San Diego Note Investors Club 2014 – Podcast

Speaking about the current state of the non performing junior lien marketplace. This podcast was recorded at the San Diego Note Investors first meeting in Vista, CA hosted by Gary Chung.

Podcast Transcription:

Host: I get the honor of introducing our guest speaker tonight and he asked me to real quickly read an e-mail to you folks that just kind of summarizes this business and you read this just puts a smile on your face, so here’s the e-mail. Hey Gordon all is well with my note business then listen to what he says, I just got wiped out of BK13 but I had plenty of equity according to Zillow and e-appraisal. But my own appraisal came in about 9000 short, if I had known I would’ve held onto the note for year, and let the first unpaid balance drop and the fair market value increase. I have a lot of legal fees on top of this one also. Losing about 16 K. So all is well. On the good side I have a borrower that is selling her home, and I’m getting a $50,000 payoff, enough to pay for the entire pool that came with this note and closing it next weekend, I see no reason why this would fall through. The Champagne is on ice. I hope all is well you. Thanks for all your help and support. So that’s Gordon he going to tell you how you too can have a collapsing great note business. So… any way please welcome Mr. Gordon Moss.

GORDON: I like to feel this room, noticed nobody sat in the front. Look at them in the back; they got the wrong they have got their arms folded. That’s what I would say, I would sit back there my feet on the table if I could, nobody would notice. I wasn’t an A student, I was a C student. Not that I couldn’t do it, I just didn’t see the point. So I think want to thank Gary for putting this together, I think the great idea. I was one to support people who are out there on the edge doing stuff, it was a huge need out there, and it’s here tonight you can see it, so thank you for having me as your first speaker. I am honored, humbled so thank you very much. And thanks for everything that goes with Alan, it just like that camera a minute ago, so he set it all up. Great people, that’s the best part of this business. I will say it over and over again it’s the people. Great people. So this is Note Investing Club, this is not a real estate investment club and let me do a quick poll here, who’ve seen me speak before. Okay I lot of you. And you probably heard the same thing, and I said tonight, I said I am going to shift gears here… I have done a couple of things in the last two weeks, I’ve traveled around the country; I’ve gone to all the hedge funds and kind of tested the water on the business right now, and I was going to bring that do you and say here’s what the market in my opinion and in their opinion. Here’s a profile of some of the hedge funds out there, how their businesses are set up, how they’re doing, how they feel about this market. Does that sound like something interesting? Okay, okay and let me just say too that I’ve written this book, and I’m not here to sell the book, but if you do, I get the seven question somebody asks and the nine questions you should be asking in this book. It’s on Amazon and Kindle, so we are not going to talk about that tonight. This is kind of the next level class. Is that okay? And if you go back and look at the book, if that sounds like something you need. I am going to start by telling you the best piece of advice I got. It took me two years to figure out. I was at a ski event with John Shob, he is a friend of mine, and just let me just say it the guy is like John Shav and Jack Miller and P Fortunato. I call them the A team. They know the real estate game in and out but also you Note guys. Note guys, note people get in the teams, we kind of look like these people say I’m getting in 8 % or 7 % kind of go look at because it is frankly it ain’t that tough to get that return in this business. Bill Tennant speaking next week and I’m guilty too. We should all be part of his calculator class to get that down if you haven’t got that down. It’s a key fundamental skill to know how to get this thing going, so my real goal is this… I want to communicate this business, I want to make it not simple but understandable, to most people, there is always going to be some rocket science who just gets everything or can’t understand anything. And then there is the new guy might not ever get it. But I want to just… if you asked me Gordon why you doing this? What are you trying to do? I’m trying to communicate it well, so give us the feedback at the end. I’m wide open to your advice and how to make it sound better. Okay here’s the best piece of advice I’ve ever got. Here it comes… Terrell Sheen, Terrell Sheen is a veterinarian in San Angelo, Texas. One of the coolest guys on the planet. And he came to the ski seminar. And one night we are out there doing something and he says, you know what you should do. I said what should I do? He says buy a property and a property to us means a single-family house. We are single-family house guys; I’ll go into that later. He said buy a property and buy a note. Buy property and buy a note. And some of you that know me know that I name my site. That wasn’t just a flippant thing that I did, I thought about that. Because I’m a real estate investor for 25 years, and I’ve been a nonperforming note investor for the last six. But these nonperforming notes are that notes on steroids. So Terrell said hey… buy a property and buy a note. And I said that sounds like two debits to my account. That sounds harder. And he says “Well why did I tell you that?” I said okay here comes the question, the quiz deal. He says that property ain’t going to cash low. I say oh yeah it will. I said you know I get a thousand bucks rent and I get the mortgage is a thousand bucks. He goes you own an ultimate property deal. I said well I guess you own more but the bottom line is it doesn’t cash low, Am I correct? It doesn’t cash low. So what does the note do? Cash low. So the movie goes 20 years down the road. What happens? The note… the notes don’t last forever. I see people saying I want to be a note guy, that sounds cooler, well guess what, a lot of the wealthy old guys, keep this in mind they are buying old real estate guys, but they use notes for cash flow. So 20 years down the road that property might gone up in value, the rents might’ve gone up. It might even be paid off. The note the $300 month payment or whatever it was. $300 doesn’t buy what it bought 20 years ago and it will pay it… it will poof, it’s gone. But if you buy them both together… a piece of real estate and a note. Tax-wise it is a beautiful thing, cash flow wise it will keep you hair this color. That was the best piece of advice and I struggled with that for years. I didn’t get that. Does that make sense? Okay. Buy a piece of property, buy a note. I’ll let Terrell Sheen. Thank you Rich for reading that feedback from my student that was two weeks ago. Great guy he is doing very well, but that kinda of… you’ve talked about your experience and it’s up-and-down business is not like this. It is a rocky road. If you’ve heard me speak, I read a story about Ernest Shackleton, he put an ad in the London Times in 1900… talks about dark darkness cold in a small chance success pain pain pain, this is an exciting business, it’s not for the faint-hearted, but is it worth it? Yeah, so let me just kinda frame what I think the real value of this skill is though. I call it good debt and bad debt. If you can master bad debt; you were unlimited in my opinion. Because you have some notes and time goes by, you are going to have some bad debts. And you going to feel different about it, if you know how to fix it and work with it. So I’ve got other people who say I would never do what you do… too risky, too this… too that. I buy gold-plated, fully secured, first trust deed, on nice property. Seller finance guys, you guys probable know a little about the seller finance game. Maybe some of you know a lot about it. A friend of mine who over the last seven years thought about a 5 million dollar portfolio for his family of seller finance notes. If you know that game, there is how it kind of how it goes
The marketing is different than what I do, you send postcards out to people that have carried the note and people that carried the note in most markets is on funky property, off property. Mobile home and land. A gas station, some little weird thing. The collateral not stellar. And the borrower might not be stellar, so without getting into detail about it fast-forward five six years into it. A third of the notes that he has got in his 5 million dollar portfolio, are not paying. As he got bad debt. I look on that and say, why not go pay 10¢ on the dollar instead of paying 80¢ like he paid on the dollar and you are going to end up with some bad debt, why not pay 10¢ going in and get half of it fixed and you kind of feel good about that, he is kind of feeling bad because he has a third of it not working anymore, I feel great because I have half of mine working and only 10¢ on the dollar. That’s the way I look at this market.
The good debt, bad debt. Does that make sense? So all these things that we fear… bankruptcy, foreclosure. The more you get into this and you’re experience, we can talk about it all day but once you live it and you kinda embrace it, you are like umm I did not it wasn’t so bad. And it wasn’t so bad. You know once again I love bankruptcy now. I thought it was my first bad one coming. Bankrupt Oh oh. No I love it and I buy them all the time. So that good debt, bad debt I think no matter what you are going to do, I think the note business should be a key part of your strategy. And then in the note business I think learning it from a cursory overview the bad debt piece is… will make your tool belt and make your confidence level soar. Does that make sense?

