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 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

In addition to buying real estate notes as a private investor she has provided marketing consulting to the nation’s top institutional note buyers.

The author of several acclaimed books published by McGraw Hill and a past board member of the National Association of Real Estate Investors, she will wow you with her knowledge and dynamic presentation skills.

To know Lisa is to have met the “Ever Ready Bunny” in person.  She is non-stop energy that would give any three-year old a run for their money. I’m honored to call her a friend and business associate. Oh, and if you ever catch her at a Piano Bar make sure to request her killer rendition of Hey Jude!

An Interview With Lisa Moren Bromma, Real Estate Investor and Note Buyer

What is the current focus of your company?

My focus is creating dependable passive income using both real estate and notes.

I am currently looking for a mobile home park where I can add additional homes that I sell on terms, and then continue to receive monthly lot rents, which will help accomplish my goal.

I have bought, sold and traded real estate assets and continue to believe that the combination of real estate and notes can help me and my business achieve its goals.

How did you get started in the note business?

I moved to Asheville, NC area in 1988 to semi retire. I thought I would acquire real estate investments in NC. I went to a local REIA (Real Estate Investor Association) and met people in the note business that introduced us to paper. We learned the business by going out there and doing it. I have continued to buy seller-financed mortgage notes since my days in NC.

What unique benefits does your company provide?

I am not an institutional investor. I do invest for my own account, and occasionally lend money privately out of my IRA to real estate investors with a track record. I have been doing a lot of equity participation deals lately where I receive income and have the potential of future appreciation at the time of sale.

I have two companies. Ocean Park Marketing, LLC provides marketing and consulting services to the financial services and real estate investment communities.

Wise Women Investor is devoted to helping women achieve their financial goals through real estate and cash flow investing. I have a radio show through Wise Women Investor where I feature experts to share tips and strategies to help other succeed. Recently, Tracy Z Rewey joined me on our show.

What type of real estate notes or deals do you like to target for your own investment?

I like both residential and commercial as long as the ITV makes sense. In commercial the ITV must be below 50%. I buy partials. I do not buy land or personal property notes.

What do you consider your best methods for finding note deals?

I like a combination of Internet and direct marketing, networking and teaching potential strategic alliances how to create marketable paper.

I am a big believer in working with third-party referral sources such as Realtors, Estate Attorney’s and CPA’s. I have developed programs that target these audiences specifically, including a CE program that helps professionals understand the benefits of why seller financing makes sense in today’s market, and these professionals get continuing educational credit hours towards keeping their licenses current.

I frequently attend real estate investor meetings in my local marketplace, as they can be a great source of notes and real estate.

I have written 3 books published by McGraw Hill. This establishes me as a credible expert with professional audiences. I use them as I would a business card.

You are well-known in the business as a leading marketing expert and consultant. What are the first things you look for when evaluating a marketing plan?

Thanks for saying this. I look to see if my potential client is really addressing the needs of the market.

• Is their plan specific, measurable, achievable?
• Are their goals realistic?
• Do they know who their competition is?
• How have they positioned themselves in the marketplace?
• What about building their brand?
• How do they get their word out and make sure to be remembered?

Finally, I look to see if they develop a unique selling proposition to make sure the message they want to deliver is one that will resonate with the prospect.

What advice would you give new professionals just starting out in the note business?

• Know your stuff.
• Get educated.
• Develop a network of experienced players in the industry.
• Make sure you know how to use a calculator and how to submit a package that an investor will bid on.
• Do not be afraid to get out there and market. Always present yourself as a professional.
• You can make money or you can make excuses but you can’t make both. When starting out, make no excuses, do what it takes to get you in the trenches, knowledgeable and confident that you have found your niche.
• How you present yourself is directly related to your success in this business.

What is the most common mistake you see note brokers make?

Not addressing the needs of the note seller. Frankly, most brokers want to tell them all about their company and themselves, when in fact the conversation should be about them the seller, not you the broker. Also, don’t rely on one option, one solution. Be in a position to offer multiple solutions to the seller’s problem. People do business with people they like and trust. When you are working for them, they will trust because you are responding to their need. Realize you will not close every transaction, and that is ok. Just keep marketing!

Given the economy, have you made any changes in the way you buy notes or real estate?

