Self-Directed IRA Custodians Sued by Investors

Watch out note buyers!  The self-directed retirement account, a popular vehicle for purchasing notes, is under attack!

Tired of dismal returns in the stock market many investors turned to buying real estate, private mortgage notes, and other alternative cash flows.

They combined the power of high returns and compounding interest with the tax advantages of the IRA, Roth, Solo 401k, and other retirement accounts.

The self-directed IRA has a designated custodian that handles the paperwork and other administrative duties for the retirement account. Now these custodians are being sued by disgruntled investors reports the Wall Street Journal. Read more

Buying and Selling Notes for Residual Income

Here’s one reason to love real estate notes… surprise payoffs! For years we have been talking about the benefits of keeping some payments as residual income when buying, selling, or brokering notes.

This is not just theory – it really works.

Need proof? Just last month we were fortunate enough to get one of those surprise payoff checks for $57,569.28!  And that was on a note we sold back in May of 2000.

Now before you start thinking this is some sort of easy overnight riches please understand that this does NOT happen on every deal.  In fact the average note broker fee is about 3-6% of the amount invested by the note buyer. (Check out How Much Money Will I Make in the Note Business for more on this topic.)

But when you combine the power of interest with time and the partial purchase there is an opportunity to earn residual income. How is this possible? Well here are the details from the initial note sale followed by the payoff update. Read more

What Private Note Buyers Can Learn from MERS

Note Buyers take notice; a U.S. Bankruptcy Judge has now ruled MERS’s business practices are unlawful.

Heard of robo-signing, burger king kids, and attorneys promising to stop foreclosure?  Well that’s all part of the MERS mortgage lending mess and it just got a lot harder than calling for a cleanup on aisle 5.

What’s the impact?  L. Randall Wray, Professor of Economics, wrote this:

“United States Bankruptcy Judge Robert Grossman has ruled that MERS’s business practices are unlawful. He explicitly acknowledged that this ruling sets a precedent that has far-reaching implications for half of the mortgages in this country. MERS is dead. The banks are in big trouble. And all foreclosures should be stopped immediately while the legislative branch comes up with a solution.”

Source: For all the details including a great explanation of MERS be sure to read the full Huffington Post article at New York’s U.S. Bankruptcy Court Rules MERS’s Business Model Is Illegal.

So What Can Note Buyers Learn From MERS?

It reads like a refresher course in Note Buying 101:

• Get the original promissory note,
• Get it endorsed,
• Get an Assignment of the Mortgage or Deed of Trust
• Get the Assignment recorded in the County Records
• Make sure the chain of endorsements matches the chain of assignments, and
• Keep all the originals together in a safe place.

Why?

Well you can use these items to prove ownership, collect payments, enforce your rights, foreclose in the event of default, or defend against any claims.

In legal lingo it grants you the power of 4 magical words… Holder In Due Course.

This was common practice when I started buying notes for the insurance company in 1988.  When going out on my own in 1997 I used the same note buyer criteria.

Of course not every note fits my buying parameters (and I’m not Oprah, Warren Buffet, or Mark Zuckerberg with seemingly unending supplies of funds) so some notes get referred to other investors.  Most investors follow the same Note Buying 101 closing requirements… most but not all.

I can still remember the first time we got to closing on a deal being placed with outside funds only to discover the original note was lost and to my astonishment the investor said,

“That’s ok we will just have the seller sign this lost note affidavit.”

Normally a lost note means a frantic search by the seller followed by calls to the original closing or servicing agent to track down the original. As a last resort option we get the payer/buyer involved to execute a duplicate note and affidavit along with the seller’s affidavit.

But just the seller?

That was certainly easier… but not safer.

You see this investor was placing seller-financed notes into a conduit for mortgage-backed securities and it wasn’t required.  Next assignments started getting executed in blank and after closing we noticed the investor wasn’t recording some assignments.

Now that sounds like 4 letters that will haunt mortgage lenders for years…. MERS

Fortunately on notes purchased in-house we followed the Note Buying 101 steps.  These are the same steps taught in our Finding Cash Flow Notes training course and in articles here at Note Investor including Note Buyers Demand Original Promissory Note and Understanding Note Endorsements.

It’s safe to say that if private note buyers are still around today they are following these guidelines and have used solid legal counsel. (Author’s note: I am not an attorney so unable to give legal advice but encourage you to get some before buying notes.)

Whether note buyer, broker, or seller it is essential to know where the original note is located and keep an unbroken chain of title for smooth closings.

While the death of MERS will surely hurt the mortgage lending world the boomerang effect will be an increased need for alternative financing, note buyer services, and private investors.

Who Pays Costs When Buying Notes?

Wondering how costs are handled when buying mortgage notes?  You are not alone!  Here is a question we recently received from a note broker:

If the note buyer wants the seller to pay the closing costs, does the note buyer back the closing costs out and then send me the offer or do I back the closing costs out myself along with my fee and then present the offer to the seller? If I back out the costs, where would I get the cost of the closing to do this?

Great question!

There are generally two types of offers when it comes to buying notes:

1)    Wholesale – a gross offer with the note broker or seller paying costs; or

2)    Retail – a net offer with the note buyer/investor paying costs.

If the note buyer quotes a transaction wholesale and wants you, as the note broker, to pay closing costs then you need to subtract both your fee and the estimated costs from the note buyer’s quote before making your offer to the seller.

You could also just deduct your fee and have the note seller pay the costs. However many sellers are reluctant to pay any costs upfront so it is a selling point if you can eliminate the risk to them.

