Introduction To Paperstac With Brett Burky

Note investing may come across as something very technical to those who don’t know the inner workings of its transactions, and this could be a determining factor when deciding to invest or not in the industry. With the rapid growth of technology, it’s no surprise that Paperstac, a technology that’s made for the note industry, came to life. Brett Burky, the Cofounder and Marketing Director of Paperstac, joins Dan Deppen on today’s show to introduce their product. Brett talks about how their technology can help take away all the hassle you’d have to go through when you decide to get into the mortgage note investing. Don’t miss this episode to learn how you can go from researching an investment opportunity and screening the investment, all the way to purchasing from the comfort of home.

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Introduction To Paperstac With Brett Burky

I’m joined by Brett Burky from Paperstac. Brett, how is it going?

I’m doing good.

Paperstac is one of my favorite platforms for buying and selling notes online. I’ve been using it a lot more as it has grown. It’s interesting in having you on to talk through some of that a little bit. Give us a little bit of background on you and how you came to notes and what Paperstac is all about?

I have three business partners and two of them are long-term real estate guys and had been for several years. Paperstac came to be a number of years ago as far back as 2014. They stumbled into notes. They bought a note for a framed duplex. An REO agent said, “Do you want to buy this?” It was $80,000 worth of debt on it and they bought it for $8,500, “How can we go wrong with this?” We ended up reaching out to the previous person that was listing it. They said, “Do you want to do a deed in lieu?” The person did and next thing we know, they relisted it and they sold it for $40,000 and that was a matter of two weeks. They started realizing that they were doing it for finding new inventory. They eventually get the foreclosure and get it back. That was how they got into it. After they did it a number of different times, they run into some real issues where they had one thing where they wired up $200,000. The other guy on the other end saying, “It’s in Box.” There are things in his Dropbox. They’re like, “We don’t see it, it’s not in Dropbox.” The guy went on a vacation and for two weeks the money’s in limbo and they’re all freaking out.

After wiring $200,000?

Yes, this is a family and friends’ fund. They’re scared. Finally, when he got back and guy’s like, “I saw you accepted it. It’s Box.” He’s like, “Dropbox?” The guy’s like, “No, Box.com.” He’s like, “What is that?” Rick had a Box.com and auto accepts if you get an email. Eventually, everything worked out. They got the information and the only real thing, it was a lost note affidavit like, “This is a great investment class, but there needs to be a better process.” They started trying to outsource it and then I came in. We had a company that we tried to outsource overseas. When we got back, it wasn’t that great. We said, “We need a developer that’s going to be part of the team. Someone that can be there day-to-day.” We found the guy standing behind me. We scrapped the whole thing. It was a long name. I never liked it. It was Investment Note Exchange. I always was like, “Note Exchange, there are two E’s back to back. If someone’s got a fat finger, it’ll mess it up.” Paperstac was the idea of all these stacks of paper around the office like, “It was a bunch of paper stacks.” It’s like, “Paperstac,” and that was it. We ran with it. We made a pilot program for a year. I think you reviewed it at one time on a video.

Yes, I did. That was my Where to Buy Mortgage Notes video. In fact, I’m going to update that video because I recorded that in August of 2018. It’s a little bit dated. That’s one of the biggest issues. I made that because one of the hardest things of note investing is finding sources, so I made this video on where to find that. By far, I’ve had the most views on that video. It’s 50X like any of the other ones. Everybody finds that so I’m like, “I need to do an update and put that out there.”

That ranks pretty well too. I see it at the top of the surface when I’m looking at stuff. Once we launched it, we saw people how people were using it and it wasn’t how we intended in our head. We re-envisioned this thing because people didn’t have the to-do list as you have now. You’re going through one and you had these to-dos. You know what you’re supposed to do next. This one didn’t have that. Mike rewrote the whole UX and said, “This is everything from top to bottom.” We launched it at Note Expo 2018 and we’ve been working on that system. That’s what you see now.

It started off robust and now it’s getting more robust. You can buy a pool, you can buy a single note, but we’re always adding new things all the time and it’s going well. It’s been well-received. It’s a learning curve for people who have done in different ways. At first, people might get in a transaction, they’re negotiating the timeline and they don’t know there’s a negotiate button. There’s a lot of learning when it’s your first time, but now that people that have been using it, if they have used it a couple of times. We have a couple of regulars that they’ll jump in. It’s 4:00 in the afternoon, I’ll wake up the next morning and they’re halfway good. They’re either wiring the money or they’re sending this stuff to the auditors. Those are the only things that hold up the process. Otherwise, people that are doing wiring straight to the seller, those were fun.

