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How To Go Bank Direct For Your Non-Performing Note Deals

How To Go Bank Direct For Your Non-Performing Note Deals

Brecht Palombo

Distressed Pro

Presented at NoteCon 2016

Transcript

Ron Happe: Well welcome, everyone. Today, we're going to introduce you, if you haven't seen it already, to a very important tool. I know that there's a lot of note investors that are very seasoned out there in the audience, but one of the big things in order to be a successful note investor is finding notes. The guest that we have today has developed a program that we use. We use it diligently. Our full-time employee that looks for notes on a full-time basis uses this software. 

On the webinar with us today is Brecht Palombo. He is the founder of DistressedPro.com. Brecht is a licensed auctioneer and real estate broker in a number of states and has been involved in nearly $200 million in distressed asset sales of mostly commercial, multifamily, and construction projects. He's worked extensively with lenders in the disposition of assets through foreclosure, notes, and REO sales. His software will show you not only who the banks are, but which banks have assets to sell, and which banks can sell those assets. 

As a personal note, Brecht has a real passion for mountain biking and anything outdoors. He snowboards and skis, Alpine and cross-country. He's a very happy father of three and a husband. His business has allowed him the opportunity to travel full-time with his family of five and he's been doing that for over a year in his Airstream. Lucky guy. Brecht, would you like to fill in any gaps that I might have had there in your profile? 

Brecht Palombo: Sure. That actually was probably one of the most thorough introductions I've ever had for me. I'm not sure what's left. I live here in Bend, Oregon. Yeah, I'm excited to dive into this and do some teaching today. What I'm not going to do is it's not going to be a heavy pitch-fest. I want to get into some real teaching, give an overview. If you're not doing this kind of work already, I want to help you to decide if it's the kind of thing you would be able to do for yourself. Then I'll teach you some things. At the end, we'll show you where you can get more resources and a demo of the software and that kind of thing. Does that sound good? 

Ron Happe: Great. As I mentioned, we use your software extensively. I've probably seen you no less than 10 times in your education and that's why we invited you to be on here because this is an important part of the note education. I'm excited to have you. I'm going to turn it over to your right now and let you do your magic.

Brecht Palombo: Here's some of the people and stuff that you talked about here. Actually, I'm not traveling full-time right now. We did settle down, but we did have an opportunity. I read once that whenever you do a presentation, you should kick off with a personal slide, just to let people know that you're human. Here's mine. That's me, as you can already tell, over on the right. That's the Tumalo waterfall behind me. That's my little family on the left there, looking out at some whales off of the shore of the Lost Coast in California. That is the Airstream up there we spent about 15 or 16 months in. We just traveled the country back and forth. If you ever have an opportunity to travel like that, and this note business is one of the rare businesses where you can do that, then I highly recommend it. Enough of that one. 

Let's see here. Here we go. The name of this presentation is, "How to Go Bank Direct for Your Non-Performing Note Deals." It's the most profitable job in the business and we'll talk a little bit about why I say that and believe it. I'm going to ask you to check your settings if you haven't already and find your volume, and your screen size, and a place where you can ask questions. 

Then we're going to get into some numbers. $112,612,580,000 just in 1 to 4, multifamily, non-performing notes and REO just at banks. Doesn't include other lenders like credit unions. 4,349 banks; 1,753 credit unions. That's 6,102 institutions with late and non-performing residential notes. That's out there today as of this recording. There are about 12,192 lenders who today have more than $200 billion in non-performing notes and REO, if we look at the whole scope of it. I want to give you an idea of what the market really, really looks like. 

Now I want to talk a little bit about some things that are happening in the market. I'll call it a market dichotomy. Right now we've got rapidly-rising home prices. In fact, we're almost back nationwide, on a national average, we're almost back to pre-peak, before the global financial crisis. Prices are almost back there. 

It's not driven by real median income because that's been knocked back to 1995. We've got the lowest homeownership rate in history, since we've been recording. We still have a historically-high delinquent mortgage rate. Banks still have not ripped off the Band-Aid. If we look here, that is REO on the right, and everything else to the left of it is non-performing loans. The question, of course, is like, "What's going on out there? But moreover, how do we make sure that we're positioned well to benefit from this and to be opportunistic in this kind of a strange market that we're in right now?" 

