NPN Teleseminar This Wed. / Pt 2 - Can You Get Scammed Selling A Note?
Published: Mon, 03/10/14
* Mark Your Calendar: Non-Performing Notes Teleseminar This Wed.
* Pt. 2 of Can You Get Scammed Selling A Note?
THE CASH FLOW EXPRESS
A Service of The Paper Source, Inc.
March 10, 2014
Hi ,
Part 2 of Abby Shemesh's article "Can You Get Scammed Selling A
Note?" is below.
This Wednesday, March 12, join Joe Downs, Rob Hytha and me for a
30-40 min. free teleseminar on one of the hottest topics in
notes, non-performers.
Joe and Rob are the driving forces behind US Mortgage Resolution,
a private mortgage investment management company specializing in
acquiring, managing and working out defaulted residential mortgages.
The company both buys and sells non-performing notes.
The free teleseminar starts this Wednesday at:
6 p.m. Pacific Time
7 p.m. Mountain
8 p.m. Central
9 p.m. Eastern
When it starts in your time zone, call (559) 726-1300 and when
prompted enter the access code: 794728# (That's the number
794728 followed by the # key).
WILL NOT WORK WITH MAGIC JACK OR OTHER VOIP SYSTEMS. It will
work on your cell or land line.
Mark your calendar and join in for what will be a great teleseminar
on the risks and rewards of non-performing notes!
Cheers,
Bill
W. J. Mencarow
The Paper Source, Inc.
www.PaperSourceOnline.com
P.S. You will meet Joe and Rob at the Paper Source Note Symposium
April 24-26 in Las Vegas. US Mortgage Resolution is sponsoring the
Networking Reception Friday evening.
The registration goes up midnight Monday, March 24, just 2 weeks
from now. Lock in the low price now while you still can!
Watch the video and get more info at
http://tinyurl.com/2014notesymposium
*************************************************************
Can You Get Scammed Selling A Note?
Part 2
by Abby Shemesh, AmeriNote Xchange
www.amerinotexchange.com
Loan Terms/Amortization
When creating a seller carry-back mortgage note with the intention
of selling the note to a mortgage note investor, one must keep
several things in mind when deciding the loan's terms and structure
at the time of sale:
1. Stay away from interest-only structures and balloon payments of
any kind (unless the seller does not mind a partial offer).
(Editor's note: see Ric Thom's summary of the new Dodd-Frank
regulations before you create a note secured by property the
payor (mortgagor) will occupy as his primary residence:
http://papersourceonline.com/dodd-frank-note-business-explained/
Ric will be speaking on Dodd-Frank and taking your questions at The
Paper Source Note Symposium in Las Vegas April 24-26:
http://tinyurl.com/2014notesymposium)
Structuring a business note as an interest only (I/O) structure
with a balloon payment is a very risky proposition in today's
market, because the borrower would need to be approved for a
traditional loan in order to satisfy the balloon payment at
maturity. To a buyer, the bulk of the return on investment (ROI)
arises from the balloon payment being paid in full and on time.
Very few, if any, traditional lending institutions will fund these
types of requests, which leaves the note holder stuck with a
devalued note.
2. A typical note buyer usually likes to be out of an
investment within 5-10 years (depending on the note buyer's risk
tolerance and investment appetite). Creating a mortgage note with a
15, 20 or 30 year full amortization will likely succumb to a much
steeper discount when being priced for a full-purchase. In order to
maximize value when structuring a note, structure it as a
fully-amortized asset, and keep the maturity date at 10 years or
less. 5 to 7 years is a much safer bet for those sellers who
require absolute maximum value. Anything above 10 years will take a
bigger hit, due to a long wait for a return on investment (ROI).
3. Always keep the note interest rate at least 3% to 7% higher
than what the primary lending market is charging. This means that
the interest rate must reflect the risk that the property seller is
taking by seller-financing the transaction in the first place. Keep
the interest rate at least 9% to 15%, depending on the borrower's
credit score and down payment amount. If the borrower wants a 5%
interest rate, let them go to a bank for the financing. Plus, a
higher interest rate will protect the seller from a deeper discount
when the note buyer figures their yield into the equation. The
higher the interest rate, the more shelter the seller has from the
note's discount.
Include a Personal Guarantee (only if the borrower is a corporate
entity)
A personal guarantee is included with a note when the mortgagor is a
corporate entity (LLC, etc) and not a private individual. If a real
estate seller sells their property to a corporate entity and does
not ask the buyer to agree to a personal guarantee, this could
negatively affect the note's value on the secondary market by
thousands, if not tens of thousands of dollars. It is that
important! In the case of a loan default by a corporate buyer,
the corporation can avoid repayment by dissolving the articles of
organization or incorporation, depending on the entity's business
structure. Once the company is dissolved, in the eyes of the law,
no one can legally be held accountable, thus the holder/seller is
out their money.
