How Mortgage Note Investors Profit From Distressed Loans While Helping Homeowners Stay

Cody Cox (00:00)
volatility and distress creates opportunities for us. And so I think if we position ourselves properly and have the capital available to execute.

We should be able to acquire notes, do the workouts that we need, get that borrower rehabbed, as I mentioned, and get them back on a payment track and then be able to resell those loans out at a profit. So there’s a little bit of trading that goes on. And that’s what we do real, real well is help that borrower get to the point that they are successful homeowners.

Freddie Steen (02:03)
Hey everyone, welcome to the Investor Fuel Podcast. I’m your host, Freddie. And today I’m joined by someone I’ve been looking forward to chatting with, Cody Cox, who’s been making serious moves in the mortgage note investment space as far as an asset class in real estate. Cody, I’m glad to have you here. I think our listeners are really going to take something away from how.

you’ve been able to ⁓ look for accredited investors that do not that want to learn ⁓ an that want to learn a new business but also have deployable capital. So Cody, welcome to the show. And just for our listening audience, can you please tell us what exactly is your main focus these days and what markets are you operating in?

Cody Cox (02:57)
Yeah, hey, thanks a lot, Freddie. It’s my pleasure in being here. I appreciate the opportunity to talk with you and then all your listening audience. You know, my main focus right now is ⁓ raising up a new fund. We’ve got a new fund coming on market. Hopefully it happens in April. part of that is because mortgage notes are considered securities. We have to go through some very ⁓ specific guidelines. ⁓ so we’re raising up what’s called a regulation D 506C fund.

Which allows us to use investment capital from accredited investors. And I pretty much can advertise it countrywide, which, you know, in most situations, that’s really our market. Our market is any state, you know, in the country ⁓ where there is a mortgage note available. And I would think that’s probably every state when you think about it. And so that’s kind of where we’re at. I mean, I I’m located here in in the state of Oregon. my oldest son is part of ⁓ our group as well.

and he’s located in Arkansas. And so one of the things I really like about note investing, or in our case running a note business, because there is a difference there. ⁓ and that’s I’ll I I’ll get there. But you know, the one of the part of it is is that ⁓ you can do this anywhere in the world as long as you have an internet connection. In the hundred or so assets or notes that I’ve purchased personally or through my prior fund, I’ve never seen one of the houses. I don’t I don’t have to. ⁓ and so

In explaining that differences, this is the way I look at it, is a note investor is somebody who’s going to acquire a note personally or with one of their entities for their own portfolio. Okay. So it’s something that that borrower’s going to make the payments, the payments come in, and that money gets distributed in to that entity, ⁓ and then they get to keep that money or portion of that. And there maybe is a small group involved in that, but you’re investing in the note itself.

When you manage a fund like I do, it’s actually a business. ⁓ it’s not so much ⁓ our portfolio, but the portfolio is owned by a group of investors that are part of the ⁓ LLC that is set up for the fund. And so ⁓ it’s it’s us running a business which includes acquiring, ⁓ purchasing, raising capital.

Distributing capital and investments, return on investments back to the investor. And then we get a small fee for that, either a management fee or some portion of the split on the returns. So a little bit of a difference there, and it’s a little bit of a ⁓ different approach. I invest primarily my self-directed IRAs and notes for myself, but then we also run a fund which helps other investors who want to explore alternative assets.

or and investing in notes, but they don’t want to learn a new business. They’re already busy busy on things, flipping houses or maybe they’re a doctor or a dentist and that’s where their focus is. They’ve got some capital. And they don’t want to go through an education ⁓ in order to try and learn how to do this.

Freddie Steen (06:59)
Love it. ⁓ you know, what caught my attention about you and your company, Bridge City Factors, was the way that you’ve been able over the course of your 44 years to make an important pivot. You’ve gone from keeping people in their homes to making sure that something else ⁓ did not happen. Can you explain that difference that you’ve made from people keeping in the staying in their homes and how you’ve been able to do that through your business?

with your note funding.

