When you have good intentions, everything will work out in the end for you. This proves true for Wayne Snell whose business goal was to avoid future foreclosures whenever possible. In this episode, Dan sits down with Wayne, who started in note investing way back in 2011. Along the way, Wayne has closed on hundreds of notes and shares some of his most interesting borrower stories. He is now the Chief Investment Officer for CrowdCapital.io, where he uses his background in technology and investing to help borrowers stay in their homes.
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Empowering Borrowers – How To Avoid Foreclosures With Wayne Snell
I’m joined by Wayne Snell, the Chief Investment Officer of Crowd Capital. Wayne, how are you doing?
I’m great, Dan. How have you been?
I’m good. I’m so glad to have you on. You’re one of the first guys I met in the note business when I started years ago. You’ve been at it for ten years plus.
It’s over a decade at this point.
I’m looking forward to hearing your story and getting into what you’re doing now.
Thanks for having me on. I appreciate that. I was talking to Dan before we started. It has been over a decade since I started in the note business. I’m a tech guy at heart. We were sharing war stories on technology companies. In Crowd Capital, what I’m doing now is a hybrid organization. It is a technology company and a notes business. I wanted to talk a little bit about that. Maybe I’ll share some war stories as well and some lessons along the way that I’ve picked up over the last decade.
I’m interested in hearing some war stories and how you’ve seen the notes business evolve. Maybe talk about how some of your strategies have evolved.
I’ll start there. For the last few years, at this point, I focused my notes business first as a hobby. I was in a full-time job as a technology VP of marketing for a software company in the Dallas area. I was working 80 to 90 hours a week and missing out on some of my son’s most important activities, the football games, the after-school, the plays, and those things. I realized that I needed a passive income approach. For those of you who may have heard my story in the past, sorry for boring you there.
At the time, I was married. We had this idea that we would get some passive income to replace at least her income first and then hopefully mine over time. We were gung ho on rental properties at the time. This was back in the early 2000s. We bought quite a few of them, but one of the challenges I was faced with and why I got involved in notes is two things. One is tenants suck for the most part. Even the best for them still screw up your house. It’s not even intentional, but they do.
If you're leasing two cars for $1,700 a month, but you can't pay your $600 mortgage, we have a problem. Click To TweetYou have vacancies. That eats into your revenue. I had a house burn down. I had a house where a tree fell through it and all sorts of things. Insurance companies are hard to work with. We were in a networking group where the plan was that if you could roll all of your single-family rentals into multifamily, you could get better economies of scale. I was trying to do that and couldn’t pick up enough of the rentals. I only had fifteen. The goal is you get to about 20 to 25.
I was at a Dallas-based networking event where somebody said, “Do you know what you ought to do? Buy a mortgage from somebody that’s not paying for their house. You can get those and then foreclose on them. You get in front of those fix and flippers and the wholesalers. You get your houses.” I started researching it and I said, “What if I don’t foreclose on these people and get them to start paying me again? I don’t have a problem with the tenants’ trash and toilets. At the same time, I get my passive income.” That’s what started it. I bought my first note in 2011.
What was it like buying back then?
One thing is it was a hell of a lot cheaper. In those days, you could buy at $0.25 or $0.30 on the dollar for an unpaid balance, but it was also the Wild West. Nobody did any due diligence back then. I didn’t even know what I was doing. I threw stuff against the wall, and it stuck. Sometimes I screwed it up, but I was using my money, so I didn’t necessarily worry about it because I also had the cashflow coming in from the rental properties at that time. If I compare them versus even a few years ago, the prices continued to go up as more people got involved with nonperforming mortgages, which was my specialty.
The prices went from $0.30 on the dollar up to $0.50 and sometimes $0.60 on the dollar. I also started taking investor capital under joint venture agreements. That’s something I don’t do anymore. I’m going to start there, but the reason I was doing them was, “I have an expertise that you don’t have. If you put up the money to purchase the note and do the workout costs, I will do all the work for you. We will split the profits 50/50.”
In around 2017, it became apparent that the model was getting scrutinized by the SEC because there were some people out there that were doing bad things, taking their money and not paying. You can google anybody and find on your own who those people might be. However, my attorneys recommended, “You should stop doing joint ventures.” I was in a lot of them. In my heyday, I had over 300 notes with my former company.
In 2020, I met a gentleman, Christian Rotter, who had come up with the idea that I thought was pretty cool, which is, “You do well at notes and nonperforming notes. You have a social agenda where you’re trying to help people keep their house whenever possible.” That is my mission. I don’t believe in foreclosing unless there’s no other way. He wanted to take that concept and automate a lot of the processes through technology.