Ok, ok. There has been a meeting for the last five years in New York City in Manhattan. It’s called the residential distressed debt meeting. It’s right here. Was any body there?

Audience: Were you?

GORDON: Is anybody serious about this business, really serious. Whom am I going to see there next year? I took my brother; my brother is seeing what’s happening here he wants to get into this business. I said ok let go look, let’s go look at the marketplace. We toured all the hedge funds in Southern California and then we went east last week. We went to Manhattan and all over New York and visited hedge funds there. Went to New Jersey; went to Pennsylvania had some fun too, we saw the book of Mormon on Broadway and we went to Gettysburg, anybody done that? It’s a blast. So we had some fun, I stayed at the YMCA, there in Manhattan. Only place with a basketball court. My brothers are taller than I am. At a pool, basketball court, it is right there by the World’s Trade Center, it’s a great locations. Hundred and ten bucks a night. And is the room much? No. But I was and there very much. I was out because those guys were maniacs, you got to go see that circus over there. The people in this business is a tiny niche. It’s a tiny niche and if you are going to play in it they all know each other. They all talk about each other, and my brother and I would kind of analyze saying hey are there still notes and they still coming? How are the people feel about it. Are they raising money or are they folding. What are about this 2 or 3 major hedge funds the big gorillas that aren’t here anymore. What about that. I went five years ago and there was a panel, and I got to tell you, this thing cost $1200 to get into. I didn’t pay; I did not go into the meeting because I had been there three times. And it is the Deputy Executive Chief from [inaudible [00:13:05.17]] blah, blah, blah. All these kind of title to go along and they get you some stats. A billion dollar dah, dah, dah. And they’ve always predicted whether there is 8 trillion dollars coming and it never comes. So most of us sat in the lobby and interviewed the guys coming out, saying hey what you think Rich? You know what you think? What you think? They know, so my point is… you guys should go to this. There are too many people there, there were all there and you get to do cool New York stuff. We went to the roof top bars and just went crazy; these people are crazy and just entertainment to watch them. And you learn a lot. So let me kind of give you a… I want to talk about who is in this business, what they do how they do it. I am going to break it down into…. We are going to look at these hedges funds by there criteria. There are three criteria in this business to do it. Sourcing meaning get the notes okay and there is a chain so they banks the bank of America, the city banks the P&Cs. They sell there is a chain, people buy at different levels, we usually buy at the bottom of that chain and the price goes up. So sourcing, who has got the best content, the best leads, who is buying the most notes, who can I deal with, who do I know I can trust, some of them trade, they trade with each other, some of them have collection shops, some don’t they just buy big notes and sell chunks of them. We got to know these guys. And you think you know, why do I have to know these guys? Well you know how are they going to deal with me? I got two of the real nice story, someone said if you watch these hedge funds a lot of them are set up in three-year windows, and he has watched them and he said “hey this guy got a three-year window, he’s closing next month” He went to them and said you got me extras, yes we do and we got to sell them. He got some real nice notes [inaudible [00:15:10.01]]. You think why would the hedge funds? Because they’ve got other commitments, things like that but you need to get in they’re in the mix and find out who is who, what’s what, what things are selling for. So next year go to this, it is the best meeting in the country in our field.

Ok what else do they do? They source notes, they raise capitals and I going to talk about that, I am going to lay out five or six, seven funds… hedge funds investment firms. And I tell you how they do it, some of them have their own money, some of them use private money. JV or whoever, some of them use public money like an SEC private placement memorandum and there is different nuances all of it, there is different rules, different guidelines. This… that word right there collections creates the opportunity for us, that are it right there. Collection I call in the [inaudible [00:16:09.28]] field and the opportunity, I only bolded three words on this whole slide. Whole of my presentation, it is the opportunity for us, the little guy. I am going to tell a story of the underdog but here’s the bottom line. Is it easy?

Audience: Yes, tough and easy, in different way

GORDON: Some are easy, like the first one that you said; everyone sees how all of that happens. But for the most part it is not easy. And many have tried and failed. Big hedge funds that are in this business. The are Junior Lien buyers, they tried to outsource it. Didn’t work. They tried to insource it, they did this, this this and I lay it out for you. It didn’t work. Now they are trying plan C, that’s seven years. All they are making money doing is sourcing and trading. They buy 10 million dollars worth of notes, sell 3 million to us at a premium, they made money, but the ones they kept, not make any money. Interesting is it. So the little guy kind of what I’ve done, if you go the high touch route, do it yourself, get involved build a relationship with the borrower, go make it happen and I’ll tell some stories about that. That to me is the opportunity, and it is huge. Where else do you see you know the little guy not getting squash by the big money? You know look at the older… the courthouse steps. The trustee sales okay, those guys figure that out four, five years ago. The hedge funds, the big money. They crushed it, they showed up they started paying too much. They are buy-and-hold guys and then the average guys is trying to do a flip. Can’t play anymore. And that’s always happen through history. But here, once again because collections is so hard, and nobody wants to do it. These big hedge funds they want to sit around and smoke cigars and drink [inaudible [00:17:58.07]] and what you do? A million dollar notes today…. yeah yeah. I didn’t get my hands dirty I just sold them to those guys. That’s what they like to do, that’s the sexy stuff, that’s those cool things. Doing collecting that’s a grind. It’s like a dark cloud if you go over to these collection areas of these things, these people get hammered. It’s at emotional draining thing, just so you know. Seprena Allen, anybody know her, anybody see… she puts it so well, she said every home. I didn’t say house. Every home has a heartbeat. She said some real challenging situations with people that you know wouldn’t pay and wouldn’t leave. And it’s tough. It’s a tough business. But I tell you what… you can make a lot of money in it. So okay, let me go back to… So the state of the union in my opinion. And these guys vote with their feet, as I would say. I could talk about this all day; I could be a talking on TV. But if I put my money where my mouth is and I am stepping into it, that’s the game. [inaudible [00:19:07.24]] like ever body know him. I said earlier his class is a must, with the calculator; it’s a 101 for this business. You are going to play in this field, you need that. I think Bill is our speaker next month. Is that right?