Cody Cox (07:29)
Yeah, so so one of the things that happens if you’re a major loan servicer or major loan investor, such as Fannie Mae or Bank of America or Wells Fargo, some of the largest larger investors on this, you know, they buy huge chunks of mortgages, set a servicing company that service them, ⁓ whether that be, you know, somebody that’s servicing, you know, hundreds of thousands of loans. And so they don’t have the capacity at that level.

To get down and talk with that particular homeowner and find out really what is driving their distress. And so it’s kind of more of a number. You know, what do they always ask you when you call into them? What’s your loan number? ⁓ at our level, and I call us a b boutique mortgage investing company, ⁓ note investor, is that and because of my background, I understand loss mitigation, I understand that customers have certain distress points.

⁓ and so we have the better ability to work at that loan level, at that borrower level, to see if there’s a resolve to their situation. And and maybe it takes a temporary payment plan or we’ll set it up for a temporary payment plan. Maybe there’s a way to do a completed modification at the end of that. But we’re a lot more intimate with our borrowers in that fashion. We have those conversations with them, whereas a bigger bank may not have that capacity.

Do that. Of course, bigger banks don’t like defaults. They’re not a property management company. ⁓ But they’ll do that based on the instructions of the ultimate investor or whatever the market calls at that particular time. We’re a little bit maybe tolerant. Maybe that’s not the right word, but we want to hear what sort of distress and find a way to work out that problem with that homeowner.

Freddie Steen (09:17)
So Hodi, you touched on something that I believe is something important, a key.

Cody Cox (09:21)
For our

Freddie Steen (09:23)
Real estate pros investor community that’s listening right now. And what you touched on is having the nuance, having the knowledge, and having the know-how to handle the loss mitigation department. Can you speak through the trends you’re seeing coming into 2026 and going into 2027 on how you all are managing loss mitigation and the mistakes that people are making in the market when they

Engage with them.

Cody Cox (09:54)
Yeah, and and you know, with I mentioned that I in a pre-talk here that I have two funds. One we’re winding down right now. I think we have five assets left in that. And two of those we’re actually having to go through foreclosure. You know, it’s something we don’t like to do. We want to avoid that as we can. But, you know, interest rates right now are ⁓ higher today than they were a year ago. It’s the highest we’ve seen interest rates in a year. And and so people seem to have in certain pockets of the country are struggling a little bit.

And so we’re starting to see foreclosure filings going up and people showing more signs of distress. And so as we move into the balance of 2026 and into 2027, I think we’re going to see a little bit more of that. You know, ⁓ as the volatility in the marketplace continues to increase, you know, as the war in the Middle East gets a little bit more intense if it if it does, then again, that always creates volatility.

I don’t know if you looked at what the stock market has done today, but the Dow was down over 500 points today because of some escalation in the Middle East. And so, you know, ⁓ as you well know, ⁓ in in the real estate investing community, as well as what we do in the notes,

you know,

volatility and distress creates opportunities for us. And so I think if we position ourselves properly and have the capital available to execute.

We should be able to acquire notes, do the workouts that we need, get that borrower rehabbed, as I mentioned, and get them back on a payment track and then be able to resell those loans out at a profit. So there’s a little bit of trading that goes on. And that’s what we do real, real well is help that borrower get to the point that they are successful homeowners.

And then that that loan is now a performing or reperforming asset that has increased in value. And that’s how we create value for our investors.

Freddie Steen (12:25)
Cody creating value, that’s not easy, especially in this climate. You talk about borrow rehab, that that being a niche that you all truly focus on to get a to to not just get a qualified buyer, but to keep someone in their home, which is their probably their biggest asset. Cody, for our real estate investor listeners, what’s been the key to keeping that machine running smoothly?

Cody Cox (12:54)
I I think there’s kind of two things there. One of ⁓ well, maybe three things. And I c probably could come up with the fourth.

