“who u.s. - paper source online · unable to imagineer (or cannot manage by regulation) into ......
TRANSCRIPT
April, 2015 Our 27th YearApril, 2015 Our 27th YearApril, 2015 Our 27th YearApril, 2015 Our 27th Year
OnMay 6 Fannie Mae will hold its first-ever auction
of non-performing loans, and individual investors
are welcome to bid. On the block will be about 3,200 loans
representing $786 million in unpaid principal. Go to
snipurl.com/fannie-npl-sale to receive announcements,
training and other information.
“Who are good candidates for seller carrybacks?
* The owners/sellers who have equity but cannot compete
with the down-driven foreclosure and short-sale market and
so have held themselves off the market;
* Those parties who have deals they could or would
accept, but fruitlessly are seeking reasonable residential
jumbos and commercial loans to facilitate them but have
been frustrated by the access hurdles (too much down, too
much invasion for privacy to qualify for the loan, willing to
pay but the property won't appraise in the current market
enough to get conventional money, complexities in source
verifications, self-employed, otherwise unable to squeeze
into the "one-size-must-fit-all" financial straitjacket
uniformly offered by banks etc.);
* Those parties seeking "business opp" loans;
* Those potential buyers who are wanting to move in or up
and who are waiting endlessly for the market to bottom, but
who would jump if they had better financing options,
including options that delayed price computation or "going
hard" on price for a few years;
* Those who have one "credit ding" but are otherwise in
great current financial shape;
* Those whose all-cash history has generated no credit
rating or history at all;
* Those parties wanting real estate
investment leverage but who cannot
get it with high bank-required points
and down payments;
* Those who want high cash-on-cash cap rates, but cannot
get it with high downs and straight amortizations;
* Lenders wanting to sell salvageable paper they are
unable to imagineer (or cannot manage by regulation) into
working, all with resulting down-pressure.
“There's more, but that is enough for examples.”
— attorney J. Robert Eckley of Eckley & Associates
(www.EckleyLaw.com Phone 800-999-4LAW)
U.S.government budgets are confusing.
I wrestled with them for years as a
legislative director in the US House of Representatives.
Here are some recent figures to wade through:
Tax income: $3,176,000,000,000
Spending: $3,759,000,000,000
Deficit: $583,000,000,000
National (total) debt: $18,082,294,157,510
Budget cuts approved by Congress and the president:
$38,500,000,000
Let’s simplify it by removing 8 zeros and pretending
it's a family budget:
Annual family income: $31,760
Spending: $37,590
Deficit (new debt on the credit cards): $5,830
Total family debt (including credit cards): $180,822
Budget cuts approved by the family: $385
What do you think the future of this “family” is?
I’velived in Chicago and in Washington, DC. They
have their advantages, but Alison and I moved
to a small town as soon as we could. We’re close enough
to cities to enjoy the amenities but far enough away to
avoid the problems. Case in point: Last week we closed
on a nice investment house. When I asked the seller for the
key, he said he didn’t have one. Never used the lock.
Cheers,
BillW. J. Mencarow
“The secret of business is to know something that
nobody else knows.” — Aristotle Onassis
THE PAPER SOURCE JOURNAL, April, 2015 To Subscribe: 1-800-542-2270 or www.PaperSourceOnline.com
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Asa practitioner and master
buyer in the seller install-
ment (a.k.a. “seller financed”) note
business since 1991 I have seen some
note brokers come and go... and just
as many note brokers come and stay.
I am often asked what to
“do,” or how to get started. But not
many ask me what “not to do” or
what mistakes to avoid. Here are my
a top 10 list of mistakes — hopefully
you will learn from this list what as a
note broker you should avoid.
Mistake #1 - Thinking that Just
Having A Website will Generate
Leads – Should you have a website?
Yes. However, too many people
incorrectly think that by just having a
website they will get leads or even
deals. Your website can be the main
hub of your business — if used and
promoted properly. There is an ocean
of websites. What makes you think
note holders are going to somehow
find yours? You need to market your
website to get people to go to it.
Include your web address on every
piece of marketing that you do;
including your business card.
Mistake #2 - Trying to be
Everything to Everyone – There are
so many different little niches with
our note and cash flow industry that
it can be overwhelming. Whichever
niche you choose you must become
niche specific: Become a specialist
in your niche, and become a
recognized authority in your
particular area of expertise.
Mistake #3 - Doing What
Everyone Else Does – There are
certain ways that many of us market
for notes and negotiate with the
note holders. Try to do something
outside of the norm so you stand
out. Try not to blend in with the
crowd; differentiate yourself and
your business.
Mistake #4 - Not Having a “Call
To Action” In Marketing Pieces –
This seems self-explanatory, but it
must be said. I can’t tell you how
many times I have reviewed a note
broker’s marketing materials to find
out that their phone number was not
on their direct mail piece (no
wonder they didn’t get any calls)
OR their email address was not on
their business card! Your
marketing materials MUST have a
“Call to Action.” For example:
“Call today for a $500 bonus!”
