Dalton (Speaker 1)
Welcome to The Real Estate of things podcast. I’m your host Dalton Elliott. I’m joined today by john hornick. Our chief focus is going to be the eviction moratorium where the origin, the many different iterations of it, state, federal, where we are today and probably most importantly, what tomorrow looks like. JOHN, you know, I love chatting it up with you. Thank you so much for joining.
Jon (Speaker 2)
My pleasure. Dalton. I love being here with you and having the open exchange like we’ve done so often.
For sure for sure. We could really spend probably an hour going through your CV, your accomplishments, but I’m just going to hit a few to give you an introduction to everybody and let me know what I miss. You’re the chairman of the private lender group at La Rocca hornak. Rosen and Greenberg, really a preeminent law firm in the private lending space. You’re also the general counsel for the National private lenders Association. And you’re an elected official, right? You’re the mayor of Marlboro, New Jersey, one of the biggest townships in the state. It does not seem like you are burdened by an abundance of free time, my friend.
That’s why my golf game so bad Dalton, we’re just talking about I don’t have much free time, but I enjoyed the visit. I think I think it when your hands are moving and your feet are moving, you stay out of trouble. So it’s important to be busy all the time.
I love it. The old idle mind, devil’s workshop idea. Fan. So let’s get right to it. We were talking about the eviction moratorium, just before we pressed record here, and what a roller coaster of a ride all these different court rulings. And I told you incredibly, honestly, that I have I feel like I know 10% of what’s going on with the eviction moratorium, you see all different kinds of headlines. Not too long ago, one where the Supreme Court vacated the CDCs eviction moratorium. So I guess talk at a high level, what is an eviction moratorium to begin with, and then where did all this sprout up, and then we’ll get into the today and tomorrow piece of it.
So eviction, moratoriums are not new. They’ve been put into place to stop the displacing of homeowners or renters, during times of national trouble. We’ve seen them in our past, but this time, it was triggered because of the covid 19 pandemic crisis. So in order to understand where the moratoriums are coming from, and which still exists, we have to do a little bit of lesson on the different levels of government. So you have the federal government, which has its authority under the Constitution, and they have to have specific action, a specific authority to move things forward. So you have executive orders, which are allowed from the administrative branch, the President and everybody under him or her. And then you have Congress, which has to act to make it a law. We saw in the beginning of this pandemic, that the executive authority through this the CDC, the Center for Disease Control, issued an order saying moratoriums are against the health and safety of our country, because throwing people out during this pandemic will cause problems. And that was challenged in the court system as being overbroad and not within the authority of the executive branch. And that rule was actually shot down on the federal level. So then the CDC came back and said, we’re going to narrow the rule, we’re only going to say there’s a foreclosure moratorium and those states that have a very high level of COVID-19 present, not the states that have beaten it. And the Supreme Court just last week, came in and said, Ah, it’s not going to fly. And basically their ruling said Congress, which as you know, is made up of the lower house controlled by the Democrats. And the upper house, which is 5050, tied for the most part right now, but still controlled by the Democrat, had ample time to pass legislation for a foreclosure moratorium to make it the law of the land. And the CDC and the binding administration can achieve through executive order, what the Congress refused to act on. So the federal moratorium is gone. But that’s just half the story. The other half comes from the States. The states have the ability under the Constitution to make rules for themselves. So there’s seven or eight states right now I have them written down. I’ll tell you who they are. It’s California, Illinois. Minnesota, New Jersey, New Mexico, New York, and Washington all have moratoriums in place at different levels expiring at different times, they keep getting expanded by action of the state government. Now each state has different rules. If you look at New York, for example, New York says you cannot hold a proceeding that results in an eviction of a tenant. So that has been interpreted to mean that you can’t bring a foreclosure action, because a foreclosure may be a proceeding that leads to the eviction of a tenant. In New Jersey, you have 21 counties. And the sheriff’s in each of the counties are the guys in charge of the foreclosures. And depending on the county, it’s up to the sheriff when they want to start holding foreclosure proceedings. And and and if they’re not doing it, there’s nothing you can do about it. So it’s really it’s really getting granular now, but I will say it is going to come to an end, it’s going to with the with the Supreme Court decision and no action by the Congress, it’s going to be more pressure and more pressure on these, these states to limit the foreclosure restrictions. And we will be able to move forward with foreclosures, I believe, if not by the end of this year, by early next year in the remaining states.