I mentioned I was in a technology company. What I didn’t say is I started my career in the early ’80s as a software guy. I pretty much did that up until 2016 full-time. I’m deep in tech all the way from the IBM mainframes to the more recent cloud-based. When he came to me with this idea, he said, “It would be cool. Let me do some research and look into what we can build here.” That’s what built Crowd Capital, which is what I’m doing now.
I’m the Chief Investment Officer for the notes side of the business. Crowd Capital is a technology company. We have built software that empowers borrowers through a digital platform to afford their monthly payments and get them back on track to improve their financial health. We help them avoid foreclosures. We do that through software. They don’t even realize it’s software. They think it’s people helping them and things like that.
I was going to ask how that works because a lot of my borrowers, especially nonperforming ones are not always super tech-savvy. People had to go to the library to use a computer and things like that.
We have made it mobile-first. Everybody has one of these things in their hand. It’s very much built to interact with them. We first focused on the loan modification process because that’s the piece that we think will help families who are about to lose their house and are more likely to jump through the hoop to keep their house. We’re seeing that to be true. We’ve got servicers using it. We’ve got borrowers on the platform. We have gotten payments through the modifications.
It’s still an early stage. We still have a lot of work to do, but at least the application is doing what we thought it would do. I have created a fund, which is a social impact fund around nonperforming notes. I have investors that have invested in our fund, the Crowd Capital fund. We’re using the software to automate the processes that I talked about. We’re buying nonperforming notes. We’re super picky about what those look like. I’m a lot pickier than I was in my old company days because we want to collect the data that we can then show the loan servicers we’re targeting with the software.
We’re doing it ourselves and using that. We are seeing these success rates. It’s early on. We’re still measuring and tweaking, but from the fund perspective for investors, it’s all about helping people but also making profits at the same time. We are a for-profit fund. Therefore, if I have to foreclose, I will but that is our final and last resort. We have a lot of different strings we can pull to help the family out.
Are you using loan servicers? Is your software channeling?
Quite frankly, the reason is manyfold. One is we’re required to comply with all the CFPB rules, the local state laws, and things like that. I went through the process. We bought our first loan in South Carolina, which I’m shocked by. It took so long. It’s a pain in the butt to get registered in South Carolina. You have to do all these things. It requires a certificate of authority, which then means you need a registered agent in that state. Since we are a Delaware company, then we had to get one of those.
That costs some money. It’s money here. The next thing you know, there’s filing a tax return even though there are no taxes yet. The amount of work that has to happen is pretty amazing. We are working with loan servicers. We also want to use our software as a lever to get into more servicers and show them the benefits that they could receive. Specifically, the goal is to help families over time and improve their financial health. I call it guided big brothering.
We know everything about them because they’re paying their mortgage. During our modification process, we also talk to them about certain activities that they may not necessarily want to continue. If you’ve got super amounts of credit card debt, one of the things that we recommend is that they work with HUD-certified loan counseling or financial counselors to get on a family budget. Doing that does help them understand how much money is going out the door.
Our goal is to avoid future foreclosures and future defaults. If we can help them look at their finances as part of our software process, we can say a little tweaking here and there. We know that you are more likely to start saving some money. You will avoid the next issue when God forbid, we have another pandemic or whatever happens. There’s a lot to it that I don’t want to get into here, but if you’re interested, you can look at our website and take a look at that. It’s CrowdCapital.io.
Pay attention to the borrower and actually proactively understand when things might occur to have them go delinquent. And before that happens, course correct. Click To TweetHow receptive are most borrowers? Some of my borrowers like the whole concept of budgeting and whatnot.
We’re pretty picky about who we’re buying in the first place, “If you want to keep your house, we’ve got a solution for you,” but not everybody is going to do it. We know that, but this is the happy path for somebody who’s focused on keeping their home. There’s a lot of research out there. People that lose their house generally fall into worse habits. They’re more hospitalized. They’re more likely to have heart attacks. Their kids drop out of school and become the next generation of illiterates and things like that.
It’s anything we can do to help the family. Specifically, there’s a terminology that Freddie Mac uses called fallout. It seems to be that minorities and lower-income people are more likely to have the problem. They are not as well served as other communities. I target purchasing those mortgages to try and help them because we figured it’s a better way to give them a leg up. We’re also looking to help them with financial literacy. That’s not there yet. Teaching people is not my job, but it helps. When they see the value of it, it makes a lot of sense.
