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. Here then, is a list of the five most common questions I get from note holders. The first response is my “honest” answer – the second is my “brutally honest” answer.

[Editor's Note:  Warning! Please secure your sense of humor before reading the brutally honest answer!]

Q: Why is the note discount so high?

Honest Answer: Well, I expect to realize a certain yield when I purchase a mortgage note. Based on your note’s LTV, the credit quality of your borrower, and the payment history, I require this amount of discount to get comfortable with my investment.

Brutally Honest Answer: First of all, I didn’t write this discount into the note, YOU DID. What were you thinking giving some deadbeat with a 507 credit score a 3% interest rate? Are you insane or just dimwitted? And did you waive the down payment so they could use that money to improve the property instead? Yes? OK, you just answered my previous question…

Q. How can your BPO possibly be right? Property values haven’t gone down where I live!

Honest Answer: Plain and simple, there are a lot of foreclosures nationwide. Our BPO agents must use recent comparable sales in the neighborhood. If the majority of sales have involved distressed properties at distressed prices, that’s going to be reflected in the value of the property you sold.

Brutally Honest Answer: Oddly enough, every person I speak to says the same thing! This must be a major media conspiracy, complete with the fabrication of a national housing meltdown. If we all agree that housing prices have dropped everywhere in America except where we live, then obviously housing prices haven’t dropped anywhere! Were it not for that pesky little thing called REALITY, we’d have just solved a big part of our nation’s economic problem!

Q: When can I get my money?

Honest Answer: Average closing time is usually around 30 days, depending upon the time it takes for a title update and a property valuation. This assumes all your documentation is in order and that we receive it quickly.

Brutally Honest Answer: That depends. Are you going to continue shopping this deal to brokers who will bring it back to me for pricing next week? Even though you say you know right where the original note is, are you going to call me the day before funding and tell me it’s lost? Are you going to drag your feet getting me all the documentation I need to underwrite the file? I’m not a door – don’t try to trial-close me.

Q: Why does my borrower’s credit matter? They’ve always paid me on time!

Honest Answer: We want to be sure they have the willingness and the ability to continue making payments after we buy the note. If they are laden with debt or have fallen into delinquency recently on their credit cards or car loans, we can reasonably ascertain they may soon have difficulty making their mortgage payment.

Brutally Honest Answer: We’re not in the business of making your deadbeat borrower problem our deadbeat borrower problem. Would you buy a car without test-driving it or even seeing it? Would you wire money to a Nigerian prince because he seems like a good guy that’s down on his luck? Then why would you sell and finance your property to someone without knowing anything about their fiscal responsibility? Are you insane or just dimwitted? Sorry, I forgot we’d already determined the answer to that question.

Q: Why should I work with you instead of one of your competitors?

Honest Answer: We have the experience, professionalism, and efficiency you would expect when discussing the sale of one of your most valuable assets, your note. We can provide references from other satisfied customers, and though we do not expect to be given your trust at the onset of this process, we will certainly earn it throughout it.

Brutally Honest Answer: Not only are we nicer, more compassionate, and smarter than our competition, we’re way better looking.

About the Author: Clint Hinman is the President of Proficient Note Buyers LLC, a buyer and broker of non-performing notes/loans and REO. With over 17 years of experience in real estate-related cash flows, Clint is part investor, part broker, part consultant, and part plain nuts. Contact him at clint@pronotebuyers.com or visit his website at www.pronotebuyers.com.

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…”

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.

The Note Basics

• Property: Owner Occupied Bungalow
• Type: Note and Trust Deed
• Sale Price 45,000
• Cash Down 5,000
• Original Balance 40,000
• Rate 10.0%
• Term 180 payments of $429.84
• Payments Made 26
• Current Balance 37,128.94

The Offer

The seller accepted our offer of $31,250 to buy the trust deed. This started the standard review process, including documents, title commitment, and a verifiable payment history. The appraisal reflected good property condition with known value increases putting the fair market value at $60,000. While the buyer had poor credit, everything else looked good for purchase.

We prepared for closing and required standard proof of hazard insurance. The seller returned the document package along with the insurance information. We called to verify coverage, which was verbally confirmed by the agent, and authorized the wire transfer to the seller.

Under Pressure

On the day the wire transfer was authorized at the bank (a Friday) we received a return call from the insurance company stating they were in error. The hazard insurance policy was no longer in place due to nonpayment of the premium. We attempted to contact the buyer but no answer.

Under time restraints, we decided to move forward and did not pull the wire at the bank. We sent the standard notification letter to the buyer along with a request to clarify the insurance issue. We planned to force place insurance if sufficient proof was not provided.