I like it because it’s very simple and it’s set up like a checklist. I love checklists. There are these things to do. I can go in and look at my stuff and see if there’s anything that I need to do to move the transaction along. It’s nice too because it keeps you from forgetting anything and it keeps both the buyer and the seller on track. As a buyer, I’ve run on issues before where you have to poke the seller to do things on their end, whether they forgot to ship the collateral or they didn’t do this or do that or I need the assignments, whereas this is all baked in. From the buyer perspective, it’s also very safe. It’s simple if you haven’t done it before, then you also know everything the seller has to do. Everything stays in sync.

TNI 21 | Paperstac — Paperstac: Bidders always need to give a reason whenever they give anything below the asking price.

That’s the goal. We’re trying to make it easier. We added the servicing transfer information because we saw that was something that always happened at the end of a transaction. People are like, “Who’s your servicer? What’s your email address?” Now it’s says, “Who’s your servicer?” You click and dropdown. At the end of the transaction, we send it off to wherever, whether it’s Allied or FCI or Madison and they get an email. At first, they were like, “What are these emails?” but now everyone’s used to the process and they know when they see it, “Something’s sold or something’s been bought.” That helps to save a lot of time for people. There are other little things like, “That’s a good idea.” A large majority of the updates, unless it’s a big one, come from users. Users come on and we have a saying like, “A two-step tech.” We have seen the same thing where people are saying the same stuff twice. We’re like, “We’re going to figure out a way to address this.” People will improve it or actually implement this. It’s been cool too because I like to go back whoever said, “I wish you did this.” I get to go back to them and say, “It does this.” They’re like, “When?”

That’s a fun job. When I was a product manager at Oracle, that was a lot of what I did. There was a lot of talking to customers. This was an archive storage software product. It’s completely different, but there’s a lot of talking with customers and working with salespeople and getting a lot of that feedback and then working with engineering on the requirements. It’s a strategy game where you can’t do everything that everybody asks for, so you’ve got to sit down and figure out like, “What’s the engineering scope of these changes? What’s the business impact? Which ones make the most sense?” It’s a straightforward answer because you can’t do half of what you would actually like to just because there’s not enough time in the day to do that.

That’s a very strong balancing act with us because we’ve got one guy that’s doing the whole thing. We operate like in Oracle. We use a system called GitHub and we assign points and know ideally how many points he can knock out in a two-week sprint. We do two-week sprints. We’re trying to get this out before, “These two weeks, we’re going to focus on this. Can you throw this one in for me?” We do a voting system. I’ve been voting on the same couple the last couple of times. There’s a couple of features that I’m like, “That one would be good like bidding.” You can either negotiate, fixed price or make me an offer. That one’s a big one that I know a lot of bigger companies would like because then they don’t have to price out each asset. We just put it on there. If they make me a bid that’s within something that I can accept, I’ll accept it.

It’s like an eBay system almost where you can say, “Here’s my buy it now price, here’s my reserve price. Let it run this long and go and see what happens.”

It is mostly because some people don’t want to negotiate. We have people that have put hard money loans on and it is what it is. This is your buying yield. It’s 12% for eighteen months. “I’m not negotiating. Take it or leave it.” They have to explain that. A lot of times we’ll put it in the seller’s comments. Sometimes as buyers, you see the 12% and they skipped over the fact they said that in the seller’s comments.

My pet peeve is when people put offers in and they’re super low ball. You get an offer in the email and I’m like, “What’s this?” You poke in, “Which one is it?” It’s like, “He bid half of what I wanted. There’s no way. He wants a 30% yield on a performing note.”

We did address that one. If somebody does put in less than 20%, they have to fill out a form below it. If they bid less than 20% of whatever the asking price is, they going to say, “Why?” They’re going to right out, “This is why I’m bidding below that.” At least it gives the seller some context. They’re like, “Okay.” As for the case, it’s not really and then they can go back and forth and renegotiate. They have to understand why maybe it’s worth more. It at least opens a door to communication. It’s not a blind bit. You’re like, “I’m offering you 50% less than what you have listed for and I’m not giving you a reason.” They have to give reasons why they’re doing that.

I like how when someone makes a bid. It opens up the transaction and then you can have comments and go back and forth. It’s very much a conversation. You’re not just throwing things over a blind wall. Because a lot of buyers will, when they put in bids that are lower, some of them are throwing these random low-ball bids. I’m like, “What is this?” A lot of them too will say, “Here’s my bid and it’s based on this. I’m pricing it at this yield.” I always appreciate that when people put in comments like, “This is my thought process.” A lot of times they’ll come back and say, “This is my thought process on selling it, so we’re too far apart.” It’s nice when there’s that communication.