Mistake #5 - No Way to Capture
Leads – This goes along with
having a good website — you must
have a way to capture the
information from the people that
visit your website. Things like an
online worksheet submission form,
a free e-book if they email you OR
even a sign up form for a monthly
email newsletter that you send to
them.
Mistake #6 - Not Building
Relationships – No matter how
much technology improves the way
we do business, the note industry will
always be a people business.
Building rapport and relationships
with note holders, investors and other
professionals within the industry will
always be a factor in the growth and
survival of a note business. The #1
way to build personal relationships
— not just phone or email
“relationships” — is to be part of
Paper Source conferences. They’ve
been educating and bringing together
note investors and brokers for over
27 years. That’s a track record no
others can match.
Mistake #7 - Forgetting Past
Clients – One of the best referrals
sources you can have is that note
holder from whom you just closed a
transaction. Do not forget to keep
the relationship going to generate
more leads and possibly another
transaction from the same person in
the future! This is yet another great
reason to have a monthly email
newsletter just for note holders.
Contact me if I can help you.
Mistake #8 – Assuming All
Investors Are The Same – There is
a great deal of misconception that
every note investor is the same. That
is hugely incorrect. With the
multitude of notes that come across
note brokers’ desks every month
there are countless variations of what
kinds of notes note holders have, and
there are just as many different
investors as well. Build relationships
with and learn what each individual
Good Judgment Comes From Experience...& Experience Comes From Bad Judgment
Top Note Broker Mistakesby Jeff Armstrong
Whichever cash flowniche you choose,you must becomeniche specific.
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-3-
investor is looking for. Learn their
risk tolerances, demographic
preferences, property type
preferences, etc., and you will see a
difference in the number of
transactions you close.
Mistake #9 – Assuming the Highest
Price is the Best Price - Every note
situation that you are presented with
is different, and the puzzle of the
business is for you to figure out how
to fit the puzzle pieces together. Yes,
price is important, but so is the need
of the note holder to sell, the speed of
closing, partial purchases vs. full
purchases and ease of working with
the investor (among other things).
Too many note brokers only give
full purchase options and never get
into finding the true need or want
of the note holders. Often they will
take less — or a different option — if
the transaction will go smoothly and
quickly versus slowly with lots of
hassle.
Mistake #10 – Thinking Yield is
the Only Way Note Prices are
Given – When an investor buys a
note ONE thing that they look at is
their own personal yield
preferences. However, that is not
the only thing that is taken into
consideration when giving price
options on a note. Other
considerations include: credit of the
payor, type of property, location,
demography, cents on the dollar,
investment to value and minimum
discount just to name a few. Keep
in mind that every note is different
and will be priced according to its
attributes.
I hope this little list of things
to avoid will be helpful. There is
much more to this business than just
subtracting your fee and collecting
the payments. Keep alert for learning
opportunities, stay connected with
current practitioners and never stop
growing your business. Whatever
you do, remember, success demands
action! Keep on marketing, and being
persistent, it’s going to work!
TWITA! (That’s What I’m Talking
About!)
Jeff Armstrong of Armstrong
Capital has been a note broker and
investor specializing in the seller
financed note industry since 1991.
He can be reached by email at
[email protected]. For
more updated and current
information on how he can help you
with your note business, your note
investments or to request a quote on
a note you currently have visit
www.armstrongcapital.com
Atrue self-liquidating loan is a
short-term loan made against
the liquidation of inventory or the
sale of goods. The typical self-
liquidating loan is one made to
farmers against the sale of crops.
This is not what fraudsters
mean when they speak of millions to
be made using self-liquidating loans
and when they speak of borrowing
thousands of dollars that never have
to be paid back. The only ones to
make money on these "opportunities"
are those who charge $10.00 to
$125.00 and more for a "special
report." All the others make money
from up-front fees of one kind or
another or by getting you to give
them your bank account number or
hand over your securities for
"investment."
First you are told that you
can borrow thousands of dollars
with no collateral and no credit.
The bank doesn't even have to know
you. Then you are told that once the
bank hands over the money you use
some of it to purchase “Letters of
Credit” or “debentures” that you
turn over to the bank as collateral
for the loan. (First the bank gives
you the money, then they get their
collateral. If banks did that, they'd
all go broke in a week!)
According to the scam, you
don't really get the full loan, only a
portion. The rest is turned over to
(the terms vary) “special investment
bankers” or a “trader” or a “dealer”
or a “commitment holder” or a
“grand master” who invests it into a
“high-yield investment program”
using “arbitrage.” The proceeds
from the investment supposedly pay
off the loan, give you the balance of
the amount you borrowed plus some
more, and you walk off a millionaire.
And this is all accomplished within a
few days or even overnight!
Regardless of how badly you
or your company may need money,
this loan scenario simply isn't logical,
and of one thing you may be
absolutely certain — banking is as
logical a business as it gets. It’s a
SCAM!.