Yes, I am very careful with my own account. I not only do due diligence on the deal, I also research the market where the deal is coming from to see if it makes sense for me to invest in a market with little or no potential for improvement over the next few years. Right now I am only buying in Florida where I live or in markets where I have someone on the ground to assist me in my due diligence. I only buy notes on properties I would be willing to own.

Where do you see opportunity?

I see multiple opportunities. I believe seller-financing will continue to grow as our economy continues to be volatile, and banks will continue to be tight on lending. The foreclosure problem is real. To me it means real estate is on sale. There will always be situations where the seller must sell, and not necessarily for financial reasons alone. I look at the market like many did in the mid 80′s. People will have to create paper in order to sell a home.

Where can someone contact Lisa Moren Bromma?

My website www.wisewomeninvestor.com people can reach me there or through lmorenoceanpark@gmail.com

I am happy to answer any questions.

Is there anything else you would like to share?

The note business is not a get rich quick business. It takes education, perseverance, and patience. You must always be marketing and learning what others, investors and sellers require of you. If you treat this as a business, with the respect it deserves and if you are not afraid to go outside the typical channels of marketing, it is my belief you will be successful.

If you are investing for your own account, remember that no one will care more about your money then you. Be extra careful before you buy.

The Noteworthy Convention Main Event is Friday-Sunday, November 11-13th

It offers three days of sessions focusing on building wealth and generating income with seller financing, distressed assets, creative real estate investing, private lending, and more. There will be expert panel discussions, Q&A sessions, introductions to key vendors, and networking events throughout.

They are currently offering Early Bird Registration for $399 until October 16th with several “Early Bird” Bonus Items:

1) The NoteWorthy Pre-Convention Workshop on Thursday, November 10th

A half-day workshop that runs from 1-5 pm will be taught by Note industry veterans. This ‘Making Money with Notes 101′ workshop is geared towards new note brokers or investors wanting a refresher course in the economic fundamentals of note buying.

 2) $477 in proprietary software for your note business

 3)  Discounts on additional spouse or partner tickets

The convention will focus on turning a down real estate market into a viable note business by harnessing the power of seller financing and private mortgage notes. We all know real estate investing in most markets is pretty tough right now. Here are just a few of the challenges:

• You can’t count on property appreciation anymore. In fact, most investors LOST equity in their properties over the past 3-5  years.

•  You can’t count on you (or your buyers) getting financed by the banks.

• Short sales flips are pretty much DOA.

• It’s tough to get private money for your deals.

We could go on and on, but we all know the challenges already, right?  After all, they are the reasons we are seeing seller financing making a huge comeback.

You can view the full NoteWorthy Convention Video here.

(Spoiler alert…..the secret niche is….the note business!)

We share your pain.

First the Safe Act had a say on Seller Financing and then the Dodd Frank Act.

Why the government would want to slow the housing rebound further by putting stringent restrictions on seller financing – one of the few alternatives to bank financing available in today’s struggling economy- is beyond us.

And it’s not over yet.

Government agencies are still sorting through how to implement portions of the laws affecting both seller financing and lenders in general. The outcome will affect sellers that want to owner finance and when they want to “sell my note!”

Ric Thom, a long time note buyer and servicing agent, shares our concerns.  He recently wrote in to urge NoteInvestor.com readers to take action by commenting on proposed rules before an upcoming deadline. He’s spent considerable time researching the issues and you are sure to find his following thoughts insightful.

Owner Financing Laws – From the Desk of Ric Thom

The Federal Reserve is requesting comments on the proposed rule of the ability-to-repay.  NAR refers to it as Qualified Mortgage which appears on page 10 of the proposed rule.

This standard would be applied to seller financing.  It’s the same underwriting standards that banks are required to perform.  The bottom line is that the only people who will be able to use seller financing are the same people who would be able to qualify for conventional financing.

This rule also allows the buyer a three year right of rescission if the seller did not properly qualify them.  This right to rescission also applies to anyone who has bought the note.

Comments are due before or on July 22, 2011.  I have attached my comments.  Please get the word out.

I have also given a link to the National Association of Realtors (NAR) website which summarizes the final SAFE Act rule as it pertains to seller financing and a brief update on Dodd-Frank.