Things seemed in order until the adjoining property owner called the office the following week. They wanted to make a $10,000 “as-is” offer to purchase the “lot” next to their $250,000 home.

Guess what?

The house covered by the note had burned down over the weekend. We were left with nothing more than a lot, a burned out shell, and some charred debris as security.

Could it be true? First a call to the fire department to verify the date of the fire and the condition of the property. Next we ordered a property inspection, contacted the appraiser to obtain a land only value ($24,000 – $29,000), and traced the buyer whose home phone was no longer in operation.

A Sad Situation

Once we made contact with the buyer we confirmed our fears finding he did not have insurance. He explained how the insurance premium money had been used to purchase prescriptions for his recently deceased wife who did not have health insurance coverage during her fight with cancer. He was a self-employed car mechanic and his income was currently down.

It was a sad situation without a good solution. Initially the buyer seemed cooperative and wanted to continue payments until he could sort out his financial affairs. He was interested in placing a mobile home on the lot and hoped we would help finance it. We were happy to explore the possibility and asked for a show of good faith in the form of current payments during the interim.

Unfortunately the buyer’s financial situation declined, payments were never received and we ended up holding a Deed in Lieu of Foreclosure. We attempted to sell the lot but realized most new building activity was being done on small tracts of land outside the city limits.

Just Being Neighborly

The neighbor was a local businessman who owned a nicer home in this small bedroom community of mixed homes. He was NOT happy with the condition of the neighboring lot and increased his initial $10,000 offer to $15,000. We explained the land only was appraised for $24,000 – $29,000 and we weren’t ready to take such a loss. We also offered a seller carry back if we came to an agreeable price.

He didn’t need owner financing. His concern was the view.

Understanding his motivation, we explained we were considering the placement of a used singlewide mobile home on the lot (1969 or newer according to zoning requirements), which we would offer to a new buyer with owner financing if we were unable to sell the property as a lot. We waited (or I should say sweated) the situation out and the neighbor offered a cash purchase price of $23,000 provided the lot was cleaned.

Now the Burn to Learn

Initial estimates for clearing the lot had come in between $5,000 to $7,000. We contacted the fire department regarding their “Burn to Learn” program. The fire department agreed to arrange a practice drill on the property resulting in a complete burn of the remaining structure and approximately 95% of the debris. The remaining debris could be hauled away at a nominal expense.

We accepted the neighbor’s offer resulting in a loss after expenses of approximately $10,000. The transaction closed and I was never so relieved to have lost “only” $10,000.

Lessons Learned

So, what did we learn moving from note brokering to note buying?

1. Don’t be rushed or pressured into making investment decisions

2. Perform a verbal debt verification or payer estoppel with the purchaser even if the account is serviced through a third party servicer.

3. Require current insurance at closing even if the seller has to pay and obtain insurance on the buyer’s behalf from the note proceeds.

4.  Creative thinking is required to buy and hold private mortgage notes.

Is this Déjà Vu?

A few months later we were ready to fund on a seller financed note in Alabama with a current insurance declaration page in the file. After calling the agent we found the buyers had not kept their premium current and coverage had lapsed.

Had we truly learned our lesson? That’s a resounding, “YES!” The closing was put on hold for proof of current insurance prior to funding.

We called to follow-up several days later only to be told the house had burned down the night before! It was another sad story but a good reminder of why mortgage note buyers confirm insurance coverage at closing and during the life of the account.

Wondering How to Buy Mortgage Notes? See what successful note buyers have said about The Complete Money Making System to Buying, Brokering, Creating and Holding Real Estate Notes.

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.

Mindset Shift

Although there are many parallels between brokering and investing in real estate notes, your mindset requires a bit of a shift. It is a shift from,

“What investor will pay me the most for this note?”

to

“Would I want to put my own cash into this note?”

Although this is only a slight shift, I began looking back at my brokered deals and saw a handful of notes that would have been perfect to keep for myself. However, since my mindset at the time was not to buy and hold and only to broker notes, I never ran these through my “investor” filter. Every note holder/seller you talk to you should begin asking yourself if their note is a potential investment that you would feel comfortable owning for your own “portfolio”.

Marketing (Direct Mail)

When I started to ask myself this question, many times the answer was “no”. I realized that as a broker, I had fine-tuned my marketing to find cash flow notes that fit my investors’ criteria but that these criteria did not necessarily fit my criteria as an investor.

For example, I did not personally have an interest in commercial notes or land notes so I cut these out of my marketing. I also narrowed my geographic area and reduced the note sizes that I previously marketed for. Make sure your marketing matches the types of notes you would want to hold for yourself.