Self-Liquidating Loans
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What does Notable Mortgage
Buyers do?
Notable Mortgage Buyers
(NMB) purchases mortgages and
deeds of trust nationwide and in all
US territories. We will also consider
Mexico. The majority of notes we
buy are seller financed, but we have
bought some bank and mortgage
broker originated loans. We buy
residential notes, but our special
niche lies in commercial notes.
What is the history of the business?
Both Becky Fowler and Ricki
Eskenazi have either been purchasing
or facilitating the sale of notes since
the early 1980s. The partnership
works well because both are equally
knowledgeable; if one doesn’t know
something, the other usually does.
Company president Becky
Fowler has been in the note business
since 1983. She began her career in
Pittsburgh, Pa. with Signal Financial
Services which was later acquired by
The Associates. She worked with a
large broker base quoting, under-
writing, processing and closing files.
From there her career took her to
Naples, Fl. where she and several
others started BAMaN Funding, Inc.
Then she decided to strike out on her
own and began Notable Mortgage
Buyers, Inc in May,1999. In 2010
Becky teamed up with Ricki
Eskenazi, whom she has known since
her Signal days, and they began
buying notes for themselves or
placing them with their private
investors.
Ricki Eskenazi has been
involved in all aspects of note
purchasing since 1982 when she
created SES Funding Corp. with 2
other partners. She started out
strictly brokering, but as time went
on the broker fees were pooled to
purchase notes. In 2008, when the
SES partners decided to go their
own way, she was part owner and
responsible for the servicing of over
300 performing notes. After 2008
she consulted for two startup
companies and helped form a
private placement. Her main focus
is on working with Becky Fowler to
buy notes for themselves or private
investors.
What makes NMB unique?
Our knowledge base. If a
deal can be closed, we will close it.
We are especially competitive on
commercial notes and larger notes
over $250,000, but the size of the
note is not our motivating factor.
If the deal meets our buying
parameters, we will go the extra
mile to purchase the note. With
both of us each having over 30+
years of experience in the note
industry, we make it our business to
close deals, not make up excuses to
turn the deals down.
What should a note broker do to
make a good impression on NMB?
They should provide complete
and accurate information when they
want to get a quote. Do simple
checks on the data to make sure it
makes sense. If there is any
background information, include that
in your quote request.
When a quote is accepted and
a note broker submits a package for
processing, provide a neat and
complete package. Provide a note
submission worksheet (we can supply
you with one) with the information
needed to process the file along with
clear copies of the documents.
Supply a complete description of the
collateral (property) so that we can
order an accurate appraisal or BPO.
We can provide a list of items that
should be asked for once there is a
signed contract; if the broker is not
comfortable asking for these, we can
do it for them. We protect our
brokers at all times and never go
around them.
What are common mistakes note
brokers make?
One common mistake is not
giving the note sellers a realistic time
frame for selling their notes. Most
notes sales cannot close in one week.
Another mistake is not staying
in touch with note sellers and giving
them frequent updates (at least once a
week). Keeping the note sellers
informed is probably one of the most
important aspects in completing the
sale of the note.
Spotlight On Investors
Notable Mortgage Buyers
Keeping sellersinformed is one of themost important aspectsin completing the sale
of the note.
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-5-
What advice do you have for those
just starting out as a note broker?
Brokering notes is not a get rich
quick scheme. You will get as much
out of it as you put into it. Get your
name out there. Tell everyone what
you are doing. You might be
surprised when someone you know
actually holds a note.
There will always be seller
carryback notes to purchase.
Working with NMB makes this easier
to do because along with competitive
pricing, we can help with the
processing of the files.
What do you see for the future of
the business?
There will always be changes;
new laws, new investors and new
people getting in and out of the
business, but for the most part seller
financing stays consistent. Properties
will continue to be sold, sellers will
continue to carry mortgages and seller
carryback mortgages will be available.
Notable Mortgage Buyers, Inc.
Ricki Eskenazi
Phone: 407-831-8809
E-mail: [email protected]
I'dbe interested in knowing
how you handle tax
reporting for notes.
Suppose I buy a note for
$5,000 that has a balance of $10,000.
The note interest rate is 12%. I
collect interest for the year of $1,200
and principal of $1,000 in the first
year. How do I report the $1,000
principal collected on the tax return?
— Bruce Moeller
At first glance, this might seem
to be a complicated tax question, but
fortunately for note investors there
are two simple solutions. I'll show the
commonly used method first.
In the example you gave, the
note, which is an asset, was
purchased at a 50% discount. As the
payor makes the contractual
payments, half of each principal
dollar paid is your investment coming
back and half is profit. So on your
income tax return, with $1,000 of
annual principal paid, you would
show $500 of "discount earned" and
$1,200 of "interest," both of which
are taxable as income. The other
$500 of the cash flow is your
investment coming back, termed
"return of capital," and is not
taxable.
If you look at a typical two
column amortization schedule for
your example, principal and
interest, imagine the principal
column being split into two more
columns, 50% of which is "discount
earned" with the other 50% being
"return of capital."