My Comments on the Dodd-Frank Act and Seller Financing

Submitted by Ric Thom President of Security Escrow Corporation

The Dodd-Frank Act does not exempt property owners who wish to use seller financing (installment sale) even though no money is lent, there is no table funding, and under the Truth and Lending Act they are not considered creditors.

The Dodd-Frank Act (ACT) does exempt property owners who offer seller financing from having to become Mortgage Loan Originators (MLO) provided they only sell 3 properties or less in a 12 month period and they follow the restrictions below. Yet, the Act subjects the property owner to the same liability as an MLO.

Title XIV Section 1401 (2) (E)

1. The seller did not construct the home to which the financing is being applied.

2. The loan is fully amortizing (no balloon mortgages allowed).

3. The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan.

4. The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps.

5. The loan meets other criteria set by the Federal Reserve Board.

Under this Act the only buyers who will be able to use seller financing are the buyers who can already qualify for conventional financing with perhaps the exception of how much of a down payment they need. Seller financing has always been the alternative to government regulated financing. It is a meeting of the minds between two private individuals who negotiate an arm’s length contract to purchase property using an installment sale.

The following is a breakdown of these restrictions. I listed them in order of greatest impact on property owners, buyers and the economy.

3. The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan

The implication is that the seller must use the ability-to-repay underwriting requirements when offering seller financing consistent with the Dodd-Frank Act which amends the Truth in Lending Act. This new, proposed rule is 169 pages long. http://www.gpo.gov/fdsys/pkg/FR-2011-05-11/html/2011-9766.htm

The Consumer Financial Protection Bureau has spent a lot of energy developing a new, easy to read, two page mortgage disclosure form. It is unreasonable to expect sellers and buyers to fully understand and apply this 169 page rule. If buyer’s and seller’s negotiations deviate in the least the buyer has up to three years to rescind the sale and demand back all money paid to the seller, or anyone that the seller might have assigned rights and interest to, or any bank who takes the note as a collateral assignment.

This could be financially devastating to the seller. Let’s not forget that today’s buyer will be tomorrow’s seller. These sellers are a diverse group. They come from all walks of life: low income, high income, non-English speaking, seniors, widows, minorities but this requirement places the same standards on individuals as banks and mortgage lenders, only with more risk – the banker is in the business of mortgage loan origination and factors that risk into his business plan, whereas the individual seller does not have capital reserves and doesn’t do this as a business. Also, unlike a bank, they do not carry errors and omission insurance.

Unlike banks and mortgage lenders, both the buyer and seller are consumers. They should both be equally protected. The buyer is purchasing real property and the seller is investing in/creating a financial product where they receive their equity over time. The seller is relying on the buyer to make monthly payments and maintain and protect the property. Terms are not dictated to either party, but rather they are negotiated between the parties.

Requiring the buyer to turn over all their financial information to a stranger opens the door for Identification theft and fraud. Furthermore, why should the buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.

This also creates the opportunity for predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. (An example of that could be a balloon, an interest rate greater than 1.49% above a standard mortgage, or the seller did not know how to calculate the income to debit ratio correctly, or know what residual income means). That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.

The SAFE Act does not put in place the ability to repay requirements, or any other requirements, unless the individual habitually and repeatedly uses seller financing in a commercial context. So there is some consistency between the two laws the Dodd-Frank Act should not require sellers to use the standard of the ability-to-repay unless they use seller financing more than three times in a 12 month period. It is HUD’s feeling that Congress never intended under the SAFE Act to restrict private property owners from using seller financing, unless they did it as a business.

2. The loan is fully amortizing (no balloon mortgages allowed).

There is a good chance that a seller 55 years or older will die before receiving all their equity by not allowing them to negotiate a balloon payment. A lot of seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30 year investment. The Dodd-Frank Act does the same thing insurance companies do who sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.

The restriction of no balloon doesn’t affect just seniors, it has financial consequences for anyone using seller financing. Under the Dodd-Frank Act community banks are allowed to originate fully amortizing loans with a five year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act refuses to recognize that private property owners who have 100% skin in the game need the same protection. Obviously the Act does not feel that a five year balloon is predatory lending. This restriction should not be placed on seller financing until a property owner sells more than three properties in a 12 month period. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.

