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.

Observations on Owner Financing Market Growth

• The number of seller carry-back loans grew 15% in 2010 and will exceed an additional 25% growth rate in 2011.

• This trend should continue. The first 3 weeks of January 2012 saw a 35% increase in seller loans created over the first 3 weeks of 2011.

• Rehabbers and developers were a major producer of notes through 2007 as indicated by sellers who created more than one note (over 20% of all notes created).

• The current market is dominated by individual sellers who create only one note (over 90% of the market in 2011).

Source: Report released 1/20/12 by Advanced Seller Data Services. See insert for additional details including an owner financing count by state and a graph comparison.

Click to View Full Report and Graph

 

 

Why Seller Financing Is On The Rise

It’s no secret that banks have tightened lending criteria following the subprime meltdown and a record number of defaults. It takes a credit score over 720 and 20% cash down to qualify for the best conventional financing rates.

On top of all that, many buyers have experienced a decline in their credit ratings due to foreclosure or job loss in the wake of a weak economy and declining real estate market. These ingredients combine to make a recipe for alternative creative financing like the seller carry-back.

About Note Seller Lists

A proven method for finding and buying real estate notes is mailing to owner financed note holders. Advanced Seller Data Services makes it easy to obtain this information by compiling the courthouse data and selling in a convenient ready to use format. No more going to the courthouse to find notes.

When we interviewed ASDS President Scott Arpan back in October of 2010, he predicted this increase with the following comment,

“As real estate agents, sellers and buyers discover the benefits of seller financing we will see even more of a boom. I believe now is the best time to enter the note business since the mid 1990’s.”

You can catch that full interview including information on their services by clicking here: Find Cash Flow Notes with Note Seller Lists  or visit them online at NoteSellerList.com.

Learning The Note Business

The note business involves matching sellers with note buyers and earning a fee.  As a note broker learns the business they can consider the transition to purchasing notes for their own portfolio or in tax-free retirement accounts. You may enjoy these articles to learn more about the note business:

Learn the Note Business in 60 Seconds?

5 Myths About the Cash Flow Note Business

Going From Note Broker to Note Buyer

It’s natural for sellers to want to know the amount of money they will receive to sell future payments on a contract or mortgage. After all, it is the need for cash that made them make the call in the first place.

But if you listen closely, you will realize they are asking something beyond just the bottom line number. Sellers want to know:

Will you pay me a competitive price?

Are you trying to take advantage of me?

Will you treat me fairly?

This means the answer needs to accomplish several things:

1. Reassure the seller;
2. Help the seller understand why pricing varies;
3. Establish a friendly yet professional relationship; and
4. Set the stage to obtain enough information to provide a quote.

Of course the simplest answer to:

“What’s Your Discount?”

would be

“It depends!”

But be careful – what you say next is very important. Here’s the standard script we use to both reassure and answer the seller’s question.

“How much we pay really depends on your note. Each transaction is unique so we look to 5 key factors for pricing.

These include the type of property, the buyer’s down payment and credit rating, how long the buyer has been paying you, and the terms of your note like interest and payment amount. An average note will demand 75 to 95 cents on the dollar depending on the items mentioned.

If you have a few minutes we can go over the details of your individual deal. This helps us calculate the accurate fair market value of your payments rather than just a ballpark estimate. This of course is at no cost or obligation to you. Do you have a few minutes now to answer some simple questions about the property you sold?”

We then take the time to ask them questions about the transaction to gather enough information to complete the intake form or quote request worksheet. If possible, we also obtain a copy of the note, mortgage (deed of trust, or contract), and settlement statement. We can then provide an accurate quote subject to standard due diligence.

However you decide to answer the discount question, just be sure to address the seller’s real underlying question, “Will you treat me fairly?”

Looking for more scripts and tips?  Be sure to visit our bookstore for Personal Profit Series: Notes – Your Complete Money Making System to Buying, Referring, Creating and Holding Real Estate Notes!

Often they are interested in making money as a broker with cash flow notes.

Increasingly we find it is sellers looking to sell a property fast or buyers wanting to purchase a home without a bank loan.

