The Dangers Of Self-Servicing With Melissa Bolling

 

Many people do self-servicing in real estate. They collect escrow, manage insurance policies, and communicate with clients on their own. But as the investor, you should not be doing these things yourself. Instead, you must seek help from professionals, which is exactly what Allied Servicing Corporation is doing. Kevin Shortle sits down with their president Melissa Bolling to discuss how they help real estate investors smoothly navigate these legal and administrative burdens. They also share valuable insights about the evolution of the real estate market these past several years and what must be done to address inconsistent state-by-state regulations.

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The Dangers Of Self-Servicing With Melissa Bolling

Kevin here with another episode for you. I always appreciate you tuning in to the show. Don’t forget, we do a replay of the full video if you’d like to see that on our YouTube channel. Go to YouTube, search my name, Kevin Shortle, and you’ll find my channel. Please like and subscribe to the show, as well as the YouTube channel. I would appreciate that. It’s very helpful when we see that. It helps us get sponsors for the show and everything else to be able to bring you a lot more episodes.

If you’ve been following along with the episodes, sometimes I do solocasts. A lot of times, I like to bring on guests. I have a great guest for you. She’s somebody I’ve wanted to have on the show for a long time. It seems like we have been in the same circles for a long time. She owns one of the premier note servicing companies in the industry. I’ll introduce her in a minute.

Note servicing is so important to us. I’ll talk about two examples of deals that I’ve been working on quickly, and then I’ll introduce you to Melissa. It brings it home. I had a one-on-one consultation with a client. We’ve run into something two times, and that is that people are self-servicing notes, and they are collecting escrow.

Escrow is not your money, everybody. Escrow belongs to the client or to the borrower. You technically have to have separate accounts. You cannot touch their money. You can’t co-mingle their funds. Yet, I see people self-servicing it. I’ve got two who were collecting this money. Guess what? They weren’t paying the taxes and the insurance. There are tax liens sold on that. You can’t charge them penalties. That wasn’t the borrower’s fault. You’ve got to get that cleaned up.

One person has owned this note for over two years and has been collecting escrow and severe delinquencies to the point where the city has the title to the property. It’s under the redemption period. He goes, “I had no idea it was holding escrow on that one until I went to sell the note.” I’m like, “You mismanaged notes, you’re hurting the quality of the note, and you’re breaking the law.”

Servicing is an important thing, not just from that aspect, but for many aspects of this. I always recommend that people get their notes professionally serviced. There are a lot more things that are going on there. You don’t need the hassle of going through all of that if you’re not an expert in that area. You focus on the investments. Let the professionals handle the servicing of that.

We’ve got one of the premier servicing companies here that has been around for quite some time in the note industry, which is a great thing. They’ve seen a lot of different things. They’ve seen the changes that I’ve seen over the years in the industry. It’s a pleasure to have Melissa Bolling. She is the President of Allied, which most of you would be familiar with. Melissa, how are you?

I’m great. I’m so glad that we could finally make this happen. I know we’ve talked about it at a couple of different conferences. We see each other, and you’re like, “We’ve got to do the show.” I’m like, “Absolutely,” and then we go back, do our jobs, and forget. I’m glad we could connect.

How The Real Estate Industry Changed

That’s why I had Dwayne on it. We were in Nashville together at one of the national conferences. We were able to re-engage in person. I told Dwayne, “I’ve got to get her on the show. Send her the link. Get her on the date. We got to do it.” It’s a pleasure to have you. The industry has changed over the years, though.

It has. When I left Metropolitan, we knew how this worked. It was a landscape of note brokers who went to largely institutional-type investors to bring those notes that they found nationwide. That’s how this worked. Servicing was done for these larger-scale purchasers, then 2008 happened. We saw so many people leave the industry, and we saw so many new people come in who said, “We can do this differently. We can buy with our self-directed IRAs. We can create these joint venture LLCs. We can do things where we’re buying up Fannie and Freddie REOs, and we’re flipping them and turning them into new notes.”

The creativity that sprouted from that drastic change in the industry for all of us was incredible. It’s great to see how with each challenge to the industry, we pivot and make it work. We find the new product that makes real estate continue to be one of the most solid investment strategies out there. Allied has been pleased to be a part of it.

A lot of people probably don’t realize that there were some servicing companies that couldn’t make the adjustment. They were set up for those big companies. The big companies are not calling every month, like, “Where’s my $500?” You didn’t have that hassle, if you will. There was one in particular. They tried, but they could not deliver the goods, going from a big company to a lot of smaller accounts because it is more labor-intensive.