AUDIENCE: Bill [inaudible [00:19:22.22]]

GORDON: Bill [inaudible [00:19:22.21]], I am sorry, well Bill coming the end of next month. Whatever.

AUDIENCE: All Bills lookalike.

GORDON: You got to do, if you know how blind I was, you’ll forgive me.

AUDIENCE: laughs

GORDON: Ok so what was the sense that I got from this whole [00:19:42.04] meeting and everybody that I talked to? I mean I stayed there for 10 days; I stayed at one guy’s house. Micro [inaudible [00:19:47.17]] great guy, they are in New Jersey. I am doing this forever. [Inaudible [00:19:52.09]] they are all my friends, I know these guys. And they are good people. People are raising money for this and that’s it right there. If they are raising money, they are telling you we are going to buy some notes. Raising money is not easy, it is not that much fun. It is risky; you’ve had to say OK. I look around are they notes. In my experience there are more junior league in particular and senior leagues right there in the market, that I’ve seen in five years. Does that surprise anybody? Ok I think, and they think there are two or three more years to this window. Is that an exact whatever? No. But that’s what they are looking at. It takes a year to raise some money so if a guy is going to raise the money now. A year later the notes better be there. So they are optimistic about this business, they see the notes, there are still there. Those big economists that showed you their x billion dollars of firsts and seconds. There is some nuances too that I will get into a second. For example the… there is a big reset coming in the junior lien market. Anybody have one of those? Where you’ve got a junior lien and in 2014 the payment goes from here to here. Guess what that might trigger? Some more inventory. But just a general, I am not going to give you stats. I am not going to give you any of that. I am going to tell you what the people on the street said to me my friends. And I was with there with my brother saying; I don’t know I was looking at the [inaudible [00:21:34.23]] venture 2.0. It gets it going again. Let’s go get some more inventory. Let’s build it up, it’s here. We got it knocked out, we know how to do this game now. It is not a… I was like you. Somebody you are way down the road now. But I didn’t know, I didn’t know. I know what I know now, but if there is no inventory, it doesn’t matter. I think there will be inventory. I think it will be trice OK, I’ve not seen the prices skyrocket. And I will talk about this later but I am buying lower and lower quality debt because of my experience. If you showed me two piles of non-performing junior liens one pristine and expensive, call it 30¢. Another one junky, and 5 to 10 cents I would buy the junky pile. Because my odds, I’ve shown that if I take this pristine pile and I push them. I show up, I have a notice of default. A lot of them will file bankruptcy. Will leave the house. Now I got a non-performing first or a bankrupt deal where I could have paid a lot less for in a junk pile. So by looking at it, I am saying I would rather buy the junk pile and have 50 notes as oppose to 10 that I got when I first started because I was afraid. And most of us are, you don’t believe this. So, does that make sense? Am I taking this where everybody… I am getting too off here.

AUDIENCE: No, good.

GORDON: Good, everybody else agree?


GORDON: Okay, because I am not… you guys see my number presentation; I am not doing that tonight. I am talking about the world and the market place. So I just want to make sure that everybody is Okay with that. I talked about the conference [inaudible [00:23:19.00]]. Go to the next one,

AUDIENCE: Next one now,

GORDON: So once again, here’s what I am going to do. I have a non-performing note business. And I have a mantra and here it is. Stay small… keep it all. Stay small keep it all. Because I judge these funds, these investors, the hedge funds, I say what do they do? What are their main sources? Are they getting notes and trading them? Are they raising capital? Or do they have a 100 million bucks on their own? They don’t need to raise capital. And the collections, do they do it? Are they good at it? The fourth one would be who are these guys? I interviewed a couple of these guys, and it wasn’t interview, it was lunch. But I said what you used to do? Oh I had a restaurant. Ooh don’t ever do that. Don’t ever have a restaurant with a bar. Bar makes money, restaurant doesn’t [inaudible [00:24:12.08]]. This is more than just about notes, there a big spread here if you know what you are doing. But it is also about managing your business. How many employees do you have? If you have a 100 grand a month overhead, I don’t care what the business is… a lot of guys go that way. So these are the things that I looked at, when looking at these guys. And why do I care, well guess what I can go back to them and say, how’s it going? You know what can I do for you? Well we got to get rid of these notes. Why is that? Can’t make payroll. Hmm Ok, so you would see there is no opportunity there and it is a mindset too, that we all need to have that, I share. I don’t go like this, you guys notice that, I don’t hide what I’ve got, I say here it is. You know please benefit, I’ll be happy for you, it you go out there, I love to hear the story I make a lot of money. Good for you. They make more money than I am. I am like that’s great, you know it is a great thing, but by helping these people, my last words at every meeting was and what can I do for you? Think of something. People think my book and these hedge funds, and they get it to their investment partners, or their spouses or different people that don’t really want to know the business but they kinda get an idea of it, feel comfortable about it. So that’s one thing that I’ve done for them, so your book is out this, Oh great, so when I call them, they will take my call. When I go to New York or New Jersey we have a meeting, I stay at their house. So those are the four ways I am going to look at the…
AUDIENCE: What’s the title of your book?

GORDON: It’s called “Performance Anxiety” It is on Amazon and Kindle, very high level once again, it is not the Bible.

AUDIENCE: Could you elaborate more on why you would prefer to stay small, instead of [inaudible [00:26:00.29]]

GORDON: So the question is can I elaborate more about why I prefer to stay small as oppose to… I fight that battle every night. I think about… you know what… what a loser I am. There is a 100 million deals out there that I am not going to see. But I’ve been in big companies, I’ve had a 100 employees. I never liked it. Sounded good on paper, my ego kinda was good. No, it was terrible. But I still say, wait a minute, I say wait a minute, if I say ok. If some one say Gordon here is the money on good terms and we are not going to own you. I am not good at being owned and you can go out and buy all these notes, I still might do it, you could talk me into it. Maybe but I’ll fight it hard. Because what I really need. You’ve seen my story about my plan, my precious fragile dream, which is just to do nothing. And what do I need to do nothing; I need about 10 grand a month, which is 20 five hundred dollar notes, or properties. So what do I need after that? I see these guys get there Greek lands going and they don’t even know what they want, they just want a lot or more than you, you know I am over that. I’ve got a specific plan so my lifestyle is very important to me, I want to be free, I want to be able to go travel and this is what I want. So that’s why I haven’t done it, so I am not judging anybody but I am kind of telling you what I think of him or her. Does that help a little? Okay let’s go to the next one. This is the way I am going to talk about these different funds. So here’s some more… I talked about the huge odds on the underdog. I consider us the underdog, the small investor versus the big guys. You know I have this boxing coach, tough guy, and real tough guy. And I said to him, I said you know. Who would win if a professional boxer took on a USC cage fighter? And without hesitation he said the one with more to lose. And I was like that’s cool…. really said that. So that’s really what’s it all about. We have a lot to lose, we have everything to lose. Our freedom. Those big guys, it is just a job to them. They are certain layers or whatever, they don’t care. They care but not like we do. We could win this game, and they don’t want to collect. They don’t want to collect. Too [inaudible [00:28:24.17]] they don’t want to. And that’s where the money is in this business. Ok I am going to talk about the players and the profiles. Couple more things before I forget. Current trends and issues. Commercial notes, now in my book and what I talked about all the time is emotional equity. And here is what that means. Somebody is in a home; did I say house or home?


