Distressed Mortgage Debt and Non Performing Second Liens

Dylan Silver (00:01.391)
Hey everybody, welcome back to the Real Estate Pros podcast. Today I have Jerry Sanders and Jerry is a serial entrepreneur, decades in real estate, more than a full cycle, and he’s gonna be talking about something very specific, very interesting, the distressed mortgage debt, non-performing second liens. I really wanna get into that. But first, Jerry, tell us all how you got into real estate, decades in real estate, how’d you get in?

Jerry Sanders (00:24.216)
Okay.

Jerry Sanders (00:30.19)
it’s, it’s real. It’s, it’s, it was just a happenstance thing. had, an opportunity to buy some, seller financed properties that were, student housing. I didn’t know any better. You know, had a chance to, you know, I picked up, you know, maybe half a dozen properties at one time. and because it was seller financing, didn’t have to go to the bank. And that’s what got me started.

Dylan Silver (00:58.69)
What year was this? What year we talking here?

Jerry Sanders (01:01.774)
Do really want to know? Right, so it was 1986. Yes.

Dylan Silver (01:03.403)
I really wanna know. I’m 30, but I wanna know, I gotta know.

Dylan Silver (01:12.781)
1986, God bless. And so you were working in corporate America at that time and doing this on the side basically, and you bought multiple at once. Okay.

Jerry Sanders (01:22.286)
Yeah, yeah, yeah. I didn’t know any better. You know, when you jump into something, and I’m one of those people that if I see an opportunity, I just jump in. Because that’s the only way you’re going to learn. And I learned that you don’t do student housing.

Dylan Silver (01:33.302)
Yeah.

Dylan Silver (01:39.159)
So for people who are getting into it, and of course this is before we have all the information, mass media, the internet, right? For people that are getting into it, you say it was very difficult to go jump into student housing, but you made that jump while being in corporate America. There’s, even if it wasn’t, and I’m curious how that deal went, it sounds like maybe not the best, but even though you had the courage to go out and do that, you found the time, you educated yourself.

Jerry Sanders (01:46.124)
Mm-hmm. Mm-hmm.

Dylan Silver (02:07.36)
What tools were available then and how did that process look?

Jerry Sanders (02:12.75)
It’s hard to explain ancient times. The tool that was available, you had newspapers. That was it. You go through a newspaper, you go through legal news, stuff like that. That’s how you find the deals. And that particular transaction, actually it wasn’t a bad transaction. The problem is, all of us were college students once. And it was karma.

Dylan Silver (02:33.421)
Mm-hmm.

Jerry Sanders (02:42.058)
All those things that I did came back to haunt me as a landlord.

Dylan Silver (02:46.83)
no, so is the, I can only imagine. I didn’t ask you this before we started, but in corporate America, what were you doing? Do you want to talk about that a little bit? And yeah, tell us.

Jerry Sanders (02:55.916)
Yeah. I ran businesses for Fortune 50 companies. global businesses, it was, we had stuff in Europe, South America, Asia. So I was all over the place.

Dylan Silver (03:13.097)
Was it difficult or was it maybe even, I don’t want to say frowned upon, but was it challenging to do a big real estate, it sounds like a big real estate deal for your first deal, while also doing corporate America?

Jerry Sanders (03:28.046)
well, didn’t know any better. it, it, it worked out. It just so happened that, the properties we bought were in an era where I went to undergrad and, had lots of friends, lots of connections in that area. And I was able to, you know, do it remotely, you know, not as, as remotely as you can do it today with just calling people on a cell phone, but.

Dylan Silver (03:36.16)
It did work out.

Dylan Silver (03:43.606)
Mm-hmm.

Jerry Sanders (03:57.027)
had enough contacts there that if i had a toilet that need to be fixed you can call this guy

Dylan Silver (04:04.161)
That’s the thing, because I think a lot of people, and I go to a lot of events here in DFW, and I am asking people, hey, if I want to go move to the Dominican Republic, which is my dream, I would love to move, do I have to be in DFW to manage these properties? And some people, I get mixed answers. Some people are like, it’s honestly hard, it’s hard, but if you have the right people in place, you can do flips and not be there. And then I have other people tell me, you should probably be there, but in your first,

Jerry Sanders (04:29.741)
Yeah.