When different people start saying the same thing, that’s a sign that you already need to address the problem. Click To Tweet

That’s the goal of it too because we want them to explain their position. What it also cuts down on are great leads. We don’t ever have it much anymore. The people that would come in is like Christmas through the site. We have systems that can alert us. I’ll know if somebody is hitting in every single asset like, “I’m interested.” You’re like, “You’re not interested because you can’t be interested in everything,” and that everything matches your buying criteria. Those are the things that we try to watch to make sure that sellers aren’t bombarded with, especially if the same guy hits twenty of your same assets. Your inbox is filled with all this stuff. It’s like, “That’s not good.”

We usually catch that because it’ll alert us. Internally we have an admin area and I can actually freeze their account. It will appear on their screen like, “Your account’s frozen. You have to reach out to support.” This is a way to combat that because people a lot of times are interested in all those different assets. Another thing having that is why are you bidding below that amount? It slows it down and you have to think of it and it’s not working out in your favor a lot of times.

It’s nice to see somebody throwing real software development methodologies in the note industry, because it is like stacks of paper. It’s a very cool industry but it’s remarkably old school and opaque in it. That’s a lot of what stops people from getting involved. I like anything that makes it easier for people to get involved because that grows the market and there’s more business and more activity. It’s cool that it’s nichey and small, but there’s enough there it could stand. It could be a lot more buying and selling activity in the industry.

We did a mini-report and I can’t remember if we had on there how many were first-time buyers. We couldn’t have pulled that from data. I ask a lot of times because I can tell from some of the questions, it’s like 50%. A lot of people are like, “This is the first time I ever bought a note. I’m new to this. I was told to come here because you have a simple process.” We’ve had people that have never bought a note and buy from big hedge funds and they don’t normally have that opportunity.

I didn’t even think of this, but the hedge fund is a lot more like they started coming in and they like it because they’re also like, “I’d never get the chance to talk to that retail guy that’s buying from a self-directed IRA because I talk to the guy that the hedge fund is a little bit lower than me.” It eventually gets down to a waterfall where someone might buy it at that retail level. If I can be up here and skip to here. We’ve had a bank. They haven’t listed stuff, but they were getting $0.70 on the dollar and then they came here and they get $0.88 for performing seconds. They were ecstatic, “This is great.” That’s something that’s interesting.

A lot of people go buy from their self-directed IRA too. We’ve done a lot to integrate with a lot of the different companies out there and we have a process. If someone clicks into buying from your self-directed IRA, they put a new view or equity trust. We know who to reach out to in that company. It has a whole other section where we’ll pop in and say, “Here’s a copy of the mortgage note. Here’s a copy of the wiring instructions,” all the information that they’ll need as the custodian to see. Those are the things that a lot of times the first-time buyers from your self-directed IRA don’t always know what even their custodian needs to see. That was one of those things where it’s helped a lot.

I see that a lot with people who are new. It gets to bewildering and they stop and they don’t buy anything or as the seller, they need tons of handling. They’re come hard to sell to. Whereas I like to the process on Paperstac, there’s this checklist that they can follow. For the seller too, it makes it easier to deal with. You can reach all these individual self-directed IRA buyers, but you don’t have to train each one individually on how to do it.

Someone else said that. It’s a bummer because you’ll start going through a transaction and basically what you’re doing is you’re teaching this person the entire time.

I don’t mind doing that, but the problem is you can only do so much of that. You can’t do that on a whole bunch of different notes because you don’t have the bandwidth to do that. I’ve had some of those people where I’ve gone through that process for a couple of months and then they flake out at the end, which is annoying.

It doesn’t happen too often where we get these people who will go dark and you never hear from them again. We’ve had it happen a couple of times. It’s like, “What happened there?” You’re wondering where they go. They’re getting these emails. Maybe they practicing and wasting people’s time, I don’t know.

It’s a mystery. You never quite know. My suspicion is a lot of times people get cold feet. They’re worried they’re going to screw something up and they’re like, “This isn’t worth doing it.” Whereas your process is nice because it leads them along. They know they’re not missing any steps as they go through.

That’s the goal. All the contracts were written right down the middle, so no one party is getting better than the other. We still do allow people who want to have custom contracts. They can upload them as long as each parties agree on it, but that was a goal of that too. If it’s your first one, you have to have a lawyer review these to see, “Is everything good?” We wrote the purchase sale agreement and all the other documents so that they’re up to standard. We’ve had a lot of people post-closing who are like, “Who do I service with?”