But where do you turn for real answers that won’t break the bank?

For anyone wanting to learn owner financing we proudly offer Personal Profit Series: Notes, a complete home study course for only $99.97.

Order Your Copy Now!

Yes, – I Can’t Wait To Get My Copy of Personal Profit Series: Notes! Retail Price: $149.95 Sale Price: $99.97

Order Your Copy Now!

Yes, – I Can’t Wait To Get My Copy of Personal Profit Series: Notes! Retail Price: $149.95 Sale Price: $99.97

In search of alternative financing methods, many buyers, sellers, and investors are turning to the seller carry-back. Be sure to review the 5 most read seller financing articles in 2009 as you plan for the upcoming year.

#5 – The Downside of Owner Financing – Disadvantages to Seller Financing
What’s old is new again and the credit crisis, struggling economy, and declining real estate market made seller financing the come back kid of 2009.

Offering to owner finance a property can attract buyers and even save transactions as banks increasingly stamp “DECLINED” on mortgage applications. Before you agree to “Be the Bank” carefully consider the downside to providing creative financing. Read More…

#4 – Owner Financing – Avoid 5 Balloon Mortgage Pitfalls
Using a balloon payment with owner financing can be a valuable addition to a mortgage note or land contract.

Unfortunately many sellers and buyers unknowingly combine a balloon payment with high risk factors turning a positive into a negative. Be sure to avoid these common pitfalls when considering seller financing with balloon mortgages. Read More…

#3 – Directory of Owner Financed Note Buyers and Service Providers
Sometimes it is not only what you know, but also who you know.

Gain access to our personal Rolodex of experienced professionals with the Directory of Owner Financed Note Buyers (now updated for 2010)! Work direct with knowledgeable investors, educators, master note brokers, and service providers. Read More…

#2 – How Congress Wants to Change Seller Financing!
Rarely does legislation have the potential to impact the world of seller financing as severely as HR 1728: Mortgage Reform and Anti-Predatory Lending Act. Read More…

After passing the House on May 7, 2009, this bill has been stalled in the Senate. Now Note Investor has discovered that most of the provisions and restrictions of HR 1728, including the limitations on seller financing, have been included as part of HR 4173. Also known as The Wall Street Reform and Consumer Protection Act, this bill passed the House on December 11, 2009 and now goes before the Senate. Read More…

#1 – Using Owner Financing with the $8,000 First Time Home Buyers Tax Credit
In an effort to stimulate the housing market and overall economy the government provided first time home buyers with an $8,000 incentive. Read More…

Next the $8,000 tax credit was extended to April 30, 2010 and also expanded to include existing home owners. Read More…

This led many to wonder if seller financing could be used for qualified buyers hoping to cash in on the $8,000 tax credit. Fortunately, the IRS responded with a definitive “Yes!” to this question and outlined factors to evidence the benefits and burdens of home ownership. Read More…

Thanks to all of our faithful readers for making 2009 a great year at NoteInvestor.com. We wish everyone a successful and prosperous 2010!

All across America rural communities turn to the seller carry-back to provide financing for areas that large-scale mortgage lenders have historically bypassed for larger metropolitan areas.

When banks declined a mortgage loan in rural Kentucky owner financing provided a creative financing solution.

A long-time renter wanted to purchase the property they had been living in for several years. The seller was retiring to Florida and did not want to manage property long distance.  Although the renter could easily afford the payment they had not been able to save up for a down payment.  The combination of a low value rural property with no down payment made it a “no-go” with conventional lenders.

Knowing the tenant had always paid the rent timely, the seller agreed to owner finance the 1,150 square foot 2 bedroom 1 bath home.  They agreed to a note and mortgage with the following terms:

• Sales Price                        $25,000
• Down Payment                  -0-
• Seller Financed Note      $25,000
• Interest Rate                       5.0%
• Payment                             $265.16
• Term                                    10 years (120 months)

Almost three years went by and the seller desired cash now rather than payments over time.  The buyer had paid down their principal balance to $18,760.97 and had 7 years of monthly payments remaining.

