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Being one of the most crucial areas in investing, due diligence calls for proper guidance and knowledge. But this may not be as smooth and simple for every investor. This is where the help of a title company can be most appreciated. Dan Deppen talks to Dickie Baldwin of the Baldwin Advisory Group about how he and his team assist investors in dealing with the most important reports and services note investors should understand and take note of, particularly details that are not included in the title report. Dickie also shares how their services work and what investors can expect when working with them, especially on the financial side.

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Why Do You Need A Title Company In Addressing Due Diligence With Dickie Baldwin

We’re joined by Dickie Baldwin from Baldwin Advisory Group. Dickie, how’s it going?

I’m doing wonderful.

I want to have you back to talk about some of the new stuff and what you’re doing. I know a lot of your products and things have evolved a little bit and expanded. Give us a retouch on you and what you do then we can dive into some of the other stuff.

I’m Dickie Baldwin of Baldwin Advisory Group. I’m located in Houston, Texas. I’ve been in the industry for many years, retired in 2018, got bored and started Baldwin Advisory Group because I figured, “It’s time to go play golf every day.” I’m not like you, Dan. I don’t get a hole-in-one every time I go out and play.

I don’t do that. That was Kim Jong-il or whoever that was that did that.

At any right, being in the industry for so long in realizing the biggest issue in investing especially for newer people, in the beginning, is not knowing where to go to get something done. They get on the internet, they don’t know who they’re going to be looking up, they may or may not run into a reputable company to do all the due diligence that we need in order to be successful in investing. Starting BAG, I put it to where they can do BPOs, title searches, find a realtor, servicing and do self-directed IRA. Baldwin Advisory Group goes by BAG and the slogan is, “One BAG for all your real estate services.” That’s in a nutshell and we can get into the meat and potatoes of it.

On the BAG website, the slogan says, “One BAG for all your real estate services.” If you ever need to call me, there’s my phone number (936) 447-4170. There’s my email DBaldwin@BaldwinAdvisoryGroup.com. In this website, what I’d like to do is highlight a couple of the services and go into a little more detail about the different things that you can do in each of these two arenas, a BPO for the brand new person that doesn’t know what a BPO is. That’s a Broker Price Opinion.

That’s where a third-party vendor has vetted agents that are able to go out and take pictures of the subject property. In the report, they’ll have three sold comps in the neighborhood and three listings in the neighborhood. With that information and taking pictures of the subject, they’re able to get an as-is value. In the BPO valuation, there are other products that are available that you may consider using. Dan, I know that you’ve ordered quite a few through me and it’s called a Property Condition Report. What is a Property Condition Report?

That’s where an agent will go out, take current pictures of the subject, answer multiple questions such as does the property appear to be occupied? Yes or no? Is it standard for the neighborhood? Yes or no? Is there any visible damage? Yes or no? These are all questions that are answered on the form. The difference between a property condition report and a BPO is there is no value and no comps to be used. If you know that there’s a lot of equity in a property, you’re not as concerned about the value but you want to know what the property looks like. Not as Zillow or Google Map but a real-time picture then a Property Condition Report is the way to go.

For me, when I order various deal-to-deal depending on what I care about. If it’s a nonperforming loan where there’s a good chance I’m going to end up with the property, in that case, I want the full BPO because I know it was a good chance that I ended up at the property so my ROI and the deal is going to hinge on what the value is. To your point, a lot of loans have equity. If I’m buying the performing note and there’s a lot of equity in it, I still need to get eyes on it because I’ve heard crazy stories of where people send someone out to look at the property and it’s gone because it was demoed, a big tree fell on it or something like that but I’m not sensitive to the value. As long as the property looks like it’s in good shape and it’s occupied. There are tons of equity there. It’s a performing note. With equity, I’m never going to end up with that property anyway. I order a deal-to-deal but it varies on the type of note and what I’m interested in.

Another way that a property condition report becomes beneficial is, let’s assume that you have a performing note and they are making payments like clockwork and they have month-in, month-out but you live in Colorado, the property is in Georgia and you haven’t seen it ever or at least a BPO picture from a year ago. You may want to do a Property Condition Report to put eyes on it. Even though you’re getting paid regularly, you don’t know if they’re taking care of that house or not.