To clarify with a slightly
different example, assume you
bought the $10,000 note at a $3000
discount, for a purchase price of
$7000. As each principal dollar was
collected, 30% would be taxable
"discount earned" and the
remaining 70% is your untaxed
"return of capital." Interest is still
interest.
There is another method
referenced by the IRS which is less
frequently used. You did not quote a
yield or a length of term in your
example, so let's just say it was priced
to yield 18%. You can print an
amortization schedule showing your
$5000 investment at 18%. The
principal column, although it won't
match the payor's schedule, is your
money coming back and the
"interest" column, which also does
not match the payor's, is really your
total taxable yield. The reason this is
not selected often by investors —
although the IRS unsurprisingly is
happy for you to use it — is that more
taxable income appears in the early
years with more untaxable "return of
capital" in the later years.
I hope that helped.
Happy investing!
John W. Moren, President
Princeton Investments, Inc.
John Moren is the author of
the NoteSmith family of loan
servicing software that tracks
mortgage notes, discounted notes,
leases, rent, and other cash flows.
www.NoteSmith.com
How To Report Income TaxOn Note Investments
by John W. Moren
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The SAFE Act, Dodd-Frank& Seller Carrybacks
Part I
by J. Robert Eckley, J.D.
Thereare three sources for
alternative real estate
finance: Seller-carries; a private
secondary market for owner-carry
paper resale; private, non-
conventional lenders. In some cases,
the owner-carry is PRIMARY,
meaning directly between seller and
buyer; in others it can be "SECOND
PARTY" such as owner selling to an
investor who then leases (many times
with option) or sells back to the
buyer on an "owner-carry" or
"THIRD PARTY" where the investor
simply puts up the money to make a
seller-buyer deal work in the same
way a bank might or even "FOURTH
PARTY" as when the paper
generated in FIRST OR SECOND
PARTY deals is then sold to a paper-
buyer. In some cases it can be as
simple as owner selling to buyer as a
financier who then agrees to lease
back from buyer, sometimes with an
option to purchase at some point.
There are four approach tools
and disposal methods for this, and
these represent nothing more than a
return to what worked in the late
'80s. Here are the "old/new" tools:
(1) lease/purchase; (2) lease/option;
[note: (1) and (2) are NOT THE
SAME THING] (3) all inclusive
deed of trust; (4) all inclusive
mortgage; (5) installment land
agreement or land sale contract.
Incidentally, seller-carries are
exempt from RESPA! RESPA
excludes "an all cash sale, a sale
where the individual home seller
takes back the mortgage (seller-
carry), a rental property transaction
or other business purpose
transaction."
There are two newer federal
laws that affect seller financing.
On July 30, 2008, President Bush
signed into law the Secure and Fair
Enforcement for Mortgage
Licensing Act (the "SAFE" Act).
The SAFE Act requires licensing or
registration of loan originators. On
July 21, 2010, President Obama
signed into law the Dodd-Frank
Wall Street Reform and Consumer
Protection Act (the Dodd-Frank Act
or "DFA"). The Dodd-Frank Act
("DFA") restructures the oversight
of financial regulation and allocates
the consumer portion of it to a new
agency called the Consumer
Financial Protection Bureau
("CFPB"). The DFA also includes
amendments to the Truth in
Lending Act ("TILA") and RESPA.
Both of these laws affect seller
financing, except to the extent
exempted.
THE CFPB RULES FOR
SELLER-CARRIES
New Rule: What is a "Loan
Originator?"
The Consumer Financial
Protection Bureau (CFPB) released
the original rule on January 20, 2013,
as part of its implementation of
amendments to the Truth in Lending
Act (TILA) made by the DFA on
July 21, 2010. The rule took effect
on January 10, 2014, except for two
important provisions related to loan
originator qualifications that took
effect on June 1, 2013. See 12 CFR
section 1026.36.
Yes, it is true, the two acts are
actually trying to tell private citizens
what they can do with their own
property and what transactions they
can do with their own money without
having also to pay the banks a
percentage of the entire deal to
handle it for them. It actually tries to
prohibit all private transactions and
make bank intervention mandatory.
But, as in all law, after the shock
subsides of seeing the Feds with their
noses so deeply in the private
financing and loan affairs of the
average citizen and after some good
lawyers look at this, there are places
where the Acts miss the mark
entirely – and apparently
unintentionally – and still permit
private transactions.
The new rules provide in
general that only licensed "Loan
The law actually triesto prohibit all private
real estatetransactions and make
bank financingmandatory.
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Originators" (usually called a
licensed mortgage originator or
"LMO") can approve the borrower's
credit or approve certain tough buyer
terms in most consumer residential
seller-carry transactions; otherwise
the transaction itself is void, and
those who facilitated it without being
an LMO are in violation (there are
civil and criminal penalties).
