My Most Unusual Note//50% Off Black Fri.!
Published: Fri, 11/29/13
November 29, 2013
Hi ,
I hope you and your family had a wonderful Thanksgiving.
In the article below my wife Alison tells us about her most
unusual note; a textbook case for those skeptical about
seller-financed real estate deals.
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Use coupon code "SAVINGS" (live seminars, complete package and
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Cheers,
Bill Mencarow
President, The Paper Source, Inc.
www.PaperSourceOnline.com
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www.cashflows.org
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MY MOST UNUSUAL NOTE
A textbook case for those skeptical about seller-financed real
estate deals.
By Alison Mencarow, Publisher, The Paper Source Journal
"Hello, I am hoping you can help me."
That was the opening of an e-mail. As publisher of THE PAPER
SOURCE JOURNAL I'm used to receiving a lot of requests to buy notes
and make loans. They're usually such oddball notes I rarely get
past the first perfunctory questions before ruling them out.
But this one was different.
The e-mail message continued, the writer explaining his
personal situation. He was disabled, his wife soon to be on kidney
dialysis. His credit was destroyed when he became disabled; a
balloon of $6,500 on his home was due in 8 months and the note
holder refused to extend it. He was looking for a loan to pay the
balloon. All of this information was in an e-mail he sent me,
a complete stranger he found on the Internet.
I don't make loans and didn't want to get involved, but
felt so sorry for him that I asked for more details. He e-mailed
the information, and I immediately saw this was (in Edd Lay's
terminology) a "3 crappie" deal: bad house, bad neighborhood and
payor with bad cred*it. My husband Bill thought I was joking when
I gave him the details. A veteran note investor familiar with the
area thought buying a note there was a bad idea.
None of that stopped me. I offered to make my e-mail friend (I'll
call him Jim) a low-interest loan to pay his balloon, pending
my inspection of all the necessary documents which I asked Jim to
send, along with substantial personal information including six
months of bank statements. If Jim were a con man I'd never hear
from him again. But sure enough, everything I'd asked for arrived
shortly. I felt the deal had to be legitimate: the settlement
sheet was a very simple hand-typed document from the title
company (nothing like a HUD-1), and the note was only one paragraph
long. A con man would have used standard forms!
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In the meantime, I told Jim I'd rather purchase the existing note
including balloon, which would give me a good yield, instead of
making the loan. We would just modify the note to reflect our
new terms amortizing the loan. He said the note holder (from
whom he'd bought the house) was 93, uneducated and hard to deal
with; she wouldn't be able to understand selling the note.
I explained to Jim that with the loan he would pay all closing
costs; if I could purchase the existing note he would pay nothing.
(Editor's note: Alison knew you never tear up the old note and
write a new one, you always modify the existing note. If you
write a new one, it could become subordinate to existing liens.)
"Please Burn Down The House"
The paperwork from Jim was O.K. with only a minor problem that
could be solved. I called and spoke with him for the first time;
previously our only contact was by e-mail. I now learned that Jim
had several problems with the seller ("Mrs. Seller"). It was
obvious that she was doing her best to make him default on the
note. She had moved at least twice and not given him her new
address for mailing his payments. Most disturbing, her son
urged Jim to burn the house down and default on the note!
(The land is more valuable without the house). Jim was
terrified they would eventually be successful in taking
his home away, and he was immensely grateful that I was
willing to make the loan.
The Payor Negotiates For The Buyer
Two months after our conversations started, Jim e-mailed to say
Mrs. Seller was in dire straits and might entertain my offer
to buy the note. I asked him how to contact her, but Jim
said she wouldn't understand who I was. I decided to ask Jim,
the note payor, to make my purchase offer (I don't recommend
that technique, but this deal was so bizarre anyway, I thought
what the heck...) I coached him on what to say, and what
not to say, and gave him my bottom line price.
After a few days, Jim e-mailed to say Mrs. Seller didn't like my
price, but he thought she would accept $500 more.