4. The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps.

This restriction is reasonable, but it will eliminate the ability for any buyer to wrap an existing obligation that has an adjustable rate even if they feel they can afford any rate increase. Again, for consistency with the SAFE Act there should not be any restrictions on any property owner that uses seller financing 3 or fewer times in a 12 month period. If the seller does not know about the ability-to-repay requirements and that they are not able to have a balloon, they certainly will not know that you have to have a fixed interest rate for the first five years.

1. The seller did not construct the home to which the financing is being applied.

There are a lot of small builders that have a spec house or two that they can’t sell unless they offer great terms using seller financing. Otherwise they have to let these properties go back to the bank which does not help housing or the economy. There is also that group of out of work construction workers who built their own homes when times were good and now need to sell. This takes away their ability to use seller financing. Builders should not be subject to any restrictions unless they sell more than three properties in a 12 month period using seller financing. Builders are in the business of building; not of originating loans.

Using a mortgage loan originator to facilitate a seller financed transaction creates additional risk and expense for both the buyer and the seller.

It has been said that a seller financing the sale of his or her own property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them. Furthermore, there is no provision in a MLO’s errors and omission insurance that covers seller financing. None of the continuing education classes or the exams that an MLO must complete has a single chapter or question regarding seller financing.

Who is supposed to pay the MLO? MLOs can charge a flat fee or up to 3% of the transaction. The only advertisements I have seen so far advertise a flat nonrefundable fee of $450. This fee has to be paid in advance, which makes sense because why would a MLO spend hours and hours on an installment sale transaction which might not close? If the buyer pays the fee, then this is a forced origination fee never before imposed on buyers seeking seller financing. Why should the buyer have to pay money just to have an offer presented to the seller? A lot of buyers use seller financing because they are low income and seller financing, up to now, has been an inexpensive way to purchase property. If the seller pays they will have to pay money for the simple act of the MLO forwarding them the installment sale offer. If the seller receives multiple offers this could easily run into thousands of dollars in MLO fees just to sell their property. A lot of sellers are also low income individuals. The MLO will have to be a part of every offer and counteroffer because the sale and terms of an installment sale are one and the same and cannot be separated. For instance, the buyer might be willing to pay a higher interest rate if the seller is willing to come down on the price and down payment. A lot of seller financing takes place in rural areas that are underserved by mortgage lenders and banks. It is going to be very difficult to find a MLO in those areas who are also willing to take the risk facilitating a seller financed transaction. This has the potential of pushing seller financing underground – not a desired result.

The Dodd-Frank Act allows a property owner to use seller financing without having to become a mortgage loan originator as long as they don’t use it more than three times in a 12 month period and comply with the above restrictions. In the SAFE Act there are no restrictions to the number of times seller financing can be used as long as you are not in the business of being a mortgage loan originator. The coauthor of the Dodd-Frank Act, Representative Barney Frank, sent a letter to HUD on July 22, 2010 urging them to place the maximum amount of seller transactions that an individual could do before becoming a MLO, or having other restrictions on them, at five in a 12 month period. I would propose that the Dodd-Frank Act adopt that same number and place no restrictions on seller financing until 5 is surpassed. The only restrictions that should apply to 5 or less are those restrictions that the States already impose either through state statute or case law.

Under The Act loan officers at community banks do not have to become a Mortgage Loan Originator if they originate 5 or less transactions in a 12 month period. The rationale is that this is burdensome, costly and there is not enough volume to create a systemic risk. Ma and Pa on Main Street should be granted those same allowances. The Act puts more restrictions and risk on Ma and Pa than it does on financial institutions.

In watching the debates in Congress last summer it was repeatedly said that the Wall Street Reform and Consumer Financial Protection Act would not negatively affect or over regulate Ma and Pa on Main Street. If this doesn’t negatively affect and regulate seniors, minorities, and lower income individuals on Main Street I don’t know what does. These restrictions will all but do away with seller financing which will have a negative impact on housing, existing property owners, those desiring to be property owners and the economy.

Related Articles on Owner Financing Laws From NoteInvestor.com

Dodd-Frank Hijacks Seller Financing

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

How HUD Safe Act Will Hurt Seller Financing

Desperate homeowners are offering all sorts of incentives to buyers in the wake of some staggering new data.