So what what does that look like right from the Great Recession kind of post? Oh, 708, you had a massive backlog of foreclosures and as soon as they opened up, that is how I think a lot of companies in this space kind of got their feet underneath them was financing. tranches of SFR is being bought up at just bargain basement prices, because they were foreclosures and credit was super tight. What do you think whatever all of these eviction moratoria at the state level expire or get struck down? What is that influx of Oreo? foreclosures look like?
Well, I think I think you’re right, in the sense that there’s comparison to other periods of time, the difference between us and after the 2007 financial crisis, and then going back to 2001, in 1992, and then the stock market crash of 1987. The differences the real estate, the whole real estate market is still very high right now in value. There’s a large demand. So these foreclosures while the borrowers and the tenants can pay, the value is still there. So the opportunity to buy stuff, and reposition it or sell it is real. So it’s about removing tenants at this point. So I think it’s going to bring a certain amount of product to the market, which will give lenders opportunities to refinance, to provide bridge financing to provide construction financing, and then eventually going to a longer term product once stabilized. But I do think there’s going to be a influx to perform foreclosures. We have private lender law two years ago launched our loss mitigation and forbearance foreclosure group. And we’re gearing up for it. We’re going to be ready for as soon as they lifted off in New York, New Jersey, Pennsylvania, to move forward quickly. And we actually do this nationwide, I do believe there’s going to be a lot of activity there. I don’t believe there’s going to be large tapes of NPL sold from these banks. Because I believe that the values have held an increase increase on these homes. I believe that the borrower’s personal situations have not allowed them to pay. And that is leading up to the foreclosure not an impairment of value.
Right. So that’s, that’s the key difference, right? Like real estate is not the underlying issue here. It’s a global pandemic that triggered so the the asset is still good. Just people’s personal situations have many been perilous, such that there’s going to be that foreclosure push
and look a few a few and I’m not a skeptic or us, you know, are smart. And they know the system. They know they don’t have to pay rent. Because there’s that you can’t get an eviction. I have been called by several clients who go, I know this guy’s a lawyer. He’s in my building, he’s renting and he’s not paying rent because he told me there’s nothing you can do about it. And I go, there’s nothing you can do about it. That’s the answer. So it’s you know, there are people who are smart, they’re people who were in need. There’s all types. So you know, it’s important for the lending business for us to move on from this unnatural event. sure that the life of the loan is is lender makes a loan to a borrower borrower makes this payment. borrower either pays them back, or the lender forecloses and takes the property right. This is the life of the loan, when you have this disrupt the natural life of alone, it has to be supplemented somehow. And in this case, it’s not, there is nobody making payments to landlords or lenders, on behalf of borrowers, or being allowed to stay in space, by operational law. And that’s not natural. That’s not the way it’s supposed to work. So the faster we get back to the way the system is supposed to work, the natural life cycle of alone, the better off we’re all going to be in terms of stabilization and knowing what real values are out there as we continue to move forward.
I love that characterization. Just something unnatural in what is very hammered out. Relatively boring. could scratch it out on a whiteboard easily process, right that life of alone. One question I wanted to follow up with you mentioned not the first time we’ve seen eviction moratorium, what are some other times historically, we’ve seen eviction moratorium pop up?
Well, you saw it after 2007, the financial crisis, which was, you know, in my way worse than this, maybe maybe because of the lessons that we all learned maybe because the Fed stepped up quickly. And the federal government, you know, gave fiscal stimulus quickly and did not wait. And you didn’t see collapses of companies like you saw on 2007. You remember all the companies that went out remember a company called Bear Stearns, a company called Lehman Brothers. You know, you remember, the big insurance companies, GM was bustling, it was it was insane. It was the end of the world. all intensive purposes, this pandemic should have been the end of the world, which then everything was shut down. But it wasn’t it wasn’t because the government provided liquidity quickly. They did not. And there were moratoriums back in 2007 2008 2009, where we could not move forward with foreclosures. And when that was the case, it again disrupted the natural life of the loan, and it took a long time to work its way out. That’s where the phrase extend, there was also another problem in 2007, the values, everything was impaired, different than now, which is what was my point in the beginning in 2007, that was a phrase we did as lawyers, we’re going to extend and pretend that was the term we use, we’re going to extend the loan and pretend things are going to be okay. The values are going to come back and they did come back it took six years, but it did come back eventually. So you got you know that but you know, you’ve talked to the borrowers on the other side and go Okay, can you make a payment? No. All right. Did you want to give over the property? No. All right, well, well, let’s talk about it next month, and we’ll you know, we’ll extend the modification and we’ll pretend next month, it’s gonna be different. It wasn’t different. But like everything, it comes back, it rebounds. So there’s been moratoriums in our history. Most of them, this is different, though, again, because the value is still there on the property. The only this is a health and safety issues, supposedly, and I think it’s going to go away sooner rather than later. Especially with this, you know, this delta variant, which, on my government side, I believe we’re going to be through this a lot more quickly than we’re anticipating. And, you know, I’m saying November, it’s going to be through this country moves with the quick moving variant, it doesn’t linger. It is very dangerous. And you know, I think everybody should get their vaccine. If they haven’t done it. It’s just good being precautious. It’s not foolproof, but we will we will get to the other side of this by the beginning of next year, and then deal with what’s there.
