Transcript of “Foreclosures and Short Sales with Jim Freeman”
Gabriel Petersen 0:02
All right, and we are live. Jim, thank you for joining us today. How are you doing?
Jim Freeman 0:08
Oh, you know, I’m living the dream and the dream lives on every day I couldn’t be any better. Thanks.
Gabriel Petersen 0:14
Perfect. So the I thank you for joining us today on on our episode. To get us started. Why don’t you just tell everybody you know who you are, where you’re from, and and a little bit about your background in real estate, how you got started in real estate.
Jim Freeman 0:31
Well, we have very limited time and I’m a man of many stories. But I My name is Jim Freeman. And I’m a real estate broker and an investor in a little community west of Seattle’s called port orchard, Washington, Kitsap County. And, you know, I my real estate career as such began all the way back in 1975. So I’ve been through at least for now, maybe five coming real estate recessions and I I started while I was still a student at the University of Washington living in a student ghetto. And it’s a better story if I had more time to tell it, but when I was still going to school, I had a part time job. I had a scholarship to go to school and pay my tuition, okay, but had to make enough money to buy beer and pay rent.
Gabriel Petersen 1:23
Of course, if ever,
Jim Freeman 1:25
and I, you know, went to work for this guy who was a Vietnam veteran, he just got back from Vietnam. And he was buying the great number of foreclosure properties were available in Seattle 1975 and I worked with him a little bit and I bought it. So I I learned sort of some trade skills from him. I bought a duplex in 1975 on Queen Anne Hill and Garfield Street. How much did you buy it for Queen and that is some prime property up there. 1975 would you buy Nike 35 I pay? If I remember right, it was around 20 21,000
Gabriel Petersen 2:01
oh man that’s guaranteed that’s worth at least 1.5 million at this point.
Jim Freeman 2:06
Yeah, I wish I still owned it but I don’t but to kind of kind of carry on with the story I you know, it was it was vacant in a wreck. The guy that owned it was a doctor. He paid all the closing costs Commission’s everything. And he gave me the excess funds and the the escrow account for real estate taxes and insurance, which gave me a little money to make the payment for a couple of months some money to fix the place up. I know I would go to school in the morning, I work from my friend Gary in the afternoon and evenings a spin you know, fixing up the one unit sleeping in the dust and getting up and doing the next day. And I know within a month I got a tenant, which paid the payment and gave me 100 bucks a month cash flow and to sort of cut into the story. Three years later, I built my first 20 Seven unit condominium on North 35th Street in Fremont. And I did one of those every year for the next four or five years until I went broke. And that was the that was the second real estate recession was in the early 1980s. Jimmy Carter inflation years interest rates approach 23% for home mortgages.
Gabriel Petersen 3:24
Wow. Wow, that is insane. All right. So that is that is a great intro story. So you 1975 you started, you know, one duper your first duplex out in Queens in those who are not familiar, Queen Anne is probably one of the best areas in Seattle. You got it for 20,000 you fit you help
Jim Freeman 3:45
single money down. No money down. I gave me the money to make payments for a couple months.