But forget granite counter tops, hardwood floors, and shiny new cars.  What the real estate world needs is financing.

So first the harsh reality…and then the owner financing solution!

The National Association of Realtors (NAR) released some sobering news last week for February sales. Not to get you all depressed but consider this:

• Existing home sales dropped 9.6%
• Housing Inventory rose 3.5%
• All Cash Sales were a record 33%
• Discounted Distressed Homes were 39% of the market
• National Median Home Price fell 5.2% to $156,100

It should be mentioned that this decrease came after three months of improved numbers. But if you think its getting better soon consider that…

• one-third of all homeowners are underwater (owing more than their house is worth), and
• the 2.9 million homes in some stage of foreclosure in 2010 are still sorting their way through the market.

Wondering what the real estate world needs now?

Well it’s love sweet love from mortgage lenders.

But don’t take my word for it.

NAR chief economist, Lawrence Yun expects an uneven recovery.

“Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers,” he said.

“The decline in price corresponds to the record level of all-cash purchases where buyers – largely investors – are snapping up homes at bargain prices,” Yun explained.

“We’d be seeing greater numbers of traditional home buyers if mortgage credit conditions return to normal.”

(Source NAR news release 3/21/11 at http://www.realtor.org/press_room/news_releases/2011/03/feb_decline with emphasis added).

Tired of waiting for mortgage conditions to change?

Consider the Owner Financing Solution

Many sellers are taking matters into their own hands and offering seller financing. For Sale ads and listings abound with the “Owner Will Finance” incentive.

And the news is noticing. Seller financing was recently mentioned in USA Today in an article entitled Home Sellers Pull Out All Stops To Attract Wary Buyers.

Regular readers know I love seller financing!

I bought my first house as a single mom with financing from the owner and later purchased a 4-plex the same way. Next it was acting as a seller offering financing to a new buyer.

Now my husband and I benefit from buying seller financed notes at a discount for long-term interest as a strategy to build our retirement accounts. Another option is to earn referral fees finding real estate notes for note buyers. (If any of these strategies sound interesting be sure to check out the free video mini-course on finding cash flow notes.)

Of course it’s not without risk. The saying goes that you will pay for education one way or another. So it is best to invest in knowledge and seek help from competent legal and tax professionals upfront. You can also browse the articles here for more great free information including:

The Downside of Owner Financing – Disadvantages to Seller Financing

Owner Financing – 10 Advantages to Using the Seller Carry Back

Owner Financed Resources

About the Author: Tracy Z. Rewey has been helping sellers, buyers, and investors achieve their goals with owner financing for over 20 years. Grab your copy of her free report and newsletter at NoteInvestor.com. This article is copyrighted and available for reprint when a link to this site has been included.

In an effort to sell fast and stand out from the crowd, sellers are turning to the owner financed installment sale. By accepting payments over time from the buyer, the seller provides an alternative to bank financing. This attracts more buyers and helps the owner get attention in a market flooded by oversupply from foreclosures.

Of course sellers don’t want to jump from the frying pan into the fire by trading a house that won’t sell for a buyer that won’t pay.

Here are 5 safety tips for sellers considering an owner carry contract:

Tip #1 – Review the Buyer’s Credit

How buyers have paid bills in the past is a good indicator of how timely they will make future payments. Always review the buyer’s credit prior to accepting a promise to pay. Sellers can obtain a signed authorization from the buyer to pull credit through a reporting agency, or the seller could simply ask the buyer to obtain a copy of his or her report for the seller’s review.

Tip #2 – Get a Down Payment

The more money a buyer puts down, the more “skin” they have in the deal. The greater this equity, the lower the likelihood the buyer will stop paying.

When people have little to no equity, they are more likely to default or just walk away from the home. Few sellers want the hassle of taking back a property through foreclosure, so increase the odds in your favor by requiring a down payment.

Tip #3 – Set the Terms

The terms include interest rate, payment amount, frequency, and the due date for payment in full. There are also late fees, default clauses, requirements for insurance, and other standard provisions.

While the terms can be whatever the buyer and seller agree upon, it makes sense to set terms that are affordable to the buyer AND favorable to a note investor. This way a seller is more likely to own a note that is valuable to an investor in case they ever want to sell future payments for cash.

