Let’s Be Brutally Honest About Real Estate Notes

There is a difference between being honest and being brutally honest. For example, if I ask my wife if my new sweatshirt makes my gut look big, an honest answer might be “Kinda”. A brutally honest answer would be “No, your gut makes your gut look big.”

As someone who has taken literally thousands of phone calls from note holders, I’ve always been honest, but I’ve never been brutally honest, until today. Read more

Safe Act and HR 4173 Update – Is it Good News for Seller Financing?

A new law exempts up to 3 seller-financed transactions in a 12-month period from mortgage originator licensing requirements. Bill HR 1473, now known as the Dodd-Frank Wall Street Reform and Consumer Protections Act, was signed into Public Law No: 111-203 on July 21, 2010.

A loud outcry was heard across the nation from real estate owners, investors, and note buyers on any restrictions that would limit sellers from using owner financing on property they owned.

It seems the lawmakers have listened… well, sort of.

The changes probably fall into the category of “something is better than nothing.” You can read the new language below and be the judge.

Excerpt pertaining to exemptions from Mortgage Originator definitions in:

HR 4173 Dodd-Frank Wall Street Reform Act

TITLE XIV–MORTGAGE REFORM AND ANTI-PREDATORY LENDING

Subtitle A–Residential Mortgage Loan Origination Standards, SEC. 1401. (2)(E)

(E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 3 properties in any 12-month period to purchasers of such properties, each of which is owned by such person, estate, or trust and serves as security for the loan, provided that such loan–

(i) is not made by a person, estate, or trust that has constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of such person, estate, or trust;

(ii) is fully amortizing;

(iii) is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan;

(iv) has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases; and

(v) meets any other criteria the Board may prescribe;

To Read the Full Bill visit: http://www.govtrack.us/congress/billtext.xpd?bill=h111-4173

So is it an improvement?

Yes, since the previously proposed language had only exempted 1 seller carry-back transaction every 3 years. This makes the exemption for 3 in 1 year slightly more palatable.

You’ll also notice it requires the real estate note to be fully amortizing (no balloons), fixed rate for first 5 years, and the buyer showing an “ability to repay.” It does not require the seller to have lived in the property as his own residence.

If a seller financed transaction falls outside the set parameters then it has to meet the mortgage loan origination licensing requirements. That means getting a license or using a licensed mortgage originator to handle for a fee.

This also appears to be good news for loosening restrictions placed by the HUD Safe Act. As the law is implemented it should revise the minimum standards set for states under the Nationwide Mortgage Licensing System Registry. Certain states, such as Texas, are already incorporating seller-financing exemptions into their laws.

It’s hard to declare a victory for any law that chips away at our private property rights. However, the changes are welcomed. Or as one investor said, “Weekly beatings are better than daily beatings…”

How to Sell Your Mortgage Note

Tired of receiving monthly payments?

Wishing for a lump sum of cash today?

If you sold property with seller financing chances are you’ve wondered about selling the real estate note. Here’s how to sell a mortgage note, trust deed, or contract in 7 easy steps.

Step #1 – Request Quote

Just complete a short informational worksheet to receive a free no obligation quote. This can be submitted online, by fax, or over the phone.

Click Here for a List of Note Buyers

Click Here to Download a Worksheet (PDF)

Step #2 – Provide Document Copies

To get started note buyers like to see copies of these three documents:

• Settlement Statement
• Promissory Note
• Mortgage, Trust Deed, or Contract

It is also a good time to be sure you know where the originals are located, especially the Promissory Note, as they will be requested at closing.

Step #3 – Accept Offer & Agreement

Once an offer is accepted it will be outlined in a written agreement. In addition to stating the price, the agreement will specify conditions of closing and who pays costs.

Step #4 – Note Buyer Review

The mortgage note buyer will perform a detailed review of the transaction, known as due diligence. This includes a review of the buyer’s credit, current tax and insurance status, payer interview, and other important items. They may also request copies of additional documents including a payment history, insurance policy, and existing title report.

Step #5 – Appraisal

The note investor will order an evaluation of the current property value. This usually takes the form of a BPO or drive-by appraisal. The investor wants to be sure the property value is still equal to or greater than the sales price. If the value comes in low, the note investor may present a revised offer for consideration.

Step #6 – Title Search

The title search verifies ownership of the property and the mortgage note. It saves time and money to work with any title report that might exist from the original sale date. If the title search shows money is still owed on a prior mortgage it will usually be paid from proceeds.

Step #7 – Closing

When all steps are complete the note buyer will send the final closing documents for signature. The title company is often used to handle the exchange of money for the original note and transfer documents. Funds are typically paid in the form of a wire transfer or cashier’s check. You are also encouraged to have your attorney review and advise with the closing process.

Selling your mortgage note can be a simple process when you work with an experienced note buyer. Just take a few minutes upfront to gather your information and documents and they will handle the rest for you!

Sometimes it is not only what you know, but who you know.

Knowing the right people can not only make things easier, in the case of the 2010 Directory of Owner Financed Note Buyers, it could also make you more money!

Gain access to our personal Rolodex of experienced note professionals that took years to develop.  Work direct with knowledgeable investors, educators, and master note brokers.

Note Buyer Burns to Learn – Real Deal #160

Wonder why note investors require proof of insurance before buying notes? This Oregon cash flow note explains it all! Read more

Investing in Real Estate Notes: Transitioning from Note Broker to Note Investor

Have you ever thought of buying and holding a real estate note for yourself instead of brokering it to an end investor?

I strongly encourage you to do so as it can be a rewarding path in the note business. I initially began brokering notes in 2005 and in 2007/2008 made the transition from note broker to note investor.

Here are some thoughts to keep in mind if you are looking to begin investing in notes to hold for yourself. Read more

Note Brokers Make Money with Monterey’s Consumer Finance Program

You buy real estate contracts but have you worked with retail installment contracts?

Read our exclusive interview to discover how note brokers are working with Monterey’s Consumer Finance Program to make money in the cash flow business. Read more

Cash Flow Notes and 500,000 Motorcycles?

What does the world’s largest motorcycle rally have to do with cash flow notes?

Absolutely nothing!

Sometimes even note buyers need some R and R. So after riding 1300 miles (no trailers allowed) this week’s edition of Note Investor is coming to you from Sturgis, South Dakota. Read more

Finding the Best Note Buyer Offer

When it comes to buying and selling mortgage notes the seller and note broker want the same thing… the best possible price!

That makes it tempting to blast out a quote request worksheet to every note investor in the directory. But wait! Consider the flip side before you hit that send button. Read more

MY FRIEND, THE INTERNET – Real Estate Notes

A friend keeps you from making poor decisions, is there in your times of need, and can be a good source of information. Based on this criteria, I consider the internet to be my friend. Yes, the cold, impersonal, most definitely non-human internet has my back. Best thing is, it can and will be your friend, too. Read more

How to Broker Notes For Residual Income – Real Deal #159

Most cash flow notes are only sold once.

That means one deal and one finder’s fee, unless you’re lucky enough to find a seller that owner finances again! But that all changes with a partial purchase.

Here’s how one note was bought four times in Real Deal #159! Read more

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