Gabriel Petersen 3:51
Yeah, there you go. No money down 20,001 of the best areas in Seattle. probably worth a couple million at this point. And then from there You went on to building condos. You said 27 units, so so very large condo complexes. And you did that for a number of years until the next recession hit. And that kind of wiped you out. Is that that summarize the beginning of the,
Jim Freeman 4:16
of the journey. Yeah, it was, it was it was, you know, ambition over cents. So my, my objective in those days was to beat Howard as right. I wanted to be a bigger builder than Howard is right. Starting from nothing. And like it, I think they won. But, but anyway, you know, I gave it I swung the bat, I swung for the fences and ended up in a bad place. But, you know, sometimes bad things happen. So good things can happen. And the next part of the story was I had to get my first job. Well, I had I had a construction company, and I was developing real estate and I was acquiring partners in general partnerships. That’s I’d developed those properties. And but my lender at that time was a company called C first mortgage Corporation, which today is Bank of America. You’re probably too young to remember the name see first but the I was hired by C. Corporation, corporations, Caesar ciphers mortgage Corporation. The bank was in receivership had lost a billion dollars in core capital, lending money to wildcatters in Oklahoma. They were they were under the supervision of the Office of the Comptroller of the Currency and being involved in a forced merger of the Bank of America. And the mortgage company held a lot of bank owned properties and, you know, defaulted loans and all kinds of stuff. And the President of that company, Bill Jennings called me up one day and said, Jim, I understand you may be looking for something to do. I said, You’re damn right, Bill. I don’t have 50 He says to buy another can of beans, what do you got? And he, much of my surprise, he wanted to hire me to work as what was called a special credit officer for the mortgage company. And that job entailed, you know, managing defaulted debt, trying to collect it. And so I was the first job that I had as an adult. And one of my partners, the wife of one of my partners, was kind enough to take me down to Nordstrom and help me buy a suit. And I learned how to ride the bus from Fremont to downtown. And they gave me a little cubicle down there. And I make a long story short, over over three years, I collected about $100 million back to the bank. And I had I worked on properties from Texas all the way through Alaska, west of the Rockies, and I got to work on properties, every kind of property imaginable. And I had any one time I had 50 or 60 accounts that I was working with, wow. And included, you know, Mid rise office towers, marinas, Apple packing plants, subdivisions, industrial parks whatever. And I worked with some of the best real estate, legal talent and accounting talent in was available in the area at that time. I learned a lot from them. After that for three years, I started, I guess what you call today a gig worker type of career. I was involved with Lehman Brothers and Goldman Sachs. And I was buying and selling as a principal and as a consultant, both performing and non performing loan portfolios, and bank bank mergers and acquisitions. I did that in North American Europe for about five years. got sick of traveling hated it, and came back but my little house in Port orchard where I live now. And because I didn’t know what else to do, I I got a real estate license and started brokering real estate which you would think You know, with that kind of background, I might have had some knowledge about the business, but I really didn’t. And it took me three years of really suffering to learn the business enough to where I can kind of make a go of it. And I did pretty well up until the next real estate recession. Those recessions
Gabriel Petersen 8:19
they come out of nowhere.
Jim Freeman 8:21
Yeah, I call them exotic just variables.
But I was, you know,
I did I, one year, I think I sold $40 million in sales. Wow. So you know, and it’s kind of bumped along since then. So every recession I roll out my my old dusty Rolodex, you know what a Rolodex is.
Gabriel Petersen 8:45
I know what it is. I don’t have one but I do know what it is
Jim Freeman 8:47
database on little cards and older and old school database. Yeah. And so I you know, I drag that up periodically, when I try to think of what to do and I I decided in 2009 2010 that I become an reo broker. And that’s pretty much what I’ve been doing since then.
Gabriel Petersen 9:10
So I’m gonna I’m gonna jump in here because it sounds like we’re up to a modern day. So you were just going to get into it. So right now what is your your main bread and butter for your business? You’re in foreclosures are your business. So, so give us a little, you know, overview of what it is that you do. And, you know today,
Jim Freeman 9:30
okay, well, I’m what’s called a local listing broker. And I list and sell properties for asset managers that represent owners of defaulted properties. That includes the Department of Housing and Urban Development, Chase Bank, zone network, which is Mr. Cooper nation star. And so my job is to really to to listing sell. But I also do involves a fair amount of valuation, inspection reporting, that sort of thing. So I’m the eyes and ears on the ground for somebody, you know, wherever they are, that owns large portfolios. So HUD, for instance, we’ll sell this year we’ll probably sell close to 10,000 properties across United States and US territories. Wow. So in any in any time, whether it’s good or bad for seller’s market, there’s always foreclosures. There’s always short sales, which I do a fair number of. And so my job is to figure out what they’re worth given the constraints, you know, the factors that the asset managers tell me to look for. And then I have to document everything and I have to prove, so I go into court every time you take a listing, you got to battle out with people who are reviewing your bpos and there’s always a certain dynamic tension that exists and trying to determine what the But here’s the good news about Oreo sellers. They don’t care. It’s not their money. So, but they are very smart, very sophisticated people, most of them that I’ve worked for, I tell you, all of them, and, you know, they have a point of view. But their point of view is informed by big data by analytics and trends. They’re very, very close watchers of data there, they use it very effectively. And so, you know, buying real properties is not so much like sitting down and armwrestling negotiation, it’s understanding market trends, and, you know, rehabilitation values after repair values, all that. And I, you know, if you were asking me to make an offer for you on an reo property, what I would tell you is, you do it your way, you know, you you figure out what your game is, and it’s all about you. It’s not about About the seller, whoever they are. And so be consistent in what you do. Be true to you know what your, what your strategies and your tactics you know, and be true to yourself. And always make your offers, you know, and on that basis, but try to understand who the seller is and how they work. In better understanding you can develop about the seller and how they work, the more successful you will be eventually in buying those types of properties.