Tip #4 – Get Help with the Documents

In addition to putting the terms in writing, the documents evidence the lien. The obligation to pay (or IOU) usually takes the form of a promissory note, which is secured by an owner mortgage or trust deed recorded in the county records. A land contract or real estate contract are also used in some states. A qualified attorney or title company familiar with local laws should prepare the closing documents.

Tip #5 – Collect Payments Like a Pro

Tracking the payments, interest, and balance is often referred to as servicing the note. In addition to collecting payments, a servicer should verify the real estate taxes and insurance are kept current. The seller can perform servicing but it is a whole lot easier to hire a third party company to handle this process.

If you are looking for the complete system for safe owner financing be sure to read our how-to manual. It includes documents, examples, terms, credit reading tips, note investor criteria, and lessons learned from 20 years of real life experience.

Here is what one satisfied reader said:

“Your product is one of my go-to programs. I am glad you took the time to put it together. I think I paid more than 10x when it first came out and I think it was worth every penny!”  Greg G – Canyon Capital

Available today in our bookstore as an instant download for just $99.97

Article written and copyrighted by Tracy Z. Rewey at www.NoteInvestor.com.

It can also be the most difficult. Why?

Well it can seem a lot like looking for the proverbial needle in a haystack.

The Challenge with Real Estate Notes

On average about 6% of residential real estate sales involve some sort of seller financing. And it’s the seller carry-back that makes up the lion’s share of the cash flow note business.

Now it can be more or less depending on where you live. It’s also higher in a tough economy (like now) or with hard to finance properties (land, mobile homes, commercial, businesses, etc).

But that 6% has been a pretty reliable statistic for the 20+ years I’ve been buying and selling notes. I know six percent may seem like a small number but it can really add up.

Cash Flow Note Statistics

Just take a look at residential sales for one year. In 2009 there were 5.156 million existing home sales units with a median price of $172,500 [Source: National Association of Realtors®].

If we apply the 6% seller financing average that results in roughly 53.3 billion dollars of cash flow notes created in just one year. That number grows substantially when you combine with the notes created on new homes, land, mobile homes, business notes, and others not included in this NAR report.

So how do you find the needle in a haystack?

The Solution to Finding Cash Flow Notes

It’s a waste of valuable time and money to market your note buying services to the 94% of the population that don’t hold a note.

To find cash flow notes you need a powerful magnet…and that’s targeted marketing.

A marketing plan targeted solely to the needs of sellers holding cash flow notes is what will get your phone ringing and your pipeline full of deals.

To get more details on our five favorite methods for Finding Cash Flow Notes watch this special free video:

You can also read these additional articles on:

Finding Cash Flow Notes

Note Broker Questions: How Do I find Notes on a Budget?

Should I Visit the Courthouse to Find Cash Flow Notes?

Find Cash Flow Notes with Note Seller Lists

Thanks for your interest in OwnerPropertyFinancing.com.

If you own your real estate outright, or if you have seller financing that can be wrapped around, carrying the contract when you sell your house may be the smartest financial move you could make. Investing in a contract on your own property will give you a far higher rate of return than you could possibly get by investing in a bank CD – and it’s far safer than investing in the stock market.

And, since you control the terms of the agreement, you can specify a payoff in 3, 5, 7, or 10 years – in case you believe you’ll want a lump sum of cash at that time.

Buyers want and need seller financing, but first they have to find you…

Studies show that more than 80% of all buyers begin their search on the Internet, but finding listings offering seller financing is like finding needles in a haystack. To make matters more difficult, when buyers approach real estate agents for help, many simply won’t take the time to do the research for them.

That’s a shame, because the number of buyers seeking owner financing is growing.

These buyers fall into two categories – consumers who have been rejected by banks because they don’t fit the new mold, and those who are simply fed up with high bank fees and questionable banking practices, so don’t want to deal with them.

They’re having a tough time locating homes and land available with owner financing…

And that’s why OwnerPropertyFinancing.com was created.

We know seller financing is a good thing, because we’ve used it both as buyers and as sellers. And we want others to have the same advantage. Our sole purpose is to connect buyers who want owner financing with sellers who want to offer it.