Yeah, that sounds right. So you mentioned the handful of states that have their own statewide eviction moratorium in place. And when are those going to start tapering off? Is it is it a process and most of them where you think it’s going to be extended until it gets struck down? Or they’re just going to let them expire? What’s that look like? You’re not going
to be struck down because these are these are all blue states. And they will be struck down when, when the powers that be feel the political pressure that they’ve done enough, and that their electorial Toria won’t punish them for lifting this up. That’s it. And it’s starting to happen. You hear the buzz from the state legislature is going Why are we doing this? In the beginning it was Governor’s issued Executive orders and everybody got in line and nobody questioned it. And now you’re starting to hear People in the assemblies the lower house going, why are we doing this? How long are you going to keep this for? Let’s pull back the governor’s powers. It happened in New Jersey in New York. they’ve they’ve restricted the governor’s ability to extend these things without legislative action. And to me, those are the signs. So it’s going to be extended a few more times, but not in the end is near. And that’s I think that’s a good thing for the real estate, real estate in the lending world.
Do you have a kind of finger on the pulse or ballpark guests on kind of the first and last the fall? statewise. Which one’s going to
California will be last? Yeah,
that sounds like a fair guess. Yeah.
All right. I’m gonna bet I’m gonna go all in on that. You know, New York and New Jersey, I think New Jersey will go more quickly than New York. Illinois will fall with New York. And then, you know, watching Minnesota, Minnesota, Minnesota will, will be second or third to last New Mexico and Washington will be somewhere in between. Okay, so those are my predictions. So, again, I’m writing my Vegas laws.
We have we have our office fantasy football draft Thursday, so I’m going to bring you in.
Exactly masticate that’s fine. You know, you should have a blog doing you should do one of these podcasts for fantasy football. Oh,
we are looking at expanding it out into every single arena that I can I can get my face in front of a camera, john, do you know
it sells itself.
Now I’m better off for everybody listening and not watching this. This I banged my head on the door this morning. was taking the trash out and open the back door. Push it up. And with my foot I forgot I had a pair of sneakers behind the door. So it just like bounced and then came back and corner on the head. So I don’t think you could see it here. But there’s a there’s a little bump.
You look camera ready to me. So um, you must have good makeup people there in the glam glam squad that helps you out before you get on me. I just got to come on here. So,
so good. Like, it’s funny, like a true politician. So so we walked through the states, the Supreme Court ruling. Right. So what does that mean? You know, presumably, Louie backup 100 years ago was our last major pandemic that shut down everything, right? Yep. And the Spanish flu. I think best guess is that it’s not going to be 100 years until the next pandemic pops up, right? Just how globally, we are so integrated. 100 years ago, you couldn’t jump on a plane. I’m in South Carolina, and seven hours from now be in France. So we’re so interconnected. That just provides a much easier breeding ground for things like this. So thinking under the assumption that a something like this is probably going to happen again and pop up, we’re certainly going to be better prepared globally, having kind of knock the dust off of the prep. But given the fact that the Supreme Court knocked down the eviction moratorium, what does that look like? In call it pandemic? 2.0? What tools are in the belt? Is it just that the Supreme Court? I guess kind of got it on a technicality where Hey, it’s way too broad was
it this is actually a very interesting legal theory that you’re talking about. Now. There is a legal theory that was brought up around the Nixon administration, it was called the unitary executive theory. Okay, and that what this meant was that anything the president or anything under the executive branch does is law is legal and therefore cannot be challenged. And that’s where the whole theory on executive order came from the ability for the president and his administration. You know, the CDC is part of the administration could issue rules, which apply across the country and everybody had a fall. Now, the the Supreme Court has since that time, presidents have been issuing a ton of executive orders. Okay, Obama did Clinton did it. Bush Jr. Did it? Okay, they all did it, Trump did it. The Supreme Court has now taken a view that you don’t have the authority to establish permanent laws in this country. The only way to do that is through action by the Congress. It has to be brought up in the house. It has to be voted on in the Senate, and then the President has to sign it. And let at last two thirds of