Gabriel Petersen 12:28
Perfect. So, kind of take us in not everybody is is or has experience with foreclosures. And so can you kind of take us, give us an outline the difference between reo foreclosures and short sales? What is what separates those three, those three terms?
Jim Freeman 12:47
All right, I think it probably begins.
I would say even before a borrower, an owner of a property with a mortgage gets into trouble and you know, there’s They might miss a couple of payments, they might be in contact with their lender to try to arrange for forbearance. And so that’s kind of the genesis of it. And, you know, if it gets if that individual cannot find a resolution to their income problem, which is what their central problem is, then they have a series of things in Washington State, it’s a state by state affair. So different states have different rules and regulations regarding the process. The State of Washington the what’s called the non judicial foreclosure process begins with a notice of default issued by the servicing lender to the defaulted borrower. And approximately five and a half six months from there is the shortest time that the the lender or the servicing lender can arrange for what’s called a trustee sale or a short sale. Either one of those, excuse me trustee sale or Sheriff sale and What that means is literally the employee or contractor hired by the trustee is conducting the legal affairs goes to the courthouse steps. King County, Kitsap. County, whichever county it is, different counties actually have different procedures. In Kitsap County, it’s usually on Fridays in the morning. And this person has a bunch of files in their possession. They stand around in the lobby at the courthouse, and they yell out, I’m here for the trustee sale such and such. Does anybody want a bit, it’s an open outcry, auction and love it. And you know you if you wish to bid on that property, you can do so but it’s a verbal bid. If your bid is accepted, you have to put up a 5% cash deposit non refundable and bring the rest of the cache within 72 hours and you get what’s called a trustees deed or shares. sale deed, which has very few protections, if any, for the buyer. So it’s pretty much a quitclaim deed that says, you know, we’re, we’re conveying our interest to you, but buyer beware. So that’s, that’s a short, very short description of the foreclosure process. REO properties are properties that have already been foreclosed on, or they are properties that were no third party wanted to purchase the property at the auction, the open price auction at the courthouse steps, and the default bidder is always the lender, and they bid the amount that’s owed them. So that’s the default amount. And you know, from there,
a lot of people will learn under the misimpression that you can just contact banks and ask them to sell the property to you. It doesn’t work that way anymore. Maybe back you know, when I first started in the 1970s, it did but right now most loans are cores are sold in the secondary mortgage market. So they have bondholder interests and restrictions and indentures. There’s a servicing lender, and there’s the owner than that. And then there’s bondholders. So there’s a whole chain of, of servicing and an ownership of that debt. Where there’s nobody’s directly responsible for it. But people who are in charge of resolving that debt, hire asset managers to manage the properties. And they look first of those asset managers to provide valuation and services and insight as to how to market their property and what they can expect. And and only when it’s gone through that process and through a legal process to guarantee that they have marketable title. Do they offer the property on the market? Now they can offer that property many many different ways. Most Desirable for most owners have large numbers of defaulted debt. They want to do what are called bulk sales. So they’ll They’ll call up, you know, Goldman Sachs or Wall Street firm or people they know, who are well capitalized, well funded. And they will, they will say, you know, we’ve got a portfolio here non performing loans or REO properties. Would you like to Would you like to make an offer on them. That’s what I did back in the 80s, mid 80s for Lehman Brothers and Goldman Sachs. And so, very often their their preferred choice if they could get enough is to sell these defaulted properties in bulk to an investor. And then there are certain covenants which those investors must agree to, usually regulations, federal regulations, state regulations, and then they buy them and they do whatever they want with them, which may be renting them it could be just reselling them could be adding value and reselling, you know, whatever that investor chooses to do. The interesting thing for smaller investors is if you can If you can find a way to network with those bulk purchasers very often they want to, they want to subcontract to local investors. Let’s say they’re buying a portfolio on a West Coast, all the states on the west coast, they want to find more local investors in each state to take a portion of it.