⁓ but a lot of it has to do with empathy. I mean, ⁓ you have empathy because you know, most of us are homeowners or have been through a process. You know, I’ve been through the 2008, 2009, 2010 real estate and you know, came close to losing my house. So I understand what it is to be on that side of the fence. And so having a certain amount of empathy for that particular homeowner who could have kids, they’re in certain schools.

All that sort of stuff is I I think is an important trait to bring to this industry. I think the other part of it is also knowing, you know, some of the legal maneuvers, legal things that will allow you, you know, to make sure that you have a quality asset, whether it has to go through the foreclosure process or not, is an important trait to bring into the marketplace as well, because you know, there’s sometimes and very often it just doesn’t work.

That whatever has caused the the stress in that borrower’s lives, you just can’t overcome. And so oftentimes it may be better for that borrower to deed that property back to us or we go through a foreclosure process. And that gives that borrower an opportunity to start anew. Yeah, they have to go through, you know, a waiting period because of the negative credit aspect of it. But, you know, sometimes it’s just

Part of the distress is on their side emotionally because they know they just can’t get out of their hole. And so we’re here to help them whatever they need. And a lot of that has to do with communication, which is another aspect you have to bring to this. You have to talk to a number of different people, ⁓ including the homeowner, ⁓ well within the limits of the Fair Debt Collection Practices Act, which is something you have to be aware of as an investor or a loan servicer.

and so sometimes we let our services do the communication with our instructions, or other times we do it ourselves. I do it myself. So so the communication aspect of I think is real important as well because it’s just like anything. If you’re gonna talk to a ⁓ a homeowner to buy the house from them from them, there is what I call a slow dance that goes on there. You have to learn them. You and I just did a slow dance as we talked about who I am before we started the podcast.

You have to get to know who you’re talking to. And so you have to go through that process to make sure you understand really what their needs are. And that’s what we’re all. We’re problem solvers.

Freddie Steen (15:29)
Cody, you said something that’s so important. And I just want to lift that up. I mean, in a day and age where there’s so much automation and so much AI and so much virtual things, many things happening, social media. How do you recognize and then transmute the empathy that you’re speaking of to remain profitable? Can you mind sharing?

Cody Cox (16:33)
Yeah. Well, you know, I’m a little old school in a lot of places. You know, like I told you, I started off a long time ago and came through the point before the automation is, before all this AI stuff. Now I do adapt that. I’m I’m okay with that, but still relationships are relationships and they’re built on this one-on-one conversation. Okay. You can do all the AI to look at a tape or look at a collateral package or a lot of different things. ⁓ but it all comes down to relationships.

And you know, relationship, ⁓ also when I’m using other people’s money for the fund, it comes down to stewardship. And that’s an important concept of what I’m trying to do is to make sure I’m treating that capital as if it was my own. ⁓ and stewardship’s a big deal to me, integrity is a big deal to me, and as we talked about, communications.

Freddie Steen (17:26)
You’ve been in real estate investing for you’ve been in the game for over forty four years, Cody. Yeah. You are what we would consider for this podcast an OG. Let me ask you this question in your experience and in your knowledge base.

Cody Cox (17:37)
Okay.

Freddie Steen (17:44)
How exciting has it been to marry AI to your human loop empathy piece, to your knowledge base that you’ve accumulated over 44 years? How refreshing has it been to incorporate that in the note side of real estate?

Cody Cox (17:59)
Well, I for me it’s been really, really fun ⁓ because I treat AI as my thought partner. Okay. I I have found and discovered that you’re gonna get kicked out what you put in. And you know, if we said that a long time ago and computers started coming out, you only get get out what you put into it. It’s the same thing with AI at this point in time. You’ve got to make sure you’re structuring your prompts to get to the answer that you’re really seek seeking for.

And so that’s the strength that I have as I draw from my history to know kind of what I’m looking for, but I just need to write words or again as a thought partner for them to express some things. ⁓ that’s the way I look at it. It’s not going to do all the work for me. I’m still in charge. I’m still in control. ⁓ but it is a tool of my entire toolbox that I use in order for me to get to where I need to go. So

Freddie Steen (18:55)
Now, Cody, every operator I know has a moment where things got real. I mean, maybe a deal that went sideways or a time they had to pivot fast. Yeah. You mind sharing one of those moments for you?