The costs have gone up in the industry, but I still think relative to the services that the servicing companies provide and the fact that you guys are getting hit with new license regulations, too. As the industry evolved, so did the oversight by the government and the cash grab, like, “You need this license and that, and then maybe this one now.”

The fees go up and all that, and we all have to absorb that cost. I would agree with you. There are challenges within the industry. Some new things have been created. It comes down to the fundamental thing that we still have a degree of freedom where we have the right to sell these things, carry paper, and work with people. I do like that aspect of it because it’s necessary.

I agree. This is a great independent type of business structure. We all have to work within the framework of what is correct and what is legal, but there is so much flexibility. There are so many things that you can do. In the end, what I’ve always found in this industry is that it is a way to help individuals who wouldn’t otherwise have the opportunity of home ownership to gain home ownership. That has always been an underlying positive aspect that not everyone thinks about when they’re in this business.

The real estate industry is a way to help individuals who would not otherwise have an opportunity to gain homeownership. Click To Tweet

When you’re a servicer and you see these folks whose mortgage payment is maybe $300 a month, it’s incredible because they are owning a house. No one can go out there, buy a house, and get a conventional mortgage. Who’s going to pay $300 a month? They struggle, and they work hard to maintain that ownership, and then they do. I see so many loans that pay off. They’ve been there 20 or 30 years. They make that final payment, and then they own that home free and clear. It is very gratifying to see that out in the industry.

Why Hire Professionals Instead Of Self-Servicing

I agree. You can’t go into a Bank of America or Wells Fargo and get an $80,000 loan to buy a house. They don’t do that. They have minimums. They’re trying to make some money, too. Let me hit on this topic a little bit to drive it home. I talk about not escrowing the money and handling it the right way. That’s one of the little pitfalls.

I get it. If you are an individual consumer and you inherit a house, most people say, “It’s a windfall.” For some people, it’s like, “Now I have to maintain it. I got to do this. I can’t afford it.” They turn around and sell it with financing, and that might be the only note that they ever create in their life. I could see somebody like that where they say, “Zelle me the payments,” or whatever it is. No problem.

They’re flying under the regulation of radar because the laws are written. They don’t want to make it where you can’t sell your own house with financing. They did for a minute, but have since corrected that. They don’t want to go to that point. If you’re getting in as a note investor, give me some of the differences there and the pitfalls if we were to compare. Somebody has the opportunity to buy a note that’s already being self-service, but they’re a note investor. Why would I pay the extra money to have it professionally served when I could self-service it myself? What are a few of the things that they need to know about?

The biggest thing that I always tell people is that servicing is not the business that you’re in. You are on the investment side. You’re about the acquisition. You’re about finding the next great investment for your portfolio. You are not about chasing proof of insurance. There’s a lot of paper involved there, and you want to be covered. That’s important.

 

If that insurance isn’t there, your servicer is the one who provides that forced place policy to ensure you’re protected. You don’t want to manage escrows, as you touched on in the beginning. That is a separate bank account. It requires separate accounting. You have to get your bills, and you have to pay them when you get them. If you are in a state like Washington, it is easy. Twice a year, one bill. If you’re in Texas, you could have as many as four different taxing authorities billing out. In some cases, they may even be at different times of the year, plus insurance.

If you’re in California, you could see homeowners and earthquakes. In Florida, you see wind. These are different insurance policies that are coming due at different times of the year. You’ve got to make sure they’re all in place and they’re all paid. That’s a big part of what a servicer does, at least on that escrow side of it all.

You also don’t want to be calling the borrower for the missing payment. You don’t want to deal with the fact that they have insufficient funds and that the payment needs to be replaced. In Texas, you can’t be the one who pays your underlying mortgage if you’ve wrapped this transaction. Your servicer is there to provide all of that, as well as being that front face for the questions.

These borrowers, who are very unsophisticated in general, you don’t want to be the one to answer their questions. “What’s my balance? Can I pay late this month? Will you waive my late charge? Why am I maturing? Did you send the maturity notice?” There are all these tiny pieces that your servicer does every day. From most investors’ perspective, their servicer either sends them money and they’re happy, or doesn’t send them money, and then they’re unhappy. The receipt and disbursement of funds, while important, is such a small piece of what we do on a daily basis.