I think I'd be remiss if I didn't bring up this chart, which is this is delinquencies on all loans and leases for what's called C&I, or commercial and industrial debt. That's any loan that's a business loan that's not real estate related. Those gray bars that you see are recessions. It doesn't take a rocket surgeon to see that the fact is that, in history, we've never had delinquencies soar like this without a recession. Never. Okay? These are just some data points that you can do what you want to with, take what you will.

I show you all this just to say the opportunity in distressed assets right now, it's huge, and it's about to get huger. I probably don't need to tell anybody this. This is maybe too rudimentary, but I want to just bring it up. This is what a real basic, we'll call it a capital stack, looks like in residential stuff. We've got your taxes and your HOAs down at the bottom. Then we've got senior debt above that, junior debt, and then equity. This moves from the least secure investment to the most secure, the least secure money to the most secure money in this way. This is where your typical investor is. This is where note investors are. 

That's why in view of what's happening out there in the market today, as strange as everything is with these indicators that should be showing as something completely different, one of the things that I think is important is safety. As a note investor, it's a far safer position than an equity investor today because if the market does turn, or when it does turn, you're going to be in a much better position. Probably this, I'm preaching to the choir, but we'll keep moving here. 

What you're going to learn today is the differences between working with private and institutional sellers. We'll talk about six big mistakes that everyone makes when they're first starting out and how you can avoid them. Then I'm going to walk you through a proven four-step process for sourcing bank direct distressed assets. I'm going to try to do all this in under an hour. 

Why bank direct? There's a few reasons. One is there's higher margins when you have no middlemen. That's just a fact. Every time paper passes through hands, it's costing you a little bit more and a little bit more. 

There's no broker chains. He who controls the seller, controls the deal. If you've been in this business for any length of time, then you have probably run into a broker chain at some point or another, which is somebody who thinks they're representing somebody, who thinks they're representing somebody, who thinks they have a deal. I know guys who get their own tapes shopped back to them. This sort of a thing, it's no way to run a business. The more direct you are to the source, the more control you have. 

One of the reasons why I like institutional sellers and banks is that you can do many, many deals with a very small number of clients. Of the stats that Ron mentioned earlier, a little more than two million in transactions, and over 300 deals, and all that, happened with fewer than 10 banks. 

This business isn't for everyone. What I want to do is give you an introduction today and I'm going to walk you through some of the things that you need to know and what you need to do. Then you can decide if it's something that you want to pursue a little bit further. 

Some free bonuses that I want to provide for attending is I've set up a special page where you can go download these things. We've got the Bank Direct Resource Guide, I've got an Annotated Note and REO Report that's going to really explain a little bit more about some of the things I'm going to show you today. Then we've got a Non-Performing Note and REO Data Guide. Which all these things together are enough for you to go start a DIY practice on sourcing notes, if you're not interested in investing in the software, which I will show you at the end. We have any questions so far, Ron? Am I doing all right? 

Ron Happe: You're doing great. 

Brecht Palombo: Great. Thanks a lot. Why would you listen to me? You've already got some background here, but I've been in real estate since 2001. I'm a licensed broker and auctioneer in a number of states around southern New England for a major national auction company. I've closed more than 300 transactions and more than $200 million for banks and servicers. I've interviewed dozens of experts, sold bank assets starting in 2006. I've owned DistressedPro.com since 2009. That's a real gavel. I don't know. It gives me some authority, I think, doesn't it? 

Here's some of the deals I've done. Top left is a hotel. I've done a lot of subdivisions, a lot of small office properties, lot of big condo projects and multifamilies. More gas stations than I care to count. That was just one portfolio of 18 there. 

All these deals I've done for banks and, in some cases, we sold the note. In some cases, we foreclosed on it and sold it at the foreclosure auction. In some cases, we foreclosed on it, booked it in as REO, and then sold it for the bank after it was REO. That is one of the reasons why I really like the institutional seller is you get these three bites at the apple. We're not forced into this one box. Whether it's the paper, or at the foreclosure, or after the foreclosure, there's a deal to be had.

Some of the experts that I've interviewed and the information that I've gleaned from them that's got into the software product and that's got into the training are John McCaffrey. He's the Senior Vice President of Auction.com. He's sold billions in notes. Worked only for the top 20 banks. It's Pat Blount. Flew to more than 2,000 banks, just going around selling their commercial paper. 36 years of experience. Billions sold. It's Mike Carey. It's well over 5,000 assets sold with bank clients from Portland, Maine, to Irvine, California. Ex-FDIC regulators, bankers. There's a lot of people whose information has gone into what I'm going to show you and what I'm going to teach you, in addition to my own personal practice. 