GORDON: Home, a home is a house with people in it that care about it, they have an emotional attachment to it. And a commercial deal is there emotional equity? No. I could be a fourplex and they might live in a unit. But it is not the same thing as your home that you live in and your roses you planted that whole thing. So there is I sense these guys and they still confirm it. There is a lot of this out there and more coming. The commercial notes. I’ve got a commercial background; I was a Commercial Real Estate Broker for seven years. I know the game, so it is something to think about. We are thinking about it now. As another avenue. Commercial notes, there going to a lot of them. You can get huge discounts on these things. The question is what do you do with them then. Yeah. Who knows what that stands for?

AUDIENCE: Consumer Finance Protection Bureau.

GORDON: Consumer Finance Protection Bureau. The latest Dodd Frank safe act. All this stuff. But this is to be concerned about. Increased regulations, one of the hedge fund guys said this to me. He said people always asked him, they said how do you do this? If you are not licensed in every state. It is the state-by-state rule kind of place, kind of deal. If you have a note in Idaho, they have certain rules to start a foreclosure, to deal with the borrower, how do you do that? And I say simple. I hire a national servicer, not too much money $18 a month and I am under their license, covered. So that is a non-issue as long as I own the debt, it’s my debt, I got a right to collect, and I don’t need to be licensed. They are thinking about changing that. Saying that you got to be licensed in every State, owner or not. It hasn’t happened yet. The big guys aren’t worried about it. One comment from one guy, but that one needs to be added to the menu of things to be aware of. You know the is the FDCPA The Federal Debt Collection Practices Act. Ok, you got to know the rules, RESPA Real Estate Settlement Procedures Act. TILA. Truth and Lending Act. You are dealing in securities now. In notes. There are rules. This is the newest one. Put it on you radar. I talked about this reset. They are very focused on that. They think that’s going to create an opportunity for us with more loans and a couple of them had them. They said I’ve got them myself, I’ve got a 100 grand Junior Lien and it is going from $800 a month to $1200 in July, any body experience that? Anybody had that light up? Because I didn’t know about that. But it is something to be aware of. Ok, so let me go through… I am not going to protect the guilty and innocent, I am not going to mention any names. But I am going to go through a profile of these funds out there, and they aren’t that many. Let talk about I have a code name for it. And some of you might know that already. I call them big gorilla and they are in Southern California, and there were one of the ones that five years ago, I was blown away by the presentation at this [inaudible [00:32:04.10]] conference. I was like you hear all these appraisers talking about this and these regulators talking about this and these attorneys talk about this, boring. This guy is I am out there buying notes. And ha ha animal. I said wow this guy get your blood going, this guy is something else. They had a company and they got the biggest office building in this certain area, big name across the top. I went there a couple times to buy… They would sell you a single note to a new investor, okay. You go in there and this not an exaggeration. Mohawks, tattoos down the face. Metal all over the face. Tough guys, I mean I was like whoa, where’s the workout… this is the workout area. Okay well and they weren’t good guys and they would tell you right up front. They would lie, cheat and steal right for you and know you would be offended and they say what’s your problem? And you say you just lied to me. And they are like yes, so get over it, come back tomorrow. I say I won’t be back tomorrow, I won’t be back ever. And they say they are not going to buy your notes and I say exactly. But I don’t know what it was, but the bottom line is they imploded. Their strategy, their set up was this a lot of the key players were subprime guys. And what they call subprime west up in Urvine 05 06 07 08 area and they shifted gears they would nail these bad loans. Now it’s… the games over, so let’s go on the other side, we will get some money from some people and will go back and buy [inaudible [00:33:30.25]] loans. And sell them at a discount to investors like us. You know I looked at him and said I’m not going to play if it is a game, I don’t play. They’ve imploded; they got rid of the top guy. The guy that gave the exciting speech, no longer there. So you would say well is that an indication of the market’s cooked or whatever. No, as I said people are still raising money, there is new firms coming up, there’s a lot of optimism but these guys whatever was the model was whatever it was. There is another company down the street and opened up, and some you guys know these guys I think. I am not going to mention any names, but they said hey let’s do the good way. Let’s do it the more up front way. And they done okay. They sell mainly first non-performing first. They also get money… you see you got to think about this for a minute. If you are a fund… I mean the ultimate thing that most of us don’t have is a hundred million bucks. Or whatever the number is. To where you are not answering to anybody, you can do a lot of stupid things and still come out okay. Now on the other hand if you like most of us, you gonna raise some money and you are going to have to answer that money in some way, whether it’s public money, that’s what I called it, pooled money, like a private place memorandum whatever is. A lot of rules to that. And I see a lot of these guys… it’s almost tough not to make it a Ponzi scheme. I’ll define a Ponzi scheme, it’s where I’ve got some money and I’m guaranteeing a return, let’s call it 10%. I have got to make that every month or you are going to call me and say where’s my 10%. Now my business goes like this, sometimes all good sometimes it’s not. When it’s not, and I’m using a new investors money to pay you your 10%, you say you know you get over this hump, that’s a ponzi scheme. It’s illegal. There is a lot of illegal things in those things. It is just you know, a lot of people do well, but I’m just saying, on these hedge funds watch them and understand their business plan. Because you can buy notes from them, when you know these things. You know, sometimes they have funds last three years once again. And at the end of the third year, you are like what is an excess in that pool. There’s always excess in the pool, they got to clean it out. They got to stop it and start again new. Opportunity for us, so there’s opportunities for us in understanding these different companies and how they work.

Okay another one. There’s a gentleman in New York who basically taught all of the guys that I work with now the Junior Lien business. And he had at one time like four years ago a billion-dollar Junior Lien fund. The biggest. It’s imploded. You know like, why. I don’t exactly know why. All I know is that he was there and it’s complicated but I can talk about it to certain people if they ask me but you will say well it is the note business, on a decline. Junior lien is there a problem, I don’t think so. I think it’s more it was run than the business itself. Yes

AUDIENCE: So when you think hedge funds buyers and imploded. What happens to all their inventory?