Unknown Speaker 18:20
Gotcha. Okay. So I’m gonna
Gabriel Petersen 18:22
start, I’m gonna try my best to try to summarize everything that you just said. And so stop me when I’m wrong and correct me. So we have the three terms. We got reo, foreclosure and short sale. The foreclosure is the process of somebody stopping paying on their on their loan, and the bank selling that and you would go to the actual, you know, the courthouse steps in order to buy that. And if nobody buys it on the courthouse steps, if nobody actually, you know, decides that it’s viable property. Then it becomes an reo property. It’s owned by the bank. And so where does short sale come into that? When does it become a short sale?
Jim Freeman 18:59
Yeah. Short Sale is an option for a defaulted borrower prior to a trustee sale. Okay, actually in the state of Washington, they have a number of options. I’ll explain that one in more detail. But the state of Washington in circa 2010 passed a new law. That was the homeowners Protection Act, I think it was called. And it requires servicing lenders to appoint a single point of contact to a borrower and be an authority somebody that can sign and if that defaulted borrower requests, arbitration and so you can you can request arbitration of that loan. And number of people did that. And not all of them worked out but some people save their homes by, you know, getting getting some kind of a workout on being able to repay it. Another option is bankruptcy, but a pretty good option and one that’s most used. That’s most beneficial actually for the for the defaulted borrower is what’s called a short sale. And so they they engage the the the servicing lender, they it’s most beneficial to the borrower if they can hire legal counsel to help them. There are also free, HUD approved housing counselors that you can talk to who will help you someone with the process. But the the brokers, of course can do this. But you want to engage the lender, want some time, when a request some time to sell the property and whatever you can get for it. And you when you get an offer, you present that offer to the asset manager that’s working for the lender. And very often in a short sale, the net sales proceeds of that offer are less than the total amount owed. That’s why it’s called a short sale is short the amount to pay off Fall, and depending on their models on their economic models that they use to evaluate, they may accept that because they determine that short sales and actually the data was pretty clear in 2010 here that lenders are very often came out to better advantage by doing a short sale and going through the foreclosure process. Okay, so they have they have a, they have an incentive to do that.
Gabriel Petersen 21:28
Okay, so for anybody for any of the investors that are listening or watching to the show, if they want to start getting involved in buying foreclosed or short sale properties or audio properties, what what’s the best what’s the best way to go about, you know, getting getting in front of those properties? And now you said for foreclosures, you got to go to the courthouse, that’s how you buy them. And there’s also like auction calm etc. but but you actually buy them by bidding on the, you know, at the courthouse steps. So for what are the other ways that people can go about buying Oreos, short sale and and foreclosed properties?
Jim Freeman 22:03
Well, I would say most of the time, probably, you know, 97% plus of the time those properties are listed with brokers. Okay, so unfortunately for people who like to deal, you know directly, the best path is through the MLS, and certain websites. So that’s, that’s really the first step. It’s not hard to find them. And if you’re working with a broker that knows how to do it, you can get them to set you up in an automatic notification process for new listings like that. All that said it those pickings had been pretty slim for the last well since 2013, when home prices began rising in Western Washington. However, everybody’s sort of anticipating a return to the, you know, the battle days. people losing their homes, which doesn’t make me happy. But it does provide more inventory for people who are looking to purchase. Yep. Okay.
Gabriel Petersen 23:06
So what we keep this episode of these podcasts about 20 to 30 minutes. So we’re kind of nearing the end of our our show here. But before we do before we move on from your you know how you deal your specific business, kind of tell us, you mentioned earlier that you one of your jobs was to figure out the worth of the properties and just give us a real brief overview like what is the process that banks use to identify the the worth of the property when they go into foreclosure,
Jim Freeman 23:37
any and all of the options available so they hide, for instance, will commission an FHA appraisal of the property, they will use automated valuation models, they will use bpos or brokers price opinions, and they might get several of those for a single property. And that process is ongoing. It doesn’t stop at the listing period if they list process And it’s not selling they continuously go through evaluation process trying to determine the right price. Gotcha.
Gabriel Petersen 24:07
Okay. All right, we’re going to shift gears here just a little bit. We’ve You know, we’ve covered the nuts and bolts of your business, what you do your broker, you do a lot with foreclosures or short sale properties. So now kind of take us I want to hear a little bit more about the experiences. I mean, you know, more than anybody else real estate is it’s a roller coaster, both financially and emotionally. You got your ups, you got your downs of it seems like you’ve you’ve seen both the ups and the downs. So kind of take us to one of the, one of the one of the lower parts, maybe that the condos that you dealt with and what was the what was the best lesson that you learned from that experience?