Jim offered to pay the additional $500!!
The deal was finally accepted. (I applied Jim's $500 to his first
payment.) I used the local small town title company that had
closed the property sale six years earlier. They were wonderful
and got to work the day I called. Just as Jim had said, the seller
was very difficult for them to deal with. After lots of phone
calls, the deal was finally signed and recorded.
The Importance Of Reading EVERYTHING
The small paperwork problem I mentioned: The property sale was in
Missouri, and since Mrs. Seller had moved away from the area,
she had the General Warranty Deed notarized by a notary where she'd
moved. I noticed that the notary wrote that Mrs. Seller signed the
deed October 4; then the notary wrote that her commission
expired September 30! Because a title insurance policy had
been issued I didn't really think this would be a problem.
I've since talked to many long-time note buyers and no one has seen
anything like this. My title company drew up a Quit Claim Deed
for Mrs. Seller to sign, stating in it the purpose was to perfect
the title, referring to the notary's error. Problem solved.
Well, problem almost solved. My title company in Missouri recorded
the documents. Anxious to make sure the Transfer of Lien had been
recorded, Jim went to the courthouse to check on it. He was
sharp enough to discover in the Quit Claim Deed that Mrs. Seller's
new notary's commission had expired five months earlier!!
(Jim was unaware of the problem with the original deed. I didn't
alert him to it, afraid it would scare him.) After a few more
phone calls my title company discovered the notary had just written
the date wrong and her commission was still valid. The Quit Claim
Deed was corrected and recorded once again.
Deeds to Jim's property are now recorded three times, two of them
correcting problems in the previous!
Throughout this entire transaction I've only spoken with Jim once;
all our correspondence has been via e-mail. I had no contact with
the note seller whatsoever.
Epilogue
How did things turn out? What I initially offered as a
low-interest loan to a stranger on the Internet instead turned into
a note purchase with a very good yield. Jim saved money because he
didn't incur the costs of a new loan.
The story of Jim's home purchase is a textbook case for those
skeptical about seller-financed real estate deals. His bad credit
disqualified him for a conventional loan (and most seller
financing). The house he wanted to buy was not in very good shape
so it wasn't attractive to many buyers. This was a perfect match.
Jim was able to purchase his home because of seller financing.
Mrs. Seller was able to sell an undesirable house, and then sold
her note with balloon several years later for a very small
discount. I, the note buyer, made a very nice return on my
investment.
How did Jim pay? The same Jim with credit so bad I didn't even
bother to check it? The first payment he made to me was in cash
that he took to the title company (his $500 for the note purchase),
before it was due, without being asked. Before his next payment
was due he e-mailed asking if I wanted a personal check, bank
check, money order? Did I want it sent registered, certified?
(Although I told him personal check via regular mail, he sent a
bank check, registered mail.) When the mailing labels I promised to
send him hadn't arrived yet (because I hadn't yet sent them), he
anxiously e-mailed to remind me that he needed them so he could
send his payment.
His payments always arrived early and on time or before they were
due. Unlike a lot of note payors, Jim understands the importance of
making timely mortgage payments.
Jim was like a lot of us, like a lot of our friends.
He was well educated and had a good paying white-collar job.
That is, until an accident and several surgeries rendered him
unable to continue working. Medical bills used up all
of his savings. Eventually, Jim, his wife with kidney disease and
their children ended up on the street. They were living in their
car when they found their current home.
He appreciates his home in a way that most of us probably can't.
Jim knows what living on the street is like, and he's determined
he'll never end up there again.
Alison Mencarow is a note investor and is co-founder and Publisher
of THE PAPER SOURCE JOURNAL. Formerly she worked as Press
Secretary and writer for two members of Congress in Washington,
D.C. and on the speechwriting staff of the Vice President of the
U.S.
(I, her husband, think that what Alison did in the above article is
an example for all of us of bringing the love of Christ into the
business world; a great Christian testimony.)
Her e-mail address is alison@cashflows.org If you liked her
article, please let her know!