Dylan Silver (04:33.93)
deal, you were able to do it remotely. And so to everybody who’s looking at their first deals, it’s really about finding the people in place. Would you agree?

Jerry Sanders (04:42.882)
Yeah, I agree. agree. And the only reason we ultimately sold those properties wasn’t because it was remote. It was because I started doing international. And then the time zones became an issue. You know, you’re 12 hours ahead or 12 hours behind and you just can’t manage stuff like that.

Dylan Silver (04:55.565)
Mmm.

Dylan Silver (05:03.624)
Wow, was this was this international for your corporate job? Yeah, I’m familiar. I’m familiar with that. My father worked for a Japanese company, and so it was we the jet lag was wild. I do.

Jerry Sanders (05:06.594)
Yeah. Yeah. Yeah.

Jerry Sanders (05:15.778)
Yeah, yeah, yeah, you understand. You know, when, I was back here in the States, um, I remember, you know, I get home at eight o’clock at night and it’s Singapore calling. Yeah. Yeah. Yeah. I do. I do. I do. Yeah. Yeah.

Dylan Silver (05:27.388)
Yeah, that’s that can be challenging. Do you love to travel? would imagine maybe. Yes, maybe. OK. I got the travel bug and I tell I sometimes tell people that if you’re not sure which direction you want to go in, sometimes just travel and you’re like, man, that’s all I needed to do. I just needed to clear my head for like half of a week. It really does. So after.

Jerry Sanders (05:48.588)
Yeah, yeah, it works. It definitely works. Yeah.

Dylan Silver (05:54.299)
After this first deal, we’re mid 80s here. I’m going to catch us up, not all the way to current day, but tell us about your next couple of deals. Tell us how you educated yourself, what mentorship you sought out, if any. And then I guess a follow up to that is what advice do you have for people who are in that growth process?

Jerry Sanders (05:55.81)
Thank you.

Jerry Sanders (06:14.83)
Yeah, you know after that first deal I started buying other properties not too far from that group of places. I’d look for tax sales which were really prevalent. You could find some really sweet deals going through tax auctions so that was kind of a real cheap place to find properties and kind of built the portfolio up from there.

Dylan Silver (06:38.666)
Mm.

Dylan Silver (06:42.622)
When you would go to the tax auctions, were you going in person?

Jerry Sanders (06:46.798)
No, you can do it remotely.

Dylan Silver (06:49.075)
I know that’s a big deal now, the remote. think it’s auction. I’m not going to plug them, everybody knows them. And I love going in person. I’ve been in person now many times and the people that you meet, but certainly doing it remote is fantastic. Okay, so we had the student housing while being in corporate America, then did auctions.

And then catching us up to current day and something I’m really interested in talking about is you mentioned before we hopped on that you’re in the distressed mortgage debt space and even non performing second liens. Tell us about that.

Jerry Sanders (07:29.25)
Yeah. Well, just like jumping into student housing, I jumped into mortgage notes. And the reason was that as a landlord and a real estate investor, you realize that your largest single expense is the bank. They’re your lender. while you may be with real estate as a landlord, looking for

two, three, four, five, $600 a door, and you do all the work and the bank gets $1,000 a door or more, and they do nothing. So it’s like, well, I like their space better than my space. So that’s how I kind of stumbled into mortgages or into mortgage notes. did a bunch of, with some of the properties I had, I did seller financing, which was kind of opening the door to being able to

Dylan Silver (08:05.556)
Yeah.

Jerry Sanders (08:25.048)
do financing and to understand what does it take to be in that space. And that’s what got me going and got me focused on it. The reason for the non performing was that they were cheap and non performing seconds are even cheaper. So you could invest a little bit of money, not be worried about losing your capital.

Dylan Silver (08:41.034)
Hmm.

Jerry Sanders (08:52.174)
Because let’s say if I screwed up and I lost everything, I only lost a few thousand dollars. But that’s a cheap way to learn. And as you’re learning, you get really good at it. You learn more the techniques, the skills. You learn the legal processes, all this other kind of stuff. And that just helps you enhance your ability to do what we do. And it just grew. It blew up from

Dylan Silver (08:57.118)
Yep.