There’s a page that I made, it’s like, “Here’s a list of servicers. Here are the ones that you can go out and these are the ones that you want to talk to.” Also even at the end like, “What now?” We’re like, “Now you’ve got to get it recorded.” We have a partner in the industry and we turn it to her. We would say, “Record these.” She’s great at it. Recording is such a pain. There are so many different nuances to it all over the country. I was like, “I’ll give it a shot.” I had an account with C2C. I tried it for a couple people to see if this would be something we’d do. Every state’s different. They want this and that. The signature is here, not here.

I’ve got somebody that does mine. It might be the same person in South Carolina. She knows every single state. I had one in Delaware County, Pennsylvania. It took eight months and multiple attempts and it’s insane. Some people know all the nuances between the different counties. If you try to do it yourself, you can, but it’s a pain in the butt or you can set up a Simplify account and do other things. It’s a challenge if you’re doing your first one. You want to get it going. That makes life a lot easier.

For people that have done their first one, I find that the most challenging part. We had somebody who bought a pool and it was months of back and forth. Sometimes it was like, “The stamp’s too light.” I’m like, “It was a digital stamp. What are you talking about it’s too light?” Because we used it to notarize it. I don’t know if you’ve got to that part yet. It’s one of those parts.

Not yet in my one transaction.

When you’re doing the assignment of mortgage, the notarize will show up when they digitally stamp the screen. Somebody doesn’t have something to do up there. I don’t know what’s going on. They’re being picky. It was back and forth and I felt bad for the person because it was her first transaction on Paperstac, but also the first note transaction. The process with Paperstac is fine, the recording thing was a little tedious.

Those can be difficult. The other thing I like about your process is the escrow. Most note transactions aren’t done through escrow. Traditionally, they wire funds directly to the seller and everything’s always worked out. If they disappeared or didn’t send the hard collateral, that could get dicey. Whereas on your process on Paperstac, the buyer has the option of saying, “I want this to go through escrow and do collateral.” You might talk about that a little bit and how that works.

99% of the people use that. The only other people that aren’t using it usually know each other or like in a Facebook group. We have people come from Facebook groups that they did work out the stuff inside a Facebook group, came to Paperstac and do the transactions. They didn’t use it there, but people that are complete strangers, they always use the escrow process and that helps the buyer. They wire the money to the title company. That company has their own version of Paperstac. They log and say, “Yes, the funds have been received.” As soon as that happens, other steps are open for the seller where we provide this first-class shipping labels to the auditor to do the audit.

You can’t be interested in everything, because then everything is going to match your buying criteria. Click To Tweet

You were able to see an honor review and see it online, see colored copies of the collateral. Even at that part they’re like, “This isn’t what they said it was. I don’t feel like moving forward.” Your money is still sitting safely inside the escrow. That will be returned back if the deal falls apart. Reputation is very important in this industry. They said it is what it is. They keep moving and then at that part, only when the buyer signs a disbursement agreement saying, “Yes, I’m okay. Disburse my funds at the end of the transaction,” then the process moves forward.

That’s when the seller gets the assignment of mortgage, the allonge and it keeps moving like that. The cool part is at the end when it was all said and done, we don’t even send the money until we see that from FedEx’s API, the package is in transit. It’s basically saying, “Waiting, in transit and delivered.” Once it hits in transit, it will say, “The collateral file is in the air or is out for delivery.” The escrow can go at the same time this is going. You’re getting your money and at the same time the buyer’s getting the collateral. There’s no, “Give me this or you give me that.” It’s none of that anymore. The system does it all for you.

I’ve had some sellers, one in particular, I bought a bunch of stuff and they don’t send the collateral unless you call them and ask them later. What gets crazy is especially when you start building the portfolio when you’ve got notes, you’re doing due diligence on and ones are being boarded ones that are REOs. After you close on this thing, it’s very easy for a couple of weeks go by and you’re like, “I never got the collateral.” You don’t realize because you’re like, “I closed that one and now I’m onto the next thing.” It’s nice to have those safeguards in place. You’re like, “I know all this stuff is going to happen.” A lot of what I do triggers in Pipedrive in reminders and little automations. When I close on something it’s like, “One week later, make sure you got this. Two weeks later, make sure that happened.” There’s all this following up. It’s nice when you don’t have to do all that because having the follow-up can be a pain when you’re having to follow up on a million different names.

