A New Note Education Like No Other

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I’m EXTREMELY excited to be writing this post. It’s been a long time coming, and today is the day I can officially announce Note Investing Academythe newest, and in my opinion the best, non-performing note educational program out there!

Dennis & I started investing in Notes in 2013 when we were just starting our real estate investing education. At our first Real Estate Association Meeting one of the biggest guru’s in the business was pitching “investing in non-performing notes”. We had absolutely NO idea what a note was, and definitely didn’t know how to buy one for a profit. However, the concept sounded great; most of the business is run from a phone or computer, you don’t need lots of cash to get started,  (you can raise capital to invest), own real estate in your own state or nationwide (meaning lots of inventory and opportunities), and it can provide you with passive income or large sums of cash. We were sold! We signed up for his weekend course and even flew to Texas to attend. While we learned a lot, it wasn’t enough to really buy our own note deal: Cue the up-sell. That’s when when we were brought aside, and pitched one-on-one for a mentorship program that ran anywhere from $12,000 – $20,000 (now that same course is starting at $20,000 and goes up to $35,000)! I was 22 at the time, in my first year of teaching, and Dennis was a bartender. Let’s just say our salaries did not support a $12,000 shopping spree. There really wasn’t any one else offering anything better for cheaper, so we decided go big or go home. That day, we applied for our first big credit card (a suggestion from them…), maxed it out, and bought a $12,000 mentoring course. To say it was a lot of money for us at the time is an understatement. It was more than I personally spent for a four year degree in college! We were scared we overextended ourselves financially but we were determined to see success (trust us there were many sleepless nights until we paid the credit card off in full).

This “big” mentorship was online and structured to be independent/self paced. Point blank, it was not a mentorship. It was an online course. Regardless of the “mentoring” style, we applied ourselves. We listened to the weekly recorded calls, went through the online modules, and read as much as we could. After all was said and done – we still didn’t feel confident. We definitely gained a ton of knowledge about the foundations of note investing but the nuances of the business were minimal. There was no network for us to reach out to and when we did ask questions they often went unanswered. I remember we had a bid on a REAL deal and had questions about the collateral. When I got on the weekly call to ask our big mentor – the guy who pitched us the course to begin with, he gave us the runaround, avoided answering the question, and pretty much told us to look in the previous online notes and calls for an answer. Wow – that’s not a $12,000 answer if you ask me!

We are very thankful for the education we received and programs we attended as they gave us the knowledge we needed to create our Note Investing Business and get out of our 9 to 5 jobs,

We decided to sign up for another weekend course with the Note industry’s competing educator. Since we already had a solid foundation of note investing, we felt his course filled in a lot of the missing gaps and we quickly did our first deal just 1 month later. We are very thankful for both educators and programs because they gave us the knowledge we needed to create our Note Investing Business and get out of our 9 to 5 jobs. With that being said, it shouldn’t have cost of tens of thousands of dollars and there shouldn’t have been so many gaps from their teaching to what actually happens in the note world. They charged an arm and a leg because they could. They delivered what they thought was good information but wasn’t necessarily what we were expecting from the program.

Five years later, our business has grown beyond what we could have ever imagined. We’ve put nearly 2 million dollars to work purchasing non-performing notes nationwide and quit our day jobs because we not only replaced our normal incomes but exceeded our annual salaries. There is no doubt we are here because of the educational foundation we received from the two gurus we learned from, but frankly, much of the success we see today is from our self driven personal education and networking we have with other note investors.

In 2016, I started teaching a one day Investing in Non-Performing Notes class locally at my real estate association in Orlando. While I received amazing feedback at these one day seminars, often being told they learned more in my one day class than a whole three day weekend with the two gurus I mentioned earlier, my reach was still limited.

We are very thankful for the education we received and programs we attended as they gave us the knowledge we needed to create our Note Investing Business and get out of our 9 to 5 jobs,

So in 2017, I collaborated with Chase Thompson, (from the well known podcast, NoteMBA), and Kimberly Banks-Fawcett, (long term real estate investor and active Note Investor), to create Note Investing Academy. Our sole purpose for this program was to offer a better, more affordable solution to learn about investing in non-performing notes. The program is designed to not only give you a solid foundation of Note Investing, but to include everything that we felt was missing when we started out! We have 60+ videos jam packed with content that helps you understand the basics of buying non-performing notes, the numerous ways to profit with notes, the process you’ll go through after you buy your own deal, in addition to the important factors of building your business like branding, marketing, LLC creation, and mindset. We have an amazing Documents section that has loads of resources that we use consistently in our own business. We paid hundreds if not thousands of dollars combined for those documents and that knowledge when we started out. The best part – the price is super affordable! There is no huge up-sell. It is what it is, a great program at an affordable price. We hope to see you there and know you will love the program as much as we do!