I like going through the phone records and all those sorts of things. Sometimes, we get those even before we buy a note, which is surprising to me. A note seller doesn’t have to provide that, but occasionally, they’ll have them in the folder, rightly or wrongly, to see all the stuff that’s going on behind the scenes. The other thing is if you are a note investor, at some threshold, the IRS is going to consider you a professional. They’re going to run into potentially the same federal and state laws that you do as a servicer, aren’t they?

It’s a funny area when you are the actual lender. You’re the owner of that note. Whether or not you’d be considered a servicer is probably unlikely, but are you expected and held to a higher standard? Absolutely, once you become a professional. It’s the same as when an individual is buying homes professionally as their job, flipping them, or holding them for rentals. They are held to a higher standard. They are considered sophisticated borrowers.

The same thing happens on the investment side. You become considered a sophisticated investor. You’re clearly in this business. You clearly know more about things like consumer issues, where maybe there’s some lender liability, or maybe there’s a court that feels you took advantage of a consumer, where you knew better and they didn’t. There are a lot of pitfalls out there that can occur.

By having that third-party servicer, they’re the ones truly administering the loan. We take your guidance and your instruction in many cases, but there are so many things where we follow the rules, and that’s how it’s done. That does give you that level of removal from the everyday process that helps shield you from those types of accusations or issues going forward with borrowers about lender liability or consumer protection and things like that.

Some people are such nice people. Clients of mine go, “We could self-service this note. It’s only got three years left on it.” I’m always like, “Okay. I get it, but let me ask you a question, though. If they stop paying you, are you going to be able to have that difficult conversation with them or not?” I’ve had so many different people who are like, “I know you. Don’t worry about the payment, and put it back. We’ll reduce this and that.”

Sometimes, it is nice to have that buffer where you can at least have that other role. We want to work with people if they need it. You’ve seen landlords do it all the time. If you’re a landlord and you don’t have a property manager, they start pulling your heartstrings. They’re playing on you, and then you end up conceding. Whether that’s real or imagined is one thing. If you have a management company in place, you can at least go, “It’s them. I’d help you, but management said no.” There’s a little bit of that in there.

We don’t mind being the bad cop. I have a collector for that reason. We are keeping track of things like how many of their parents have passed away or how many babies they’ve claimed to have birthed in the last year. We have had people say, “We just had a baby.” I heard one of my employees say, “Is this the same baby you had four months ago, or is this a different baby? We’re confused.”

We try to get them to at least tell us the truth. We are following up. We are checking in with them. We are keeping track of their promises, and we are hoping that they keep them. If they don’t, then we’re able to say, “You didn’t keep your promises. Now, the lender is not going to take this anymore.” We saw this so much during COVID, where the seller finance borrowers heard, “If you call your servicer, you get a deferral.”

They would call their lenders, and the lender would be like, “We’ll defer the next four months.” We’re like, “Did you get proof?” We were asking for proof of layoff or proof that there was a medical emergency. We were getting the documentation, but our clients were like, “We felt so bad.” I was like, “You can’t feel bad. You can empathize, but it doesn’t absolve them of the responsibility to keep their mortgage current.”

I was telling my clients that, too. I said, “This only pertains to federal purchase loans. It doesn’t even pertain to us. You can do it, but that law had nothing to do with our loans. Ours are private loans.” People get in front of their skis too much if they’re trying to service the note. There’s more to it. I agree wholeheartedly with you. If you’re a note investor, be an investor. Let the servicing part take care of the servicing part. When something gets to 60 days, that may be late, and it’s on your radar screen, but at 90 days, the servicing company doesn’t need you. Is that accurate?

Usually, we will reach out if we’ve exhausted opportunities with the borrower. If they are not returning our calls or not responding to letters, we are going to reach out and say, “We’ve gotten to the point where the next steps cost money, so now we need your input. Do you want us to do the door knock? Do you want a home inspection? Do you want that notice of demand?” That gives them 30 days to cure. Where do you want to go?”

Once we’re at the point where it’s going to cost the client some money to move to the next steps, we’re going to get them involved. Generally, with these borrowers, 30 to 60 days of delinquency is average and normal. These aren’t generally folks who pay on their due date. They use their grace period. If they don’t have a grace period, they’ll use the whole month.

A lot of them will run inside that 30-day late, but they also are all fully aware that if they live in the property, you can’t start anything until they’re 120. Many of them will float what we call the quarterly payment plan, where they pay every three months, or they don’t pay unless they get the notice of demand. They’re like, “Here’s reinstatement.” These are borrowers who you cannot expect the first-of-the-month behavior out of.