Dylan Silver (09:01.449)
This is true.

Dylan Silver (09:19.122)
Amazing. for our listeners, our avatar of this Real Estate Pros podcast is really a high level investor. Typically, we have folks who are doing 50 plus deals, but to the folks who are not at that level, and maybe you’re just getting in, help us break down some of this here. So distressed mortgage debt. This is someone who’s delinquent, right?

Jerry Sanders (09:42.85)
Yep, It’s delinquent after 90 days. So not making a payment after 90 days, you fall into default.

Dylan Silver (09:54.472)
And then a non-performing second lien. I told you before the call, when I heard this, said, wow, that is very, very niche, very niche, because I know you’ve got your taxes, you’ve got your mortgage, and then everything else. so break that down for us, break some of those terms down for us, and then also, how’d you come up with that idea?

Jerry Sanders (10:04.44)
Yeah. Yeah.

Jerry Sanders (10:14.21)
Yeah, so non-performing, obviously they’re not making the payments. Second liens are HELOCs, home equity loan credit. So somewhere along the line, somebody took out a home equity loan and they’re not paying it. In order to be able to get a home equity loan, you have to have equity in your property. And typically the banks won’t lend you 100%. So there’s still a bunch of equity on top of you.

Dylan Silver (10:21.427)
Hmm.

Dylan Silver (10:39.205)
Okay, okay. So this might be somebody who took out their HELOC because maybe they needed money and then are defaulting on that. so correct me if I’m wrong. These people are going to lose their home, right?

Jerry Sanders (10:57.4)
So it’s a little bit more nuanced than that. They do lose their home. Typically the notes I buy, they’re paying their first every month. So they’re current on their first. they’re, yeah. So yeah, I’m really, really niche, Dylan. So they’re current on their first, they’re not paying the second. Now they’re getting back to you can lose your home. This is the thing that’s kind of crazy. If you have a lien on your house, you have pledged

Dylan Silver (11:00.389)
Okay.

Dylan Silver (11:09.894)
Wow.

Dylan Silver (11:19.055)
Okay.

Jerry Sanders (11:27.148)
your house to say that if I don’t make the payments on this loan, you can have my house. That applies to the first, second, third, how many other mortgages you have. So if you’re paying the other mortgages and you’re not paying this one, yes, it is possible for me to foreclose and take your house.

Dylan Silver (11:47.409)
Okay, okay. Now, man, I almost feel like you’re giving us so much game, we should be paying you, I don’t want you to give away all the game, but let me ask a couple follow-up questions here. For these folks who are not performing on this HELOC, they might not lose their home, right? So…

Jerry Sanders (11:55.406)
Well, you know Dylan.

Jerry Sanders (12:13.282)
I hope they don’t.

Dylan Silver (12:14.705)
When when you’re reaching out to them, their level of of concern is obviously not as great as someone who’s headed to the foreclosure auction next Tuesday. But they’re acutely aware that that they’re behind. it’s I’m assuming it’s probably not just this because your home is the thing that you want to be paying. It’s probably a bunch of other things in that situation. So when when you’re opening up these calls, first, is it you making these calls? And then also

What’s that process like?

Jerry Sanders (12:45.806)
Okay, so sometimes I’ll make the call, sometimes someone else on my team will make a call. When I first started, obviously I was making all the calls. Then you call someone up and it’s like, hey, what, you start with what happened? And generally, I always like to say bad things happen to good people. So somewhere along the line something happened. You got a HELOC, which meant that your credit was good. You have a house.

So you have equity, it’s not like, just something happened. There may have been a death in the family, you lost a job, medical situation, all those kinds of things can cause someone not to be paying that note. And when I call up, that’s the first thing we wanna know, what happened? And then once we know that, then let’s kind of work out a plan. Obviously, because you have pledged your house,

There’s always that issue of the foreclosure. But my goal is not to try to foreclose and take your house. My goal is to try to come up with a solution to help you get back, you know, get back on your feet, doing whatever it takes. So because I buy the notes at a discount, I can do a loan mod. I can change the payments. I can change the interest rate. I can change the term. I can do anything I want to do.