I also built BankProspector. We talked about that a little bit before. It's the most advanced software on the planet for professionals who are doing bank direct, non-performing note deals. That's why folks like Ron and others use it. 

If you do have questions about anything that we've gone over here today, I want to encourage you to go ahead and email me. It's Brecht@distressedpro.com and we'll do our best to get back to you within 24 to 48 hours when you do that. 

If you noticed, I'm keeping this bit.ly link down the bottom. At any time if you feel like you need the cheat sheets or the worksheet, and you want to follow along with that, or if at the end of this you want to get into that, it's bit.ly/notecon2016. From there, you can download all the resources that I'm going to walk through here today. 

Institutional versus private sellers. This is a private seller. If you've ever done a deal with a private seller, all of the decisions that they make, the way that they interact with you, the entire thing, it's very emotionally-driven. The value of the assets, they've invested some kind of time, or money, or energy into it. The other problem is that typically they've got about one deal. How many times are you going to get a discounted asset from a private seller? It's about once. About once is how many times you're going to do that. 

Whereas, an institutional seller, they're just cranking all the time. They've got a way that they do things. They figured it out. It's a business. They've got a process. They just keep going. They don't have a lot of emotion about the way things work. They come in in the morning, they leave at the end of the day, in between, they try and clear some files off their desk, and that's how institutional sellers work. It's a big, big difference. If you've worked in the past with private sellers, if you are suited for this kind of work, I think you'll find institutional sellers to be really a treat. No pun intended with those ice cream sandwiches there. 

Lenders are non-emotional, repeat sellers of distressed assets. You can't say that about anyone else. You can't say that about private sellers. They're fully emotional and they're rarely repeat, especially if it's a distressed asset. 

Lenders sell again and again in just their course of regular business. They have a process. They need to get rid of these things based on committee decisions, or the time of the year, or what's happening in their portfolio. They're selling assets as a regular course of their normal business. 

Let's talk about six big mistakes that everybody makes starting out. I did most of these. First one is going after the big boys. People just said they want to do this and they call Wells Fargo or J.P. Morgan. This is the wrong approach. The reason this is the wrong approach is because unless you're coming in with really some substantial capital, you can't make a dent in their portfolio. Doing a deal with you doesn't make sense because you're not moving the needle in any real way. 

Not only that, a lot of times things are going to be outsourced. Now, that doesn't mean that you're never going to be able to do a deal with them. I have done small balance, commercial deals with the big boys, but this is not how you want to start. Where you really want to start is with some of those other thousands of institutions that we talked about at the beginning that are your community, local, and regional lenders. 

Big problem number two I see is people going in blind. They decide that they're going to do this and they just pick up a phone or they just send out an email. They don't know what they're doing. They're not sure who they are talking to. They don't know what's happening inside a bank. They're just going about it without any clue what's happening inside. 

This is really a shame because all the business info that you need, everything that you need to know, is available. It's amateurish for you not to have it. If you are prospecting lenders directly, and you don't know exactly what's happening inside there, and you haven't started to figure out the org chart, and who works there, it's amateurish. There's no room for that in this business. You want to really make sure that you've educated yourself and that you have the right information available when you're going to pursue them. 

Just the wrong targets. A lot of folks, this ties in tightly with going in blind. If you haven't done some upfront qualification to make sure that you're going after the right folks, you're going to have a hard time. The reason is that it's not transactional like it might be private sellers. It's going to take a little more time. You're going to have to nurture a relationship. It's going to take a few calls before you're doing deals. If you're wasting time on the wrong targets, it will sink you and it will sap your motivation and your energy. You want to target real, motivated, able sellers who have the inventory that you're after. 

Number four is that you start too low in the organization. I see this a lot where people want to just get a number and they call in. Then they start asking, "Who's in charge of special assets?" Or, "Who's in charge of selling notes?" Well, that's no way to do it. What I advocate, we'll talk about this a little bit later, is to go in as high as you possible can in the organization, especially in your local and community banks, and then get bumped down to the people who are actually going to work with you with a mandate from above. You want to start as high up in the organization as possible. 

I love this quote. "If I had an hour to solve a problem, my life depended on it, I would use the first 55 minutes determining the proper questions to ask." What I find is a lot of times people will call in and they want to get right into talking about doing deals and how it's going to benefit them. They're looking to see if they can find something that they can wrestle out of them. 