Save money while you find buyers…

Listing your house or property for sale on OwnerPropertyFinancing.com is inexpensive. Depending upon where you live, a few lines for a few days in the newspaper can cost anywhere from $40 to $100.

In contrast, your ad on OwnerPropertyFinancing.com – complete with up to 7 photographs, descriptions, and the terms you offer, will stay on our site for one full year for only $49.95. In addition, as a member you can list up to 9 more properties at no additional charge.

That’s only 14 cents per day for full, detailed exposure in the place where the majority of buyers are looking – compared to about $10 per day for a few words in a newspaper ad – where few buyers look these days.

But wait, to introduce our service to you, the first 100 property owners or sellers that respond to this invitation will get their first year’s subscription absolutely FREE, which is a savings of $49.95.

While we are already generating good traffic, we’re also working hard to set up network relationships and posting property listings on Google, Yahoo, and other sites. Our intent is to make OwnerPropertyFinancing.com the first place buyers look when they search for a home or property with seller financing.

In addition to your property listing, your membership gives you the option of searching for buyer members and communicating with them to promote your listing.

When you join us today, your property will be featured on our home page. So why not get started now? Just click here OwnerPropertyFinancing.com to register

Yours for successful selling,

Fernando Sanchez, Owner

P.S. Even if your home or land is listed with an agent, you’re welcome to join. Just be sure to follow any applicable State regulations about disclosing your agent’s name and agency affiliation.

This is a great idea that can really help connect people that want to buy or sell without banks.  Of course the success relies on active participants, which is the motivation for offering free membership to the first 100 sellers to list properties.  We wish Fernando and his team much success with this much needed service!

Homeowners die before they receive all of their equity under the Dodd-Frank Act.

The act requires any homeowner who sells their property using an installment sale, known as owner financing, to fully amortize the installment sale note. It does not allow any balloons to be negotiated between buyer and seller in the note. This means if you are 55 or older there is a good chance you will die before that 30 year note pays out.

Part of the purpose of the Dodd-Frank Act is to protect seniors who use or invest in financial products. The Federal government chastises insurance companies for the deplorable practice of selling seniors 30 year annuities because Ma and Pa will die before they receive their money. Yet, the Dodd-Frank act does the same thing when it mandates that you cannot receive all of your equity for 30 years. Just shortening the amortization period does not help either. How many buyers can afford the monthly payments on a ten or fifteen year amortization?

The Dodd-Frank Act strips homeowner’s of their equity

Part of the rationale for the act is to protect homeowners from having their equity stripped from them by unscrupulous lenders. Yet, the Act which mandates that an installment sale note be fully amortized over 30 years with no balloons does just that. Ma and Pa who use owner financing when they sell their property receive a note for their equity. They have the right and the ability to sell that note in the future. Anyone who purchases that note takes into consideration the time value of money. Just like bonds these notes are sold at a discount. The longer it takes for the note to pay out, the more of a discount the note holder has to take. So, if Ma and Pa need to sell that note in the future they are going to have to sell at a 30-35% discount as opposed to a 5-10% discount if it had a balloon. So, you can see that by the government mandating no balloons they have potentially stripped Ma and Pa’s equity by 20-30%. I can see the reason behind not allowing these installment sale notes to negatively amortize or to be interest only, but I don’t think allowing a balloon in 8 to 10 years is unreasonable or predatory. That gives the new buyer ample time to refinance or sell the property before the note becomes due. It is not reasonable to require Ma and Pa to wait 30 years to receive their equity, unless that is what they wish to do.

An Installment Sale is Not a Loan

Thirteen states have exempted owner financing to some degree from their Mortgage Loan Originator Act in 2009. They did this because they realize owner financing is not a loan; it is an installment sale. There is no third party lender; no points or origination fees are charged. In spite of this, Congress included owner financing in the Dodd-Frank Bill with additional regulations. Owner financing is not predatory. The seller has 100% skin in the game. Ma and Pa simply want to receive their equity over time with a reasonable interest rate. They don’t want to receive cash. They don’t want to invest in 1% CDs or in a stock market that lost 40% of its value in recent history. The sellers do not want the property back; they simply want a decent return on their money. That’s why they sold it in the first place. Today’s buyer using owner financing will most likely be tomorrow’s seller using owner financing.