GORDON: So when the big hedge funds imploded, what happens to their inventory? Exactly that’s what we’re watching. It gets bought by other people and sources they’re buying from… now say you are VP at Bank of America, your disposition guy. VP at Disposition, your job depend on selling x amount of notes and you sold this guy this major hedge fund is now imploded who do you sell to now? The other guys, playing field changes but their notes move around. And we are out there. It’s a shark pen and no question. We all kind of circling each other and no watching okay you who’s bleeding here. Let go bite on him for a while. So it sounds ugly but you know, and it is and but you know it is like a bunch of pirates of there. It’s crazy, fun though. Yeah I mean so I don’t have the exact answer to your question about what happens to… I don’t know the details.

AUDIENCE: But they are typically liquidating, selling out their notes [inaudible [00:37:49.17]]

GORDON: Liquidating and probable giving discount to the right people, for the people that they built the relationships with, you know if this is group is going to become a note group in this non-performing space, you need to get engaged. You need to say I am there, you know I’m sorry I missed this one. Besides being a lot of fun, it was everybody was there. You need to know everybody. So say well I have him by informing. You are down the chain. So there are two of the main speakers at this first meeting, five years ago aren’t here anymore. They’ve imploded. Okay I’m going down the list and talk about a couple more of them. I am talking code too.

So another firm out there has their own money, that relieves a lot of pressure once again you got your own money. You are not reporting to anybody, and there one of the ones that have tried to work these out. Tried to work them out. They’ve started like most people do, where they say you know what, we can buy the notes, we can trade them to somebody else, we can sell them down stream to people like us, at a premium. We bought them for 2¢ we end up selling for 10¢. That’s a big spread. They make a lot of money doing that. And they have, but the collections, is where I took up a chunk of money and blew it up. By doing the collections myself. So they had a set up, where they had what I called $10 an hour people. Some of them used to work McDonald’s before they came for the deal. Call people, call people, call people, call people but when the people actually answered the phone and say yeah I know I owe you 50,000 will you take 3000? Sure… it’s a deal, Okay fine. I know poof wait a minute here, you don’t get much negotiation skill as the counter of McDonald’s. So that imploded, it didn’t work. You know the whole calling machine, the whole… now what they have done is they’ve migrated to a plan. It is actually plan D. We went A… outsource, B outsource again fail, fail. C takes it in house and has a $10 an hour 20 person-calling machine after people. Hum, not well. Now they’ve said okay. We are going to hire 60 grand a year kind of guys okay. And give them a bonus. They could be a 100 grand a day kind of guys. They work 7 to 7. They are good negotiators; they get paid on a spread for the better deal they negotiate. They’re doing it at different level. So consider that, in your business when you’re thinking about this. You know if you are thinking about what I do, I’ve done it for myself, for my IRA. My whole goal… I think I’ve said it before you probable know this. Is a payment plan in my IRA? That’s what I work these for. Some of them pay off, some of them settle. I take that money, I reinvested it, try to get more payment plans. So I think it is another… it is a good twist. There is another firm back there when we talk about it. They got the Private Placement Memorandum model. They are putting out a lot of money every month; they own a lot of notes. But they are always raising more money, and I kind of look at them and say, how big are you going get and are you making any money is the key. They have an issue where they, I call it an issue… their model is this… they got a pretty good collection’s area, they got 22 people in their company, seven of which are Asset Managers who are Collectors so that’s a third of their staff are collectors and they’re good. They’re used car guys. Used car guys love this thing because… a used car guy, you walk on his lot, you can walk off, okay in this business you can’t walk off the lot, and they got you. And they’re masters at negotiating, that’s what you want a good negotiator. So this firm has seven of these guys, and they’re good at it. They are good at it. So do they sell off many of the notes? No, to us no, because they are so good, and I wouldn’t be concerned to buying one of their notes because I am like, it they are so good at fixing these notes. Why would they sell them to me? And what the [inaudible [00:42:12.08]] of that note. Their real games to take $5000… not from Junior Lien get it fixed and sell it for 35 40 thousand dollars to somebody’s IRA. A passive investor’s IRA and they can still get a 18% return. That passive investors, that’s a good business plan. But they warranty the notes. So if it ever goes bad or sideways, they’ll make the note new, and you know I look at that long-term and go Hmm, so I studied their business plan. And I’m not going there, I am not going to do a PPM. I am not going to raise all that money. I just… I don’t see it for me, it doesn’t fit my plan. Not saying it’s wrong. Several other firms have switched from the First Lien business to the Junior Lien business. That one fascinates me because I watch this business for a long time ago saying I just don’t see this First Lien deal, what I saw was most the product out there was on low value stuff in the rest belt. So you are buying this $20,000 house with the First Lien. What are you going to do with that house? And I don’t like evicting people; it’s not my game. The s Junior Lien is different and they’re migrating that way. So that’s another in my opinion a fascinating… the way this market sits right now. The Junior Liens are becoming more popular in my opinion. Maybe it’s the way I see the world, you know when you buy a red car you see a red car. But… Let me talk about one of my idols here. And this guy, didn’t have to do this, he did it just to prove he could do what I think. He is that kind of guy. He’s worth a lot of money okay. And he went out and bought $2 million worth of nonperforming Junior Liens, and went out himself, himself, got on a plane, got rent a cars and knocked on 80% of the doors, himself. That takes a Moxy, because some of these people are going to call police on you. Or not be happy with you in general, as he puts it. This is not for the faint-hearted. And I try to make that real clear to people. But I will tell you what, when he goes to somebody’s house, he can see those two Land Rovers in the driveway polished. Either he had detailed or did it himself, that’s where he is spending his time. And you can hear those dogs barking that are kind of fat in the house. They are eating. He can see… when he calls the guy and he say we’re broke and tired. He’s like really. I don’t know I am not really buying that story… That type of insight will make this business. It’s a personal high touched business. It’s unique that way and the high touch part of it, and the collections part, which nobody wants to do, gives us an opportunity. If you are willing to step up. You can do very well, but here’s a guy who didn’t have to do it, and did it, personally went to these houses, he has had all his money back in about 12 months. All his inflow and outflow back in 12 months. By doing what he did my opinion. By making it happen, so when people start whining about it saying “Oh” You know I say look at this guy. Have you done, what he did? He didn’t need to do it. Is that interesting?

There are a few other companies you know one just focuses on collections. I’ve decided not to collect for other people. I collect for me, because once again you know what my goal is. And I’ve got my goal, but my brother is a part of my goal now too. And I would like to get some more notes performing. But I’ve thought about that too, so if that’s the hole in the market, if collections is a hole in the market. Why don’t we form a killer collections company go knock it out. It’s hard. It doesn’t pay that well. I don’t think it pays well enough for the effort you put out. And the pain that comes with it. I’ll deal with the pain for myself because I get these notes going for 20 years, and I just sit back and I’ve already done the hard stuff, now I wait for 20 years to get my payments. So how’s my time doing there?

AUDIENCE: What do you mean you don’t want a collect for somebody else, what does that mean?