Underwriting/Due Diligence

Going from note broker to note investor requires that you understand the due diligence process intimately and understand what makes for a good investment vs. a bad one. Use your time as a broker to learn this process from your investors who have years and years of experience with this.

When note buyers are asking for certain information and documents, understand not only the documents but also what they are specifically looking at in the information and documents and why it is important. When you start looking at each deal from the perspective of an investor, you come up with your own questions for the note seller and in the process you become a better broker too.

Cash Flow/Longevity

One of the great benefits of owning your own notes is the consistent monthly cash flow that is generated for you. During slower times of the year as a broker, you still receive cash flow from notes you previously invested in and it gives you longevity to work on your business if/when your brokering business slows down. Had I not started to make the transition from broker to investor when I did, I probably would have been flushed out as a broker when the credit markets froze and investors tightened their criteria or went out of business.

The First Deal

Below is the first note that I purchased for myself (with approximate numbers) to give you an idea of why I encourage you to start buying/holding your own notes.

• Sale Price: $27,700
• Note Size: $26,500
• Note Balance at Purchase: $15,500
• Purchase Price $11,500
• Current Balance $8,400

To date I have received 38 monthly payments of $285 totaling $10,830 (return of principal/discount/interest).

Had I brokered this note, the best price at the time was $12, 500 so I would have made $1,000 back in 2007. Now I will continue to receive $285/month for the next three years.

Hopefully as you can see, owning your own notes can be a rewarding path to pursue. Although transitioning from broker to investor is not easy, I encourage you to slowly begin the shift. Get at least one under your belt and go from there. Good luck!

About the Author: Greg Gehlen is a private investor in real estate notes. He has been in the “paper”  business since 2005 and can be contacted at 702.515.7416.

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.

Note Investor (NI) recently caught up with Gina Frame, Assistant Manager Sales &  Marketing, to fill us in on how Monterey is helping note brokers turn retail contracts into cash.

NI: What transactions will your company consider funding?

Gina Frame: Monterey specializes in purchasing consumer retail installment contracts. These could be contracts where consumers are making tangible purchases such as furniture, pets, jewelry, etc.

While real estate and auto fall outside of our parameters in most cases, we will consider just about anything that a consumer can purchase and finance. Intagible purchases qualify as well. Those could be vacation memberships, golf club memberships, and services such as wealth management, seminar/boot camps, and others.

Many of Monterey’s clients are nationally and internationally known as they may be advertising their products via television, satellite, magazines, radio, and news print. We have found some niche markets over the years where we are still one of very few funding sources will participate, such as the flex pay programs promoted in the direct response and infomercial industry.

NI: How did you get your start in the business?

Monterey Financial started over 20 years ago as a delinquent debt collection company. Our source of business at the time was in collecting delinquent timeshare mortgage and maintenance fee accounts, but we quickly added our loan servicing and consumer finance division which have grown exponentially since our inception.

NI: What unique benefits does your company provide?

We offer complimenting services under one roof including consumer finance, loan servicing, and delinquent debt collections. Many of our clients use all three services so that their receivables funding and management needs are completely satisfied, but note our loan servicing and delinquent debt program have the ability to service and collection notes which either consumer or commercial receivables.

NI: Can you please highlight a business you were able to help recently with your services?

Without disclosing too much, Monterey has recently purchased two large multi-million dollar portfolios from another finance company who needed to free up their capital. In less than 2 months we were able to add $10 million in receivables to our books because we are not only still in business, but well capitalized.

NI: Will your company work with cash flow brokers or consultants and how do you handle the commission structure?

We rely on consultants and brokers to bring new business leads to the table. We have been paying broker commissions since the beginning. We offer commissions to be earned in all three services and those commissions will last for the life of the client. It is not uncommon that brokers will earn commissions for years after one introduction.

NI: What do you consider the best methods for finding leads to make money in the cash flow business?

For consultants we see that the most successful brokers are those who have a strong Internet presence and who have made the rounds the hard way, knocking on doors and making calls.

Unless a broker starts out well connected, getting into regular networking circles, sending updates to everyone they meet, and attending networking events will all forge beneficial relationships as long as brokers follow up. A broker who sits back and waits for the phone to ring is likely to starve for new business.

NI: What advice would you give to new professionals just starting out in the cash flow industry?

Hit the pavement and use your daily hours as means to find local businesses who will meet personally with you and exhausted Internet search engines. When searching for new leads, plug in the types of businesses which are listed with each of your funding sources. Businesses who already use a funding source may not be happy and may be very open to exploring the possibility of getting a new deal, or finding a new company with better services.