Dylan Silver (13:55.59)
Hmm.

Dylan Silver (14:09.679)
Sherry, is there a market for these non-performing notes? are you having to go to public record and then go to the lender and say, hey, I’m interested in buying?

Jerry Sanders (14:21.962)
Alright, so Dylan, this is where you have to pay me.

Dylan Silver (14:24.55)
Okay, for our listeners we don’t have to go too far into this. Okay.

Jerry Sanders (14:27.306)
So, yeah, you get them from banks. know, basically you get them from banks, you know, and we have a pretty long list of banks that we deal with, credit unions, hedge funds and so on. That’s where we buy the notes.

Dylan Silver (14:34.202)
Okay.

Dylan Silver (14:43.569)
You know, this is interesting. my goal one day, Jerry, is to be on your level, living out in Florida. I love Florida. I really love Florida. just told before you got on the call, I said I was in Fort Lauderdale and it was the first time being in Fort Lauderdale. And I said, this is so nice. This is the nicest place. Someone can tell me that there’s nicer places in the United States, but I just I might not believe them based off my one

Jerry Sanders (14:54.19)
It’s to look at.

Dylan Silver (15:13.286)
two nights in Fort Lauderdale. for people who are growing as you’ve grown from your first deal to now something very, very niche, I think what a lot of people struggle with, which it seems you do a very good job with is building out the systems in place to allow you A, to be able to, like you did when you were doing this, to have a job and do that so you’re not having to be right on top of it.

But then also when, God willing, you make it your full-time profession, really, either retirement or you just decide, hey, I’m gonna jump into this and this is gonna be my full-time deal. What was the growing pains and how did your systems evolve and where they at today?

Jerry Sanders (16:01.646)
Okay, so I do this full time. And you we have a team, a company, and most of the folks on my team are doing this full time. So to make the adjustment, you know, we started with a couple of notes. And you know, started learning the processes. What does it take? How many calls? What do have to say to people? That kind of stuff. And then we kept buying. And as we bought, we were buying bigger and bigger lots of notes.

until the point where you know you have you gotta do this full time because you just have so many notes. And as you’re doing that, as you go through stages you have to put different types of processes in place. You know the more notes you have the more processes and more gates and guardrails you have to put in place to make sure that you can can get the returns you’re looking for. So that’s what we’ve done.

Dylan Silver (16:34.618)
Mmm.

Dylan Silver (16:54.807)
Wow. You know, most of the and we’ve just been running this real estate podcast full fledged for the last three weeks, and I’m one of the newer people hosting, but most of our our guests on the show have a strategy which predominantly revolves around some level of short term or wholesaling and then potentially

larger going up to commercial, but this specific niche that you’ve carved out with note buying and then the second position, I haven’t heard this one before. Was this based on your background where you came up with this and then ultimately where you’ve mentioned it just scaled to a point where you had to go and everyone had to go full time? Or was this something where you were doing other deals and you saw, know, no one’s doing this. I can come in and

and make this happen or was it based on your background?

Jerry Sanders (17:56.494)
Okay, so one of the things that I was involved with before doing this, I was a trustee on a public pension plan. I got appointed as a trustee. And there I found out that one of our better returning asset classes was debt. prior to that, I got an MBA, it was in finance, so thought equities were the way to go. I found out debt was really, you

You can make a lot more money with that. And as you’ve heard me say, we’re buying these things at pennies on a dollar. So you can, you’re definitely, you’re buying dollars for pennies. As I started studying that, I got introduced to a woman that was doing non-performing seconds. And I had that same aha moment that you did a few minutes ago. It’s like, well, wait a second. What do you mean? How can you do that?

and just kept digging and digging and digging. So learned everything I could learn from her, started talking to other people, learned from them, and at the same time buying notes and then comparing my learnings and my experience with other folks that were in the space to start building up a knowledge base to be able to do this.