Cody Cox (19:09)
Well

yeah, we in fact it just happened here in our first fund. I mentioned we had min we have we have a minimal amount of assets left in that fund. Well one of them was just a problem child for us. ⁓ we had to foreclose on a house up in Michigan and it was kind of in a little bit of a rural community and we took it back and the guy who had owned the house and we had to foreclose on it, tried to do some repairs himself or rehab himself or whatever, and he’s halfway through it.

Decided to throw up his hands and leave the house. And so we were in a position, we had to foreclose on it. Now, I’m in Oregon. This house is in Michigan. And we just could not get that house sold. Okay. Now we were in a pretty good position on it. So we had some flexibility on what we could sell it for. ⁓ but we went through two different local realtors ⁓ before we finally got that sold. I think I held it for at least 18 to 20 months.

before we finally sold that and it closed right at the end of June. And so, you know, one of the important things I like to talk about, again, going back to the difference between note investing and note business, is if you’re personally invested on a note like that, all your capital’s tied up in that one asset and it goes sideways, you could get hurt. Okay, you could lose some money. Now if it’s part of a fund

It’s one asset in the whole fund, and hopefully those other assets that are working can cover that one that’s not. And so that diversification like that, that’s spreading that risk over the entire portfolio is how we’ve pivoted. Rather than have one ass tied up in one asset where all my capital is at risk, I have five, ten, fifteen, fifty assets.

in my funds, so if one or two goes bad, we spread the risk over the entire portfolio. That so that that economy of scale just seems to work in the note business.

Freddie Steen (21:19)
I mean diversification, having a portfolio, yeah, and the note business. These are things that people the kind of stuff people don’t talk enough about. And honestly, Cody, it’s what separates the folks who just dabble from the ones like you who stay in the game long term for decades. Let me ask you this, Cody. Yeah. What are you most focused on solving or scaling next?

Cody Cox (21:45)
well again scaling that staying the scaling the new fund is what a big focus of mine is right now because I believe that this is an opportunity, especially one coming in through 2026 and 2027, where one we can help people who live in the houses are in distress, but also help investors who have again deployable capital, but they don’t know what to do with it.

And really do they want to learn a new technique? Do they want to learn a new business when they still have their original job or original business that they’re focusing on? So we’re kind of a conduit between the two. And and so I kind of liken what I do as a guide. Okay. My investors are the heroes. They’re the ones that have come up with the capital. There’s the ones that have basically made a determination, I’m going to invest in this fund managed by Cody Cox.

And then I become their guide to make sure that that trust that they’ve given to me is well rewarded and then we get to that ending point to where that investor needs to be. By the time they just say, We’re it’s it’s I’m ready to fully retire myself. You know, oftentimes they’ll just keep rolling their money in because we our fund is an evergreen fund. ⁓ you know, we can we’ll keep rolling it as long as they’re willing to stay in it. So

Freddie Steen (23:10)
Cody, what’s the next real goal for Bridge City Factory?

Cody Cox (23:14)
Well, the next real goal is for me to again get this this fund up and running. ⁓ we have some limitations based on our private placement mem memorandum that we need five million dollars in our fund before we can make ⁓ an acquisition. And so again, that’s what the next step is, is getting to a point. ⁓ but if we have enough capital and we have the right opportunity, we have some flexibility, we don’t need the full five million. ⁓

But that’s what I’m at. I think again, I think we can assist and be the guide for investors out there who, you know, want to take a look at alternative asset assets, especially when you look at like I said, the the the Dow Jones Dow Dow Jones is under $500 today, down five hundred dollars, but none of the values of my mo notes changed. And so there’s a lot more stability, ⁓ I think in the regards of of owning.