the Congress override a presidential veto if he refuses to sign it. So this is in a, in a in actually a short line of decisions coming out of the Supreme Court, which is limiting the ability of the administration under the unitary executive theory to to issue laws and rules and themselves without congressional action. So it’s actually limiting the power of the presidency, which is very interesting and changes the dynamic a lot about how politics are done. So what happens for pandemic? To answer your question 2.0 3.0. First, let me say we’re not done with pandemic, the one we’re in now, right? For sure, this is going to be revisiting us for years, every fall, it’s going to be like a flu, we’re going to be getting boosters for those who take it, and hopefully, life will go on, but I don’t think life is going to return to normal. Anytime in the near future. I mean, we’re going to be talking about this, you remember this thought, I’m going to say this, you’re gonna see newscasters, this is the 10th anniversary of COVID-19, it’s gonna be 2029. And there’s going to be, you know, variant, you know, whatever. And we’re all going to be like worried about it. But as long as the variant doesn’t turn deadly, like Ebola, we’re going to get by, we’re going to figure out a way to live, we’ve shown that and we have that resilience, in order for the federal government, to now allow more worldwide or state moratoriums across the state, they’re going to have to enact legislation that gives the authority to the president or one of his administration’s, or one of his agencies, that’s going to have to be an action by the Congress. Without it, the Supreme Court has weighed in and said You do not have authority to do this. So that’s the answer that on the state level is going to keep happening. And it’s going to be the debate between the blue and the red states, we could go through it. Florida has no restriction, Texas has no restriction, Arizona has no restriction. And it’s going to depend on where the state legislature is in the governor’s go. And you’re gonna see that more and more, which means those states are going to become more business friendly. Because they’re going to have more rich lending in those states has less risk. If there is a remedy if your client doesn’t, if your borrower doesn’t pay you back, or your tenant doesn’t pay rent, it’s more attractive to investors, it’s deemed less risk, very difficult to do business in New York and New Jersey, California today. Because if your client doesn’t pay you back, you can’t take action to get it back. So that’s, that’s that’s the issue. And that’s what you’re gonna say, but this will be temporary until the next one. And we’ll see where it goes.
Yeah, interesting. And it makes complete sense. It kind of falls in place to where, without diving into the politicization of it. It’s one more thing that is politicized. It’s gonna be pindell. Reading,
everything comes back to politics to open everything. Yeah. I mean, it’s it’s just it all does, you can all figure trace it back to where it’s coming from, you just got to, you got to be smart, and then go where you could do business.
Now. Anything else Top of Mind looking kind of through the lens of the eviction moratorium reading the tea leaves. I do want to make sure we chat a little bit about kind of last week, Jerome pals remarks, we can jump over to that, if that works. Well. I’ll just
mention this. When structuring that we do a lot of closings. We do more closings in the private lending space in any firm in the country, and are proud of that. But what we try to do is operate on best practices. Anybody who feels that it’s just a word processing thing to close alone has no idea of the risks we’re talking about. So what we’re recommending a closings now take a pledge of the interest in the borrower, take it with by obtaining the certificate of the interest by perfecting by grabbing the certificate of interest in the borrower entity that will help you with a foreclosure on the borrower. If they’re not paying. If they don’t pay you back. Now, you could still do a UCC foreclosure today, I’m not aware of any case law that says you can take over the borrower, right? You can’t even evict a tenant, which is different than taking over a borrower entity. So there are things you could do and at the end of the day leverage is what lenders need in order to get the result which is to get paid back with their interest rate. Nobody wants to property damage, okay? We want we’re all lenders we represent lenders, we want want to get paid back for the money we put out. So that’s, that’s about leverage. How do you get leverage every closing take a pledge of the membership interest, if you could get it, take it with a certificate if you can’t file a UCC one, and take a general and tangible take an interest on that. And those type of things are really important. follow in order to protect you going forward.
sage advice, sage advice. So I listened to Chairman pals remarks last week, relatively brief pointed, but a lot to unpack there. Where do you want to start?