If you’re leasing two cars for $1,700 a month but can’t pay your $600 mortgage, we’ve got a problem. It’s teaching them that without a place to live, nothing else matters. You also need a job and also a car to get to the job. We understand that. You probably don’t need the seventh TV or those things. If you’re putting your child through private school, but you can’t feed yourselves, it’s also another problem. We try and look at course correcting whenever possible. That’s what we’re focused on.
Going back to the fund, the fund is taking that through the process with the idea that we are reperforming loans, which is everybody’s goal, and then paying our investors returns on the interest as it’s collected. When we have seasoned those loans for the good old 18 months to 24 months and resell them to cashflow investors who look for good performing yields, then we rinse and repeat. The fund keeps going on its own. It’s a five-year fund. We don’t want to have to do a fire sale at the end like I’ve seen a lot of other funds do.
That’s where I’ve gotten some of my best deals. It’s when the fund is shutting down and they’re having to sell.
I’m hoping, knock on wood, we don’t have that problem. We’re pretty targeted about that. Our investors are getting a hurdle rate. We have told them, “We will stop buying mortgages at month 32 so that we have the rest of the period to work through the process in case we do have to foreclose or season loans.” There are fewer social solutions that still help a family, like a deed in lieu or authorizing a short sale. I can authorize a short sale in about a week. Not to pick on them, but the good old city banks of the world take a year-plus to get one of those approved. By then, the process is a lot worse for the family.
One of the advantages of being small is you can make decisions and go quickly. I’ve talked to borrowers who sometimes were in bad situations and wanted to get things worked out, but their loan was owned by some larger institution. They couldn’t even get anybody on the phone.
That’s why we built Thrive. We don’t want them to subside. We want them to thrive. That’s what we call it. That’s why we built Thrive because one of the things about the loan modification process is the morass, “Send me these 52 pages of written handwritten documents.” They mail them in or maybe they fax them, “I didn’t get page 42.” More often than not, the servicer doesn’t even tell them they didn’t get page 42 until they call in a week or two later and go, “I hadn’t heard anything.”
There’s this long process. All this is automated with us through technology. It’s a human element. They talk to the same person over and over. Even though it’s technology-assisted, it’s not at the expense of human touchpoints. That’s why we think the servicers benefit from it because it allows their service team, and we call them Borrower Relationship Managers or BRMs, to handle more people at the same time because a lot of the stuff is automated as opposed to scaling up employees. They can be more efficient and get better returns on their employees.
I’ve often said that throughout the real estate business in general, we’re talking about real estate, mortgages, or titles, I don’t want to get on a rant, but it seems like there are all these 100-year-old manual processes that make no sense. There are all these industries that are begging for somebody to come in and do what Uber did to cab companies or something like that. It sounds like you’re carving out.
I don’t want to jinx it because there are companies that have started automating the loan origination process. That’s great, but nobody seems to be focused on the back office. Quite frankly, everybody knows everything about a borrower when they’re originating a loan. You know their Income, credit score, where they live, and family. You probably know when they went to the bathroom last. As soon as that mortgage is given to them and they start paying, nobody pays any more attention to them. Our goal is to pay attention to them and proactively understand when things might occur to have them go delinquent and before that happens, course correct.
There’s enough of that. We spent a lot of time on that. I do want to say a few things about some war stories. One thing I wanted to talk about was I’m super picky about buying those nonperforming mortgages in the first place. For our fund, that’s twenty states. It’s easier to tell the ones that don’t. We are pretty specific. I don’t care if they’re judicial states or non-judicial states. I don’t want them to be states that are lender-unfriendly. Therefore, the court systems are going to be overly preventive for having a stick when needed.
You’re talking about staying away from the New Yorks of the world.
I do stay away from New York even though Upstate New York isn’t as bad as the boroughs. For those of you who’ve experienced this, I’ve been told that even now, it still takes seven-plus years to get a good foreclosure done if you need to. There are instances in Brooklyn where some of these million-dollar brownstones people have been living in for free for ten years. There’s nothing you could do about it. I don’t believe that’s fair and right. I won’t help that.
We don’t invest in the Northeast for the most part, which is funny because that’s where I live but what we do is we spend a lot of time looking at the criteria. For example, I want a single-family house that’s owner-occupied. It has to be a first lien mortgage, not a contract for deed. That’s specifically for my fund because we don’t want to own the property and be responsible for it.
I want to talk about due diligence in general. In the past, it was a Wild West environment. There were times when I would talk to a person at a conference and they would be like, “I’ve got a tape. Are you interested?” I would take a look at it, wire funds to them, and then figure it out from there. Those days are long gone because there are people who will take advantage of you everywhere they can. Unfortunately, that’s true. I do recommend if you’re going to do notes that you do a lot of due diligence.