The number one thing people struggle with is finding places to buy notes. Click To Tweet

That’s as good as an early warning. I haven’t been good about this but it’s not a bad idea to even periodically 1 or 2 times a year if you can do it cheap enough, put eyes on everything to see what’s going on and keep an eye on it. Sometimes, you got good surprises too. I had one where the borrower had stopped paying and got flaky. I noticed that they built a fence and had put a bunch of money into the property. I can learn all kinds of interesting things when you keep eyes on it.

For a minimum charge to have a professional go out through a third-party company on a good form, instead of trying to call Craigslist and hoping that you can get somebody to go out using a professional vendor, is the way to go. That is one of the products that BAG has to offer. If you ever do need a BPO or a Property Inspection Report and you’re not quite sure what each of those items is, in the BPO, there’s a more detailed explanation of each of the products. There are two ways to order these products for BAG. You can either come to the website, get the order form, complete it, let me know if it’s a BPO. If you want exterior and interior. I also do full appraisals which I want to hit on. I put the code in, hit submit, which comes to me immediately and the product is ordered.

The other thing to mention for folks who might be brand new, I’ve talked about this before but when you’re buying a note or doing due diligence on a note, you can’t bother the borrower and you’re not going to be able to get inside. Most of them are going to be exterior only unless there’s a special circumstance where it’s vacant and you have access or something like that.

My website is in the process of being redone and the order form is being expanded. There is another product in the BPO arena and it’s called a Hybrid Appraisal. It’s not a full-blown appraisal but it’s not a BPO done by a local agent. The Hybrid Appraisal can be done both exterior and interior. I’ve got a lot of lenders that utilize this product even before they loan the money on a hard money loan. What happens is an agent will go out and take pictures, be it the exterior or interior then it is given to a licensed appraiser who does a Desktop Appraisal.

It’s a little more in-depth than what a traditional BPO is done by an agent because it’s done by an appraiser who is taught how to do valuations so there are more calculations in it. It’s not the full cost of an appraisal, which can run you especially in a commercial $2,500, $3,000. On a residential, you’re talking about $500 to $600 whereas the Hybrid Appraisal is much less a little more expensive than what the traditional BPO is.

That’s not a bad idea in some cases especially where you might end up with the property. What I’ve noticed on some of mine is the agent will pull the comps, look at the exterior condition and they’ll make some deductions for damage. What they’re doing implicitly is assuming the interior’s pristine. They’re not making any deductions for the interior because they can’t see that. In reality, if you end up foreclosing or the borrower signs off on a Cash for Keys, the inside is rough. That’s where I make my own adjustments sometimes on the BPOs but it sounds like the Hybrid Appraisal might capture more of that.

The reason that the lenders use it a lot of times is the buyer will give me a scope of work because most of these hard money loans are for a rehab fix and flip. They will give a scope of work which is given to the appraiser which is taken into consideration when they’re doing as-is value and after repair value. It’s a good item. The other thing that you need to do as an investor in due diligence is a title search. A title search is either online, an abstract or find any taxes, liens, judgments, bankruptcies, anything that may be against the property. Most note investors will do O&E or a title search. O&E meaning Owner and Encumbrances. They will do a current owner search. It’s crucial that you do a title search to find these hidden pieces of hair that are going to cloud the title.

I can’t tell you how many notes I get bids accepted on and I find title issues. Sometimes, the sellers can get them more doubters. I have a lot of notes that I spent a lot of money on due diligence on that it wasn’t able to close because the title was in terrible shape. That is common if you’re buying notes. You cannot assume that the title is going to be clear because those things reveal all sorts of problems all the time. In Chris Seveney’s Facebook, we were joking about that where people were posting memes. Before the title search and after, it looks pretty before and sometimes looks ugly afterward.

There is a cost in doing your due diligence but the couple of hundred dollars that you may spend between the BPO and a title search could save you thousands of dollars and you want to do it before you purchase the asset.

I consider that as the cost of doing business. I forget exactly what the number was but in 2019, when I did my books, I spent a couple of thousand dollars on BPOs and title searches on assets that I couldn’t close on because I found problems. If I had closed on those with the flaws, it would have been much worse. You have to plan on that as cutlets. It’s one of the costs of doing business. Sometimes, you’re going to buy these, find flaws and not be able to close on the deal.