Well, I thought it was very telling. If you notice the old markets hit all time high during his remarks. Do you know why? Why? All right. I’ll tell you why. Because he separated tapering from interest rate adjustment. Yeah, everybody was nervous that when he was talking about it, so let’s, let’s talk about what tapering is. The tapering is pulling out of the market by the Fed, since the pandemic began, the Fed in an unprecedented move has been buying 120 billion in corporate debt a month. So corporations, big corporations, how they finance their capital needs is they float bonds. Normally the public buys it, and they pay an interest rate and they use the money to expand inventory, everything to run their business. Well, the Fed, rightfully so recognize the difficulties we were going into and started buying those corporate bonds, up to 120 billion a month, there was no liquidity crisis, like there was in 2007. If we took anything from 2007, we should take cash. liquidity is like air to humans. Okay, if you’re a corporation, and you could have a ton of assets, assets are like food, Okay, that’s good to have, you could live for three weeks without food, not a big deal longer, you could go longer than that three months, something like that. Yeah, you could live three minutes without air. That’s what you need. You need liquidity. You need cash. That’s what corporations eat. Look, look at any one of the companies we work for the day they can’t pay you is the day you no longer have a company because it’s the day you’re not showing up to work. And I’m not showing up to work. That’s called cash liquidity. So the Fed stepped in and took care of that. They said we’re gonna buy one to 120 billion a month. Okay, that’s one thing. The second thing they said is we’re going to keep interest rates super low. Okay, we’re going to make so much liquidity out here that the central bank will put so much cash into every banks pocket, anybody who wants a loan to get it, and it’s going to be no interest rate. So what he announced last week was, they’re going to begin tapering sooner rather than later, they’re going to stop with the 100 and 20 billion a month, maybe it goes down to 60 billion, maybe it goes to 10 billion, I don’t know. But what he said was, the threshold to lower interest rates is much higher than the threshold to begin tapering. That’s all the stock market needed to hear to go. Okay. Which for us, is tremendous, because what it means is the low interest rate environment will allow for transactions to continue. And our lending world thrives in low interest rate transactional environments, we don’t do good. When things can’t trade, when things are trading lemo, one can step in and provide financing for you. If there’s no deal between a buyer and a seller because of affordability, they can’t do a deal. If that’s the case. So that’s why I was very positive about what I saw.
Yeah, I think I watched it read a handful of articles around it just to see what the sentiment was, and your quote there about tapering versus interest rate optics cited in every single one, like near the top. Right. That’s that’s all you need to know. You don’t need to go watch the half hour Chairman Powell. That’s, that’s it in a nutshell. So yeah, tremendously positive news for the real estate investment and lending space that gives some confidence, no call it went through the end of the year, and through at least a good portion of next year. Timeline wise. Yeah,
yeah, I don’t think you’re gonna see interest rate increases until the second quarter of next year. Maybe the third. So the way we’re about you know, the where we’re going. We’re interesting enough, you’re seeing a pullback and travel now, less people traveling because of the new Delta variant, you’re going to see the EU is discussing restrictions on us residents flying there for non essential purposes, so we’re not gonna be able to fly out of the country. So you’re gonna see a global slowdown again, after we thought we were over it. Now the question is, you know, is there going to be another very next year That causes the same thing. Right? So, you know, we’re gonna go back and forth on that. But with that, you know, the Fed’s balance sheet can grow tremendously. And Congress has given them the authority. So everybody should there’s an old saying, Don’t fight the Fed. Yeah. Okay. And it could never be more true. If the Fed has stepped in and said, we’re gonna support this economy, this business, this sector, that on this economy, this business in that sector, it is not going to fail. If they, if they step away, that’s when it becomes a problem.
It goes back to liquidity, the golden rule, the man with gold makes the rules person with gold makes the rules, right? The if you own the printing machines, Hey, you got you got the gold. So I think that
we are better positioned in this country to bounce back than any other country in the world. I think that the federal government, and it started with President Trump, the feds action, the the ability to act quickly, when they had to, to provide the liquidity, the oxygen that we needed to live came through. And that was huge. Now, we could talk about going forward, how this is gonna become a problem very soon. And this is where we said everything always reverts back to politics. If we if we transition to this now. Let’s do right. So you’re looking at elections this November, there’s two gubernatorial elections up New Jersey and Virginia. Both of them will go democratic. It’s not a question. The question is what happens in the midterms? next year? Now, in modern day presidential history, no president that was elected wins his midterms. Trump lost big Obama loss big Clinton was big. Go down the line, Bush Jr. Lost big or senior loss, big Reagan loss. So they all lose. Because what happens is, the other party’s base gets ginned up and so upset about the policies that are going on, they come out and strong and it happens. More, again, it’s what happens is that so the margins in the house are so small now that I think the house is going to flip to the republicans and the Senate, it’s virtually tied. So I think you’re going to look at a Republican House and Senate in two years, but a year from now, which means, think about it this way. Are they going to allow for the President to stand in front of the mic? And give financial help? To those who have been receiving it? Before his election or re election in 2024? What do you think?