Monterey works with many clients who are working with other consumer finance lenders. We could be splitting the business for very high volume clients or we may be reviewing and purchasing contracts which traditional lenders will not consider for approval. Either way, a successful consultant doesn’t immediately hang up the phone when a business says that they are already working with someone.

NI: What is the most common business mistake you see people make?

Trying to force a fit is by far the biggest mistake. Brokers are either not listening to the clients or their funding sources, or both. There are brokers who think that they can force a deal through, but it ends up being a waste of time for all involved.

NI: Given the current economy, have you made any changes in the way you transact business?

Monterey has made several changes in our financing parameters. For clients we have tightened up requirements, especially clients who deliver services over a long period of time. Those are high risk client and Monterey stands to lose a significant amount of money if they go out of business.

NI: Where can people contact you to obtain more information?

Our toll free number is 800.456.2225 and anyone can ask for the sales department. If a broker wants to revisit our program, or if one has never spoken with us, we are happy to provide a comprehensive broker package and answer any questions. Brokers may also contact us through our website, www.montereyfinancial.com, or by sending an email to sales@montereyfinancial.com.

NI: Is there anything else you would like to share with our readers?

If you haven’t read through our broker package in a while, request a new one and take a glance at our rates, industry list, and commission structure. The newest revision includes a jump on our max finance amount (per contract) from $15,000 to $25,000. This will open up new opportunities in many industries!

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.

Being in the cash flow business means working hard and enjoying the freedoms of being your own boss. For us that means taking some time to ride across this great country for the 70th Anniversary Sturgis Rally.

We’ve been seeing incredible sites, including the Badlands, Mt. Rushmore, and Custer State Park to name just a few. Fred is taking it all in from his 2003 Harley-Davidson Ultra and I’m on my 2000 Harley-Davidson FatBoy.

And it’s not over yet – we still get to ride home! Who knows, we might even find some seller-financed notes along the way.

To your success,

Tracy Z. and Fred Rewey

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.

A note buyer’s first concern is to make a fair return and be sure their investment is protected should the monthly payments stop coming in. They would love to be the only game in town, but they know there’s competition. So they balance competitive pricing with yield and safety.

Just Put Down the Shotgun Gun

The investor is happy to make offers, however they do NOT want to waste their time and money on a multitude of quote requests they will never see as deals. That means the “shotgun” approach, faxing or emailing a transaction to 8-20 investors on auto dial, is highly discouraged.

Seeing a deal that has been broadcast to the entire note investor world gives the sender an unfavorable reputation. It can also drive a credit score down if a large number of note buyers start pulling a report. This in turn can pull the price down.

What About the Listing Services?

Registering the deal on a note listing service is pretty much the same as faxing it to 20 or more investors. Plus, many of the people making offers might actually be other note brokers themselves. Whenever possible get direct with the investor.

Ok, so now we’ve put down the shotgun. How do you find the best offer knowing that quotes can sometimes vary by thousands of dollars, especially depending on an investor’s preference?

Try a Bit of Target Practice

Having been on both the buying and selling sides of cash flow notes for over 20 years, we suggest a targeted approach.

First, talk to the seller and verify the information on the analysis worksheet. If possible, get a copy of the note, closing statement, and mortgage or trust deed.

Next, pull out your list of note investors and start matching the transaction with three mortgage buyers you believe to be best suited to the deal. This should be based on research of their preferred parameters including property type, location, equity, seasoning, credit scores, and documentation.

Now submit the quote request to three targeted investors that were a top match. If the quotes meet the seller’s expectations you are in good shape. If not, then try the next 2-3 on you list.

Grab Your Copy of the Note Buyer Directory

If you are searching for a list of note investors you might want to try the directory in the bookstore. You can also use an Internet search tool like Google.

Just know that it takes a lot of time, trial, and error to sort the real offers from the scams. It’s always nice to have reliable short cuts.

The updated directory is like having access to our personal Rolodex of note buyers. Click here to grab your copy and we’ll throw in the 21 Secrets Report for free!

I’ve written several articles about the wealth of information online that can help you make a decision about whether to buy a real estate note or a property. County records and real estate-related websites can help round out the due diligence process. Many if not most real estate investors know how to efficiently utilize these sites, so they are not the subject of this article.

But how often do you do research on your note holder or property seller? They seem nice enough the first time they call you, right? Could it be they might have something to hide? After all, people normally only sell discounted notes and/or properties for two reasons: They need money or they need to be rid of a problem. Maybe, just maybe, the internet can allow you to fill in the blanks when the seller isn’t being entirely forthcoming. What? You’d like a real-world example? Funny you should ask – I received a call this morning that prompted the writing of this article.