GORDON: So… he is a collector for other people, so you could say okay, I got these notes, I’m a full-time guy I got a job I don’t want to collect them myself. Will you do it for me? They say yeah. I’m going to charge of 30%. You know there are a servicing and a collections. The collection is the hard part. Going after him getting the money. So you can outsource it, but is only one guy out there in New Jersey. And I’ll tell you who it is. That does this, that I even look at him and say ” Hmm you know” If you look at what I said before about what’s the hole in the market… it’s collections. So there’s a lot of money there. I know people with 10,000 notes and they won’t collect them. And they don’t know how to collect them. Why don’t we form a collection’s company? I’m not doing it. I thought about it. I watched him, I went to his house in New Jersey and said how’s life. Well I don’t know. I wasn’t like wow making a lot of money here everybody is happy. I didn’t see that. Not saying it couldn’t be done. And somebody probably go knock it out. But there’s a huge market out there and if you just want to take your own notes and get free, that’s your goal to have a little plan like I have. It’s a great little way to just do it 20 times, and you’re done. A little guy can do that. The big guys aren’t going to squash you, because they don’t want to do it. If there was one point, two points. One the first story that I told about a note and a property the other one is collection. That the Achilles’ heel. That’s what the book is about. It’s about waking them up, which is hard and working it out. And once you do. You would be amazed. If you do it personally, you got a relationship with them. And they actually like me. Most of my borrowers really like me. And they use profanity when I first call them. Yeah. So it’s changed. Okay are there any questions about that. My point… Gary and I corresponded and he was talking about… talking about quality of notes and exit strategies with them. So I was going to shift to that a little bit. Unless the group is… have I lost everybody, is this good stuff? Well is there any questions about this? Or should I go to that? Anybody?

AUDIENCE: There is a company out there that will guarantee returns and once they get notes [inaudible [00:48:55.09]].

GORDON: Is that a question?

AUDIENCE: That is a question, because if they are guarantee 18% … that’s unbelievable. That’s a lot of returns.

GORDON: And us people in the note business, that’s our game 18% is a good game for us. Now let’s talk about the risk on top of it. Because I know you are a first lien person are you not?


GORDON: So what you have some people consider it a higher risk note. So it is a re-performing Junior Lien. A lot of times without equity. On a house usually owner occupied so you are going to get an 18% return on what was a broken note, it’s a tainted note. But hopefully it’s got some seasoning, it’s paid for six months, whatever it is you like… so the guys pays every month. He’s proved it six times. He is going to pay. Okay and if it does break again, we know how to fix them, so it is not like a disaster if it does fall off. But yes you can get an 18% return and I compare it with like these first trustee investments, some people know people around here that create first trust deeds and link to properties. I look at it and say yes, it is a rental property and you are going to get 9% okay, we will give you 18 %. I don’t do it but I don’t sell my notes. 18% on the Junior Lien. It’s a Junior Lien, but it is on owner occupied house. It’s got emotional equity. A concept, which I’ve learned to love and believe in. So yes 18%, I agree is a good return even for us. And it is one way to get it and yes. You can go on the website right now, and see the notes they sell one a week. But will they take a $5000 broken note, fix it, sell it for say 35 and you’re still going to make 18% return. Paying $35,000 for a re-performing fixed Junior Lien. They are out there right now. Yes?

AUDIENCE: You speak of Junior Lien, getting there very easily; can you give us some ideas of what companies to go to buy Junior Lien? Like one or two of them or three or whatever?

GORDON: Yes, so the question is, Can I get sources that to sell you a note? This is called one note. You want to buy one note to start with.


GORDON: So there’s a company in. good friend of mine in Pennsylvania Partners and Payment Relief, and if you go to PPR notes co. and sign up for their system, you can look at their notes and buy one. Because you say you know what I want one in California or North Carolina where my mother lives, I want that area, I want to buy one. Now let me just put a caveat on there and say you probably pay retail. And you might wonder.

AUDIENCE: What would retail be?

B: Two or three times what everybody else would pay. So I don’t know the numbers, and you might say also, you’ll say wait a minute these guy are really good at working these notes out. Why is this one on the list? I don’t know it is just… they are not really in the business of selling wholesale cheap notes. They are in business of selling retail, already fixed notes. 18% that’s… you know what we all started that way though. You know you need to practice; you need to have one note. Or… yeah. Anybody else questions on that.

AUDIENCE: [inaudible [00:52:22.23]]

GORDON: Yeah, just Google Partners and Payment Relief, Partners and Payment Relief. Dave Van Horne runs that company. He’s a friend of mine. I was there with him in New York. Real good guy, down to earth guy. And I think it is but I could be wrong. But you will find it. Partners and Payment Relief. Some people have already been to their site, have they not?
See, look at the room, there is five people that have seen their stuff. There are five or six players that are in that field.

AUDIENCE: Do they also provide education too?

GORDON: And they provide education too, and they are good guys. I had dinner with Dave. I went to his office in Pennsylvania, I’ve been there a lot I know those guys. When he comes here we have dinner. Yes.

AUDIENCE: You said you were going tell who the fellow was that does collection only in New Jersey.

GORDON: Kevin Cordell is the name of the person in New Jersey of Madison Management who in my opinion is the best out there at collecting on nonperforming Junior Liens. He understands the business, he is responsive, he can do a Junior Lien, the high touch of it, and he knows it. Is it free… absolutely not, but he’s the one guy that I could say you know what if you wanted to watch the movie buy one note and get it fixed, you don’t want to do it. You say I don’t want to watch this Kevin Cordell would be the guy. Yes does that answers your question? Yeah

AUDIENCE: [inaudible [00:54:00.10]]

GORDON: So the question was does he is one that charges 30% and it doesn’t look that way to start, but it is. Not saying that is anything deceptive… I’m just saying that you know, it’s anything you know… you pay a monthly fee and then you are going do stuff. If you want anything to happen you file a [inaudible [00:54:20.11]]. There is that the… and if you get a settlement, they get x percent. And I kind of watch it and say it is about 30% So it better be a big spread for you to give away 30% of it, but it is a way to say I’m going to stick my toe in the water here and just watch this movie for a bit. Or if you get burned out or if you’re still got the notes and you got three jobs now, and you can’t do it. I would give that to Kevin. You know yes.

AUDIENCE: Is Madison a service like [inaudible [00:54:45.16]]

GORDON: So the question is, isn’t Madison just like FCI and all the other servicers that say they all collect whatever, is that what you said?