owning assets such as a mortgage note than there are in the ups and downs of of the stock market. You know, and I deal in the stock market as well. I mean, that’s part of my overall investing, personal investing goals. ⁓ but I think there’s a lot better opportunity ⁓ in promissory notes secured by residential real estate. One of the things I’ve learned in my 44 years of being in this industry is that people do prefer to sleep inside. And so

housing is always a very important part of the industry to be in, the whole economic ⁓ landscape of the United United States. So

Freddie Steen (24:50)
Yeah, Cody housing, I mean, that’s big. Real estate, that’s big. I mean where you are as far as your position in the notes asset class, especially when you’ve already got such great stewardship and this legacy of 40 years, I mean, in place, the next move can either compound things or create chaos depending on how you play it. Now I know a lot of people listening.

are either earlier in their journey, Cody, or looking to level up like you and Bridge City Factors. And I think they benefit from hearing this. When it comes to building relationships and growing your network as you’ve spoken, what’s made the biggest difference for you?

Cody Cox (25:38)
⁓ I think a lot of it has to do with listening. You know, I am not gonna come to somebody like you as a potential investor and just stout off what I’ve got going. ⁓ a lot of it has to do with listening to you, what your needs are. And maybe I can help you, maybe I can’t, and maybe whatever, we’re not a good fit. ⁓ but I think a lot of it has to do again in building those relationships.

Listening to people’s needs and seeing if you can offer a solution for what their needs are. And so I I think those are the big things that I bring to the table. And I won’t say more than anybody else, but that’s really what my focus is. I want to hear what you are, what’s going on in your life, what’s your family all about, and is there a way that what I offer can help you further the goals you have?

Freddie Steen (26:37)
So, Cody, I’m just imagining what you’re saying. I’m seeing Cody Cox and Bridge City Factors in a meeting with a potential client. Can you get back there in your headspace right now and just for the a 30,000-foot view, give our audience an example of a time that your mantra of listening made you pivot and cause profit for your business? What was the scenario and what was it that you heard first?

that in your second hearing allowed you to close the deal.

Cody Cox (27:10)
That’s something I’d have to think about a little bit, you know, because I I mentioned at one point in time in talking to you that you know I was the chairman of the board of directors for Northwest Real Estate Investors Association. Wow and that put me in front of a lot of people. You know, I the the monthly meetings were all mine, ⁓ and I often brought people in ⁓ as guest speakers to come in. And so with that I’ve been able to talk to

get myself in front of people that are here local, other real estate investors, but also build relationships from national speakers from across the comp ⁓ country. And so that put me oftentimes in a position to be, you know, that subject matter expert that people are always looking for. You know, ⁓ if I’m kind of an if I’m an accredited investor and I’ve got $100,000 in my self-directed IRA and I don’t know what to do with it.

Then a conversation with me might give them an opportunity to say, yeah, that makes sense to me. What’s the next steps? And so the next steps is that pivot that you talked about. This is what I can, this is what I hear you saying. This is what we bring to the marketplace. How can we help you engage with us? And then the conversation goes into a little bit deeper on that. So again, it’s kind of a slow dance. I I think that particular

approach is been very rewarding and very beneficial. You know, we brought our first fund to the marketplace in January 2020, and you know what happened in in ⁓ February. COVID hit and everything shut down. but still through that time we were able to raise some capital, not as much as I’d hoped for, ⁓ but still was able to work through a lot of those obstacles that were put up by it by the COVID ⁓ and still we’re able to bring some value to our investors.

Freddie Steen (29:09)
Cody, I love that. How you talked about the slow dance and listening. Let me ask you one more question related to that, because I can hear our audience clamoring for this question. The more we get seasoned in this real estate industry, your asset class being notes, does it become easier to listen, or does it become harder to listen to your prospective client?

Because we know so much, we wanna let them know we can solve their problem that we first think we heard right away. Can you express if that gets easier or harder the the longer we get in the industry?

Cody Cox (29:48)
I I I think in a lot of ways it gets a little bit easier. I mean, obviously the experience and talking with people helps for the next conversation. But one of the things for me is I have a fascination of people. Okay. And hearing their story, you know, and I’ve already come up with 17 questions to ask you offline.