The seller contacted a note broker advertising to provide cash now in exchange for future payments. Knowing this was just the type of investment that private investors targeted for self-directed retirement accounts, the broker contacted our office.

After reviewing the documents and performing due diligence, an offer was made to purchase the note and mortgage for $12,546.  Because the note was discounted for risk, the investor anticipated an 18.2% return on investment.  The broker deducted their fee of $800 and the seller received $11,746 at closing.

The only thing that changed for the buyer was where they mailed the monthly payment.  All terms including the 5% interest rate, stay the same when a note is purchased.

The buyer continued to make payments to the investor for another 5 years and then ended up paying the full balance off early, without prepayment penalty.  Since the note buyer received the money sooner, the actual yield increased to 19.10%.  The investment had been made in a self-directed retirement account so the gains were tax-deferred (or tax-free with a Roth IRA).

Real deals are based on actual transactions completed within the past ten years. Market conditions change frequently resulting in pricing and underwriting changes by note investors so actual results may vary. Work with qualified professionals when creating new notes to obtain accurate and up-to-date pricing and investment parameters.

Suffering from whiplash, banks are clutching tightly to funds and routinely declining home mortgage loans. Individual sellers and private investors are forced to think creatively by offering financing terms to anyone that is less than an A+ borrower.

The Mortgage Reform and Anti-Predatory Lending Act passed the house on May 7, 2009 and was received in the Senate on May 12th. It was then read twice and referred to the Committee on Banking, Housing, and Urban Affairs. While the official status has not changed we wanted to pass along an informative update.

One of our readers was kind enough to post a comment on our original article post entitled How Congress Wants to Change Seller Financing.   The following provides the reader’s comment including a response from the National Association of REALTORS®:

Jeffrey Smith Commented on June 8th, 2009 6:30 pm
The National Association of Realtors is ready to tackle this issue:
——————————–
2009 June 8
Mr. Smith:

Thank you for forwarding us your concerns regarding seller financing. We understand that the restriction of 1 seller financed property every three years is of great concern to our members, and NAR greatly appreciates receiving all of the comments related to this topic.

First, please know that H.R. 1728, “The Mortgage Reform and Anti-Predatory Lending Act of 2009″, will not be taken up by the Senate any time soon. Senate Banking Chairman, Chris Dodd, has indicated this a couple of times over the last few weeks, with his latest comments appearing in the May 26th release of Inside Regulatory Strategies. In the article, an industry executive is quoted as saying that this is “deja vu all over again”, referring to the 2007 anti-predatory lending bill that was sent to the Senate and died due to inaction. Moreover, Chairman Dodd indicated that “this issue is not on his ‘mustdo list’, which includes credit card reform, financial modernization, and the oversight of TARP.” Senator Dodd goes further and states, “he’s not minimizing predatory lending, but the financial crisis has pretty much collapsed the subprime market, where the majority of abusive and predatory practices took place.”

Second, when the original language for H.R. 1728 was introduced, REALTORS® faced two significant issues: 1) being included in the definition of mortgage originator, which would have required additional licensing and educational requirements, and 2) having all consumers that finance the sale of their real property required to be licensed to do so. We worked hard, and successfully removed the requirement of REALTORS® licensed / registered as mortgage originators, and to allow seller financers not to have to register, or get licensed, to sell their own real property once every three years. Please note that: 1) NAR worked for a full exclusion for seller financers; however, had to accept the current language as a compromise or there would have been no exclusion, and 2) That the language does not prohibit consumers from financing the sale of more than 1 property every three years. If the consumer wants to finance more than 1 property every 3 years, they will have to be licensed as a mortgage originator, and become subject to the rules within H.R. 1728. It was Congress’ contention that this requirement would severely constrain the possibility of seller-financing as a loop hole for the unscrupulous businesses that preyed on consumers during the housing bubble.