One of the things that I’ve seen is the costs between a current owner search and two owner search is not that much difference because a current owner search is $85. That’s with all the documents being included. A two owner search is $100 with all the documents being included. The difference between the two reports is the current owner search takes care of the current whereas the two owners go further back into history to make sure that there are no other hiccups on that particular property.

 

Those things are crucial but in the BPO, there’s other that you can do in the title search that is not part of the title search. That’s water and sewer because that’s not a recorded item. Keeping in mind that a title search only is recorded. Anything that’s recorded in the County Courthouse, etc. Water and sewer are not. Municipality searches and code violations aren’t a part of it. These are all other things that you need to know about. You would know better than I do, Dan, where water and sewer can make or break a deal.

If you’re buying a contract for deed, it’s not like this everywhere in the country but in a lot of counties. If you buy contracts for deed, you’re on the deed to the property and they require the water bill to be tied to the deed owner. The borrower was on the hook control to pay for it. However, they can run up a massive water bill and don’t pay it or get angry and turn the water on and leave it. I’ve heard horror stories of $10,000 water bills, which can be a huge deal. If something like that is going on, you want to know before you buy it.

If it’s a mortgage or if the borrower got a big delinquent water bill, you’re not going to end up on the hook for it, it gives you more information into their borrower profile. I’ve seen performing loans where borrowers were delinquent on other stuff. If you look at the loan itself, everything might look clean but if they don’t pay their water bill, they’re behind on taxes and other things, which can be an indication of what you’re going to be dealing with down the road.

You reminded me of a scenario of how important the title search is even when you may own the property. I was at a convention in Dallas and a young man came up to me and said that he had bought a performing note. The note was in Dallas and the homeowner was paying clockwork. This man didn’t know what a title search was so he went in and order the title search. During the conference, it was such a quick turnaround, he was able to get the report. Come to find out that the property didn’t have an escrow. Even though the homeowner was paying clockwork, the mortgage, he had not paid taxes in the last several years.

I’ve run into more than one borrower where they don’t pay taxes. It’s not going to happen.

You got to remember that those taxes are due, it’s on you.

The taxes are in front of the mortgage. The mortgage in position one but the taxes are at position zero. That has to be dealt or you’re going to get wiped out at some point.

If you do a title search, let’s say in December of 2020 and you’re getting payments and everything, I would suggest possibly doing an update to make sure that there are no other liens or judgments that may have been filed against the property unbeknownst to you. What an update is we take the last O&E Report, typically if it’s within six months to a year, from that day to the present. It’s about less than half of what an O&E report is but it’s another good way to protect your property, which brings me to another product. Let’s assume that a title search shows that there had been delinquent taxes and all of a sudden, they’re paid. The title search doesn’t tell you who paid those taxes. I’ve got a product called Tax Deep Dive that you can go in and find out if that property had been in a tax sale that may not have been recorded. It will show what the redemption period is as well as who possibly bought those delinquent taxes.

Tax sales are scary because you don’t always know. I had a loan one time that got away from me. There had been a tax sale and I completely freaked out and panicked. Usually, there’s a redemption period so I was able to get it taken care of but if there is a tax sale, it’s not always obvious right away.

At times, it may not show up on the O&E Report. Keep in mind, the O&E title search is recorded items. When you get into New Jersey, school taxes are not part of an O&E Report in some townships. There are no set rules around the country. You can have a state with a whole bunch of counties and even the counties aren’t the same mentality. They do things differently. There’s not a checklist other than you got to do evaluation or property condition report, you’ve got to do an O&E at least the current owner. Especially if it’s in the Midwest because that’s where the water and sewer are the biggest issues it seems.

That’s true in a lot of the Ohio areas like Cincinnati and Toledo.

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It’s not the title search and BPO. There are other things that are part of each of these categories that you need to be made aware of.

What I like do is to call the City Code Enforcement because Sometimes there’s a code violation or they’ve got issues ongoing but it hasn’t turned into a lien that would show up on the O&E Report that you can find other products that are brewing there as well.

A lot of times water and sewer aren’t recorded but when a property is sold then that title company will do the searches. It was a traditional closing for a sale of a property. They will go back, get that water and sewer and run into a situation where the report didn’t show all this water and sewer. I explained to them that that’s not recorded. There’s a difference between a title search and a title company. People get that confused.