This isn't the way that it works. The way that this really works is if you call in and you seek to first understand the process of the person, and of the organization, and how they handle distressed assets, that's what we want to do is really get in there and understand the questions. Seek first to understand and ask questions to uncover the lender's sales process.

Finally, failing to follow up. You simply can't win if you're going to be one and done. If you're the kind of person who is going to feel embarrassed, and going to be turned off, and isn't going to be able to proceed because somebody has told you no, this business isn't for you because the fact is that banks tend to sell, like I said, with a process. That usually has to do with some timing, internal timing. Your job is to understand that and then to be there when those sales are happening. If you're not following up, it just won't work. That won't happen. Maybe if you just do sheer volume, you're going to bump into a deal now and again, but the deal is to find the right people and to be there when they're ready to sell. How am I doing so far, Ron? 

Ron Happe: Excellent. 

Brecht Palombo: All right. Thanks. These are high-value, busy sellers. You should treat them as such. You should have a plan to follow up with them forever. 

The six big mistakes, just a recap. Going after the big boys, going in blind, targeting the wrong banks, starting too low in the organization, failing to ask the right questions to uncover the deals, and failing to follow up consistently and be there when the deals happen. 

Now what I want to do is I want to walk you through a proven, four-step process for sourcing institutionally-owned distressed assets. The truth is, this process is a process that I would use no matter what I was selling. Before I got into real estate in 2001, I sold software. Before that, I sold consulting and training. In every case, this is always a process that works. We're just going to hone in on how this applies here to banks, and credit unions, and other institutional sellers. I'll walk you through the process now. The fact is any time you're out there looking for a deal and you're making contact with new people, that's a sales function. 

Number one, you should start by identifying a list of potential high-value targets. These are folks who you think you should be going after. You're going to build this list of targets. Let's say maybe it's 100 or 200 banks. Maybe you're picking these regionally, the ones that you suspect would be sellers. The way we'll know this is we'll look at do we think they're going to have non-performing notes or REO? All these indicators are going to be available, and we're going to show you where to find them, and then how to use them in the next step here. 

This is one website, CDR.ffiec.gov. I've got the URL up at the top. You can write that down or you can go to that bit.ly/notecon2016. You can download what we have there. This is the freshest, most up-to-date data that there is. All the banks connect electronically and dump their data into this website. You can search through here and you can pull reports out of there. 

The other place that you can get it is the FDIC website. If you go there, scroll down, you click on analysts right from the homepage. You can go and you can get the reports that I'm going to show you. I'm not going to go into showing you how to use each one of these websites here. If you go to the bit.ly/notecon2016, you can see videos on how all this works, but I'm just going to walk you through the overview here so you understand. 

We go to the websites and we're going to get our list of banks. Maybe we're going regionally or maybe we're using some other criteria. But now that we have our list, we want to go through and just quickly qualify our list to determine are these folks that we should be talking with? Things we might want to know is do they have the kinds of assets that we're after? It doesn't matter if they're the biggest bank in Boston and you're looking for assets in Massachusetts. If you work with developers who are looking for construction deals and they have no bad construction debt, then it's not a good target. Let's find out. Do they even have what we're looking for? Are they in the area that we're looking for? Do they have pain or reason to sell? I'll tell you how we can know that. Are they able to sell? Do they have a history of selling? These are the things that we would want to know. 

That FFIEC website that I showed you, what you can do is you can download reports. I did a screenshot of what they look like. This is for one bank. It's hundreds of pages, but I know that seems daunting. I'm going to walk you through it in just a minute. But inside these pages, all the answers to these questions are inside these pages. We'll talk a little bit more about that. 

Here. Here are some of the questions you want to ask. Do they have the types of assets that we're looking for? Banks report the assets that they have that are 30 to 89 days late, that are 90-plus days late and still accruing, and that have gone into non-accrual. This is the pipeline of defaulted, and late, and non-performing debt. This goes through this pipeline. This is how they have to report it on their books, and to the FDIC, and the regulators. 

Non-accrual is the last stage. What that means is that it's no longer accruing interest. When your loan is at non-accrual and they have to be marked as non-accrual, this is when they really start to weigh heavy on your books. If you have too many of them, it's not good and you need to either get more capital in, or you need to flesh some of this stuff out. Do they have the types of assets we're looking for? 