With all that said, I would like you to take the following two messages from this e-mail and NAR. First, the bill looks like it will die due to inactivity in the Senate. Meaning, these requirements, which are not in effect, will not go into effect anytime soon. Second, if the bill begins to move in the Senate, NAR will work diligently to have a full exclusion for seller financing added to the Senate’s version of the bill, or increase the limitation so it does limited harm to consumers that have to utilize this type of financing.

Please let me know if you have any additional comments or concerns.

Thanks again for your comments.

Anthony Hutchinson
Sr. Policy Representative – Financial Services
National Association of REALTORS®

(202) 383-1120

While this response is certainly encouraging we must continue to contact State Senators to let them know how we feel.  NoteInvestor is urging the Senate to Vote NO on HR 1728. For a sample letter visit Why Save Owner Financing From HR 1728?

Rather than embracing the safety net offered by private parties the government wants to severely restrict the owner financed installment sale.

In May NoteInvestor.com reported the potential disaster that would ensue if the current version of HR 1728 The Mortgage Reform and Predatory Lending Act was enacted (Read: How Congress Wants to Change Seller Financing).

The response and concern has been encouraging with many readers requesting sample letters to use in communication with their State Senator.

We are pleased to share this sample letter provided by Clint Hinman, Editor of the NoteWorthy Newsletter:

Sample Letter – Please Vote No on HR 1728

Dear Senator [name];

My name is Clint Hinman and I have been a resident of Washington since 1993.

I am writing to encourage you to vote NO on HR 1728, the “Mortgage Reform and Anti-Predatory Lending Act”.

While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private property owners in the Act (see section 101(3)(e)) will enormously reduce the housing choices of Washingtonians and the ability of homeowners to sell properties in a market already languishing from an abundance of unsold properties.

As someone who buys and brokers owner financed notes, I encounter hundreds of instances every year where home sellers and buyers came to an agreement for an installment sale on a property that the owner desperately needed to sell (often to avoid foreclosure) and the buyer desperately wanted to buy, but could not raise the down payment needed for conventional financing.

In every situation, these sales were win-win deals for the buyer and seller:  The seller was able to get rid of an unwanted property to a buyer who loved it, and the buyer was able to get a new home at an affordable payment and interest rate with none of the usual costs (points, application fees etc) inherent in conventional mortgage transactions.

In Washington, these transactions are already regulated by state law.  A low maximum interest rate is already in place, and both the buyer and seller are protected by other regulations at the state level.

In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the “owner financing” market, which is often the only option for many sellers to sell and buyers to buy right now.

PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them – -they do not cause the problems this bill seeks to solve. They do not originate these notes to sell to government-sponsored entities (Fannie Mae, Freddie Mac, FHA, etc.), but instead hold them as investments, often as a source of long-term income.  HR 1728 would be extremely harmful to thousands of your constituents if passed as currently worded.

This legislation will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.

Thank you for your consideration.

Respectfully,

[Name and Contact Information]

Rarely does legislation have the potential to impact the world of seller financing as severely as HR 1728: Mortgage Reform and Anti-Predatory Lending Act.

This informative article by Ric Thom helps explain the ramifications of this proposed bill and what action we can take now to protect owner financing and our private property rights.

HR 1728: The Taking of Private Property Rights, by Ric Thom

Congress is trying to greatly restrict seller financing. This is a taking of our private property rights. The US House recently passed HR 1728 which limits you as an individual to sell real property using seller financing to only once every 36 months (HR 1728 Sec 101 Definition (3)(E)).

This bill was written to amend the Truth-In-Lending Act to regulate residential mortgage loan originators. This stems from the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or S.A.F.E, which established a national registry and standards for mortgage brokers.

This is all directed at mortgage brokers, mortgage companies and banks. These are third parties that provide loan proceeds to the buyer to purchase property. That’s a good thing, but for some reason Congress has included private property owners who wish to sell their property using seller financing.

Seller financing is where the buyer and seller negotiate a price, a payment plan, and interest rate. It’s an installment sale where the buyer pays the seller monthly and the buyer gets the use of the property. This is a frequently used method of buying and selling real estate especially in this economy of tight money. Banks are just not lending on, or are requiring huge amounts of cash down on, certain types of properties.