Jim Freeman 24:44
You know, I sort of thought you might ask me that question. And, you know, the more I do, the more longer I stay in this business. It seems the less I know. But the the What I would say about it is, it’s all up here. It’s all up here. And the good news ahead, pointed ahead. And the good news about the real estate business is it’s so big and so diverse. And everybody needs a place to live. Most businesses needed domiciled to operate their business. So there’s always a demand for property. And there you know, there are many, many things, professional services or ways to invest. You can buy equity, you can buy debt, you can syndicate, you can, you can be a sole proprietor, you know, all sorts of ways to approach it. So, if whatever you’re doing isn’t working at the moment, take a little time, just a little time, not too long. And sort sort out the head stuff, and sort out your options and then go do it. Go do it. I had the privilege. I was at a reception one time held by ciphers mortgage Corporation, and gentleman by the name of Martin’s The league was there. And maybe you don’t know Martin, but he was responsible for building most of the high rise office towers in downtown Seattle. Oh, wow. He built the Columbia center for instance, for
in, which is where I was in office there.
But so I got a chance to meet him. My loan officer at sea for his mortgage Corporation wanted me to meet him, he introduced me. And I was just a little scumbag developer, you know, I still strapped the tools on, go out work on my projects. Martin Martin was kind enough to talk to me for a minute. And I walked up to him shook hands and he said, he said this to me, son, whatever it is, just do it. And that was the total sum of our conversation. And why? Well, really, I mean, you know, it’s simple, but you know, he, that was his life. That’s how he got things done achieve things and I’m sure that that any person who achieves something starts with nothing. And they have to go, they have to challenge themselves, they have to go above and beyond their own comfort zones. What they know at the time, I certainly knew nothing about what I was doing when I bought that duplex. But you just learn and you know, you’re going to pay a price, you’re going to pay a price and you can be a little bit more careful and whatever, maybe not suffer like I’ve suffered. But you know, it’s not just about making money. It’s it’s, it’s about learning. It’s about service. It’s becoming a servant leader. It’s giving people opportunities to be better than what they are.
Gabriel Petersen 27:44
I like it. Just do it. It just sums it up. So well, very, very, very short and to the point. So you got started. We’re going to close it out here with one last question. Before I before I ask, you know how people can get in contact with you. So you started out in 1975. This was the gym, you know that just doing one single duplex? If you could go back to that guy, and just give him one piece of advice, kind of like, Martin and given you what would be that piece of advice be?
Jim Freeman 28:18
Good question. I don’t know that I have a good answer to it. I’m still I’m still learning. And I still don’t know enough. And so I’m challenging myself every day with new initiatives, things that are tweaks or even major initiatives that are changing what I do on a daily basis and how I operate. So I, I guess, you know, I would say keep up the good work. Keep moving. I like it. I like
Gabriel Petersen 28:45
it. Just do it. Do it. Alright, well, Jim, thank you very much for jumping on here and sharing your wisdom. I’m sure I can speak for everybody listening and watching that we appreciate you sharing everything that you’ve learned. You’ve given us so far. So I mean, you need things to so if anybody if what is it that somebody could bring you that you would want?
Jim Freeman 29:08
You know, I, I’m just very, thank you very much for the opportunity to speak with you and whoever is going to be watching this. But, you know, I’m all about networking. So if somebody has an idea or a question, you know, I’ll be happy to talk to them, no cost, no obligation. And I have a pretty good network of very highly professional, caring people. And we share you know, a commitment to respect and transparency and honesty. And you know, if you’re that type of person, just want to talk to me and see if there’s something we can do together. Get all
Gabriel Petersen 29:44
awesome and and if somebody wanted to get a hold of you what would be the best way for them to reach out to you?
Jim Freeman 29:49
They can certainly email me I guess.
Gabriel Petersen 29:53
Jim Freeman, GFRE ma n at Jim Freeman, calm Jim. JMFR e ma n at Jim Freeman calm all right there you heard it. So again, thank you for coming on and everybody listening and watching. We’ll look forward to seeing you guys on the next episode.
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