On one of those sheets that I showed you, here's what it looks like. We can just look in here. If you look on the left tab, it says, "Here are secured by," and this is Bank of America, "Here's secured by first liens, residential." These are in thousands. They've got $3,500,000,000 in 30-day late notes. I'm just using Bank of America as an example. I'm not suggesting that you go pursue Bank of America to start. Here we see secured by first liens here. Then over here, here's our $3.5 billion. Here's our $6 billion of 90 days late and still accruing. Then here's our $3 billion of non-accrual. If this was a local or regional bank, we could look at their numbers here and we'd know, "Is this a good prospect for me?" Real easy once you know what you're looking for.

Are they healthy enough to sell? The way that we know that is through a thing called capital adequacy ratios. What that is is we're looking for what's called a tier 1 capital adequacy ratio at 8% or above. What that means is that it's how much cash do they have set aside? What do they have for assets versus what they have at risk on the street? That's the real rough way to say what this ratio is. How much do I have in versus how much do I have out on the street right now? We want to see that at 8% or above. 

What happens is when banks start to fall below this, you end up in a situation where they start having a lot of scrutiny on them from the regulators. Sorry, just give me a moment. Excuse me. You'd say, "Are they healthy enough to sell? What does that really mean?" Well, can they take a discount on the assets? Because what happens is if they get too low, then they get closed. 

You might be looking at this saying, "Well, come on. The financial crisis was eight years ago, or whatever it was. They're healthy now." Well, here's the FDIC failed bank list. If you look down on the right, there's an awful lot of 2016 closures. These are banks that failed. These aren't banks where they just decided to close the doors or whatever. These were closed by the FDIC on a Friday and reopened with the failed assets going to another lender over the weekend. This is still happening today. In fact, we've got a constant reduction of the smaller banks. What happens is they can't sell to you at a discount. Do I have time for a quick story, Ron, here?

Ron Happe: Yes, you do. 

Brecht Palombo: All right. There's this one bank I'd been pursuing for months back in the northeast. The reason I was was I worked with a lot of investors and developers and we did a lot of construction work. We'd buy warehouses, or condos, or anything really and flip them. We'd turn things into condos, turn them into subdivisions, take over failed projects, and all this, and this bank had a lot. I worked for a while to get in there. This is before I knew what I know now. 

Finally, I get a referral in there. I sat down with the senior vice president of special assets. We had lunch. I said, "I see your signs all over the place on these construction projects. I've got a huge database of construction folks and we're doing deals all the time." He said, "You know, that sounds good except here's the thing, Brecht. I don't know if we're going to be open at the end of the week because I've got a regulator sitting on either side of me and the fact is that we're in trouble." 

Now I would have known this had I known at that time what a capital adequacy ratio was because theirs was way down about 1% or 2%. It's a glaring red flag that says that this is not a place where you want to spend your time. Because those months I had, and the lunch money I spent with him, is wasted because he couldn't do a deal with me if his life depended on it. He ended up on this list. 

What types of assets are they preparing or prepared to sell. The way we know that is whether or not they're taking charge-offs. Now, you might have heard charge-offs in relation to credit card debt. Somebody doesn't pay and then it gets charged off and it's really bad. 

Well, in property, in real estate, it doesn't work the same way. The way they take charge-offs there is they'll take little bits at a time. I'll give you another quick story here because I think we're doing all right on time. 

I got a call from a bank in Texas. They had a small portfolio of commercial assets, including they had small oil assets. They had some construction projects. This is right up my alley. That was around about three states out there. I sent my guys out to have a look. They come back. We want to give a 30-day value. What do we think we could get in all-cash sale in 30 days for these assets? 

We came back with a number. As I recall, it was just a little over $1 million maybe, $1.1 million, something like this. He says, "Well, I hear you. I understand. You're making a good case for where the value is." That's the special assets manager. "But here's the thing. You've got to call me" ... Now, this is in the beginning of Q1 that I'm talking to him. He said, "You've got to call me in Q3 because I've got to sell my books at 2.1." If he's got all this on his books at $2.1 million, and I'm telling him he can get $1.1 million, and he's a small, regional, and community bank in Texas, then that's a million-dollar hit that he's going to take there in that time. That's a lot for a small bank to take. 

What he'd do instead is this quarter, he's going to charge off a couple hundred thousand. Next quarter, he'll charge off a couple hundred thousand more. Now, when we're talking Q3, Q4, we've got it on the books that maybe it's $1.3 million or $1.4 million instead of 2.1. Now we sell it for $1.1 million. That's not such a hard knock to take. That's kind of how charge-offs work is they use it to get the value of the assets in line, the paper in line, with the real value out there. 