I’ve sold REOs before where the borrower left behind a water bill. That got taken out of my proceeds at the closing when we sold.

You didn’t have a clue?

This last one, I’m thinking that I was aware of it. Since everything was in flight, I didn’t want to pay the city, have it not registered and then have it be an issue. I’m like, “If the title companies can figure out the amount, roll it in. We’ll take care of it there.” That’s easier.

Let’s go on some other things that BAG can do to help you as an investor. Here’s a little section called REO In Notes. I’m able to connect buyers and sellers of distressed assets. I would ask everybody to go to this form and we’ll collect the date company information, you let me know if you’re a buyer or a seller, private or institutional. If you want notes, you check off if you want performing, nonperforming, contract for deed, residential or commercial. My website is in the process of being redone and this order form is going to be expanded but it will have seconds and other note-type products on it.

That’s big because the number one thing people struggle with is finding places to go buy notes. I do as well. It’s interesting as I’ve put out videos and podcasts on various subjects, I go back and look at the numbers. I did a video in 2018 on where to buy mortgage notes. There were 12,000 views which are way higher than everything. People said like, “Pay attention to this part because this can help you with a way.”

Here’s the important thing that the product yes but put what states you’re wanting to invest in. Most investors do not want to deal nationwide. They’re 2, 3, 4, 5, 6 states. I’ll explain why this is important. If you’ve got any comments you want to let me know about, put them in here. If you’re an REO buyer then you can also let me know if you want REOs, residential or commercial, if you want them individual and what type of REO. Once again, the states. Why is this form important? Let’s say that you completed this form and you wanted a nonperforming note in Idaho. One of my sellers that has asked me to help them sell their as if you want Idaho and a seller has it, I simply put you directly with that seller, which is huge.

I don’t get in the middle of negotiations, get documents or tell you what color the house is, any of that because I’ve learned for many years of doing this, if you try and be the middle person and talk to each of the other parties, it gets messed up. I built BAG to put you directly with whoever that vendor happens to be, which leads me to another great point on how BAG works except for the BPOs and the title searches. Those are the only things that I collect from the investor.

The reason being is number one, the private label under the BAG logo. Secondly, I am a customer of that vendor. What does that mean? A typical investor may do 5 to 10 broker price opinions and title searches a year. I do hundreds every month. What is that do? I call it strength the numbers. I’m able to go into some of the larger vendors that won’t do a one-off deal but because of the volume that I’m able to do, everybody is able to take advantage of that situation.

 

That’s always one of the challenges when you’re starting out and you’re going to have 1 or 2 notes. You don’t have any critical mass. It’s nice to leverage the wider buying power.

Since I do it in volume, you’re able to get it as if you’re doing a bulk purchase in the pricing. That is huge. As I said, those are the only two things that BAG collects from the investor. Everything else that is in here and all these other different services, we’ll go through this real quick. If you want to originate a seller-finance mortgage, I’ll put you directly with my RMLO who can originate a seller-financed mortgage compliant with Dodd-Frank.

All you have to do is email me, tell me that you’re wanting to do a seller-finance in whatever state, I’d put that information together, make an introduction by email to the vendor, seeing the client and making an introduction to wherefrom that point on, you can talk directly with whoever that vendor happens to be. I’m upfront about it. When it’s all said and done, you pay the vendor and I do have a referral agreement with the vendors.

Everybody is going to say, “It’s going to cost money to go through BAG.” No, it doesn’t because number one, I don’t charge for a subscription fee or any nonsense that is happening in the industry. I’m putting my many years of experience together with the top-notch vendors in the country. I tell my vendors, “I don’t want to be on your 401(k) plan or be part of your medical and dental plan. All I want to do is be able to bring you clients that chances are, you never, ever would have heard of so I’m building your business and I’m helping the individual investor out.”

What is property preservation? You mentioned vacant properties. The preservation is to improve the condition of vacant properties and make sure that there’s no damage or anything when you’re trying to sell it and/or repair it. I put out a post of a water faucet coming out of a wall with icicles dripping off of it. I posted it all over LinkedIn and Facebook reminding investors that have a vacant property in the Northern areas that they need to winterize. That is typical of property preservation. To show you some of the things like changing door locks, putting on a lockbox, slide bolts, doing glazing of windows, boarding of windows, removing debris, landscaping, capping water lines, winterizations and inspections.