TAKE ME TO NOTE INVESTING ACADEMY

Week 7 – The Four Hour Work Week…Kind Of

This week has been productive and business focused. I’m reading a new book, The Four Hour Work Week by Tim Ferriss (if you haven’t read it you need to now). I’m about 1/2 way into and finding a ton of ideas to help myself cut back on work time and have a lot more me/play/family/free time. While it doesn’t happen over night, I’m starting to implement some of the ideas little by little and am focusing on the tasks that I can outsource now.

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Monday Feb. 8th – Sunday Feb. 14th, 2016

Monday (2 hours) w/o reading

  1. Read for 1 hour.
  2. Called 6 banks that I found were high candidates for selling non-performing loans using distressedpro.com. I got a live person or email contact with 3 banks. I left voicemails for 3 additional and 1 indicated they are not selling currently.
  3. Received updates from many of our vendors. Found out one borrower that was repaying didn’t make Feb. payment. Disappointing news, but the name of the game. Knowing it was always a possibility we are prepared to foreclose if needed.

Tuesday (1 hour)

  1. Got a new loan boarded with my servicing company and made sure the paperwork transition went smoothly.
  2. My attorney confirmed we have officially filed the 45 day demand letter for a borrower in NC. I also received a letter of indemnification from the original title issuer. After my attorney pulled title in preparation to foreclose, they found there were title issues that needed to be rectified before moving forward. I contacted the original title policy company, opened a claim and received the letter about 4 weeks later. It was definitely a set back in the timeline, but all is well and on track now.
  3. Read for 30 minutes.

Wednesday (4 hours)

  1. Closed on our newest deal in Pittsburgh, PA. Smooth, easy, and a $3,000 upfront pay day for us.
  2. Looked at new inventory and submitted offers on 4 assets. 1 was rejected (our pricing was way to far off from each other). The other 3 I should hear back from in a week or two.
  3. Started an account on EverNote (I know I’m way late to the game). I will be using this to store my business receipts, paid invoices, etc. for my new bookkeeper to easily have access to without a paper trail and conveniently located in the cloud!
  4. Hired a new assistant to help set up my bookkeeping using Xero. I found an extremely qualified and highly recommended bookkeeper on ODesk. I will be using them on a trail basis at first in hopes all will go well!
  5. Outsourced searching for qualified bank leads to sell inventory on distressedpro.com to one of my best VA’s. This will save me at least 1 – 2 hours per week.
  6. Inspection was completed for the sale of our property in Tipton, IN.
  7. Read for 30 minutes.

Thursday (3 hours)

  1. Monitored the work of our VA’s on a new tape that was submitted to us from a client on tapetechs.com.

Friday – Sunday (VACATION!)

Total Income for this Week: $3,152.59

 

Week 6 – Wheelin’ and Dealin’

I love getting a new deal and seeing a pay day in sight. This week I felt I got a lot accomplished toward my overall goals which obviously feels great! Take a look at the action this week.

Monday Feb. 1st – Sunday Feb. 7th, 2016

Monday (3 hours)

  1. Our Tipton property went on the market officially today for $52,000.
  2. Received the BPO back from our realtor for the new deal in Pittsburgh, PA. The value was right on point with our expectation.
  3. Paid 2 invoices to our vendors for recent work that was completed. Checked in the progress of our current deals.
  4. Explored distressedpro.comdistressedpro.com, which helps source non-performing notes and REO (foreclosures) direct from banks, credit unions, and servicers with BankProspector software. I had heard a lot about it but finally tried it our for myself. Lets just say its AWESOME! It really does help you find the exact banks in the markets your are targeting that not only are healthy enough to sell but see if they have a history of selling and are prepared to sell now. Instead of calling every bank I could, I now have a super targeted list of qualified banks to call.

Tuesday (1 hour)

  1. One of our borrowers called and wants to modify her loan. I provided her with our servicing companies info to get her income verification and see if a modification or forbearance plan will work.
  2. Received title back on our newest pending purchase in Pittsburg, PA. There were WAY more taxes than expected so I had to reopen negotiations. I was able to knock down our purchase price from $57,500 to $50,000.