We made it so that also too in the transaction, if you close a deal as a buyer and seller, it’s there indefinitely. In your transactions, you’ve probably seen negotiating closed, finished or complete and then abandoned. You can click the complete one and it’ll show all the ones that you’ve closed. If you had to go back to anytime to the seller and say whatever, you can do so. We left that there indefinitely so that you always have a line of communication to them when you need to do something. A lot of times that happens. If something was wrong, maybe the wrong address on the assignment and they need to have something updated. There’s one of those. The booking page was wrong and you need to have it updated. We’ll redo it and then re-assign it, so that it’s not like, “Now I’m stuck with this and now I can’t get ahold of the seller.”

That’s a good point because I have had to go back to sellers more than once or sometimes to your point about the recording. They come back and go, “We won’t record this because we need some crazy formatting change on the assignment,” and you actually have to go all the way back.

That’s one of those things that we saw. That’s been there since the initiation for this version and that was something we were like, “That’s got to be in there.” It’s important to know that anytime you can actually reach out. It’s been used wisely. A lot of times, the sellers get the message or we’re doing notarized transaction for them and have the new documents, sign it and you’re done and on your way. You’re not having to take it offline, sign and go to a notary after you’re like, “I already sold this.” We’ll make it super simple for you. Everything’s notarized, wave at the camera and tell us what it is about to answer those banker questions and then those stamps are created.

Those online notaries are pretty cool. I find myself running to the bank a lot to get stuff notarized. I use two different banks. I use one for my personal stuff and one for my business. I ended up going back and forth on there every day getting stuff notarized. It’s nice when you can do it.

It’s one of those things too, where at first when we’re at the beginning of 2019, people were like, “That’s not possible. You have to get an offline notarization.” “That’s not possible. You can’t do the electronic signatures.” We’re like, “Is it possible?” We started to look into it like, “Yes, it’s legal.” It’s in the Electronics Signature Act. I have it all saved. If someone asks like, “Is that legal?” “Yes, this is legal. Here’s the Electronic Signature Act.” Online signatures are a thing, so it doesn’t have to be offline. Still we get paid for the option. If they want the allonge or whatever, it’s fine. Let’s have another shipping label that goes out. They’ll do the one online, they can upload the one they sign as a custom document as allonge then the buyer goes, “It’s approved.” At the end of the transaction, they’ll get another shipping label where they can actually ship that signature allonge to the buyer.

I’ll be happy when the day comes where all this stuff is digital. You don’t have to store the hard copies and everything.

We’ve looked at that because that’s another thing that notarized is looking at. It’s eNotes. Fannie and Freddie are starting to look at how they incorporate eNotes into the future. I’m not going to go down the rabbit hole with all the blockchain stuff because I don’t know all of that.

I don’t know much of anything about that stuff but it seems there’s got to be some blockchain solution for doing that.

That’s what they’re looking at. That’s one of those things that how those will be upheld in court. That’s the biggest thing. I was talking to a lawyer friend of mine that defends people. He’s on the opposite side. He’s like, “I haven’t seen one with an eNote and how they’re doing it. The first time that one of those actually do win, that will change everything. Once that happens, then it changes the game.” As of now, he finds funky ways to fight them. Eventually that will be a thing. We have that in our mind and I go, “That’s coming.” We’re not going to develop it for now because it’s not here. We probably have one guy, but when we expand and we know that it’s on the horizon, that’s one of those things we’re going to be looking at because it makes sense to have those eVaults. It’s an electronic vault and it’s all done on blockchain. Once Fannie and Freddie accept it and they’re using it, which I think they might be already, it’ll trickle down and become more standard. If they’re doing it for origination, why can’t they do it for stuff that’s already been sold. Our goal would be eventually to have it in eNote and upload it to an eVault.

I think it’s inevitable. Who knows how long it could take? It could go quick or it could take a crazy long time.

I would imagine that around making the industry, it might move slow. The finance world it seems is slower paced. There are a lot more regulations and different things that need to be done. Unlike some other industries where somebody comes and disrupts and there was no precedent, like the guy that dropped the scooters down on the street and you’re like, “What is that? They weren’t there.” They’re like, “They’re there.” “We’ll give you $0.25 for everyone that rides.” “Maybe we’ll look into that.” It’s a different ball of wax.

Thanks a lot, Brett. I will definitely have you on at some point in the future to give us updates on how things are going. I recommend people to check out Paperstac. That’s been my go-to. I appreciate you helping out with that.

Thanks for having me on. I appreciate this and I’ll see you soon.

See you.

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About Brett Burky

Brett is Co-Founder of Paperstac. Started in 2014, Paperstac is the first fully digital mortgage note transaction engine. Its a groundbreaking software platform that helps investors take advantage of an alternate investment specifically in the mortgage note space.