There are exceptions. I have some great borrowers who are on ACH, are escrowed, and they never miss a payment. We never speak to them. All of a sudden, one day, they refinance, and we’re sad. That was a great loan because they came, they paid, we never talked to them, and it all went great. Many of these borrowers are unfamiliar with not being renters. They’re unfamiliar with their responsibilities, such as repairs and maintenance. There’s a lot of counseling involved. A certain amount of delinquency is, unfortunately, what is expected there.

From my side, on the educational side, I talk in terms of patterns. When we review payment histories, I’m like, “When you buy this note, the payment history is not going to magically change. It’s going to stay the same. If this person has been rolling 60 or 90 days late, it’s going to stay that way. Do you have a tolerance for that?” At the end of the day, are they making twelve payments during the course of the year or not? How much equity is in there? What’s the trajectory on this loan? A lot of times, they’re paying late fees and such, too.

Breaking Down The Government’s Inconsistent Regulation

You have to understand that most patterns aren’t going to change. You have to build that into the way you buy these and the way that you look at these. We don’t call it the discount note industry anymore, but that’s what it was widely known for a long time. It was the discount note industry, and the discount was for a reason. Since it’s been on the radar after the last crash, what are your thoughts on more government interference, regulation, and that sort of thing? Are you starting to see that creeping in on the debt collection side? Are there any other regulations they might be looking at, or is it going the opposite way?

We joke in the servicing industry, “If they dismantle the CFPB, we’d probably be okay with that.” Although, to be honest, from a small servicer standpoint, CFPB interference was minimal. They made a lot of rules. They created generally accepted servicing practices that are very troublesome for a small servicer to follow. There’s some real struggle there.

My biggest issue is that the regulations vary so greatly from state to state, whether you’re talking licensing, consumer protection rules, or other types of notices and behaviors that they expect from their servicers. It might be unpopular, but I wish that were a single oversight. If we have the CFPB, let’s make their rules. Let’s license consistently across the board. Let’s have the same E&O bonding requirements, etc. Let’s do that.

Let’s not have North Carolina, where they have designed their licensing structure so that unless you are a large and incredibly profitable type of servicing business, you can’t license there because they have a net worth requirement that’s excessive. If you’re Bank of America, that’s no problem. If you’re Allied, you can’t get a license there. They’ve made it so you’re licensed out.

In your home state of Florida, they’re interested in that servicing is an add-on to an origination license. Unless you are an originator, you cannot get a servicing license because they go together. We had Florida inquire with us, “What’s your licensing status?” I said, This is what your statute says. We do not originate loans. We only service.” They said, “Okay, great. Have a nice day.” It’s wild.

Some states require quarterly reporting, and it’s an insane type of reporting. Other states do nothing. Texas is the easiest state to license in. They require nothing. Their bond is tiny, and their fee is tiny. They don’t notice you’re there after that. In Washington, every two years, they do a review of our servicing. Texas does not. Consistency would be great if there were a single licensing body, whether that’s the CFPB or some other entity, to make it consistent across the board. Unfortunately, 2008 showed us that some regulation is required.

What happened was on the servicing side, they simply slapped the word servicing into all of their existing origination type statutes and made life very difficult. There wasn’t a real understanding of the difference between what happens after the loan has been originated versus what happens during origination. We know that during origination, there were some issues on the valuation side, like appraisals and AVMs. However you want to look at it, the valuations got abused. We also saw some real downfall in titles. They were doing so many refinances. They said, “You had an owner’s policy. We’re going to go forward. We’re not going to even check the title.” Things like that cause problems later on.

From a servicing standpoint, what they forget is that no one wants to foreclose. An REO is the absolute worst outcome for anyone. Whether it’s the servicer or the lender who’s got to take back this property, evict, fix it up, and resell it, you’re never going to make the same return that you will on a performing loan. Coming down and saying, “Servicers, all they want to do is foreclose. That’s what they automatically do. They never offer modifications. They never offer these loss mitigation options,” I don’t think that was necessarily a very true picture of how they handled their jobs.

No one wants to foreclose. Click To Tweet

Securitization pool is a different thing. Those agreements were written in such a way that modifications simply weren’t a tool they could use. That was a problem with that particular niche of the industry. It certainly wasn’t a problem with wholly owned notes by banks, credit unions, and private investors. It was a very knee-jerk response to a not-as-large an issue as they may have implied. Some regulations, I need it consistent. Do I think we have that? Absolutely not. I think everything is a mess. It’s difficult to navigate for the largest of companies, much less the smallest ones.