The new Final Rule
establishing "Loan Originator
Compensation Requirements" not
only covers the new "loan originator"
definitions, but also sets allowable
fees. The rule applies broadly to loan
originators, including seller-financers
that do not qualify for an exclusion
from the definition of "loan
originator." One who falls into the
definition of a "loan originator" must
then comply with strict licensure
requirements and underwriting duties.
After making the general
statements, above, there are some
exceptions and qualifications.
A Broad Definition
The definition of a "loan
originator" is now very broad. It
covers anyone who, for compen-
sation, performs any activities related
to the origination of mortgage loans,
including (but not limited to): taking
an application or offering, arranging,
or assisting a consumer in obtaining
or applying for credit.
TILA, as amended, and CFPB's
implementing regulations exclude
from the definition of loan originator
some sellers who provide seller
financing, but only if they meet
narrowly-defined exclusions (below).
Because the requirements are
extremely complex, unless seller
financers qualify for exclusion, they
will as a practical matter have to use
another approach for financing the
sale of the property, including
engaging a licensed loan originator
("LMO") without risking penalties
for performing loan origination
activities themselves. This is similar
to the situation under the SAFE
Act's loan originator licensing
requirements where, unless one is
exempt from licensing under the
state law enacted to implement the
SAFE Act, it is not usually
practicable to provide seller
financing directly.
Two Seller-Carry Exclusion
Categories
In response to many
commentators, CFPB provided
some flexibility in the new Final
Rule by excluding from the
definition of "loan originator" two
categories of seller financing:
(1) those sellers who sell 3 or fewer
properties in any 12-month period
(2) those sellers who sell only one
in any 12-month period, and in both
cases meet other criteria.
If a seller sells one property
using the less restrictive exclusion
rules then one is unable to sell
another within 12 months of the
first sale, as the first sale would not
qualify for the more astringent
standards of the "more-than-one-
sale-every 12 months" exclusion.
Thus, if the seller sells under
exclusion 1, above, the single-sale
exclusion, then seeks to sell a
second property, the safest course
would be to wait for the expiration
of 12 months after consummation of
the first sale before selling the
second property.
The only other option for the
seller if there was any doubt which
exclusion to use would be to
routinely qualify under the 3-sale
exclusion, since in that case the
second sale and even third sale is
always permissible inside the 12
months.
Though the CFPB made minor
changes to the statute, such as the
one property exclusion noted above
and not requiring proof of
documentation of a borrower's
ability to repay, the Bureau
determined to not eliminate the
criteria in the seller financing
exclusion as defined in the Dodd-
Frank Act. Accordingly, credit
verifications and ability-to-pay
evaluations should continue to be
made.
Continued next month
Seller-carries areexempt from RESPA.
J. Robert Eckley is an
attorney, former Realtor® and
builder, present Realtor® Affiliate,
litigator, forensic engineer and
educator who deals primarily in real
estate, banking, construction and
finance on a multi-state basis.
He is president of the law firm
of ECKLEY & ASSOCIATES, a
multi-state practice, is the Forensic
Manager of National BuildMasters, a
forensic contractor, and is President
of and equity-holder in The
Westcourt Financial Group, Inc., an
investment firm and corporate owner
of the Institute of Real Estate Law &
Standards. His present practice
focuses upon real estate and
financing, banking prosecution and
defense, agency prosecution and
defense, securities, investment and
foreclosure litigation.
Phone: (800) 999-4LAW
www.eckleylaw.com
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-8-
Wewill look back upon right
now as one of the best
times for note brokers and investors
in decades. Mortgagors (payors) are
faced with buying gas and food or
paying the mortgage. Note holders
are panicked.
Faced with non-payment, most
private note holders don’t know what
to do. They just want to be rid of the
problem. Usually they don’t know
where to turn, and they definitely
don’t want the property back. After
all, they had to take back paper to sell
it in the first place! That is, of course,
where we come in.
Here’s a transaction I did and
how you might want to try the same.
The ProblemI have chosen a couple of areas
of the country where I have
developed a few contacts and some
knowledge of the local area. One of
those is in New Mexico. I ran an ad
in the local newspaper wanting to
buy real estate contracts or
mortgages. From that ad, I got five
calls.
One of the calls was from a
lady, let’s call her Judy, with a
problem like I described above. She
had a real estate contract (in New
Mexico, seller carryback notes are
“contracts”) that had fallen 5 months
behind, and the “owner/tenant”
refused to leave. To her credit, Judy
had done a lot of the right stuff to
recover the property but wasn’t
succeeding. After a few questions, I
decided to meet with her at the local
title company’s offices.
After the first meeting, I had
a good insight to what she would
accept and how to approach the
opportunity. I took the documents
with me to study. The note was
seasoned for 8 years, had a face
interest rate of 8%, and was on a
3BR/2 bath, 1560 square foot
house. The outstanding balance
was about $37,500. The occupant
of the house was on disability and
had been making $400 monthly
payments. She had failed to make
the tax and insurance payments for
the last two years. Judy, the
contract holder, had to pay them to
protect her interests. Judy was also
retired with not a lot of income so
she had reached the end of her rope.