GORDON: Yeah, so Kevin is becoming a Servicer, meaning that he’s becoming licensed in every state, it’s a lot of work and a lot of fees lot of this and a lot of that. So yes he is a Servicer but I make a clear distinction between servicing and collecting. Two different things. A Servicer sends you a statement every month, here is your last payment, we received it, the interest was this much, and the principle was this much. Thank you for you payment; make it next month [inaudible [00:55:24.16]]. And we will sell you at 10.99. That’s a Servicer and that’s all they do okay. A collector on a broken note goes out and makes it happen, and that’s where our magic is. So I’ve lived with most of the other Servicers, I’ve had experience with most of them. Most of them are not really for the little guy. They want the big accounts, and they don’t understand Junior Liens. And they won’t do what it takes and I’ll charge you a lot, that’s my experience. Kevin works with the little guy, yes is becoming a Servicer but he collects for you too. So I’ve had no good experiences with any of these Servicers. They don’t really like me, I don’t really like them. And they let me know that, just because they don’t do anything and they charge me a lot, and they kind of force me to leave. This is seven years of experience talking. So I use a little…

AUDIENCE: But you are not alone there

GORDON: Pardon me.

AUDIENCE: You are not alone with that, all services are s [inaudible [00:56:22.22]] of course which is the best and the worst.

GORDON: For what?

AUDIENCE: To do anything, to do loss mitigation..

GORDON: Are we talking Junior Lien or Senior Lien? It’s a major difference. Major difference between a Junior Lien and Senior Lien. So the question is what’s the difference. A Senior Lien, they foreclose this, this this. It’s a whole different game. A Junior Lien builds up their relationship withe the borrower. And if you go to somebody and they say they do all loans, I would run from that. So I think there is a major difference between the two.

AUDIENCE: What you are saying depending on whether you have Junior or Senior Liens, you should have a separate servicing company.

GORDON: Kevin Cordell could do both; he understands first, if you can do Seconds, you can do first. Well in my opinion. Anybody else. Servicing and Collecting are big issues in my opinion. And once again I think the [inaudible [00:57:21.11]] is collecting and if we can master that, there is money to be made.

AUDIENCE: Gordon, would you say that the person who is not very good at negotiating, do you have a lot of experience [inaudible [00:57:32.17]] some of them just gets into this business. Is not a good negotiator is not a good idea for them.

GORDON: So the question is, if you are not a real strong negotiator… I mean you can hire someone to do it. And I think we should all become better negotiators, I always try to, I always try to shut up and listen, I try to take little steps. I was there with my brother in New York and I said okay, let’s make a goal here. Never make a statement, always ask a question. Whenever you want to say something shut up and listen, these kind of things so you know. He had to start with; you can watch how these guy negotiate it. I don’t think I am a great negotiator. I really don’t, I argue with people. So yeah. So yeah I don’t know the answer to that is, but Kevin is a good negotiator and his people are. Find a used car guy and pay him 50 grand, he’ll love you. He is a great negotiator.

AUDIENCE: You and I talked before and one of the questions that I’ve heard… you got a [inaudible [00:58:39.20]]

GORDON: And that was the thing I was going to get to next, Thank you Gary. Was the quality of notes the exit strategies around them? Let’s talk about a key one here. Because here’s the issue. A hedge fund gets a big pool of notes, okay a small top of the percentage are good quality, full equity, performing first, nice once. Safe ones whatever you want to call it. A lot of the other ones… let’s talk about the first. If the first is delinquent okay or foreclosing. You say wow because that’s not good. Because he is going to wipe me out. If it forecloses and you’re in Junior Position, you do nothing about it you get “wiped out” Are you done? No, you can file a judgment, the guy still owes you the money but you have credit card debt now, you got unsecured note. It’s worth a lot less; okay let me say this though. I foreclosed from junior position, I’ve actually got hedge funds and say “hey those ones without the nonperforming first I will buy those.” Because if they are not performing on the first, that whole emotional equity concept kind of go sideways. If I want to foreclose, he’s not paying the first either. There’s a good chance I will foreclose, and get the property. So at one time I hunted for those, so it’s not all bad, as far as having a nonperforming first in front of your nonperforming Junior Lien. Think about that, and then when you get better at the business, you can control the situation. Well you would think will the first is foreclosing, only if you let them. You have a right from second position to bring in current, or to pay it off. Two options that you’ve got. So pricing on that, it’s a lower quality note, there’s no question. You know I see the pricing for… here is the pristine note that everybody wants, especially the beginners we all want this. Performing first, nice house, full equity let me run that by you. So the house is worth 200, there is a first for a 100 and a second for 50. Is there equity in that deal? Yes, and you look at the guy’s credit report he’s got 600 credit reports. And he pays most other bills. And you can see he had a job, he might have lost it and now he’s back. Or you can see the first have been modified. You see the is a 60 year loan. You say a don’t see many 60 year loans. And now the payment went from 3000 to 1000. You are like wow there is some room in there for me. You say hey, you’ve seen the movie with first. It’s been modified, it’s been restructured. Now we are the second we are going to do the same thing. Okay I get that. What were you paying before 500, what could you comfortably afford now, half that. Done. So those are the pristine notes, but there’s not many of them and if you go to hedge funds and say I just want Southern California notes and I want them all pristine notes like that, you are not going to buy them any notes, so the other ones the lower quality ones. And I told you what I’m doing now is… I prefer the lower quality stuff now because I’ve seen the movie. I’ll start with 10 notes that are pristine and give me six months they ain’t pristine anymore. So I am not buying that way and pay less and get 20 instead of 10. So say if you had a… say for paying 25¢ 30¢ for a perfect Southern California house, full equity, performing first, looks good the credit report. You might pay that much these days. You might pay 10¢ or 15¢ for a kind of not reporting first. Or 30 delinquent first. A lot of times the banks will go to guy say we want to modify your first but we can do it until you go delinquent. Oh I am going to have to ruin my credit before you work with me. Yeah. That how the thing works. So first it’s kind of flaky or it’s late, 90 days late but there is a reason there, now you don’t know that because when you buy the notes ahead of time. You don’t get to call the guy talk and talk about it. You kind of putting your Sherlock Holmes out and saying I think this is going to happen here, but I’m not sure. So this is as far as pricing goes, that’s probably the most… the biggest issue out there. It is just like that, the first is not performing. We used to say, we used to say okay performing first is like equity now, because we couldn’t find any equity notes so it is now just performing first, because that would mean emotional equity. Now you saying well may be it’s not emotional equity because it would be cheaper. What the exact price is? I don’t know. Does that help at all? Or it is more confusing. Yes?

AUDIENCE: Would you go a little more is say you pick up a [inaudible [01:03:39.04]] or you purchase whatever 10 notes today with nonperforming first, what would your strategy be beside [inaudible [01:03:45.05]] or besides pay off whatever.

GORDON: So the question is if you bought 10 notes that had nonperforming first right?

AUDIENCE: Yeah, you were saying you now target those lower quality ones so what would be your goal then?