I agree. Part of it is that the people who want to write any rules and regulations, or guidelines, don’t know our business. That’s the problem. They’re trying to come in and think of it more as a big bureaucracy. You’re right. Back to what you were saying in the beginning, we’re providing a good service for affordable housing. Most of the notes that are actively at this level in the notes that you service are used to seeing. It’s more what somebody would categorize as affordable housing, whatever that means in any particular area, because that varies as well. When people have affordable payments they can make where they otherwise wouldn’t be able to own a home, it’s a big deal.

We’re starting to see so many notes where people do have equity. They’ve been able to participate in the so-called American Dream and own a small house. I rebroadcast our Water Cooler Wednesday, which I did with Dwayne. It was pretty cool. I’ve been in the business long enough that I took this deal years ago, and I said, “Here’s what we were dealing with 12 or 13 years ago.”

It dawned on me, and I said, “I wonder what that house is worth today? I wonder what they would’ve owed if that was a 30-year note.” It was cool to see. You’re like, “This house in Lansing, Michigan, which was worth about $50,000 or whatever it was 14 years ago, now it’s worth about $150,000. Rent has gone up. The people who own that note have a very small balance. They’ve been able to create some good equity in those properties.” It worked out well for the note investors, too, so it is a win-win industry.

Back to your point, too, and I’ve said this many times, nobody that I know of goes into this business with the intent to foreclose on people and take their home. It’s not the case. We would much rather do some kind of workout or loan modification. That’s better serviced by people like yourself at Allied. Everybody, I am talking with Melissa. She’s President of Allied Servicing. Is it AllServicing? Help me out on the website.

Yes. It’s AllServicing.com.

Please go there to learn more information. You’re one of the premier companies in this industry, not at the very beginning, but long enough time. You guys have been around a long time. Would you describe yourself as more of a boutique shop?

Allied’s Growth, Vision, And Mission

Absolutely. We’re not a shop that you can take a pool of 300 loans and be like, “I’d like to service transfer this next month.” That’s probably not us, but we will work with the investor who has one. I get that call constantly, like, “I only have one loan. Do you take those?” Absolutely. We partner with our clients because for some of them, it’s a learning experience as well. It’s their first note, or they just created this loan. They need that handholding to help them understand the experience that they’re going to have, and make sure that their expectations are reasonable as well about how this is all going to go.

We’ve had some groups in there over the years that have had 200 loans at a time with us. It goes in waves. There’s very much an up and down, and it’s always, “What are we going to see right now?” First, it was seller finance, and then wraps were huge. We were doing all wraps, and then, it was land contracts, and we saw all the land contract products come through. We’re rolling back around for a while. There are a lot of much more new originations and straight originations, as well as we’re seeing a little uptick on wraps as well.

How Allied Structure Their Fees

Most investors, certainly investors who are building up a portfolio of loans, want to be able to talk with somebody on the phone in servicing. They want to be able to get a response to their email. That’s what I like about you. I don’t know if it’s a proper word for a boutique shop or an operation that you have. I’m not coming there with 300 loans loaded and ready to go. I’m coming at you one at a time, maybe buying five-year notes a year, and being able to know that when I need something, I know the people who are there also. That’s a big attraction for that. The fees involved, do you see those maintaining where they are now? I know fees across the board have gone up a little bit because expenses have. I get it. Do you think fees are pretty well set in?

Allied had its first real increase in 2023. Some of the things that we’re looking at are when you set up a loan, one of the things that you have to acquire is tax service, whether it’s escrowed or not, because you’re either monitoring for bills or your vendor is monitoring for delinquency. That contract is built into that setup fee. Our vendor has been very good over time. The increases have been minor. That cost climbs up a little bit if those contracts are going to climb up.

Also, we try to wrap some of the expenses for chasing down the missing items in the package. That is always part of our post-closing activity or our post-setup activity. For the monthly fees, the first lien performing loan is $25 a month. That is very average, maybe a little on the low side in our group of servicers, but I don’t think anybody is much more expensive. I’ve not heard that anybody has hit that $50 a month mark for performing. $25, $35, or $45 is where everybody is hitting. That’s going to stay pretty steady unless there are some additional declines in an economic situation where we are seeing expenses go up, the cost for people go up, and things like that. It’s hard to predict.