Seller financing is used tens of thousands of times every year, if not hundreds of thousands of times, to sell real estate. In New Mexico alone, with a population of fewer than 2,000,000, it is used over 5,000 times a year.

These acts are over-reaching and will have unintended consequences. The definition of a residential mortgage loan according to the Housing and Economic Recovery Act of 2008 means any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or on residential real estate upon which is constructed or is intended to be constructed a dwelling (Sec 1503 Definition (8)).

This means any vacant land would fall under this act. A dwelling can be a house, condo, or mobile home. Here are just a few examples of the consequences:

Scenario #1 - Let’s say you are about to lose your home and you need another $1000 a month to make ends meet. You decide to sell your five acres in the mountains and your 1982 single-wide mobile home on one acre by the lake to make your mortgage payment. Banks are not lending on these types of properties and you need a quick sale, so you use seller financing. The problem is you need to sell both to get an extra $1000 per month, but the government has prohibited you from doing so because of the one every 36 month rule.

Scenario #2 - Suppose you have a self-directed IRA. Every year you buy property with cash out of the IRA. You then sell it using seller financing so you can get a 6% interest rate. You will be prohibited from doing so under the Act.

Scenario #3 - Let’s say you have four rental houses that you own free and clear. Part of your retirement plan was to sell them using seller financing with a 6 to 7% interest rate and a 30 year amortization providing a nice, monthly income. You don’t want cash because CDs only pay 2% and you already lost money in the stock market. But, under this act you are prohibited from selling them now. You can only sell one every 36 months.

These scenarios go on and on. They are as unique as the individuals and the properties. Real estate is not just a house in a California suburb. It is also vacant land, non-conforming housing, land and mobile home, duplexes, triplexes, farms and ranches, and recreational properties. These types of properties would fall under the Act.

Not everyone invests in the stock market. A lot of people invest in the above types of real estate. Not everyone wants to cash out when they sell their property; some people like seller financing for the income stream. Most states have escrow companies that hold the deeds or releases for buyers and sellers. They also keep track of the principal and interest and report interest to the IRS.

This bill takes away our right to use seller financing as we see fit. House Bill HR 1728 should exempt anyone who offers or negotiates terms of a real property sale financed in whole or in part by the seller and secured by the seller’s real property.

Why should individuals who had nothing to do with this crises be punished for the sins of the greedy Wall-Streeters? These acts are for mortgage machines, not Ma and Pa. I know the government is concerned about predatory practices, but is seems the local district attorney would be a more effective hammer than to regulate, restrict, and police every real property owner in America.

Besides, seller financing is not lending. It is an installment sale. The seller has agreed to receive their equity over time, plus a negotiated interest rate.

House Bill HR 1728 is headed for the US Senate. Please write your senator and have them exclude seller financing from these acts that are supposed to regulate the previously unlicensed mortgage brokers.

Write your state’s Realtor Association and the National Association of Realtors and ask them to help stop the government from taking away our right to sell our property the way we want to and when we want to. There should not be any restriction on how many properties we sell during a certain time period.

What’s next – just one transaction every 5 years, or no seller financing at all? This restriction is the last thing America needs in this great real estate compression. Please act now. Exempt Seller Financing From HR 1728. Please forward this to anyone you think should know about this issue.

To locate your Senator go to http://www.senate.gov/senators

To locate your state’s Realtor Association go to: http://www.realtor.org/leadrshp.nsf/webassoc

To read HR1728 go to: http://www.house.gov/apps/list/press/financialsvcs_dem/1728.pdf

About the Author: This informative article was written by long time note professional Rich Thom. For further information contact: Ric Thom, President of Security Escrow Corporation, Albuquerque, NM, Phone: (505) 266-3487, Email: ricthom51@yahoo.com, Web: http://www.securityescrow.com/about/

Note Investor Update: Please visit “Why Save Owner Financing From HR 1728?” for a sample letter to use in communicating with your State Senator.

Welcome to Real Deals! It’s always easier to learn from real life so here we share information from actual owner financed transactions.