That’s gonna be tough to see that happen? Yeah.
So now, let’s assume VA liquidity is no longer being put into the market. Yeah, the Fed is different. The Fed is control funded by Congress. It’s supposed to be independent, but it’s not really because they’re authorized authorization, and their money comes from Congress. So there are going to be definitely restraints on the ability to give these tax benefits these payments, for people who are staying home, that’s going to be gone. There could be restraints on the ability of the Fed to put money out because their budget could be capped by Congress. So let’s just assume they don’t have as much firepower as they had, then you’re going to start seeing company’s values get impaired companies be hurt. And that’s when the world slows down. And that’s what I’m concerned about. So I think we’re gonna have a good run between now and next November. And as soon as office is sworn the new Congress is sworn in, in January of 2023, then all bets are off the table.
It kind of feels inevitable when you lay it out that way, the fact that every modern president the midterms swung against them, knowing the current political environment. Is there any way what you laid out doesn’t happen? It feels like it’s a another pretty locked in bet.
Well, look, I can tell you paint a scenario where you were elect a republican president in 2024. You have a republican senate and Congress taxes get lowered. You know, good, you know, the roaring times are here again, and you start moving up again, you know, I don’t think it’s going to be Armageddon. I think it’s going to be problematic for a certain amount of period of time. I don’t think we’re going to see a great recession again, the biggest X factor that I don’t know to up to X Factor is what COVID does, and what the world reaction is to always debt we put on our balance sheet. And and and how that affects us. But But when you look at debt in general, what it really affects is the credit and everybody still wants their money in the United States. This is where it is with the best economy in the world. That’s not even close. And you know, we talk about China competing, nobody knows what’s going on in China. Right? Like nobody, nobody can tell you. You know, China could tell you, yeah, we’re x and it could be x minus y, I have no idea. And you see that and and so we’re the strongest economy in the world, we stay the strongest what how the world reacts to our debt, and how that acts as a anchor on our growth? We’ll see. But, yeah, I’m cautiously optimistic for the next 12 months. And then after that, we’re gonna go through some rough time choppy water, which is why you got to get your foreclosure stuff in order quickly.
I’d say give john and the team a call away. So we have covered a lot. Could I ask a couple of high level, softball is not the right word very cerebral ask a question. So it’s called insights for investors, right? What would you recommend? And you can answer one or both? What do you recommend, you know, big things you’re seeing investors doing across the board, that should stop immediately. And conversely, things that you’re seeing investors doing that are not doing that they should start doing.
So look, I am in my end, a real estate guy. And I believe staying true to your underwriting, don’t push advanced rates beyond 85 90%, I’d leave him at 85 don’t push values are going to pull back you are lending against artificially inflated values caused by a exodus of cities to the suburbs. That’s not going to last because demand is going to fall. Now we do have a in the housing market, a shortage of millions of homes that weren’t built over periods of time, so I get it. But I will tell you, the new generation does not want to own homes. They are into experiencing and renting and flexibility and they don’t want to be tied down to a home with maintenance and landscaping and upkeep. And and that is going to ultimately affect the dine the demand for housing in our country over the longer period of time. So for wonders, do your underwriting and stay true to it. It’s okay to pass on a deal. Okay, do not be steals the deeds dum dum dum dum dum, because you’re gonna end up and for all you investors who are selling your paper to originators, who are selling your paper to third party investors, you have buyback obligations. And so you know, don’t think you don’t act like a broker underwrite it, like it’s going to stay on your balance sheet. So my advice is Do not push the advance rates do not lend to borrowers who are not strong borrowers, like shady people that you know that you know that you know, they are, don’t do it just to close the deal. And I see this, I wait last month we closed 1000 deals in my office, and I’m up to speed, you know, on pricing across the country. And we watch and I look at it, and sometimes my lawyers bring in a deal. And I look at this, like, oh, who’s funding this deal? Are they out of their mind? You know, and I call him Mike and I actually say, are you adding your mind? What what what did I say I go you did you read this? And I mean, it’s like, the guy has a low credit score. They’re advancing 95% You know, they’re doing they’re bending over backwards. I go for what it’s, it’s not a great property. What do you doing? And they’re like, oh, okay, okay, you know, this happens not often, but just be true to real underwriting. This is a time we’re going through it’s okay to pass on some deals. It’s okay to make a little extra money now. less money now. But to be in business in Yeah.