We’ve always tried to keep them low and fixed. I do the bookkeeping for Allied. I do not want a complicated fee structure. We try to stay very straightforward. It makes it a lot easier on us. All of us try to maintain a pretty transparent, simple fee structure. At Allied, for one, we don’t do a lot of add-on fees. Things like, “You did a modification? Now you owe me $300,” we don’t do anything like that. Our fees are pretty much what you get to buy Allied. Everything that we can give you from our office is included. It’s only if we go outside that there’s an additional fee, and we’ll quote that to you up front.

 

Common Timeframe With Allied

Quickly on post-closing, because we chatted a little bit about it before we started recording, I always set my clients’ expectations on the boarding process, letting them know it doesn’t happen overnight. There’s a process involved. There are certain letters and things that you guys have to do, and paperwork that you need. Not all of my audiences are clients of mine, although you should be, if you’re tuning in. For those folks who are not familiar, when someone boards a loan, what’s the expectation time-wise and paperwork-wise when they start seeing their payments?

There are a couple of different scenarios for that. One is, “I originated a loan. Now, I’m going to have it serviced.” Generally speaking, the documentation is pretty consistent across the board. We need all the documents that relate to the loan, its terms, and how it was closed, which is, most generally, the note, the security instrument you’ve chosen, and at least the settlement statement.

Title, if it’s available. We know it’s not always done, but if it’s available, we like to see it. If you’re not sure, include it in the package because we can decide what it is that we need or don’t need. We’re going to need entity documents, which means we’re going to need to know about you and the entity you’ve designed to originate or hold this note. We’re also going to need to know about your borrower. We’re going to need to know things like their mailing address, their contact information, and, without a doubt, their Social Security numbers or other identifying information.

Allied does allow foreign nationals in their portfolio as borrowers, but we do require that you provide a copy of either their identity card or a passport, so that we have something that we can use to ensure that when they call in, we can positively identify them. Beyond that, it’s going to be things like pay histories, escrow information, and other things that you may need because the loan has a history. An existing note that you’re acquiring or one that you’re asking to be serviced, or that you’re moving from another servicer. Those are the types of things we ask for.

If you’re originating a note, most of that comes right out of the closing. The title company will generally ship us that package. Once we’ve received that, we’re going to take a look. We’re going to determine the first payment due date. It’s the early part of June. We could expect to see some July 1 boarding dates or July 1 first payment dates. Those are generally going to be boarded by mid-month, so that we can send a welcome package out so that the borrower does have everything they need to make that July 1 payment.

One of the things we provide in our package for originations is a first payment letter that can be given to the borrower at closing. That does include all of our details. In the absence of that, we do get that welcome package out. Let’s say it’s about June 20th, and the due date’s going to be August 1st. Likely, that boarding is going to fall over into July, primarily because their first payment isn’t due until August. We want to get that paperwork in front of them in a timely manner for that August 1 due date. Also, it lets things like their move into the property take place, so the mail is delivered. It’s not forwarded or sent somewhere to an old borrower or things like that.

We try to schedule it in those ways. If the loan is a service transfer or it’s coming from an actual servicer that had it before us, that is when the federal government gets involved. The outgoing servicer has to give the borrower fifteen days’ notice minimum before they can close the loan on their books. If you initiate a service transfer on June 1, the absolute earliest date the outgoing servicer can close their books is the fifteenth. It’s more likely going to be somewhere between the 18th and the 20th because we do try to give some mailing time in that notice.

Once that service transfer date, let’s say the 15th of the month, arrives, that is the date we get the final data and all of the final information from the outgoing servicer. We have fifteen days to get it boarded. Within those fifteen days, we board the loan and send out our welcome package that says, “Welcome to Allied. You have a service transfer. This is what’s going on.”

For 60 days following that service transfer, we cannot impose late charges, and we cannot collect on that. The federal government says no. The borrower is trying to figure out where to pay. Payments may go to the prior servicer, and they will generally forward them to us. There may be interim payments that were made during the period between when it was sold and the service transfer. There are questions about where those payments go. Most likely, the outgoing servicer sent them to their client. They’re not going to send them to you. There may be a roundabout way that it gets there.

Sometimes, those interim funds come to Allied. Allied has to figure out, “Are these interim? Are these things that came after the service transfer?” There are some delays with that interim money. Once that 35-day process has ended, the borrower knows they’re with Allied, they’ve received their welcome package, and they have the opportunity to start paying Allied directly. You should expect that after that point that the payments will start to come in. You bought this 30 or maybe 45 days ago, and you’re like, “Where are my payments?” We’re going through the steps.