The IRS does not recognize the installment sale as a loan. They view it more as a trade. The property owner is trading the property for a note, which represents the seller’s equity. The IRS only taxes the seller as they receive payments.

Yet, Ma and Pa who might have only one property which they want to sell using the installment sale method are penalized, scrutinized and regulated.

Over-criminalization

This act regulates the sale of your personal residence, your cabin in the mountains, the vacant lot next door, a rental house, a duplex, triplex and four-plex. How many of the millions of property owners are going to know that if they use owner financing they are going to have to fully amortize the note, verify and document that the buyer can qualify, and that the interest rate is supposed to be fixed for the first five years? If they sell their property and don’t comply with these restrictions, they could be fined up to $25,000 and a possible felony charge simply because they did not know of the restrictions and requirements. The 13 states which exempted owner financing realized it would be a regulatory nightmare trying to keep track of every residential transaction that property owners enter into, not to mention the cost associated with that regulation. 99% of the people who use owner financing do not make a business of selling their property using the installment sale method. It is most likely they would only sell property using on installment sale a few times during their life. But that one time might involve trying to sell four properties at the same time.

Each state has its own version of owner financing; some states use notes and mortgages, some use deeds of trust or contract for deed. Each state already has case law and state statues that set the standards for owner financing and provide the protections for buyer and seller. The Dodd-Frank Act simply adds another, conflicting layer of complexity to the simple act of selling your private property on an installment sale. The states should remain in control of owner financing.

Trying to apply the same rules and regulations and licensing requirements for banks and professional mortgage loan originators to Ma and Pa on Main Street is counterproductive. It is only going to drive owner financing underground. Buyers and sellers will still use it, but they won’t use realtors or title companies which creates opportunity for abuse where there wasn’t any before.

Is your credit good enough to sell your home?

The Act does allow a balloon in the installment sale note if Ma and Pa become mortgage loan originators. The Dodd-Frank Act restricts you to only three real estate transactions in a 12 month period where you offer owner financing terms. If you want a balloon or you want to sell a 4th property within a 12 month period using the installment sale you have to become a mortgage loan originator, which means: you have to have good credit, put up a surety bond, take 20 hours of classes on Federal and State mortgage laws, pass a national test, and take continuing education courses. 30% of mortgage brokers were unable to become mortgage loan originators because they either had poor credit or were unable to pass the test. Ma and Pa are sure to experience the same thing. Requiring a seller to take a test and have a certain credit score to transfer their private property is a slippery slope. It is an erosion of our private property rights.

This act, which is over 2000 pages and requires over 500 new rules to be written by 40 different agencies by July 2011, was meant to regulate Wall Street and protect consumers from the predatory lending practices of mortgage brokers, but has over-reached into Main Street and into the lives of Ma and Pa. Selling your own property using the installment sale method did not create the financial crisis. Including it in the Dodd-Frank Wall Street Reform and Consumer Protection Act is inappropriate. An installment sale is not a loan. This act is a limitation of the rights of property owners which will be virtually impossible to regulate. We need to ask our congressional representatives to exempt all owner-financing and return it’s regulation to the states or at the very least, to remove the draconian restrictions, in the Dodd-Frank Act.

The Act is just the framework. The Consumer Financial Protection Bureau has the authority to relax or expand the rules and regulations in the bill. They are in the process of reviewing the rules and regulations that do not go into effect until July 2011. Until then, it is my understanding that everyone will be following the laws of their state, but that could change come July 2011. Please write your congressional representatives, write your local board of realtors, and the National Association of Realtors or anyone else that might get the word out for Ma and Pa.

For the complete list of e-mail addresses and fax numbers for the US Congress and Governors go to http://www.conservativeusa.org/mega-cong.htm

To find your local board of realtors go to:

http://www.realtor.org/directories

To contact the National Association of Realtors:

Anthony Hutchinson

Sr. Policy Representative – Financial Services

National Association of REALTORS®

Phone: (202) 383-1120 or Email: THutchinson@realtors.org

Sam Whitfield

National Association of REALTORS

500 New Jersey Ave. NW, Washington, DC 20001

Phone: 202/383-1131 (direct) or E-mail: SWhitfield@realtors.org

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/