The OfferI offered Judy $32,000 and
she agreed to sell the contract. I
also told her that she would be
responsible for getting the property
vacated before we could go to
settlement. I guided her to the right
attorney to handle that issue. The
occupant immediately turned to
legal aid, so I knew it was going to
take awhile.
Knowing the contract was in
default, I put a special clause in my
purchase agreement that if the
default was not cured and Judy
foreclosed, I would have the right
to buy the house from her for the
same price I had offered for the
real estate contract.
Two OptionsI told Judy that I was leaving
and that I would return when she had
the house vacant and we could then
go to closing. I left myself the option
to extend the contract at will. I then
left with the understanding that she
would call me if I could help her
further or if she succeeded in getting
the house vacated.
I kept in touch with her, and
eventually she was able to foreclose
and get title to the house. It was now
empty, and she was ready to sell it to
me at our agreed-upon price of
$32,000. I immediately headed back
to New Mexico.
After inspecting the house I
concluded that I had two options.
First, I could keep it, rehab it and sell
it for around $95,000. Second, I
could try to sell it as-is to an investor
I knew in that town. Since I don’t
live in New Mexico and couldn’t
supervise a rehab, I chose the latter
option.
The InvestorWithin 24 hours after I was
back in town I had the house keys
and called the investor. I simply told
him I had a house he needed to see.
I offered to pick him up the next
morning.
Creating Notes By Flippingby Del Ashby
Faced with non-payment, most privatenote holders don’tknow what to do.
They just want to berid of the problem.That’s where we
come in.
THE PAPER SOURCE JOURNAL, April, 2015 To Subscribe: 1-800-542-2270 or www.PaperSourceOnline.com
-9-
We walked through the house,
out to the back yard, and I saw him
start to write on a small pad he had
brought with him. He handed me the
sheet of paper on which he had
written: $45,000, 8%, 10 years,
$5,000 down.
We walked on and neither of
us said anything. I finally said, “I
really would like to do business with
you, but I can’t do it at that price.
The very best I could do would be
$53,000.” No more discussion. I
took him back home.
I returned to the house, was
unlocking the door, and my cell
phone rang. It was his real estate
agent/advisor. She immediately told
me he wanted the deal as I had
offered it. I said okay, and it was
effectively sold.
Bought & Sold In 4 1/2 HoursFive days later, at 10:00 a.m., I
closed on the purchase of the house
from Judy. I paid $32,000 cash plus
$150.00 in closing costs. At 2:30
that afternoon I sold the house to the
investor for $53,000 with $5,000
cash to me and a real estate contract
payable to me in the amount of
$48,000 at 8% for 10 years. The
buyer paid all closing costs. Not a
bad day’s work.
The Key StepsHere are the key steps I used,
and you could do the same.
First, as you know, there are
different kinds of debt instruments. I
do not care for trust deeds. I prefer
real estate contracts. Mortgages are
my second choice. This has mostly
to do with how each of these
instruments handle defaults.
Step one is to choose a jurisdiction
or two that uses your chosen kind of
debt instrument.
Step two is to travel to that area to
get to know a little about the good
and bad sections of the town.
While there you will also want to
meet the manager of a title company
and get the names of a couple of the
smaller, well-respected real estate
brokers in town. They will also
know all the other professionals in
town that you may need. Screen
their recom-mendations yourself for
your own comfort level.
Step three is to find out the main
newspaper in town and run an ad. I
ran it for a month and it said
simply: Want to buy real estate
contracts. I can pay cash. Call
Del at 1-800-477-xxxx.
An alternative to paying for a
newspaper ad is to post on
craigslist.com for free. The
drawback is that you will have to
re-post every few days to keep your
ad near the top of the listings.
Step four is to return calls and
listen carefully for them to disclose
their problem as well as all the
other primary pertinent information
you will need. Get the address of
the property so you can determine if
it is even in a neighborhood with
which you are comfortable.
Determining The ValueYou are now prepared to
drive by the property or have
someone else look it over from the
street. You then want to head for
your chosen real estate broker and
ask them to run recent comps for
you. That will give you a price per
square foot for other houses in the
area. They should be able to give
you those figures for properties both
in fix-up condition and for nice,
ready to sell condition.
DO NOT depend on tax
appraisals or assessments!
You can now apply those
figures to your prospective property
to get a good insight for values and
what you can afford to do.
When you have reached this
point, simply use your normal buying
approach, being careful to understand
their problem. You don’t want to
buy into their problem unless you
can and want to solve the problem
profitably.
Especially if you plan to resell
rather than hold the property, keep
your mouth shut about your prices,
strategies and the like. The title
company can’t ethically or legally
disclose details of your transaction to
the other party. Notwithstanding, I
still meet the closing agent in
advance and tell them that such
disclosure is not to be made or
discussed in the presence of other
parties.
Now is a great time to help
other people solve their problems —
and make a handsome return in
the process.