An older gentleman called me looking to sell a small note. In 2008, he loaned his son some money after the son had depleted his savings by buying a new house. What would be your first question here? The terms of the note? The timeliness of payments? How about whether the note was secured by anything? If you answered the last question, you are correct. As is often the case of loans between family members, there was nothing securing payment except the possibility of being ostracized from the next family reunion.

Without detailing the conversation word-for-word, I told the note holder the note would have to be secured by something with real value. He told me he owned a mobile home on ten acres that was worth about $120,000 more than he owed on it. He was willing to give me a 2nd mortgage on it as security should his son default on the note. At that point I was noncommittal, but said I might try to run out to the property and take a look. First, I asked him to fax me a copy of the note, the pay history from inception (it was serviced at a local title company, which was a good thing), and a copy of the appraisal he had recently gotten on the property.

After we hung up, I do what I always do at this point in the transactional life: I did a Google search on the seller. If you’ve never taken this step, you might be shocked at the volume of information available at your fingertips. In the past, I have uncovered sellers who are convicted criminals, slumlords in the midst of class-action lawsuits, and those in the throes of bankruptcy. Think back to the reasons mentioned above why sellers sell – now do you understand why a little ‘seller intel’ might be in order?

Immediately my screen filled with news stories about my seller. Turns out he had been criminally charged with a very serious offense in 2009. Twice he had summoned the court to plead guilty on the charges, then rescinded his plea at the hearings. One of his attorneys requested that the court administer a mental competency test to his client. Another attorney resigned from the case due to non-payment of legal bills. Several other sources who had prior business dealings with this seller called him a crook, liar, cheat, and worse. In fact, there have been over 20 prior court cases involving this seller and bad business dealings over the past several years. I guess now we at least know why our seller needs some cash, right?

What do you think? Should I move forward with the deal? Some of you might think I don’t have any worries – first, the son, not the seller, is making the payments. Second, if I have collateral securing my note, what do I care if the seller is a crook?

What if the seller is trying to liquidate his assets because of a civil lawsuit being brought by the members of the family he committed his crime against? What if my seller is in bankruptcy, and the court has jurisdiction over the property he’s offered as collateral? What if my seller goes to jail if and when he’s convicted? Do you really think I want to get involved with so many unknowns floating around out there?

It took me less than two minutes, or about the time it took to read the first news story about this character’s crime, to determine I wanted no part of this seller or his note. This brings me to one last thing about the internet: It doesn’t let me waste my time on deals that are bad news from the start. Now THAT’S a good friend.

About the Author: Clint Hinman is the President of Proficient Note Buyers LLC, a buyer and broker of non-performing notes/loans and REO. With over 17 years of experience in real estate-related cash flows, Clint is part investor, part broker, part consultant, and part plain nuts. Contact him at clint@pronotebuyers.com or visit his website at www.pronotebuyers.com.

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!

• Property:  Commercial Building used as Veterinarian’s Office
• Type:  Colorado Deed of Trust and Promissory Note
• Sale Price:   $500,000
• Down Payment:   $25,000
• Original Balance:  $475,000
• Terms:  8% interest payable in 360 payments of $3,485.38 per month
• Payments Made:  45 plus extra principal
• Remaining Balance:  $429,376.98
• Remaining Term:  260 months

Partial Purchase #1 – The seller needed a lump sum of cash but didn’t want to discount the whole thing. The solution was a partial purchase for the next 29 payments.

Partial Purchase #2 – Two months later the seller wants more cash so sells an additional 31 payments.

Partial Purchase #3 – Four more months go by and the seller assigns another 36 payments.

Final Purchase #4 – About a year after the first partial purchase the seller decides to sell the final 164 remaining payments.

That’s four broker referral fees on one note in a year’s time!

Who says cash flow notes don’t generate residual income?

While this is a real transaction, it’s important to know these results aren’t typical. With a full purchase there is just a one-time fee averaging 3-7%.

However, the partial purchase provides the initial referral fee plus an opportunity to earn additional fees if the seller decides to sell the rest of the note later.

Usually that’s done in two steps – not four!

Plus, not all note buyers will purchase partials and not all note sellers want partials.

In our note broker training we suggest cash flow brokers tickle their calendar for a return call every 12 months to sellers on all partial deals. This is a great time to touch base regarding the status of their remainder interest and whether they would like to sell all or part of their remaining payments. It also helps to use a partial agreement that grants an option or first right of refusal on the future payments.

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