If you self-serviced and sold the note, then again, there has to be a goodbye letter that says, “I’ve sold the note, and they’re going to be serviced here.” There’s no fifteen-day period on that. The 15-day notice and the 15-day letters only involve servicer-to-servicer transfers. If I’m a guy with a note that I sold, I can tell the borrower, “Start paying here now.” Those are going to be a much shorter timeframe.

 

We’re going to get those boarded quickly. We’re going to send out that welcome package and say, “We are Allied. This is where you pay. Here’s your coupon book. Here’s an opportunity to sign up for an automatic draft. Call us if you have any questions. Please send us proof of insurance.” We will then start into that whole process of getting them used to paying us, understanding how Allied works, getting them access to the portal on that side, and making sure our clients have access to the portal on their side. It could be complicated. There are a lot of moving parts, especially when it’s a servicer-to-servicer and a note sale. You’ve got the seller, the note buyer, one servicer, us, and the borrower who is going through this and going, “What do I do?”

Narrowing Down The Risks And Imperfections

You touched on something there. We will wrap it up with this. When we’re buying notes from a note owner that has been self-servicing, what do you need to see from them as far as balance and what they’ve paid? I see some payment histories, and I know accounting-wise, they weren’t doing it the right way. How do we handle that? Is it a big eraser saying, “Tell us what the balance is. We’ll verify it, and then we’re going to go from there. Whatever happened in the past happened in the past, and we’re going to do it the right way moving forward.” What’s the overall procedure on that?

In my dreams, it’s at least a spreadsheet, even if they did something like service it daily instead of monthly. Give me something, like the date the payment was received, how much you got, and what you did with it. Most private holders do not accrue late charges. They don’t do it. They don’t include it in their tracking. It’s not there. I have seen situations where it’s not escrowed. They get a Zelle payment every month.

What we usually tell our folks who are buying those is, “You get all of those copies. You get those Zelle statements.” We start there. You do an estoppel that shows where the seller signs, “These are the payments I got on these dates.” They sign off on that balance. I can’t tell you how many clients have sent me a pile of Zelle receipts and have been like, “Can you tell me the balance?” I’m sticking those into TValue or an Excel sheet and figuring it out. The worst part is if the borrower underpaid or overpaid, and I’ve got to carry an unapplied funds balance and figure out all that, but I’ve done it. You’ve got to come up with something.

When you’re buying those notes, it also helps to send that borrower estoppel that says, “We’re going to buy your note. We think your balance is this, and that you live here, and this is your phone number. If you agree, do nothing. If you don’t agree, respond.” It’s not ironclad, but it is something that says, because that’s where the issue comes, “Your honor, I reached out to them and said this is what we show. They didn’t respond.”

When you are buying notes, it helps to inform the borrower that you are making a purchase. Click To Tweet

These days, they get away with a lot of, “I thought it was fraud.” That argument rolls a little better than it used to back in the day. It could also be that you make a call. Some of my clients will do calls. They’ll be like, “I’m talking about buying your note.” There’s a lot of danger there. They could choose to pay off or sell to avoid that whole thing, but they’ll say, “I’m being told your balance is this. Are you happy with the house?” You can find out some interesting information. Sometimes, they’re like, “We love the house, but the back porch fell off last month.” We can’t see that from a drive-by inspection. There’s some of that.

We do need a history with a running balance. We’ve got to be able to say, “This is your balance,” because the borrowers dispute it. Especially where they’re not receiving year-end statements or packages from that seller, they feel like their balance is lower. They feel like they’ve paid more than that. It’s tough if you can’t back it up.

I have a pile of Zelle or Venmo receipts. I have a little estoppel and a spreadsheet on top of that. That’s where we stand because then we can say, “If you have payments that aren’t included in this list of Zelle, then let us know and tell us.” Usually, they don’t, but it works out. The more you get from that seller to document what they think the balance is, the better, but it’s never perfect. Few of these folks even used a spreadsheet, much less a little note servicing software sort of situation.

I’m glad you mentioned that. I tell people all the time, “These notes are not perfect.” There are imperfections. You want to narrow down the imperfections, so if something goes wrong, it doesn’t cost you a lot. As long as somebody is paying, there is never a problem. What happens is that there are too many people who buy notes and don’t identify the problems.

There’s no problem as long as the person is paying. When they’re not paying down the road, that’s when it becomes a problem. To your point, you’re in front of a judge, and the judge goes, “I’m going to rule in their favor.” That’s where people get burned. We’ve got to identify all these things ahead of time and say, “I’ve narrowed it down to an acceptable margin of error. That way, if the worst-case scenario happens, which most of the time it doesn’t, we’re prepared for it. It makes sense.