The seller carry back can maximize profits when buying real estate wholesale and selling retail as utilized with this Tax Deed transaction in Arkansas.

Properties can be purchased at wholesale prices through a variety of methods including foreclosures, tax deed, probate, and other types of distressed sales. Properties are improved as necessary and then resold at higher retail prices. The seller has an opportunity to further increase profits by offering the buyer payments on terms with seller financing.

This strategy was used on an Arkansas property by paying $710.00 to the county for unpaid real estate taxes on a single-family residence. The property was next advertised for sale as follows:

• House For Sale
• Easy Terms
• Owner Will Finance

The property was then resold “as-is” to a buyer for $14,000 with cash down payment of $2,000 at closing. The remaining $12,000 balance was owner-financed at the rate of 10% interest payable in 60 payments of $254.96 per month.

The initial investment was recouped out of the down payment along with more than enough for expenses. Additionally a monthly income of $254.96 for 60 months was generated (with the buyer paying all taxes, insurance, and property maintenance). What’s the return? Well common sense tells you it’s good enough and a financial calculator will reflect a return of over 430%!

To sweeten the deal further, the investment was made in a self-directed Individual Retirement Arrangement (IRA) as a member of a Limited Liability Company. This provides the added benefit of investing tax-deferred, or even tax-free with a ROTH IRA.

Real deals are based on actual transactions completed within the past ten years. Market conditions change frequently resulting in pricing and underwriting changes by note investors. Work with qualified professionals when creating new notes to obtain accurate and up-to-date pricing and investment parameters.

With the economy and real estate markets on the decline seller financing is on the increase.  The installment sale is being pulled out of the toolbox as an alternative financing method to conventional loans.

As the owner financing method becomes a frequent topic among real estate agents, investors, and discussion boards there are inevitably some misconceptions being perpetuated. These three myths seem to continually reoccur:

MYTH #1 – The Seller Must Own Property Free and Clear to Offer Owner Financing

FACT: While zero existing debt on a property can be an advantage in seller financing it is NOT a requirement.   In fact, the majority of owner-financed transactions have a prior debt incurred by the seller from when they bought the property.  When the seller offers financing and this mortgage remains it is commonly known as a “Wraparound Mortgage” or “All Inclusive Trust Deed (AITD)”.

As the buyer makes payments to the seller on the new owner financing the seller must in turn continue to keep payments current with their lender.  This type of arrangement comes with risk, including a senior mortgage holder calling their note all due and payable for violation of the due on sale clause as explained in Wraparounds With Underling Liens.

MYTH #2 – Seller Financing Just Involves FSBO Deals

FACT: – A portion of seller financed notes are created from For Sale By Owner (FSBO) transactions but there are equally as many sellers using the services of a Real Estate Agent.  Experienced agents will often encourage sellers in slow markets to include “Owner Will Finance” in the MLS property listings.

These agents are still paid their commission at closing from proceeds, generally from the down payment funds.  In the rare cases there are not sufficient proceeds to cover the commission at closing some agents have elected to take back a note themselves for a portion of their fee.

MYTH #3 – There Are Only Second Liens With Seller Carry Back Financing

FACT: The majority of seller financed notes sold to investors for cash on the secondary market are NOT second liens. If the seller wrapped an existing mortgage and still owes money the note investor will pay off the seller’s debt at closing from the note purchase proceeds.  This puts the seller-financed note in first position.

There are also many second liens created from some version of the 80-10-10 transaction.  This is where the buyer puts 10% down, obtains an 80% bank loan the seller carries back the 10% remaining balance as a second lien.  The buyer’s new bank loan is in first position and the seller is in second position.

These small second position notes are highly risky transactions, especially in a falling real estate market. Many note investors decline to purchase a small second due to the high risk of default on a low equity high LTV subordinate lien.  This is covered in more detail in Should I Owner Finance a Second Mortgage?

Recognizing these common misconceptions and their myth busters will help sellers, investors, brokers, and buyers put seller financing to good use during the sub prime mortgage meltdown.