficult to do this with real estate investments because of the cost of each one, but a pool of notes costing maybe $4k to $20k costing an average of about $7k is much more within the reach of the average American investor. You can also make this investment in a self-directed retirement account.
Unlike investing in property, you don’t need to just invest locally. We’re the bank, not the landlord. We don’t need to have our own boots on the ground everywhere. We use note servicing companies with national footprint who have people everywhere, know the laws in each area and have legal people everywhere.
We spread out the portfolio risk across multiple notes, and I want to be very clear, they will not all work out as you would like. You will have strike outs. But you only paid a small percent of the face value of those. You will have some singles and doubles. I’d consider the Georgia Peach a single. And you will have grand slams. Those would be early payouts, even if at a discount. If you can make a resolution quickly, you can maximize your returns by turning that money over.

27. Case Study: Chicago House of Blues
Borrower:
Underwater $30k or more on first mortgage
Health issues
Struggling to pay $1,000/month first with $1,250 social security income.

28. Chicago House of Blues Numbers:
Value: $150,000???
1st Mortgage: $180,000
2nd Mortgage: $55,000
Arrearages: $15,000
Our Cost: $9,000
Settled for $3,000
Example photo only, not borrower’s house

29. 8) Pray for BK— Bankruptcy
Bankruptcy gives relief from debt, not entitlement to house.
We are secured creditors.
Chapter 7: liquidation
Chapter 13: restructuring
Read cards at:

30. Bankruptcy cards

31. Chapter 13 Bankruptcy
House<1st mortgage balance, court can strip 2nd lien.
House value<(1st and 2nd loans), court can cram down 2nd to lower debt.
All payments come through trustee.
Payment plan 3-5 years. Only 1/3 complete plan. No completion=no strip.

32. Case Study: Georgia Peach
BORROWER:
20 years in house with two children
Middle-class income ($5,500/mo) but poor money management skills. No savings.
Defaulted on payment plan, filed BK 13, now payments through court.
To make this more real, I’m going through case studies for most of the 12 keys. They all have nicknames. 1, because it’s very difficult to memorize loan numbers and 2, because we want to respect our borrowers and their privacy. These are human beings just like all of us.

33. Georgia Peach Numbers:
Value: $150,000
1st Mortgage: $80,000
Payment on 1st: $500/mo
2nd Mortgage: $45,000
Arrearages: $10,000
Our Cost: $7,000+$2,000 lawyers+$5,000 to reinstate first mortgage=$14,000
PAYMENT PLAN: Borrowers signed agreement for $500/mo to us, but stopped paying us and first mortgage. We paid $5,000 to bring first current.
RESULT: Borrowers now pay $700 through court garnished wages. $8,400/yr.
Example photo only, not borrower’s house
Beware curse of knowledge.

34. Chapter 7 Bankruptcy
Wipes out unsecured debts, leaving more to pay mortgage.
No lien stripping, no cram downs. Except FL, GA, AL.
Bankruptcy relieves personal debt obligation, does not provide shelter.

35. Case Study: Arizona Rattler
BORROWER
Single borrower with steady job and no dependents.
Built house 2002.
Filed Chapter 7 after we contacted.
Bankruptcy discharged and soon proceeding with foreclosure.

36. Arizona Rattler: Numbers
Value: $160,000
1st Mortgage: $135,000
Payment: $800/mo
2nd Mortgage: $36,000
Arrearages: $10,000
Our Cost: $6,000
After discharge of Ch. 7, monthly debts are only 1st & 2nd mortgage.
AZ state assistance program.
Example photo only, not borrower’s house

37. 9) Your Nearest Exit May be Behind You
A property has two ways to make money:
Rent
Sell

38. 2nd Notes Give You Multiple Exit Strategies
Borrower Wants to Keep Property:
Payment plan based on what borrower can afford
Pay off at a discount (higher returns on fast turn of money)
Only current resident has emotional equity in that property right now.