Del Ashby has been buying
notes for decades. He wrote Make
Money Trading Mortgages, which
every note broker and investor should
read and re-read often. Visit
store.PaperSourceOnline.com
This is one of the besttimes for note brokers
and investors indecades!
THE PAPER SOURCE JOURNAL, April, 2015 To Subscribe: 1-800-542-2270 or www.PaperSourceOnline.com
-10-
Entity Formed For
One Purpose:
To Sue Appraisers Some appraisers are
now being targeted inlawsuits by an entitynamed "Mutual First,LLC." It has filed over 40lawsuits in the last year. Mutual First is not a
bank, credit union or anykind of financial institu-tion. It's an entity formedto make money by suingappraisers. It acquires foreclosed
loans, mostly seconds, forsmall fractions of the original princi-pal amounts. It then files lawsuitsagainst the appraisers who per-formed appraisals years ago. In itslawsuits, Mutual First claims that theappraisers are liable to Mutual Firstfor damages as the result of negligentovervaluation in the appraisals. Thedamages demanded include the fullunpaid balance of the long-ago fore-closed loan, even though MutualFirst itself only paid a very smallamount to buy the loan after it wasalready foreclosed and after the ap-praised property no longer served assecurity.
If you are an appraiser andyou are contacted by either MutualFirst or Savant Claims Management,immediately contact your profes-sional liability insurance provider,and do not provide any informationor respond to either company beforethen.www.appraiserlawblog.com
Contributed by DJ Scholl
Police Can Seize Your
Property Without
Charging You With CrimeCivil asset forfeiture is a
nationwide practice where police canseize your property and keep it —even if they don’t charge you with acrime. Then, you must go throughthe difficult, and often unsuccessfulprocess to get your property–whether it’s a vehicle, cash or yourreal estate–back from the police.
On April 10, that changed inNew Mexico. A new law makes itmore difficult for authorities to useasset forfeiture. The law makes twoimportant changes:1. Currently, when police seize prop-erty they can keep it even if you areinnocent. Under the new law, policecan still take property from you for ashort period, but would need a con-viction or a guilty plea in order tokeep it.2. Under the new law, if police do geta guilty verdict and your property isforfeited, it goes to the state’s generalfund rather than the police depart-ment’s budget. The difference at leastadds a layer of bureaucracy andoversight between police and thefunds they seize.
Don’t Lose The Docs!Standing, which is gaining
ground in Florida as a successful le-gal defense against foreclosure, isalso showing up in the latest roundof cases in New York. Some lendersare seeing foreclosures dismissed be-cause they were not able to provethat they were the assignee or hadphysical possession of the mortgageand underlying note. In another in-stance, a lender failed to lay theproper foundation in getting hearsayevidence admitted, causing the evi-dence to be thrown out of court. And,in another instance, not only did alender lose on the standing issue, butthe court ruled that the defendantswere not properly served.
Read more attinyurl.com/lyxcwqz
Foreclosed Owners Find A
Way To Void MortgagesSome foreclosed homeowners
are finding a way to keep their homemortgage-free by taking advantage oftheir state's statute of limitations withforeclosures.
Many of the 23 states that re-quire court-ordered foreclosures (theyare the dark states in the map below)are facing huge backlogs in theircourts, which has caused some foreclo-sures to drag on for years.
When these cases get draggedout five years or more, some homeowners are citing the state's statutes oflimitations for reason why lenderscan't take possession of the home now.They can then continue to live in thehome — without ever paying anotherdime on their mortgage.
In Florida, lawyers have arguedthat lenders have five years to file forforeclosure after default. Banks saythey have more time to file foreclosureand that the five-year clock resets ev-ery time a payment is missed.
"The statute of limitations doesnot halt a foreclosure case that is con-tinuing in court," the New York Timesreports. "But in some Florida courts,home owners' lawyers have arguedthat once a foreclosure is dismissedeven for technical reasons, the lendercannot refile a new foreclosure to seizethe home if the statute of limitationshas passed. Still, the lender has somerecourse: It can keep a lien on thehouse that must be paid off if the prop-erty is ever sold."
The Florida Supreme Court isnow deciding the issue.realtormag.realtor.org/
Contributed by Dale Morrison
“Christ died for our sins
according to the scriptures...he
was buried , and rose again the
third day...he was seen of over 500
brethren at once.”
— 1 Corinthians 15:3-6
THE PAPER SOURCE JOURNAL, April, 2015 To Subscribe: 1-800-542-2270 or www.PaperSourceOnline.com
-11-
Don’t Try To Sell Hawaii
Property With A NoteThe state of Hawaii now pro-
hibits homeowners from using “sellerfinancing” without a licensed broker.
According to an Hawaii realestate attorney, “The statute now re-quires any “seller financed” transac-tion to be handled by a licensed orregistered broker, even in a familysituation. I hear the registration pro-cess is too involved for most one-timesellers. The Hawaii State Bar has con-cluded that the law now prohibitsunregistered seller financing.”