Yeah. Like you said, not a precipitous drop off real estate value wise coming but it’s not you look at Austin taxes year over year 36% growth. That’s the top of the pyramid example of the next 12 months. Is it going to look like that? No, it’s not. Is this true bonafide appreciation. 36% for 36%? No, there’s plenty of true appreciation in there but it’s not 100% of that and that’s That’s not picking on Austin that’s replicated in most every single MSA in the country. So yeah, it’s inevitable that there’s probably going to be a little bit of a stabilization, right, there’s gonna be stabilization. And you want to have that buffer as an investor to make sure that you aren’t running so close to the edge that when the tide comes in, just a smidge further, you get in your feet. So So yeah, it’s good sage. Advice again. So, john, good.
Well, I would say the other thing I’d say is, and this is a little self serving, executing closings properly, will protect you in the long run. Yeah, okay, filling out paperwork, like it’s easy to everybody has a document generation software program. Everybody has documents that comply with state, the key to closing properly is getting title correctly, negotiating it, taking out those general exceptions that don’t apply, getting the endorsements, reading the back title, making sure you’re covered, if there’s a fraud, or if something unscrupulous is going on, and then the execution of the closing the movement of money, making sure everybody who touches it is properly insured the license and properly authorized by those who are insuring them. And these are things that you have to get right. Like we boiled it down to a science here, and we’re constantly tweaking it to make it better. People who tell me Oh, we’re closing in house, we’re just we have a lawyer who fills out that it’s a disaster waiting to happen, there is no insurance there to keep you covered. If the shit hits the fan. And and the end, you may say I haven’t gotten tagged yet, you’ve only been lucky. All you got to do is be tagged once, and you’ll realize the risk you’re running. And that’s that’s what I recommend execution is really important to do correctly.
Yeah, in my normal day job. On the Linux side of the fence, you hear horror stories, and the same advice, I think is applicable to the investor side of the fence or you hear I’ve heard no shortage of stories of, you know, clients who get into a particular situation, have a conversation with the lender, and it’s clear that didn’t read a single line of the closing package that they signed, they didn’t have counsel, read it. And it’s like, hey, page four, paragraph three answers the question in full and it is complete opposite of what you are expecting. But this package is signed every single doc initialed six months ago don’t
want to you don’t want to a borrower going, Oh, I didn’t read that, or I didn’t understand it. That’s why over a certain threshold, you got to get borrowers cancelled to issue a legal opinion, saying not only did he read it, I explained it to him. And it’s all good. Right? Because that’s the these are the loopholes. You close and it’s a little extra at the closing. It’s a little extra aggravation. It’s a little extra cross. But if you get tagged in a situation, you’re going to be so happy.
Yeah, Pennywise pound foolish the the edge of that cliff is it’s hard, fast and deep. So for sure. I, john hornik. Or one of if not my favorite people in this space to interact with I think I probably met you at a pinball conference. years ago. years years ago. Yeah, probably four or five years ago, something like that. What are you up for election next.
So two years from now, I’m up for my would be my fifth term. You know, in my in my world, I’m running until I’m not. So I haven’t made a decision from running. So that means I’m running. I’m supporting three council candidates. Now for control of my governing body. We have a five member Council. So I run all the campaigns in town. So I enjoy it. I just you know, and there’s some board Ed seats up so it’s fun. It’s like a local local game going on small time, but it’s fun. I enjoy it.
No, no, you’re far too humble. Are you I was just looking through a cave. For some reason I was on our county’s election website and looked at kind of upcoming spaces. Are you one who runs unopposed or do you have to break out the stick and, and get to fight and
last four years we’ve got three last election I ran unopposed. I’ve had three opponents. My first race I ran the baton in combat. It was terrible, dirty election. It was do with pig time. It was well we won that one and then since then, it’s been kind of it hasn’t been difficult. So it’s we were on we have a good formula. It’s kind of like, you know, pick your team. It’s like the Patriots right in football prior to Brady leaving, you know, it’s like yeah, we everybody knows what they need. Do everybody knows where the block protect the quarterback do the same we ended up with that said it’s just a formula. So until the other side shows me they could they could they have a better plan or I see something different. We’re gonna stick with the formula. And it’s been pretty successful. I think we’ve won something like 18 of 17 races, that’s seven to 17 seats in 18 races, we lost one seat back in 2012. A council seat and was okay to lose that. So I think our percentage or win percentage is like, almost 98%, almost 97%.