GORDON: My experience has shown that by buying more. If I like 30 notes, three or four of them are going to come out of nowhere and call me, and say hey let’s work it out. And then of the pristine notes, the ones I thought I really can’t lose on this deal. Yeah, I’ve lost on a consistent basis, so I’d rather pay 10¢ than pay 30¢. I would rather pay 10¢ and get three times the number because my odds, I got three times as many ones to work with, you know one of the issue about buying one note is you know the stats don’t really work because it goes bad you think well this business sucks. Of if it goes good, you are like this is easy. One it’s just one. But if you did 50 you would say well this percent, that that. So it’s a better statistical model, but I’m sure if I am answering your question or not…

AUDIENCE: You know I totally get the pricing… my question is more what is your pay versus your delinquent, besides bring [inaudible [01:04:55.15]]

GORDON: The first is a year delinquent… they are not foreclosing are they? It’s one of the trends out there right now that I see. Two things, one three years ago one of my friends had one of the largest foreclosure companies around and he is half size that he was then. Because first foreclosing like they were, so you would think a year would mean the guy is in foreclosure, but he’s not. So I don’t know what’s happening, we really don’t know. But you know what it is… it’s about contacting the borrower and start talking to them. Say what’s going on, you know I got all the solutions for you. What you mean by that? Well so you’re not paying your first you are not paying your second, what’s going? I lost my job, so you know… we also have a relocation program, what does that mean? We can find other place for you. And the phone gets silent is, He I would like to know, I’m staying here oh okay how are you going to that? Well I’m going to get another job. But is just you digging in. Is there some defined strategy around this? No. But this business is a logical no, is it perfect? No. Is it crazy? Yeah. And it’s just a matter of getting out there, the guy that goes and knocks on the doors and starts calling these people and saying what’s going on? What’s going on? What happened? What’s happening now? What do you want to do about it? That would be my strategy, go after them. I was just … I have this thing I say do everything at once. Start sending them letters, call them, and send a doorknocker out, you go out. Send them a shock and all package. Do what it takes to file an OLD on them all at once and you’ll figure something out. But I don’t have this crystallized perfect strategy that just go reach the borrower, do what the big guys won’t do. Go out there and talk to the guy. Yes?

AUDIENCE: Five minutes

GORDON: Five minutes, I am sorry.

AUDIENCE: When you look at a table, what kind of screens do you put on… do you eliminate properties in a certain areas, you eliminate aged properties. What’s the [inaudible [01:07:01.12]]

GORDON: So the question when I look at the tape, I call it nonperforming Junior Liens, what are my main criteria?
Let’s talk about the first. In Junior Lien environment and I not looking at the property that much, I take a quick glance at it. But if you my a list of properties in California and the all cost a half a million bucks, I wouldn’t even look at them. I would say those are regular nice house around here good enough. I am looking at the credit report. Is what I am looking at? I’m looking for are you a criminal? Do you seem like a good guy? Do you make your car payments on time? Have you been there for 10 years? Are you married? These kind of things that’s what I’m really looking at, so if I was doing the first lien, I say you know what there is good just chance I’m going to own this property that’s got to be my goal. So let’s look at the taxes and let’s look at the house and let’s look at the neighborhood. I am not looking to do that here. I’m looking to create a win-win borrower situation with you, where you reaffirm your debt, and start paying money into my IRA. So as far as looking at spreadsheet, I would look … I would glance at the property, I would say Zillow it and walk around and go Google earth it. Say okay this is a decent area, and then I look at it as credit report, that’s what I’m looking at. I’m looking for a good bet; I can’t call the guy ahead of time and say do you have a job? How long have you been there? I can’t do that. I got to guesstimated from the credit report. That’s what I look at.

AUDIENCE: How do you get your credit report for people if you don’t have their social security number, or their permission?

GORDON: How do you get the credit report? The people that you’ll be buying from, like if you went to PPR will supply that for you. They’ve already got it. So you don’t need to worry about screwing [01:08:38.01] people’s creditors like that. So if I sold you a note, I don’t do that but you would to me. Where is your credit report? And I would say it is right here.

AUDIENCE: I’ve recently bought notes and they don’t have a credit report.

GORDON: It’s Junior Liens?

AUDIENCE: No [inaudible [01:08:53.12]]

GORDON: So it’s older [inaudible [01:08:54.04]]. With the first you look at the property, with Junior Lien, you are looking at their credit report.

AUDIENCE: So most sellers of Junior Lien will have a credit report?

GORDON: It they don’t, I wouldn’t buy them. And they will. Yes

AUDIENCE: I have heard couple of people talked about when they are buying a pool or whatever that they got to put the money up and they got to pray for the paper work or something like is that… what’s the story?

GORDON: That’s a good question, because different… I tell a story this way. I say it like having five pirate ships out in the bay and you are going to go and swim out of one and there’s a red beard, black beard, gray beard and there are these hedge funds and they’re greedier than you are. They are in their own business. And a lot of them have their issue okay and PBR will sell you one and you get the paperwork in three days FEDEX to you. Perfect pristine. Other firms will say well give us the money and we will send you the note when we get it. When we get it, you don’t have the note. We have a contract with the bank and when they supply us with the notes, we will get it to you. How long is that typically? It could be 30 days, 60 days. 90 days some times it is be 120 days. So I say this back to you I give you all my cash and I sit there and wait if the note comes. And then when I get the note, you know what’s what? And you got to think of this way, are you buying a pristine note, you’re buying trash. Junior Liens especially. First liens you have a big file, Junior Liens sometimes have three pieces of paper. You know like what is this. And something you have to guesstimate, if you don’t have a paid history. The guy was paying 281 a month, you don’t know that. But you just kind of work through it. So some of the paperwork is junky, but you better have a relationship with your seller. That’s my point and knows their game and knows which pirate you are you’re buying from and what their protocols are. Because some you know frankly it sounds pretty bad to wait 60 90 days, but what if you’re getting a fresh note from the bank as opposed to maybe a worked note. Think about that. So that’s an issue. Build a relationship there’s not that many guys. Go to New York, hangout with these guys, let them know who you are and get to know them. Yes?

AUDIENCE: Regarding the credit report, do you normally go for [inaudible [01:11:14.00]] or you normally

GORDON: So the credit report, you know like most of these things it not an exact science. I usually take what they give me. I have gotten so jaded now. It’s like I look at these things like options. You are paying 1 2 3 4 5 thousand dollars for these things and you’re buying a bunch of them. So I don’t really get that and I’m not the kind of guy. I’m not analytical kind of guy really, I get a feel for it, and it’s one credit report looks pretty good I’m good that. But having three might be better. so..

AUDIENCE: Are you [inaudible [01:11:44.15]] all over the country or just certain areas.

GORDON: All over the country or certain areas, at first I went the hedge fund and I said I want all of the notes and Solana beach. And they made me leave. And I said how about something… I am opened minded something in California, they laughed at me again. So they got to buy nationally, and if I was buying first and I was going to own that property I might want to be a landlord in certain areas. If I am buying seconds, it’s become irrelevant to me. If you showed me notes anywhere, I would buy them because I’m not going foreclosing on you. I might threaten to but I’m not going to do it. I can get that bar relationship anywhere. So no I don’t care about them. How do we do here?

AUDIENCE: Yes, we did great, what do you guys think?