Dylan Silver (19:16.933)
I had a similar experience, not with this specifically, but with really getting here. And I mentioned this before the show that I ended up getting up to DFW because of a connection that I had made. And ultimately, that’s how I ended up hosting this podcast. And I like the term fanatical networking. There’s another one, too. It’ll come to me. But this idea of just you’re constantly looking for the next

connection, which could get you that million dollar idea or something that no one is doing or doing at that level. For instance, you know, in Texas, if you could have been wholesaling the way everyone is popularized right now, 10, 15 years ago, there wasn’t as many people doing it. You know, and I hope part of me doesn’t want this podcast to get super big because then everyone’s going to be doing second position liens in Florida.

Jerry Sanders (20:04.994)
Yeah. Yeah.

Dylan Silver (20:15.127)
But I actually think that that’s probably a high level of difficulty. So I don’t think it’ll be too bad for you out there, Jerry. to people who have, let’s say, that corporate job, and they’re trying to understand, you know, well, what do I do to get myself in the room with these people? know, I’m highly educated, but I don’t necessarily know anything about real estate. I don’t have real estate investors in my family.

You mentioned going back to your backstory that you really just jumped in. But now we’ve got so many tools out there. You know, my perspective is it’s great to jump in, but also to do it with someone who’s seasoned. You know, you might not make money on your first deal, but you might. And either way, that’s a learning experience. Is that more or less what you would recommend to folks as far as getting in?

Jerry Sanders (21:09.838)
I agree. I totally agree with that. You can study it forever, but you really won’t know the nuances until you jump in. Because no matter what you study, everything that we do is not going to be written down. So you have to just start. also, every situation is going to be different. know, with our notes, yeah, you can sit back and say there’s kind of a broad process that we have.

and that there is a methodology behind it, but every borrower is different. And every borrower is going to react differently. For us, when we buy a note, we have an exit strategy. Just like with any other thing in real estate, you make your money on the buy and you collect it on the sell. So when we buy a note, we are buying it with an exit strategy and a potential profit that we’re going to get.

And I can give out as much as you want. But when I make that call to the borrower, that’s going to determine what really happens. And there are a lot of times when you buy a note and you go, this is a slam dunk. I know when I call them, they got so much equity, you know, they got a great credit score, great job, all this other kind of stuff. They’re just going to pay me off. Nope. And, you know, and then there are other times when you look at it you go, well, gee.

Dylan Silver (22:08.227)
Hmm.

Jerry Sanders (22:37.538)
this person is going to struggle. You know, I know right up front they’re going to struggle. So I got to, you know, kind of massage this. You call them up and where do I send the check? You know, or, you know, other borrowers that have called up and they said, Hey, I you got the letter in the mail today and we knew we were behind. We’ve been trying to find somebody to call and you’re the first person to ever pick up the phone. Where do I send a check? It, it, it,

I’m flexible enough to be able to handle all of those kind of situations.

Dylan Silver (23:12.067)
So in these deals, really the two sides of it, tell me if there’s additional, is the lender or whoever the HELOC is with and then the distressed seller. it’s a separate process for both of those. It doesn’t sound like a deal where the average, certainly not a newcomer could just go hop on the phone with the lender. But then also you have to have the…

kind of agility to get on the phone with the sellers who are in various different states and you or your team has to make it a win-win for everybody. that more or less? Tell me.

Jerry Sanders (23:48.14)
Yeah, yeah, yeah. So it has to be a win. So we buy notes from banks all over the country. And, so why do they sell them to us? Because they’re trying to get rid of getting rid of their junk. They want to, you know, they want to have money. They want cash to go do real loans that are going to pay them off. So they sell them to us. Now I’m buying the loans from there, from all over the country. And I’m trying to work with the seller or with a borrower to come up with a solution so that

they can financially pay off this debt.

Dylan Silver (24:23.125)
Hmm. Are there, I know for, for wholesaling, which is the, the stage that I’m at now, there’s a lot of regulations that are popping up all over the country related to this. for instance, Texas is one of those places, and I believe Florida as well, though I’m not a resident there, but Texas is one of those places where in a lot of ways it’s still rather, no, I don’t want to say easy, but you can still be a wholesaler and other places you, really can’t.

but you’re all over the country and you’re doing this. Did you start just in your area out there in Florida or when you started out, was it all over the country as well? Because you were doing it remote.