The first thing is don’t trust the seller when they say, “The BPO value is here. The assignment chain is intact and so on.” Do your due diligence. There are a lot of great companies out there. You can buy broker price opinions. I work with a couple of them. I don’t know if I should mention it because it’s not fair to the ones I don’t work with. You should always order one. When in doubt, order two. It’s worth $200 to not lose $20,000 in my mind.
If you are going to invest in notes, do a lot of due diligence. Click To TweetI’ve done that before. I’ve sometimes gotten wildly different values.
I was negotiating with somebody. They told me, “My broker price opinion on this property that’s up in Michigan was $80,000.” I’m like, “Why did mine come in at $55,000?” That’s a slightly different disparate. If it was $10,000, maybe I could talk about it. We’re talking about $35,000 differences. You want to do your homework. You also want to check the title. It’s worth the extra couple of days and cost to have the city liens, sewer liens, and water liens looked into because those are the ones that can get you. Trust nobody. Similarly, if somebody says, “You need to wire funds to me,” don’t do it.
That sounds like a massive red flag.
This is a good point, but in the old days, we did it. That’s why I always say that it never even occurred to me until I had money. There are people out there who take your money and run. Unfortunately, you don’t learn that until it happened. Use an escrow agent. That could be your attorney or a title company. If you’re using one of the auction sites like Paperstac, they’re the escrow agent. They handle it for you. I like Paperstac, not to endorse them over anybody else. There are a lot of great systems out there. I just happened to work with them. Doing due diligence means that you do send the loan documents off to a third-party reviewer to make sure that what you think you see is what you see.
You can have an attorney or a document custodians do that. I also recommend that unless you have a fireproof safe and you’re going to get a bunch of notes, you should send your physical loan documents to a custodian to store them. They digitize them for you and keep them safe. You know where they are if you need to send them to an attorney. It’s worth the FedEx cost to do that versus keeping them at your house. One loan, maybe. Twenty loans start getting big. You start getting into the 200 or 300s, as I had. It was impossible for me to have those documents in the house.
That sounds difficult to manage. You need a big fireproof safe. I’ve looked at those before. They’re expensive.
Not only that. Do they work? Who knows? I don’t want to find out that I lost 50, 100, or 200 mortgages if something happens.
They work if you close it and seal it up. Are you always going to do that?
I’m generally a lazy person. I do a lot of things well, but one of them is I know that my weakness is I’m lazy. Stuff stacked on the table might happen. Don’t even put yourself in that position. There are some war stories as I was winding down my old company. First of all, at heyday, I had 300 notes. Back at the beginning of the pandemic, I still had about 150. Almost all of them were performing.
As you can imagine, investors were getting a little skittish because God only knows what was going to happen and for how long this was going to happen. Borrowers were starting to use the opportunity whether they needed it, and many did, or didn’t need it but still knew they didn’t have to pay. That was a completely different conversation. I was very lucky. Most of my borrowers continued paying. My loan servicers came to me.
At the time, I still was using three different loan servicers. They were like, “The federal government is offering forbearance and so on.” I’m like, “I don’t have to.” I will, on a case-by-case basis, analyze the people. If they can show us that they have a true financial hardship, it makes sense. I don’t want to put anybody a burden or kick somebody out of their house. Quite frankly, if somebody was paying me for a year and a half or two years, I get it.
We’re going to figure out a way to keep them going, but there were people who had a full income and still didn’t pay because they didn’t have to. Back in those days, some of my investors were a little concerned. We did sell off a bunch of the portfolio. I started getting more involved and physically became a co-founder and employee of Crowd Capital in 2020. As the pandemic was heading, it made sense to not have a conflict of interest.
When the pandemic hit, I was in a similar spot where I was concerned. I was like, “I need to buckle down,” but I was pleasantly surprised at how borrowers held in there. I did have some of that where people stopped paying because they thought they could but overall, I didn’t see things crater the way that I expected at the beginning.
In January 2020, I still had 151 or 152 loans. I only had a dozen stop paying by the time May rolled around. Even in the dozen, only 2 or 3 missed more than 3 payments. They specifically gave us examples of why they were impacted. They were service economies for the most part. Most of them were in Indianapolis, of all places, which is a weird thing that they seemed to all be in the same area. I don’t know if that place has a higher concentration of service employees or not, but the minute they could pay, they did. It was interesting. They called up like, “We’re going to pay.”
If you treat people well, they treat you back as well as possible. One of my notes predated the pandemic. It was in Georgia. I won’t say too specifically where. The history was I bought a note from a broker. The person was nonperforming. They had gotten a 403(b) loan. It’s from HUD. It’s a loan that allows you to rehab the house. It’s like what we do in a rental place where we get hard money loans that were bigger than what we needed to buy it so we could fix it up. It’s the same process. The government provided this loan. The person made a couple of payments and then stopped.