These are all property preservations where all you have to do is call me. I’ve got a network all over the country. You tell me that, “I’ve got a property 123 Elm Street in Toledo, Ohio and I need the locks changed or I need it to be cleaned out.” Once again, I have built a complete network of contractors around the country which I will be able to introduce you directly. I have various money lenders both private and hard money then I’m going to introduce you. I’ve got a traditional lender also for the traditional conventional loans and they are nationwide.

I have a title and escrow company that is nationwide. I can do title curative, release tracking and collateral review. What is a collateral review? That’s when you have this big stack of papers especially if you’re brand new, you’re not knowing what you’re looking at except a whole bunch of papers. I have a service to where they can go through and let you know what you do have, what you don’t have and what you should have in order to make an intelligent decision on purchasing that asset.

That’s always a good idea even though you get the title or O&E report. I often have questions about those. I joke that I know enough about the documentation and title are to be dangerous or to have an attorney, review everything to make sure I didn’t miss anything. Sometimes, I’ve seen different states will have their own roles. There may have been a problem with a contract for deeds. North Carolina has some specific language that has to be in there. That didn’t harbor portfolios and the template didn’t follow that so there can be all kinds of stuff. Even if you get the title report and it’s clean, an attorney who’s knowledgeable in that state may be able to notice other things.

Assignments and recordings. Whenever you buy a note, the transaction is done with an assignment and then that assignment needs to be recorded. I’m able to offer you that service. I’m able to store original documents instead of you have them in a box and your bedroom closet.

Hopefully, people aren’t doing that. You don’t want to lose track of those documents.

If you need mortgage servicing, I can help you there. If you want a self-directed IRA, I can help you there. I have an IRS tax attorney that will take on the IRS for claims against the IRS for $10,000 or more. Here’s one of the things that I’m proud of. I have a network of investor-friendly realtors. We all know that there’s a lot of real estate agents around the country. There’s not a whole lot though that like working with the investors because it’s a different breed.

If there is a tax sale, it's not always obvious right away. Click To Tweet

This is one of the services I’ve leveraged from you a lot.

I’ve got a little over 100 around the country. The goal is to have an investor-friendly realtor in every major city in the United States. What’s unique about them is they can not only list sell and property manage but on the property preservation, they can change the door locks, clean an empty house out, winterize it and rehab it. They are your feet on the ground.

I’ll add on that a little bit. Most agents don’t understand foreclosures and REOs but this is a network of once you specialize in that. They’ve got their go-to local people who can handle all of that stuff when it becomes an REO. I’ve got one in Cincinnati that’s amazing. She coordinated the clean-out, got the locks changed, posted notices on the doors when we were going through and showed up in court for me when I had to have somebody there. Those investor-friendly realtors go way beyond what they do than what people think of is what a realtor does like listing a property and selling it or whatever.

I’m starting to see this now and we’re going to see a lot more of it is many of the realtors that are in the network work with local banks and credit unions on distressed assets. A realtor’s investor base is in their own backyard. Many of my realtors are reaching out to me with their off-market items be bought notes as well as REOs. Letting me know about it then I’m able to go back to this little section. If that realtor happens to be in Idaho that has access to distressed inventory then I can let you know about it. It’s more than having an investor-friendly realtor that can be your feet on the ground, they can also be a good source for everybody for products.

I have a network of investor-friendly “attorneys” that can help with foreclosures, evictions, bankruptcy matters, pre-purchase, document review, etc. He also does skip tracing. A couple of items that are going to be on the new website is I can do door knocking. It’s a unique way that I can either do one-visit or three-visit. The one-visit is exactly what it says. If the occupants aren’t there then the server will leave whatever documents you’ve asked me to give them on the premises. The three-visit is they go out the first time, there may not be anybody there. The server will try and readjust the schedule thinking when he may be able to catch the people on the second time. If he doesn’t do it the second time, there’s the third time. If there’s still nobody there then they will leave the documents.

That can be helpful in doing loss mitigation because I’ve had situations where no one can get ahold of the borrower but you know they’re there. I’ll send them letters and do different things. Sometimes, if you want to send them a letter to initiate communication, having someone hand-deliver it can be a lot more impactful than mailing it out.