Jerry Sanders (25:04.888)
Yeah, it’s kind of crazy. I think we got our first mortgage or first note in Florida like last year, maybe last summer. Most of the stuff I’ve bought was other parts of the country, the Midwest, mid-Atlantic, Southwest, Southeast. I never bought in Florida. And it was just

Dylan Silver (25:31.841)
Hmm.

Jerry Sanders (25:33.91)
I have better relationships with banks in other parts of the country.

Dylan Silver (25:37.867)
Are there specific states which being it’s not it’s not it’s not quite like anything else that I’m familiar with but other specific states where it’s more challenging to do this than others or is it really based off your relationship with these banks?

Jerry Sanders (25:52.622)
I don’t buy loans in New York, California, New Jersey, and Massachusetts.

Dylan Silver (25:59.649)
The same as everybody else.

Jerry Sanders (26:02.082)
Yeah, yeah. And it’s not that you can’t do them and do well. I have lots of friends that buy California exclusively, have other friends that buy New York exclusively. And it’s just that you have to have a different process and have it’s a it’s a longer process.

Dylan Silver (26:10.561)
Mmm.

Dylan Silver (26:21.235)
It’s a longer process. Yeah. Cause the, you have to acquire it, you know, if that’s, if that is what ends up happening, then the process, the foreclosure process, if that, if you go down that route is going to take a much longer period of time. My parents currently live in New Jersey. I’ve lived in Boston before and we grew up 27 miles from Manhattan. So I know for sure. And it is interesting because on that note, I,

feel like there’s more, and I could be wrong, but just from the vibe I get that there’s actually more people as real estate investors who are getting into it in places like Texas and Florida than there are in those states. And I could be wrong, but what’s your feeling on that? Like, are there more like entry-level real estate investors in these places where it’s a little bit more free?

on that sense or is it like, well, you just have to go out and meet them because there’s tons of real estate investors everywhere.

Jerry Sanders (27:23.502)
You mean it in the note space?

Dylan Silver (27:25.832)
in the note space and then also I don’t know if you still have connections elsewhere, but yeah, in both spaces.

Jerry Sanders (27:29.166)
Yeah, yeah. So in the note space, first of all, it is a small universe. And I know the folks that are in those niches because that’s just what they do. It’s not a lot of folks. And it takes a level of expertise that most people don’t want to spend the time learning.

Dylan Silver (27:57.502)
Yeah.

Jerry Sanders (27:57.966)
Can you get into it? You can get into it no matter where you are. It’s just do you want to spend the time to learn how to do it?

Dylan Silver (28:06.474)
We’ve talked about a lot today. We’re coming up on time here, but we’ve talked about the note space, second position, how you got into real estate while working a corporate job, traveling hours ahead, a tremendous journey. Jerry, if people want to get a hold of you, how can they get a hold of you? And is there anything else that you want to leave our audience?

Jerry Sanders (28:20.302)
Yeah.

Jerry Sanders (28:30.318)
Sure. So to get a hold of me, you can reach out to me, Jerry, at firstshieldfinancial.com or actually oneshieldfinancial.com. Go to our website firstshieldfinancial.com and you can learn more about us. Two things that are coming up with us. One, we started a fund for accredited investors. We’re in the process of raising funds for that because we see a tremendous number of notes out there and the fund will allow us to buy more.

We also have a summit coming up and hopefully this will broadcast before the summit happens but it’s going to be here in Jacksonville, Florida April the 5th. We’re going to be talking to a number of investors and also a number of folks with deals on looking at how to build your legacy and how to create long-term wealth for your family.

Dylan Silver (29:24.091)
If people want to go to the summit, how do they go to the summit?

Jerry Sanders (29:28.024)
Go to our website www.firstsheelfinancial.com and it’ll take you right to the summit, right to the registration. It’s gonna be at the Sawgrass Marriott, which is a beautiful facility, half a mile from the ocean.

Dylan Silver (29:43.657)
Well, folks, we hope we gave you a lot of value. Thank you for tuning in and we’ll see you next time on the Real Estate Pros podcast. Thank you, Jerry.

Jerry Sanders (29:52.308)
Thanks Dylan, appreciate it.