The amount of closing costs will vary by the state, size of the deal, and type of property. These costs usually include Read more

Seller Financed Note Business Increases 40%!

“The number of seller-financed notes created over the past two years has jumped 40%!”

This breaking news was reported by Scott Arpan of Advanced Seller Data Services (ASDS) based on the analysis of information collected by their company.

They currently compile data from the public recording offices for owner financed real estate notes in over 1600 counties across the United States. Read more

Selling Mortgage Notes? Find the Right Note Buyer!

Note Investors fall into one of four groups, but which one is right for you? Safe to say it’s not “The Posers!”

Here’s a look at each group including tips for finding and selecting the best note buyer.

Read more

Note Broker Question: How Do I Find Notes On A Budget?

Wondering how to find real estate notes on a budget?

You are not alone. Here are some helpful tips from a recent note broker inquiry.

I previously owned a mortgage broker business and in 2007 did dabble in the note business. I also closed about 4-5 deals as a note broker. I have since closed my mortgage broker business and would like to get into note brokering, but I have a limited budget to start with (about $2000 – $3000). I purchased your program for support and to acquire additional knowledge. How do you suggest I spend my limited funds to get started?

George P. – Virginia Beach VA

Hello George!

You ask a great question and actually have a decent marketing budget to get started. You also have the benefit of being ahead of the learning curve by having already closed several deals.

You will need to set aside enough to cover your basic business setup costs (phone number, business cards, brochures, licenses, and a website).

While there are people in this business buying notes that don’t have a website, I truly believe you need at least a basic 5 to 7 page Note Buyer website to be in business these days. Think of the site as your storefront, providing credibility for your services.

All of these setup items can usually be accomplished with under a $500 budget.

The least expensive way to market is by building a referral base. This can be done through networking with other professionals, offering local trainings, and Reverse Ad Marketing for the note business. Great networking candidates are real estate professionals, agents, CPAs, real estate attorneys, mortgage brokers, and real estate investment clubs. Referral marketing takes your time rather than your dollars and will utilize your business cards, brochures, and website from the setup process.

Run the free ads available online with sites like Craigslist, Ebay classifieds, and other online directories. Avoid buying classified ads or expensive display ads. Print ads rarely payoff unless you use a local want ad type paper (Nickel Nick, Penny Saver, etc) that offers low rates and you live in one of the high volume states for seller financing.

Look at a small but consistent direct mail campaign to note holders in your area. To save funds build the list yourself or purchase from a list provider like Advanced Seller Data Services. In order to maximize efforts, prequalify the notes for basic things like approximate equity (20% or more for best results) and property type (SFR). This will save you from paying postage to mail letters or postcards on deals that are harder to place with a note buyer.

The best way to stretch a small note broker marketing budget is to think local.

Work on branding yourself as the local seller financed note specialist. As funds become available then expand your efforts into other areas. You’ll find the “How To” details including sample scripts, brochures, and marketing pieces for each method in your member’s area of the Finding Cash Flow Notes training.

Hope that helps and feel free to contact me with additional questions.

To Your Success,

Tracy Z. Rewey

Should I Visit The Courthouse to Find Cash Flow Notes?

Wondering if courthouse research is a good for finding notes? It seems this question is making the rounds again, which is undoubtedly due to someone selling a “How To Find Notes at the Courthouse” training course for note brokers.

Let me start by asking a question in return.

Pardon my directness but… What year are we in? Is it 1981 or 2011? Read more

The Seller Financing Solution – Note Investor Radio Interview

Why is seller financing on the rise?

It provides a main street solution to a wall street problem.

If you are wondering how to use real estate notes to achieve your goals in this tough economy then you will want to catch the audio replay of the Note Investor radio interview.

Last Tuesday we tuned in with Lisa Moren Bromma of Wise Women Radio to discuss the opportunities available to buyers, sellers, investors, and note brokers using owner financing.  Here is just a sampling of the hard hitting questions she posed:

• You talk about solving the problems of main street that wall street created. What have you seen through the years in the lending business and how does your company solve these problems?

• What does it take to be a note investor in today’s tough market?

• What is the most difficult part in brokering or buying private mortgages that one must watch out for?

• How do you qualify your investors? How do you qualify the borrower of the note?

• Can investors use their IRAs to buy seller financed notes? How does one go about buying a note for their IRA?

• You have developed a strong following as someone who knows her craft. Tell us about your online presence, what you offer to those who are interested in learning the note business in today’s upside down real estate market.

• How do you keep up-to-date with industry changes and laws like the HUD Safe Act and Dodd-Frank Law?

• Do you have any recommendations on how people can educate themselves?

• You have been so successful where many of our peers have failed. What is your secret?

• Can you give us 3 basic ways to find mortgages?

• You are in business with your husband Fred. Is it difficult to work together? What is the secret to working and maintaining a solid personal relationship/marriage.

• What’s next for you in business and in life?

Many of you already know Lisa Moren Bromma as both a marketing expert and long time note buyer / real estate investor.  She’s also a published author and has recently started an Internet radio talk show entitled Wise Women Radio.  It was fun to be interviewed by Lisa and I encourage you to listen to the free audio replay.

You can also check out the archived talk shows with past interview participants.  It is a great way to pick up ideas at no cost! All it takes is just a small investment of your time! You can listen to the Note Investor interview and others at: http://www.wisewomeninvestor.com/WWR.html

 

 

How to Build a Note Business Website in 7 Steps

Why do you need a website for your note business?

There are over 239 million users online making up 77% of the US population according to Internet Word Stats – and that number is only growing!

With potential customers online there are great reasons for note buyers and note brokers to build a website. Your site will Read more

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