Why a $250,000 Note May Be Worth $125,000 — Or Less Pt 1
Published: Fri, 12/09/11
December 8, 2011
Hello ,
When is a $250,000 note worth $125,000 or less? Find out
in the part 1 article below by Larry Tepper, CCIM.
Larry is a very well-qualified note appraiser who is making
himself available to our e-newsletter subscribers for
free personal consultations on note issues. See his
invitation following the article.
Cheers,
Bill
W. J. Mencarow
President, The Paper Source, Inc.
www.PaperSourceOnline.com
www.cashflows.org
P.S. Check my blog each day for news of the note business and more
at www.PaperSourceOnline.com
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Why a $250,000 Note May Be Worth $125,000 -- Or Less
Part I
by Lawrence Tepper, CCIM
Having been in the note and cash flow business for 35 +
years, I have looked at a lot of notes. Sorry to say, a high
percentage of them are flawed. And, even more unfortunate, the
reasons for the flaws can be categorized as ignorance, laziness, or
cheapness. All of the flaws could have been avoided if the
responsible parties had bothered to get sound guidance and advice
before the note was drafted.
These avoidable flaws have cost the victims millions
and millions of dollars.
I am frequently asked by successful, sophisticated business, real
estate and legal professionals to appraise a promissory note that
they own, or that a family member owns, or that is in an estate or
in a trust. Their reason for needing the valuation may be for
estate tax purposes, for gift tax purposes, for dividing an
inheritance or for dividing marriage assets during a divorce.
Sometimes they plan to sell the note or to pledge the note for a
loan; they need to determine its "Fair Market Value."
My first response is always the same: Please, bring me copies of
the entire note file. "Every document relating to the transaction
is very important -- I need to see it."
Normally, after reviewing the file and asking the second time for
"copies of all of the loan documents," I find that certain key
documents are missing or were never in existence. The main
reason that they never existed was that the person handling the
drafting of the note -- the attorney, the CPA, or the real estate
broker -- did not know what was critically important to the
valuation of the promissory note. Consequently, one or more key
documents were not created; or, if created, the documents were done
poorly.
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As note brokers and investors, you know: The fair market value of
a promissory note, or a real estate mortgage note, is dependent on
having the proper documents, all done in a proper manner. Big
discounts are applied to notes that are poorly documented.
Those big discounts can create problems when trying to buy or sell
a note. Usually the note holder has no idea why his note is being
heavily discounted. The note holder thinks that youare trying to
"skin me," or "beat me up," or "trick me." The note
holder does not realize the discount was created at "birth"-- not
now, by you.
I realize that proper loan documentation is probably not a very
exciting subject at the time the note is being created. But if the
missing or poorly drafted documents devalue the note by
thousands of dollars, and if you happen to be the one that will be
suffering the loss, then it is in your best interest to pay very
close attention to the subject of
proper loan documentation.
It is important to remember that most people who create notes are
not well-trained. "It's not what they don't know that hurts them;
it's what they think they know that's not so that does the damage!"
In the next few issues we will look at specific flaws that devalue
notes. You will probably be surprised to learn how many land mines
there are.
This is an invitation to privately discuss important
promissory note issues free of charge. e-mail:
Lawrence.Tepper@comcast.net
When and Why Do You Need A Promissory Note Appraisal?
* Before making a note investment--getting a second opinion on how
to best structure the transaction
* Before making a note investment--getting an independent
professional opinion of the future value of the note
* Before selling a note--getting an independent professional opinion
of Fair Market Value
* Before doing a seller financing note--getting an independent
professional opinion on how best to structure the transaction
* To settle a dispute over the value of a note-divorce note,
partnership dissolution note, estate valuation note, non-performing
note
When the Internal Revenue Service (IRS) requires an appraisal
* Estate taxation issues--valuing the estate
* Estate planning and taxation planning
* Gifting notes to charity--appraisal valuation required
* Gifting notes to family members to obtain tax deduction
* When a note has declined in value or become uncollectable--taking
a tax loss
Retirement Planning--Self-Directed IRA Accounts
* CONVERTING IRA TO A ROTH IRA (must pay the income tax associated
with the conversion up-front, as ordinary income.)
* IRA IS INHERITED
* REQUIRED MINIMUM DISTRIBUTION CALCULATION: At the end of each
year. After the client reaches the age of being required to start
taking a minimum amount of distribution.
* When transferring assets from one IRA custodian to another.
* END OF THE YEAR VALUATIONS:
The Internal Revenue Service now requires annual valuations of
all assets, so the government gets its proper cut when IRA
distributions are made.
"Qualified Appraiser" defined: Means an individual who: (1) has
earned an appraisal designation from a recognized professional
appraiser organization or has otherwise met minimum education and
experience requirements set forth in regulations prescribed by the
IRS; and (2) regularly performs appraisals for which the individual
receives compensation.
This is an invitation to privately discuss important promissory
note issues free of charge.
I do not buy, sell, or broker notes
Over 35 years of honest dealings Nationally
EDUCATION AND TRAINING
* Law Degree /Accounting Minor from University of Denver
* Colorado Real Estate Broker Specializing in Promissory Notes
* Certified Commercial Investment Member Designation From National
Assoc. Realtors
For a complimentary discussion of note issues, contact Larry
Tepper: e-mail: Lawrence.Tepper@comcast.net
Phone: 303-779-6996
website: www.PromissoryNoteAppraisers.com