What we might want to know is on which types of assets, and how aggressively, are they taking these things? Because if we see that they're taking a lot of charge-offs in areas, maybe that's a portfolio where they're ready to go. 

Which portfolios are they having the most trouble in? We know this from non-performing loans to loans ratio, which is everything 90-plus and non-accrual, divided by the total portfolio. If we see 6% or higher, then we know that this is a place where they're really having some struggles. They probably have to do something. 

Do they have non-performing assets held for sale? Now, I've started to debate whether or not I want to bring this one up because what I find is sometimes when I do, people then only go looking for banks that have non-performing assets, non-accrual held for sale. That's a mistake because just because they don't have it listed as held for sale, doesn't mean they haven't or won't sell it. But banks report 30 to 89-day late, 90-plus, and non-accrual assets that are being held specifically in a bucket to be sold. 

Do they have a history of having non-accrual assets sold? Now, we talked about there's 30 to 89 days late, 90-plus days late and still accruing, and then non-accrual assets. Whenever we get to the end of the road there, the non-accrual assets, whenever they sell those, they mark that on their books. Banks report these. They report it every quarter whether or not they did it and how much. Wouldn't you think that banks that have a process of regularly selling non-accrual assets would be a better non-performing note seller than somebody who's a bank where you look and they don't have any history of any non-accrual assets sold? It's the real sell indicator and we like that. 

Do they see their portfolios improving or deteriorating? The way that we know this is through what's called loan loss provisions. Are they adding or are they subtracting from their rainy-day bucket? What their rainy-day bucket is is allowance for loan and lease losses. Let me just explain how this works.

When a bank looks at its portfolio ... And I'm going to give this in total layman's terms because we don't need to be financial analysts, we just want to have the lay of the land. Banks need to keep a reserve. It's called the allowance or the ALLL, the allowance for loan and lease losses. You need to keep that aside in a special bucket of cash. It's like insurance against losses within their portfolio. 

Each quarter, they have their loan loss provisions. That's the amount that, if you imagine the loan loss provisions is the ladle and the allowance for loan and lease losses is the bucket, sometimes the loan loss provisions are putting more into the bucket. Sometimes it's taken out of the bucket. If they're taking out of the rainy-day bucket, then that means that they're feeling more optimistic about their portfolio. If they keep adding to the rainy-day bucket, that means that it's not looking that great. 

The thing that we can glean from the allowance for loan and lease losses is this. I learned this from John McCaffrey. This really plays into the smaller banks more than the bigger banks because they tend to have a lot. Also, your deal size wouldn't impact it. But on the smaller banks, for every discount, every dollar discount that you take on their deals, if they've got a $1-million portfolio and you want to pay them $300,000, but it's on their books for a $1 million, they need that $700,000 from somewhere. It doesn't just go away. Where that comes from is from the allowance for loan and lease losses. If you have certain minimum thresholds for your deal size, then what you want to know is you want to know that they have enough to even be able to cover when you dip in there. I hope that makes sense. 

I know I'm throwing a lot at you, but here's the thing is when you invest time in qualifying your prospects up front, you're going to save massive time later. If we're looking at this as a long-term business and a long-term relationship where we're doing deals with folks every quarter, or every other quarter, over and over again, and we know, okay, if that's the case, then I don't mind investing two or three months getting in there and finding out who I should be talking to because I know I'm going to do deals forever, well, let's make sure we invest this two or three months with the right folks. Let's not invest those with people who we're going to come to find out, like I did with Butler Bank at the end of the road, that they can't do a deal with me. Let's invest that time where it counts. 

We're up to step three. We'll talk about identifying decision-makers. What I want you to do after we've gone through and we've built our list ... And then we've scrubbed our list, right? Maybe you start with a list of 100 or 200, then maybe you ask some of these questions that we just walked through. You ask those of the data. You scrub it down. Maybe now you're down to 50, or 75, or 100 banks. Out of these, it would be good if we ended up with five or 10. You'd be pretty happy with that from a business perspective. We look at that and we say, "Well, let's build a list of decision-makers at these target institutions before we begin." We can do that. 

There's three resources that I like out there in addition to the bank's own website, which are LinkedIn, Data.com, and ZoomInfo.com. I'm not going to walk you through those today, but do check these out if you're going to do this on your own. We also have in-house contacts through BankProspector where we go out, and we gather them all, and add them. 