Read more attinyurl.com/pvlmtdp
Big Brother Is WatchingWhen you have an account
with a US bank or broker, thereafteryou're being watched—continuously. US law requires financial insti-tutions and many other businesses tospy on their customers and report any"suspicious transactions" of $5,000 ormore to the Financial Crimes Enforce-ment Network (FinCEN), the USTreasury Department's "Financial In-telligence Unit."
The obligation to report“suspicious transactions” also appliesto securities brokers, mutual fundcompanies—even pawnshops, travelagents, jewelry and precious metaldealers, car, boat and airplane deal-ers, insurance companies, real estateagents and title companies.
Businesses that fail to reporttransactions they should haveregarded as "suspicious" face fines,and, in the case of banks, loss of theirbanking charters. Their owners oremployees can also be jailed. And it'sagainst the law for the bank or busi-ness to EVER inform the customerthat they are under suspicion or thata report has been filed.
FinCEN receives tens of thou-sand of suspicious activity reports, or"SARs." In 2013, the latest figuresmade public, over 1.64 million SARSwere filed nationwide. At least, that’swhat FinCEN admits to.
If an employee of a financialinstitution thinks you've done some-thing "suspicious" you might loseaccess to the assets in your account— or much worse. In one case a manmistakenly deposited a large per-sonal check in his business account.He immediately transferred the pro-ceeds to his personal account. A fewhours later he tried to withdrawmoney from this account at an ATM.He couldn't -- the account wasfrozen. Some bank employee de-cided that the deposit and transferof the man’s own legal funds was"suspicious" and froze his account.
Federal law requires that cashtransactions over $10,000 with a"financial institution," or with manytypes of businesses, be reported toFinCEN. Every day, FinCEN re-ceives about 13,000 of these reports.
Some make the mistake ofbreaking large cash transactionsinto smaller amounts to avoid thereporting requirements. That's acriminal offense, punishable byfines, imprisonment and confisca-tion of "all funds" involved.
But what defines“suspicious”? Just about every-thing! The SAR rules provide thatany transaction must be reported assuspicious "if the bank knows, sus-pects, or has reason to suspect...Thetransaction ...is not the sort of transac-tion in which the particular customerwould normally be expected to en-gage..."
That's a pretty big range.Aside from obvious triggers, such asattempting to wire funds to ISIS, thedefinition is remarkably broad.When the FBI tried to design a pro-file of how a bank might be used byterrorists it only came up with onemain characteristic: large depositswith withdrawals of cash in a seriesof small amounts. That's not particu-larly helpful, since this profilematches the account activity ofaround 25% of US bank customers.
It's no exaggeration to saythat if you're alive, you're asuspect.
Since businesses don't know inadvance which customers, if any, areengaged in illegal activity, all cus-tomers are subjected to pervasive,systematic and continuous surveil-lance. Software programs used by al-most all banks scan millions of trans-action records for triggers that mightindicate a problem. Seminars teachbusinesses how to analyze customers'behavior to determine if it's“suspicious.”
What can you do to protectyourself? First and foremost, bankstend to pay the most attention totransactions that don't fit the generalprofile of a customer or his or her pastpattern of use of the account. For ex-ample: Say that you have an averagebalance in your bank account of$2,500. One day, you sell your car for$7,500 in currency and deposit theproceeds in your bank account. Is thetransaction “suspicious”? Yes, be-cause it exceeds $5,000 and it's "notthe sort in which the particular cus-tomer would be expected to engage."Still, the bank isn't obligated to reportthe transaction as suspicious if youcan provide a reasonable explanationas to what occurred. When you de-posit the cash, inform the teller -- orpreferably, a bank officer -- that thetransaction is a one-time event, andbe prepared to show proof where themoney came from.
Yes, this strategy implies con-sent to a hugely unjust and immoralviolation of privacy by the govern-ment. But it could avoid your accountbeing frozen — or your arrest fortrying to protect your privacy.By Mark Nestmann, www.nestmann.com
ARE YOU
BREAKING THE LAW?
You could be – and not even know it.
Dodd-Frank threw a blanket of burdensome and complex rules overseller financing.
Our goal is to get residential installment sales removed from theTILA definition of Loan Originator and get the new restrictions removed.
Congress said Ma and Pa on Main Street would NOT be affected --but here we are.
We are a small group standing up for the rights of millions ofproperty owners. We will do the heavy lifting — if you will financiallysupport us.
Please take these 4 steps — now:
1. Visit our website: SaveSellerFinancing.org
2. Read our white paper for details.
3. Sign the petition to save seller financing .
4. PLEASE donate all you can. We cannot do this alone. We need the involvement of everyone who cares about the future of the note industry .
COALITION TO SAVE SELLER FINANCINGCall (253) 445-3599 to donate or send a check to P.O. Box 67, Puyallup,WA 98371
“The Coalition is working tirelessly to save our industry. I have contributed to it and
urge you to do the same.”
— Bill Mencarow, The Paper Source
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