Back in the old days, even the investor-friendly realtors would do that but because of COVID and potentially being shot, a lot of the realtors don’t want to do it any longer. You might as well use a professional company that does this every day. For a couple of the other services that are available, I can do credit restoration. If you want to start an LLC or form a corporation, I can help you there. If you need force-placed insurance, I can help you there. These are some of the newer services that are being offered. On the website and this is something that needs a drum roll, this was put on.

You won the best of notes. Congratulations on that. That was from NoteInvestor.com. Tracy Rewey organized that. She’s been on the show before as well. I might have her back on at some point too.

I’m real proud of that. I’ve even put it on my email now. Once again, my email is DBaldwin@BaldwinAdvisoryGroup.com. I might mention, when you want to order something, I do have the order forms on the website but you’re more than welcome to email me as Dan does instead of using the form. Tell me in the email, “I need an exterior BPO and here’s the address. I need a realtor in Cincinnati, Ohio. Here’s the address.”

I started doing it by email and I know about the website but I get in the habit of doing it the same way.

I like the email better because we got a chain started on the property where I can give you updates on turn-times and questions that may potentially arise. By all means, feel free to email. I love my slogan right here. It says, “If real estate is your game, Dickie Baldwin is the name.” I got creative on the slogans and puttings. That’s what the BAG network is all about, Dan.

That’s great, Dickie. Thanks for sharing all that. That’s a huge help because I get a lot of due diligence questions and people are never sure what to do so it is nice to have one place to go to get various services are out there because there are a lot of options in how you can go about it.

 

I put the site mainly together for people that didn’t know where to go to get something done. You were one of my very first customers and you are much more than a one-off guy.

It has come a long way. Remember, when you first started and we’re putting everything together.

When you’re an investor, you need to put a team together because you can’t do it all. It’s like a title search. People say, “I can go to the courthouse and do that.” If you’re not an experienced person to go to the courthouse and pull documents, chances are you don’t know what you’re looking for.

That’s why you want a title company pulling that stuff and then an attorney reviewing it. The way I’d like to approach it, I know enough about it to be dangerous. I put the title and I have to do my own look. A lot of times, I can spot stuff or I might have questions about stuff but then you got the belt and suspenders of having somebody else look over.

The bottom line is, to all the investors, build a team. I’d love to be part of that team because we can work together as a team and utilize the network that it’s taken many years to put together.

That’s a long time. If you’re starting out, you don’t want to spend many years getting up and going.

I’m getting ready to do due diligence for a client that has over 60 assets. It’s not that one-off. When we first met, you were getting started.

I’m trying to remember when we first met, I had only bought a couple of notes. At that point, I hadn’t done that much. I was still figuring a lot of stuff out. I’m still figuring a lot of stuff out now.

You put an article out one time and I’m paraphrasing what you said but coming to me and getting all of this due diligence stuff took that pressure off of you and allowed you to go and do other things to be successful in the note industry.

What people will find is if you’re doing 1, 2, 5 notes and do everything manually, you can keep a lot of stuff in your head but when you start to scale, you need to start handing stuff off or you’re going to get bogged down. It turns into death by cuts with notes. That’s where you need to have a team, farm stuff out and takes stuff off your plate where you can focus your time on finding deals, pricing deals, doing all the other things that aren’t even part of this process that we’re talking about. Thanks, Dickie. I appreciate it. You are welcome anytime and we’ll see you next time.

Be safe. Happy New Year.

Important Links:

• Baldwin Advisory Group
• NoteInvestor.com
• Tracy Rewey – Past Episode
• DBaldwin@BaldwinAdvisoryGroup.com
• www.SystematicDueDiligence.com

About Dickie Baldwin

Dickie has has over 35 years of Real Estate experience as a Realtor, Loan Originator, Mortgage Wholesaler, Mortgage Correspondent, Mortgage Warehouse Professional, Title Research & setting up multiple National Mortgage Net Branching operations. He is in a unique position to provide expertise for investors in today’s various real estate market opportunities. Having created long term business relationships with all of our Service Providers over the years, we now are offering the Investor, an opportunity of sharing our strength in numbers & knowledge.

 

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