What I want you to do is go and get your list of contacts. Get the name, get the title, get the phone number, get the email, and then decide on your prospecting schedule. Find as many contacts as you can first. Building your list of decision-makers before your prospecting, it allows you to focus during your prospecting time. 

Because what I find happens for most people is they decide, "All right, I'm going to do this." They sit down. They've got a sloppy list of banks. Say, "All right, here's First National Bank of Ohio. I'm going to call them. Oh, who should I call? Well, let's see." Then they go to the website. They go, "Hmm." They crawl around the website for a little while. Then they go, "Well, maybe there's someone in LinkedIn." Then they go to the LinkedIn. They go, "Hmm." They look in another place. Now, the next thing you know, you've spent 45 minutes looking for the contact for the person at the First National Bank of Ohio and you haven't made a single call. 

Where instead, what you could do, is you could outsource or you could use our service, but you could build your contact list upfront so that when you have that 45 minutes or an hour, you're getting 20 calls done. Then that means that you're talking to one, or two, or three people. Now you're advancing your agenda and you're moving closer to a deal.

Whereas if you sit down and you're thinking about prospecting, but you fritter your time away instead doing research, then you're likely to fail and to get discouraged. We don't want to do that. What we want to do is set up habits up front and set up a process that's going to allow us to succeed in this. Build your list before you start prospecting so you can focus on making contact during that time that you have allotted for reaching out, looking for new business. 

Prospecting strategy number four. This is the fourth step is having your prospecting strategy aim high in the organization. Calling in on just the front desk without a name is not a way to do it and then asking who's in charge of whatever it is you're looking for. This is not a way to do it. It's better to get bumped down than to try to claw your way up. 

I would rather call the president, or the senior vice president, or the director of something at the bank, maybe it's of special assets, and then speak with them, understanding that they're not going to be the person who's going to work with me. But they're going to say, "Now, Brecht, I'm not actually the person who's going to handle this, but who you need to talk to is Suzy." 

Then when I call Suzy, I can say, "Hi, Suzy, I was just talking to Kristen. Kristen says that you're the person who I should be speaking with because you guys have X, Y, and Z in your portfolio and we help banks like yours do A, B, and C." Well, now I've got a very different conversation going on than if I had just called in from the bottom and clawed my way up. Because as I'm talking to Suzy, Suzy now has a directive from Kristen. Kristen has told Suzy, through me, that Suzy needs to talk to me about the problems in her portfolio. 

Whereas if I call in and I say, "Hi, Suzy, I was just talking to the front desk; Are you the person who's in charge of selling notes," this is a fail, right? Because what they say now is no, and they hang up on you, and they move on. We don't want to do that. Go as high as you can and get bumped down. 

Actually, we have a thing called the Academy. That's where if you haven't done this kind of work before, we'll walk you through all this thing. In there, one of the things that we focus on is we do a prospecting script where we lay out exactly what to say based on your business and what you're trying to achieve in the assets that you're going after. We do a one-on-one, and go back and forth, and we get your script right, and help teach the person to deliver it to, which in every case is as high up the chain as you can get. 

Go beyond the phone. The phone is effective. When you actually get somebody's voice on there and they're talking with you, it's very effective. But in today's day and age, you make a lot of calls for not a lot of conversations. You want to learn how to use a cold email strategy. You want to use a template. The reason I say you want to use a template is the same reason that we talked about gathering our contacts upfront is because if we sit down and we invest a little bit of time getting the right template together, then all we have to do is swap out the name, and the title, and a personal message, and off it goes. We don't sit down, and we go to write an email and, "Oh geeze, I'm not sure what I should say here and did it work?" 

Well, this is just a lot of wasted time, but the other thing is that we don't know if something is working if we make it up every single time. If you're using a strategy in a template, then we know, "Is this working? I've sent this out 20 times. I've got two responses. This isn't working." Versus, "I've sent this out 20 times, I've got 10 responses, this is pretty great. Maybe I can make some small tweaks and get 12 out of 20." We want to work smart. The way we do that is by investing a little bit of time up front in these things that we do so that we're not wasting a lot of time later. 

Do implement a LinkedIn strategy, a personal outreach. I see a lot of people who are just out there blasting away articles. Or they say, "I have a deal, I have a deal," all the time. I don't think there is anything necessarily wrong with that, but you're not going to get sellers this way. The way that you're going to get sellers is you're going to do personal outreach. One of the folks who we have a course module inside of the Academy is Josh Turner, who's from LinkedSelling or LinkedUniversity, who's known as the expert. What he did with us was a session on how to do this specifically for banks and what kind of a strategy to use there. 