The house was at least halfway updated but not all the way through. I bought that thing in 2016. I tried to work it out with the borrower. I was using a third-party loss mitigation firm on the West Coast. They talked to her quite regularly. She refused point blank, “I’m not paying you. I don’t think I need to. I don’t want to.” I happened to know that she had a very good job. It was well-paying. She’s the head nurse at a hospital with a large 401(k), which we learned. We’re like, “All you have to do is tap into your 401(k).” She said, “I’m not going to do it. That’s my retirement. You can’t take my house.” I did.
She filed for bankruptcy, but she never did anything with the bankruptcy. I got relief from the stay. The story goes like this. This is where it gets interesting. The trustee connected with my attorney, who connected with the judge because she got a better job at a bigger hospital, was making double the salary, and asked, “If I pay all their legal costs, do you think you can convince them to sell them back the house?” My attorney approached me with that.
I’m like, “I’m a good guy. Why not? We will sell them back the house. You pay all my legal fees, which was $12,000.” She did. She wrote a check. We got the money in. I did a new mortgage and seller financed it. I went to call the underwriter. I like those guys. They do great work. This was years ago. I forwarded it. She made one payment and stopped paying again. We’re into 2000. It was early 2019. For whatever reason, because she was in this bankruptcy world, she was able to buy herself some time.
If you treat people well, they’ll treat you back as well as possible. Click To TweetI finally reforeclosed. I remember this vividly. I got judgment on January 4th, 2020, but in Georgia, you cannot evict without a separate hearing. The judge scheduled the hearing for mid-February to evict her, but the judge got this mysterious flu and postponed all his cases to the end of March. I was pushed back in the eviction process until March. The foreclosure moratorium kicked in because that’s when we figured out it was COVID. I’m sure the judge got it. Who knows?
She stayed in that house for free, mind you, until the middle of 2021. At least in Georgia, we were able to convince the judge that we could proceed with the eviction. She pretty much lived in that house for almost three and a half years for free and made two payments. She did pay me back my original legal fees, but I lost the one I had to reforeclose. I was super pissed off about the whole thing, but there’s a silver lining to all this because, by the time the foreclosure moratoriums and then the evictions moratorium ended, we were in that superheated market.
Property values skyrocketed.
I had the deed to the property on January 4th, 2020. It was my responsibility to pay the tax taxes and the insurance. She’s living in this house for free. When I finally did get her out, the sheriff said, “She’s a problem in the community.” The sheriff was very happy to evict her for me. We had to do some rehab work. I finally sold that house. It was November 2021-ish. I almost doubled my money because of the superheated market. There was a silver lining. Don’t give up. Sometimes this stuff works out for the best.
It’s funny. She lived rent-free for a couple of years, but she missed out on all that and she’s got bankruptcy. She didn’t come out ahead after all that.
She must have had something wrong, too, because I was told during the day that the sheriff and my moving crew were removing her things. Some family members showed up. That was the first inkling that they had that she was in trouble. She never asked for help or told them or anything like that. I feel bad about that, but I also believe that I give everybody as many shots as possible. At some point, I am a for-profit business.
I talk about modifying. I had 247 modifications. I’m pretty proud of that. That’s three times the national average if you look at it. More importantly, when I would season those loans and resold them as cashflowing properties later on, there was very little fallout. That’s the important piece. That’s why the fund is so important because I wanted to scale that up and see how many payments we can help.
That’s probably a good stopping point. Wayne, thanks so much for coming on. I appreciate it. It’s an interesting story about doubling your money on barter that didn’t pay for years.
It is good. Here’s one last thing, if it’s okay. I wanted to give myself a slight plug. If you’re interested in learning about the technology organization, we’re raising capital through a crowdsourcing fund called Wefunder.com. You can check us out at Wefunder.com/CrowdCapital. You can take a look and see if it makes sense. I would love to have you ask any questions of me if you do.
That sounds great. Thanks again. We will see you next time.
Important Links
About Wayne Snell
Wayne has 15+ years of experience in both active and passive real estate investments across various asset classes, most recently managing a $50MM portfolio of 1st lien mortgage notes and single-family residences across 18 states. His extensive project management, leadership and financial governance experience uniquely qualify him to lead the investment team. Snell holds an MBA from Long Island University’s CW Post at Brookville, and dual Bachelors’ degrees from the University of Buffalo, majoring in both Management Information Systems and Marketing.
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