Because of this interaction that you and I have going. So as long as you remain contained ⁓ that and or or remain with that fascination for people, then having that conversation and building that relationship gets easier as time goes on. Now one real key is that once you’ve built that relationship and you’re looking for other relationships, you can’t forget the ones you’ve already built. That well, oftentimes

You know, and a lot of sales people are more transactional oriented. I’m gonna close the deal and get on to the next one, get on to the next one. I grew up in the era when things are relationship-based, they’re all relation relational. I know that if I have an investor who invests, say, fifty thousand dollars in my fund and I know they have more, if I maintain that relationship and still continue to service them, communicate with them.

and provide them, you know, ⁓ a return on their investment, over time, they may have more. It’s just like when I the old days when I was a mortgage loan officer. Okay. It was all relationship based. You built the relationships with people who could refer you more business rather than just a transactional one and done. So that’s the important part of it is, you know, remembering where you came from and where you how you got to where you are now.

And make sure everybody is coming along for that ride to where you’re all going. So

Freddie Steen (31:41)
Cody, relationships are everything in this space. I mean, you know, you can’t you can’t fake that. All right. Before we wrap, okay. Cody, if someone wanted to reach out, connect with Cody Cox, Bridge City Factors, maybe collaborate or learn more about what you’re doing. Yeah. What’s the best way for them to reach you?

Cody Cox (32:01)
Well, obviously our website, which is www.bridgecityfactors.com. That’ll kind of give an insight of who we are, but that doesn’t solidify or even start a relationship. So I can be reached by email at [email protected]. Or here’s my cell phone number. Okay. It’s with me more than I want it to be. And that’s (503) 784-1417. ⁓ and I mean it’s sitting right here. So if I can answer it, I do.

Freddie Steen (32:40)
Cody, you mentioned you have the five three area code. Yeah. Can you tell our listeners just how beautiful Oregon is?

Cody Cox (32:49)
Well, I sit right in the I sit right in the middle of what’s called the Willamette Valley. Okay. I live in the city, which is the capital of the state of Oregon. ⁓ and I am about forty-five minutes to hour to the ocean, to the Pacific Ocean, and I’m about an hour forty-five minutes to the beautiful Cascade Range. ⁓ there are times when I’m driving, I can see four or five mountains, snow capped mountains for where I’m at. ⁓ and then

You know, if you drive out in the country here in this Willamette Valley, you’ll understand why the Oregon pioneers came and endured such hardship to get to this location. In fact, I’m a sixth generation original Oregonian where I had my great great great grandfather and his father migrate from Missouri to settle just south of where I live right now. And so

It’s easy to see why it’s a draw. And ⁓ you know, as as anybody that’s been here before, ⁓ once they get here, it’s oftentimes hard to leave. And so yesterday, yesterday or two days ago it was ninety five degrees. ⁓ yesterday it was eighty five. We had some great thunder showers and lightning, and today it’s about high seventies and a little overcast. Yeah, there’s some rain during the winter.

But you got snow to the east of us and you got the ocean to the west and so there’s ways to escape the rain if you need to. But that’s why it’s so green. It’s green year round. So

Freddie Steen (34:23)
You have been able to keep your legacy sixth generation roots in Oregon and build a national brand with Bridge City Factors and your niche focused on the note asset class. Perfect. Well, listen, I appreciate your time, your story, and your perspective. We we need more people in this space with stewardship, integrity, and who are doing it the right way.

Cody Cox and Bridge City Factors are doing that. Thanks again for being here, Cody.

Cody Cox (34:56)
Thank you very much, Freddie. Appreciate it.

Freddie Steen (34:59)
And for those of you tuning in, if you got value from this, make sure you’re subscribed. We’ve got more conversations coming with operators just like Cody Cox and Bridge City Factors, who are out there building real businesses. We’ll see you on the next episode. Thank you, Cody.

Cody Cox (35:18)
Thank you.