You need a system that's going to track who you are talking to and what the next step is. If you're going to make seven calls for each contact, roughly, this is just an average, then how are you going to know who you talked to last time and what you're going to talk about if you don't keep this in the system somewhere? You need something. Either a CRM or a spreadsheet, if that's more simple for you, but something that works for you and has everything in one place. 

I know one guy who he keeps a notebook and just does everything in a notebook. That's the way that he works best. In BankProspector, we actually have a built-in CRM with all your banks and your contacts in there. But you need just something that you know, "When did I call him last? When do I need to call him again? What am I going to talk about when I do it?"

We talked about this before. You need to follow up continually. Seven is the average number of contacts required to get a deal. 44% of people are going to quit after one single call, so don't be that person because you just simply can't succeed that way. That's not the way this business works. 

Institutional sellers, they require more effort than private sellers on an individual basis, but they're vastly more rewarding. If it feels like this so far, if you feel like you've been drinking from a fire hose, I did just blast you with a lot of stuff and I totally get that. But let me just walk through a few more things here and then, Ron, maybe you and I will chat a little bit and we'll wrap it up. 

This is why DistressedPro.com and BankProspector exist is I wanted to make things really ... I thought, "If I'm having this problem out there where I'm spending too much time on research and prospecting, then other people are having this, too." This came about in my head maybe in 2008 or so, which birthed DistressedPro in 2009, but that's why BankProspector exists. 

BankProspector is the name of the software at DistressedPro.com and it is a sales intelligence software. What that means is that we have really deep insight, and data, and contacts, and searchability, and all that, for all of the banks and credit unions. It's sales intelligence software for professionals in non-performing notes and REO. 

This is just a quick screenshot. I didn't want to do a full demo, but I wanted to show you how within about 60 seconds, we can come in here, find banks with non-performing residential first position loans, and then this is a MUFG Union Bank. We can see what's happening inside of their REO. Here are our note sell indicators. They're down below here. We can see that they do sell notes regularly, so let's find a contact over there. In this case, I'm out there looking for commercial REO. Now here are our REO asset managers and property preservation folks that we want to get that contact. Now we've got their phone number and their email and we're off to the races. It's that simple. 

That's what we tried to do to take away all the spreadsheets, and all the going to different websites, and doing all that, and to reduce that into what really can be months, and definitely hours and hours of time per bank to just a few clicks, and you're off and running. That's the idea with that. 

Our bank data and contacts are updated daily before even the FDIC gets the data. We showed you the FFIEC website earlier in this presentation. I told you all the banks connect to that server. That's where they put all their information. They do it quarterly and then all do updates and amendments throughout the quarter. The way our system works is we are also plugged into that exact same server. We pull that information out every single night so that whenever there's an update, we're pulling that in. Then I've got a team of full-time folks who all they are doing is out there finding contacts, phone numbers, emails, and verifying those, and adding them to our database. We've got thousands and thousands of them and more every single day. 

Free bonuses for attending here. I want to get you the Bank Direct Resource Guide, the Annotated Note and REO Report, and the Non-Performing Note and REO Data Guide. All these things, this along with a six-video training package, all free at bit.ly/notecon2016. You can go there and you can download all this stuff from there. You can also get a free BankProspector demo if you want to see more about the software and how it works. 

There you have it. This is my contact information if you'd like to hear more. How'd we do, Ron?

Ron Happe: We did outstanding. We did outstanding. You did even better. 

Brecht Palombo: We kept it just under an hour, too. 

Ron Happe: Yeah, that's wonderful. Way to go. I think that you provided a lot of information that will make life a lot simpler for a lot of note investors that may have not been aware of all the information that you have available for them, so that they're not spinning their wheels and wasting their time talking to the wrong people. Because I know we did a lot of that prior to getting DistressedPro and actually finding out who had things for sale and who could, and were willing, to sell. 

Brecht, thank you very, very much. I appreciate you being on. Enjoy the Bend area. What a wonderful place to live. I visited it several times and love it up there. 

If anybody needs any information, and Brecht has given you his email address, please don't hesitate to get in contact with him. Click on that and explore his website. Take a look at the software. It really, really is very helpful and very reasonably-priced. Brecht, thank you very much. I hope to see you soon.

Brecht Palombo: Thanks, Ron. Thanks for having me on. 

Ron Happe: All right. 

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