39. If Borrowers Can’t or Won’t Pay
Borrower ready to Move On:
Deed property to lender
Short sale (we can decide in a few days)
BORROWER REFUSES TO COMMUNICATE
Foreclose
Wait for appreciation

40. Property Exit Strategies
Once we own Property:
Keep as a rental property (subject to 1st)
Keep as rental property. We don’t pay the mortgage and first forecloses.
Sell for cash or regular loan
Lease option

41. 10) Get the Right People in the Right Seats
Highest and best use of our time is finding and fixing broken notes
Required attributes:
 Logical data crunching
 Intestinal fortitude
 Relationship building
Team:
Mentors
Servicing company
Accountant
Lawyers
Investors Bill Syrios, Real Estate Reverend

42. Get Help from Your Uncle
18 states in federal Hardest Hit Loan Assistance Fund
Other states have own programs
Reinstatement funds, temporary payments or payoffs
I Want You to Invest in
Non-Performing 2nd Mortgages!

43. Case Study: The Ostrich
BORROWER:
San Bernardino County, CA, bread and butter 4/3
Borrower shouts, “Leave me alone!” then hangs up.
Facebook shows some interior pictures of house
Modified first for low monthly payment
CA program will pay off 40% of 2nd loan if lender forgives 60%. Now, highly motivated.

44. The Ostrich Numbers Value: $160,000
1st Mortgage: $204,000 (sweet modification)
1st Mortgage pmt. $600/mo (mkt. rent $1,200/mo)
Market appreciating 15%
2nd Mortgage: $50,000
SCHL cost: $9,000
CA state program will pay out 40% on successful application
We can also foreclose and rent
Example photo only, not borrower’s house

45. 11) Good Things Come to Those Who Wait
Stanford Marshmallow Experiment
Notes take a long time to receive
Due process takes time
We wait for the second marshmallow.

46. Case Study: Rancho Kowabunga
Example photo only, not borrower’s house
BORROWER
Home bought at market peak 2007 Rancho Cucamonga, CA.
Lived in beautiful large house over 8 years
Discharged BK7
Pays first mortgage like clockwork
Appreciating real estate market
Modified first mortgage forgives $87,000/year for 3 years if borrowers continue paying first on time.

47. Rancho Kowabunga Numbers
Value: $460,000
1st Mortgage now: $472,000
1st Mortgage in 1 year: $385,000
Value in 1 year: $500,000
1st Mortgage pmt. $2,100/mo, Market rent $2,200/mo
2nd Mortgage: $57,000+lates and arrearages
SCHL cost: $25,000 (bought from friend, not traditional hedge fund route)
Waiting for appreciation (6%ish) and equity
Example photo only, not borrower’s house

48. 12) If You Think Education is Expensive, Try Ignorance

49. Resources: BOOKS (available PapersourceOnline.com Or Amazon.com):
Performance Anxiety by Gordon Moss
Fast Cash by Lorelei Stevens
Lorelei’s Legal Lessons by Lorelei Stevens
Invest in Debt by Jimmy Napier
COURSES:
Gordon Moss, Quixote Ventures
Partners for Payment Relief
NoteConference
National Note Group
Keyhole Academy
LEGAL:
Memorize the Fair Debt Collection Practices Act

50. Notes & Servicing 2nd LOAN SELLERS:
US Mortgage Resolution:
Trinity Financial Services:
Partners for Payment Relief:
National Note Group:
Keyhole Financial:
NoteConference
FCI Exchange:
Note Alliance:
LinkedIn groups:
SERVICERS:
Allied Servicing:
FCI Lender Services:
Madison Management:
FORECLOSURE TRUSTEE:
Trustee Corps:

51. Bonus Key: All Work and No Play Makes You a Dull Investor
Join us for an easy sunset hike in Red Rock Canyon, Sat Meet 2:15pm Tuscany lobby. Details at: StewardshipCapital.com

52. Questions? Sándor Lau, Chief Inspiration Officer
for copy of slides