There is absolutely no recourse in this situation. The note holder
would still get the property back in foreclosure, but that process
would be dragged out for many months, if not many years in some
states. It is a complete nightmare! A simple way to avoid this
costly mistake when selling to a corporation is to require and
include a written personal guarantee by the individual buyer.
Payment Record Keeping
This is an item that is grossly overlooked by most sellers when
creating a note for resale. A small part of the asset's value comes
from the cleanliness of the seller's record-keeping abilities. It
is of the utmost importance that the seller either keep and/or file
cancelled checks (hard copies or electronically) or have access to
bank statements proving that the payments we collected in a timely
fashion.During the underwriting process of a real estate note
transaction, any well-informed note buyer will request that the
seller provides either cancelled checks, deposit slips (with bank
stamp in it), or bank statements showing that the payments were
made on time. If the borrower pays you in money orders for whatever
reason (i.e. the borrower does not have a bank account, etc), it
would be suggested to make copies of the money orders before
cashing them.If the money orders are being deposited into bank
account, it is not 100% necessary to make copies because the bank
statements will show the deposits on file. Nevertheless, making
copies is just an added security measure to ensure that the note
seller's record-keeping status is in order, which will in fact
increase the value of the note. This also goes for down payment
checks and record-keeping as well.
Loan Seasoning
As every note buyer is different, most mortgage note buyers do like
to see at least 1 to 6 months of seasoning before placing a bid on
a mortgage loan for sale. This particular item does vary between
note buyers. For the most part, many mortgage note buyers will most
likely decline on a note that has not been seasoned at all
(simultaneous closing, etc.).The seller may need to collect at
least 3 payments before submitting the note for purchase. This way,
there is some sort of visual indication of positive performance
pertaining to the loan.We at AX will buy a residential mortgage
asset as long as there was one payment collected on time. As far as
commercial notes, AX requires that there be 3-6 timely payments
collected depending on the down payment. The larger the down
payment, the less payments we require to be collected by the seller
prior to sale.We at AX have been involved in instances that allowed
this item to be waived, due to a large down payment submitted by
the borrower at origination (40% down or more).Out of all of the
above listed items, loan seasoning is truly a matter of a note
buyer's investment preference. It is mandatory with us at AX to
have a mortgage loan seasoned by at least 1-3 payments before we
can buy it (depending on the down payment/equity).
Documents and Closing
Executing the above mentioned suggestions will lay a strong
foundation for engineering a high-value residential and/or
commercial mortgage note that will successfully sell on the
secondary market.Also, always use an attorney or a title company to
draw up the closing documents (i.e.- the note, the
deed/mortgage/land contract depending on state, etc). Remember, if
the note is not recorded by the county that the property resides,
it is not a legal debt which means, it cannot be sold to a buyer.
Enlisting an attorney or title company will avoid any problems with
the asset's status in the eyes of the law.When it comes to
structuring a mortgage note for resale, corners should never be
cut. If they are, a seller should expect friction, delays,
disappointment and of course the possibility of getting stuck with
the note. Properly informing yourself (or your seller) on
structuring a mortgage note for resale will be the difference
between selling the note or not.
If you have any questions about selling your mortgage note or any
questions about the industry in general, please feel free to
contact me at any time at: 415-295-1401 ext 3 (ask for Abby).
I look forward to meeting you at the Paper Source Note Symposium
April 24-26 in Las Vegas!
A P.S. from Bill Mencarow...
There will be no sales pitches in the room at the Note Symposium.
I believe it is unethical to ask people to spend their money to
come to an event advertised as educational and then subject them to
a stream of high pressure sales pitches for products, "boot camps,"
"mentoring," etc.
I have hand-picked each of our teachers. They will simply show you
how to do what they do successfully every day.
Plus you'll be able to sit down with them for one-on-one
consultations at no charge!
And you won't have to choose among several presentations
going on at the same time -- all take place in the same room.
I hope you will join us for THE cash flow note event of the
year!
More info: http://tinyurl.com/2014notesymposium or call
1-800-542-2270.
*************************************************************
China...Iran...North Korea...Sudan...Cuba...
and so many more captive people in need of God's Word...
You can send a Bible to someone who desperately wants one!
Visit Bibles Unbound, a ministry of Voice of the Martyrs,
and learn how you can become a Bible Mailing Missionary:
www.BiblesUnbound.com
*************************************************************