note investing

How to purchase notes

Investing in Discounted Notes

Introduction

What is Tristate Mixer?What is National Payment Relief?

Who is Rosalie Bucci? Who is Alberto Artasanchez?

Questions

What is your question or challenge?

What are your goals? Performing Non-performing – not paying Just learning

Overview

? What is a note, what is a mortgage?1

What are performing notes and how can you profit from them2

What are non-performing notes and how can you profit from them3

Case studies4

Terminology

An IOU, a note and a mortgage

IOU – An acknowledgement of debt. Note – An acknowledgement of debt with

specific terms. Mortgage – A mortgage secures or ties a

Note to real property and is made by the borrower to the lender pledging the property until the note is paid in full. In some states referred to as Deed of Trust

Secured debt vs. unsecured debt – Car loan, home loan, student loans, credit cards.

Types of Notes

Note Types

Performing note vs. Non-performing Secured vs. Unsecured Commercial vs. Residential Owner occupied vs. Investment

properties 1st mortgages vs. 2nd mortgages and

beyond Who would buy a second? Who would buy a non-performing note?

The Banks

Banks are distressed sellers now

What is a Non Performing Note? Why Banks want to sell? Why 2nd Liens;

Lower price points Purchase more and spread out risk Make better returns once performing

Amortization Schedule

Mortgage Note Investing

What do you look for in an investment?

Secure – Secured by real estate Income producing – Payments are

received monthly Appreciation – Payoffs, Equity build up,

Underlying asset appreciation, Inflationary appreciation

Benefits of 1st Mortgages

Benefits of performing 1st mortgage notes Passive Income Secured by Real Estate Average sale price $100k to 500k Return on investment from 5 to

10% Purchase in an IRA

Benefits of 2nd Mortgages

Benefits of performing 2nd mortgage notes Passive Income Secured by Real Estate Average sale price as low as $10k

to 50k Return on investment from 10 to

30% Purchase in an IRA

Case Shiller Index

Market dislocation

Current Market Banks do not want mortgages and

houses

Homeowners still want their homes

Risks

Risks of performing notes Homeowner could stop paying 1st

Homeowner could stop paying 2nd Home values could go down Home owner could declare

bankruptcy Home owner could get an attorney

Winners and Losers

Who wins and who loses in note investing?

Banks. Hedge funds. NPN Sellers Workout companies Homeowners Servicers Performing note buyers

Due Diligence

What to find out before buying?

Are other obligations current? What is the FMV? Is all the collateral complete and

original? Is the note seller reputable? What are

their reps and warrants? When can I skip or minimize the due

diligence?

Note Analysis

How to value a note

Get the value of the property Determine the unpaid balance on the

first mortgage Calculate fair market equity (FME) Find the status of the first mortgage Pull the homeowner’s credit report Research payment history

Note Pricing

Performance

Performing

Note

Equity

$$$$

Partial Equity

$$$

No or NegativeEquity

$$

Note Pricing

Performance

Re-performi

ngNote

Non-performi

ngNote

Equity

$$$$

$$$

Partial Equity

$$$

$$

No/Negative

Equity

$$

$

Note Value Example 1

How much would you for this note?

FMV – $200,000 1st mortgage UPB - $350,000 – not

performing 2nd mortgage UPB - $100,000 – not

performing Borrower FICO – 550 Foreclosure started by 1st mortgage in 6

months. How much would you pay for the 2nd

mortgage?

Note Value Example 2

How much would you for this note?

FMV – $500,000 1st mortgage UPB - $150,000 – always

current 2nd mortgage UPB - $50,000 – always

current Borrower FICO – 800 Face interest 19%. Seasoned for 36

months How much would you pay for the 2nd

mortgage?

Due Diligence

What to do after buying a performing note?

Is the first mortgage being paid? Are taxes being paid? Is the home owner paying all other bills?

Due Diligence

What to do before buying a non-performing note?

Obtain 800 number Ability to pull credit Skip tracing. locateplus Find a mentor Get a website. Who is your audience? 10 notes vs. 100 notes vs. 1000 notes

Servicing companies

What is a servicer? Why should I use a servicer? What are the fees?

Compliance Outsource management Simple ownership transfer $12 – $20 per month per performing

note FCI Lender Services

Winners and Losers

Who wins and who loses in note investing?

Banks. Hedge funds. NPN Sellers Workout companies Homeowners Servicers Performing note buyers

Cumberland Case Study

Fact Pattern Maurice and Madeline are an elderly couple living in Cumberland, Rhode

Island. He is 65, she is 64. A few years ago he lost his job as a funeral director. His wife is on disability. In 2009 they got behind on a few bills including their 2nd mortgage. This is

shown on their credit report. They have since caught up on all their obligations and worked out a payment

plan on their 1st MGT He works delivering flowers and collects Social Security. They have about $600 in discretionary Income. In a few years, their credit score will be good enough to refinance and

possibly a reverse mortgage. Workout Agreement $400 / mo. with automatic payment (ACH) deducted monthly by the note

servicer and set up online. In February 2012 that goes to $500. What would you pay for this note?