It’s another argument for a servicer. One of the things that we do is look for things that are red flags. These guys wrote this document. They don’t know anything about the law or anything like that. There are illegal late charge methods. The bulk of the states have a late charge statute. It is what it is. You can’t mess around with that. You can’t compound daily late charges on a real estate note. You can do whatever you want on a lease, but you can’t do it here. Some other weird default provisions or a very aggressive and penalizing type of language.

I looked at one. The monthly payments were maybe $300 or $350 a month, and the late fee was $100. I’m going, “That cannot be.”

There are a few states where you could get away with it, but they are few and far between. The bulk of the states do a lot of this type of business. They all have a rule. I saw a land contract. Somebody is doing this land contract. Buried in the default provision, it says, “By signing this contract, the seller is now your attorney-in-fact. If you default, they can wipe your interest using that attorney-in-fact.” They can sign off a quick claim deed that says, “You don’t have an interest anymore.”

I’m like, “First of all, that is so illegal. We would never enforce that.” They’re like, “The attorney said it was okay.” I’m like, “The attorney is wrong because I’m not going in front of a judge with that language.” It was wild. It’s these types of things that a servicer is that second look to be like, “You can’t do that. You can’t charge them 40% default interest.”

Get In Touch With Melissa

Melissa, I always enjoy talking with you. We’ve always got a lot to talk about and have a lot of experience in seeing almost the Wild Wild West of the note industry and the things that can happen out there. It is always a pleasure to see you and work with you. Everybody, if you’re in the note industry, you know who Allied is. I enjoy the fact that you’ll call, you’ll email, and you’ll get answers. Go to AllServicing.com for more information. Any other links or anything else that they want to learn more about? Are you doing social media?

We aren’t heavy on social media. You can hit me up on LinkedIn. You can search for me by my first and last name, Melissa Bolling. Feel free to connect there. If you email LoanBoarding@AllServicing.com, you can get our packages and whatnot.

If you’re already in the industry and you’re attending an industry event, there’s a good chance that Melissa or somebody will be there, so make sure you go by and say hello. Thank you, Melissa. I do appreciate it.

I am so glad you had me. I’m so glad we did this. This was great fun.

Thank you, everybody, for tuning in. If you like the show, please let us know. Give a nice five-star rating there and subscribe to the show. If you want to see a video broadcast of it, go over to YouTube. On my YouTube channel, you will not only see these, but my Water Cooler Wednesdays and my Tip of the Day that I always do while walking around town here. A lot of content for you out there. Thanks, everybody, for tuning in. Melissa, thanks for being here.

Thank you.

 

Important Links

• Allied Servicing Corporation
• Melissa Bolling on LinkedIn
• LoanBoarding@AllServicing.com
• Kevin Shortle on YouTube

 

About Melissa Bolling

Melissa has built a robust career in the servicing industry, starting from her tenure at Metwest Mortgage Services, Inc., where she oversaw Loan Servicing Operations for several years. Her responsibilities encompassed managing a substantial portfolio of real estate and alternative cashflow receivables, demonstrating her capability in handling servicing rights valued at over $1.8 billion.

In 2004, Melissa ventured into entrepreneurship by co-founding Complete Cashflow Services, LLC with Sheila White. This company was established to cater to the needs of private individuals investing in seller-financed paper. Over time, they expanded their clientele to include both private and institutional investors across various markets.

Recognizing the evolving demands of the industry, the company rebranded in 2011 to Allied Servicing Corporation. This name change reflected their evolving focus and commitment to serving a new generation of investors. Allied Servicing Corporation specializes in managing high-touch assets and has developed specialized servicing software capable of handling complex cashflow streams such as partials, wraps, subordinate financing, and other challenging scenarios.

Melissa’s role at Allied Servicing Corporation is multifaceted and pivotal to the company’s operations. She oversees the servicing staff, manages payoff documentation and disbursement, handles escalated complaints, reviews loss mitigation strategies, drafts modifications, and ensures smooth remittance processing. Her deep understanding of industry compliance and servicing rules underscores her expertise in the field.

Overall, Melissa’s journey from a senior position at Metwest Mortgage Services, Inc. to co-founding and leading Allied Servicing Corporation showcases her extensive experience, leadership, and adaptability in the servicing industry.

 

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