And now the great people of Marlboro New Jersey love you as much as I do. And they’re like, well, we’re not even gonna run anybody against this guy. He’s just a let’s keep it rolling. I love it.
I think they’re scared. Elections are about you know, personal exposure, opening yourself up. Look, I’m not I’m definitely not loved 100% of my time, we have a lot of people, I’m sure that can’t stand me. They just haven’t figured out how to beat me yet. Different things that stand I mean, it’s it’s, it’s hard in this day and age to make everybody happy. And when you’re making decisions. What’s best for the town, you are going to piss people off? I mean, for sure. I’ll give you a quick example. If we have a moment. Yeah, in 2012. There was a terrible tragedy in Sandy Hook to eight Sandy Hook school in Newton, Newton, Connecticut, there was a school shooting where four and five year old children were killed by who got it, it was terrible. And it was after that I had a I have a daughter, who at that time was of that age. And I remember, we got the police report on what happened there. It was horrible. I won’t go into the details. But what these kids went through at age, they didn’t even know what was going on. And it really moved me so I required every school in my town to have an armed police officer, a an ER T and early response technician, we call them. They were first responders, they have SWAT training, and they are positioned in every school that we have. And I push that through. I said I believe this is right now there are a whole bunch of people out there who don’t want guns anywhere near their kids. And we don’t need this. This is over. This is an overreaction to me. It wasn’t. So you know, we ended up pulling it and 52% wanted it and 48% didn’t want it at the time, which was shocking to me. I thought 90% would want it. But we got that, you know, but I believed in it. It’s there. It exists. And I’m sure today it’s fine. I’m sure it would pull better today if we pulled it today, but it’s the right thing to do. And I could sleep at night. Knowing that. Yeah, same thing with this mask requirement. Governor Murphy governor in New Jersey, who I had dinner with last week and more bro said, you know, there’s a mass mandate. The kids going back to school have to wear masks. There’s a large population in my town that wants to somehow need to intercede and go it’s not required. Well, these people don’t understand preemption, that if the governor makes it a law I gotta follow. I can’t I can’t I don’t have the ability to PUC. And if the President makes it a law for him, as long as it’s constant to he has to follow. So there’s no, there’s no discretion here. And but you know, there are people who don’t want their kids wearing masks in school and they want the right to stay home and homeschool, which is not an option either or learn remotely. So these are issues real issues that piss people off and to their core. And it’s you know, so you talk about pot popularity. It’s very hard to say any elected official is popular these days. It’s because you’re only you know, there’s so many angry people out there.
Yeah, to end on a self deprecating and hopefully humor aside, you touched on the two reasons why I don’t think I’ll ever run for public office. One. Just opening yourself up for attack. I am a sensitive sweet boy. And two, you mentioned digging skeletons out of the closet. Absolutely. Just Nope. Not even gonna run. Just stay stayed on. I’m
finding it hard to believe you have that many skeletons in your closet.
A couple of dusty ones in there.
Last time we were talking you asked me a great question what I ate for breakfast my favorite cereal? So I’m gonna ask you a question. Yeah. Has it been growing up with two first names Dalton Eliot. How has that been for you?
is not so so the one I get more than the two first names is a Dalton from Roadhouse. Patrick Swayze. That’s the one that that comes out. It’s always someone twice my age who asks about it. Thankfully going to school I grow up through school. Nobody I went to school with ever had seen the movie Roadhouse was just kind of an early 90s, maybe even late 80s movie It’s been good I don’t run into a lot of Dalton’s which is
nice Roadhouse, one of my favorite. I call it worst movies. Everybody thought it was terrible that you loved and and Roadhouse is my number one. My number one. It’s so funny you said that. It’s, it’s if I’m flipping through TV stations and it’s on, it’s like I’m watching it. It is the greatest for the world who’s watching for those of you who don’t know, watch Roadhouse, it’s about a bartender in the Midwest, who goes into clean up a town and he’s fighting with like the town boss. And it’s just and he knows karate. It’s a great it’s a great movie. I really, it’s amazing.
Yeah, it’s a great horrible movie, like you said, it’s in the I think it described it perfectly. It’s one of those movies that if you’re just kind of mindlessly flipping through on a Sunday morning, get ready to go do dishes or something, and it’s all under like, I’ll leave this alone and kind of let it play in the background and catch all the good parts of it.
Great. Great. Name is Dalton.
I love it. JOHN, dear friend, thank you so much for joining the real estate of things. I appreciate you taking the time.
My pleasure. Anytime Dalton you’re not you know, I love you. I really enjoy it. Thank you so much. Thanks, john. Bye bye.