Amount

Fair Market Value $190,000

1st Mortgage Principal Balance $106,000

Fair Market Equity $84,000

2nd Mortgage Principal Balance $25,000

2nd Mortgage Arrears & Fees $9,6842nd Mortgage Monthly Payment $384.47

Athens Case Study

Fact Pattern Fred and Susan lives in Athens, GA with their three kids A few years ago Fred has had health issues and this has affected his business They fell behind on obligations for several months as a result of this - this is

evident on her credit report By early 2009, they had caught up on their first mortgage but not on their

second (classic case of the bank not allowing a borrower to forebear the unpaid interest

They can now start making payments but not their regular 614.58 payment. Workout Agreement $503 / mo. with automatic payment (ACH) deducted monthly by the note

servicer and set up online. Payments could go down to $125.00/mo. for six months in the next two years

for proven medical cause. What would you pay for this note?

Amount





2nd Mortgage Arrears & Fees $13,581 2nd Mortgage Monthly Payment $614.58

Columbiana Case Study

Fact Pattern John and Susan lives in Columbiana, AL with their three kids and her father A few years ago John lost his job. They fell behind on obligations for several months as a result of this - this is

evident on his credit report John tried to refinance his mortgages and had the credit to do it, but he was

denied because he was in default with his second mortgage. He is current on the first.

They can now start making payments and they have agreed to again start paying 250.00 per month.

Workout Agreement $250 / mo. with automatic payment (ACH) deducted monthly by the note

servicer and set up online. Payments will go back to the regular monthly payment after one year. At that

point John will also try again to apply for a refinance. His chances will be greatly improved with 12 straight months of payments on his second mortgage.

What would you pay for this note?

Amount





2nd Mortgage Arrears & Fees 81212nd Mortgage Monthly Payment $290.43

Note investment recommendations

Use an IRASelf directed IRA’s. CAMA Plan and CAMA Academy

Use a servicerLegal issues and compliance. Using a servicer will ensure you are complaint

DiversifyDiversification. Notes are not directly affected by any other securities such stocks, bonds or other mortgages.

Sources

Where do I find these notes? Accidently. Carry back a note (1st or 2nd)

when selling a property Brokering a property. Henry Dvorek Purchase a “carry back” or “owner

financed” note Banks (almost as hard as getting a

mortgage) Hedge funds Exchanges (fciexchange.com,

loanmls.com, loanmarket.net)

Non-performing notes

How do I get a hold of homeowners? Letter campaign (vide0) Phone campaign (FDCPA) Email, online, Facebook (FDCPA) Hand written letters Foreclosure ($2000 to $4000, corporate

advance)

Non-performing notes

What do I say when I get a hold of the homeowner? Framing. Who are you? What is your

philosophy? What happened? Where are you now? What do you want to do? Based on what they want to do, go

through options Build rapport Financials Don’t speak Give folks the benefit of the doubt

Financial Documents

What financial documentation should the homeowner submit? Tax returns Pay stubs Bank statements. Showing payment of

first Home owner option agreement Hardship letter Copy of the driver’s license

Workout repayment structure

How do I structure the payment? Get a portion of the arrears Discounted payoff Principal reduction Stepped up repayment Address their pain based on your

interview and financials Find out what they want to do Modify terms Get creative Clause to revert to original terms if

there is an issue

Worst case scenario

What is the worst that can happen? Applies for performing and non-

performing 1st stops paying.

Reinstatement Can’t reach home owner

Start foreclosure. Complete foreclosure Sell the note. Note still has value. 2nd takes back the house. Rent to the homeowner.

Exit Strategies

Owners Sell An average household moves every 5 to

7 years

Owners Refinance after 12 payments

Discounted Payoffs From the homeowner, a friend or a

relative

Sell to an InvestorBorrow against the note (CAA)

I am ready. How do I get started?

Capital – Not necessarily yours

Product – Not necessarily yours

Know-howScalability

More information

How do I find out more about this? Monthly meetings http://www.tristatemixer.com/ http://www.meetup.com/Tristate-Note-Investors/ http://

www.meetup.com/Philadelphia-Note-Investors-Group/ http://www.nationalpaymentrelief.com

http://www.tristatemixer.com/

http://www.tristatemixer.com/

http://www.meetup.com/Tristate-Note-Investors/

http://www.meetup.com/Tristate-Note-Investors/

http://www.meetup.com/Philadelphia-Note-Investors-Group/



http://www.nationalpaymentrelief.com/

http://www.nationalpaymentrelief.com/