Wednesday (4 hours)

  1. Got an offer of $50,000 for our Tipton, IN listing (only $2,000 off asking) just 3 days on the market! We accepted and will have inspection next Tuesday with closing on the 29th of Feb. Considering we’re all in this deal at $29,500, we’re expecting to see some great results in our total ROI (expecting a $16,000K profit and a total of 54% ROI!)
  2. Attended my monthly REIA meeting at CFRI (Central Florida Real Estate Investors Association). While I wasn’t speaking this time, I did volunteer which is always a great opportunity to meet and network with new individuals and really make myself present within the organization. After we had a few drinks with fellow real estate investors and talked really good shop! We got some great ideas for additional income streams.

Thursday (3 hours)

  1. Finally received the electronic collateral files for the Pittsburgh, PA purchase and 66599346had some major new findings. The borrower is contesting (although their case is not very strong) and there was even more taxes owed than the title report showed. Because of the risk we run with this borrower in particular and their past correspondence in regards to this loan, we renegotiated. We came to an agreed upon closing price of $40,000 (a $17,500 deduction from our original purchase price)!
    (In PA , to get the most accurate info requires a tax verification to be pulled. This takes about 10 days – 2 weeks to receive. This is why I did not have that information until the collateral files were sent).
  2. Looked at 4 new assets, decided not to place a bid on them. Just didn’t meet our buying interests.

Friday (day off)

Saturday (2 hours)

  1. Wrote this post.
  2. Updated a lending agreement, executive summary, and docs for our lender for Pittsburgh deal. We should be closing Wednesday.

Total Income for this Week: $443.95

 

Week 1 – Starting 2016 Right!

 Monday 12/28  – Sunday 12/3

This is my first week of tracking my progress to a $120,000 year! As you can see, this post actually starts a few days before 2016 hits, but I thought I should track it anyways. I also wanted to clarify why I chose my financial goal of $120,000 in this first post.

While this may not seem like much to other investors, or to someone with a higher paying salary job, my goal of $120,000 is a big income leap for me. Coming from a teachers salary in Florida (let’s just say it isn’t much), I am way more than doubling my income and I am doing it through my own business, on my own terms, and my own timeline. I’m not clocking in from 9 – 5 to make this salary. I’m working when I want, where I want, and on the deals I want. I wanted my financial goal to be a realistic number that was attainable but also somewhat of a challenge. I very much hope as I reach the 6 month mark in the year, I realize I undershot what I’m capable of and move my goal up a notch or two, but for now, I’m very happy with $120,000!

Anyways, here is my summary for the week.

Monday (about 6 hours in all)

  1. I spoke with three potential private lenders/partners that are interested in our company and want to invest money on deals. This is a huge part of our business because for every deal we acquire we need to have money ready to be allocated accordingly to close the deal. We raised upwards of $50,000 just from these calls.
  2. I did a lot of deal follow up with the holidays the week prior, many of the companies we use for contracting, attorneys, and other vendors were closed. I wanted to make sure everything was still on track with the current deals we had so I made several calls and emails to follow up.
  3. I also worked with my VA’s reviewing their work on a tape of 80 assets that was sent to us to be scrubbed for a client.
  4. Paid taxes on one of our properties & paid 2 invoices for vendor work.
  5. Read for 30 minutes.

Tuesday (Only 2 hours total of work with some shopping and R&R)

  1. I called and/or emailed 8 potential sellers of assets/notes. This is one of my areas of weakness and is definitely one of my least preferred tasks. While it’s not a difficult job, I just never seem motivated to call new sellers. So calling 8 today was a big accomplishment for me!
  2. I finalized contracting work on a rental we have (rehabbing interior, roof, etc) and got that officially started.
  3. Received another tape to be completed by the VA’s from tapetechs.com, so I sent that to the VA’s and made sure they began the task in a timely manner.
  4. Read for 45 minutes.

Wednesday (Goal Planning Day! about 4 hours in all)

Okay I’ll be honest. I love to goal plan. I wish I could simply create dream boards, write down my 6 month, 12 month,  2 year , 5 year goals all that time! For obvious reasons, I choose my goal planning time strategically. I always like to start my year off with a good goal planning session but also do it randomly throughout the year as I see fit.

  1. Listened to an AWESOME podcast on the topic of goal planning from http://www.notemba.com – you can listen to it here!
  2. Wrote my monthly goals and annual goals for both my financial and personal life.
  3. Recreated my dream board with new and updated pictures.
  4. Rewrote/reorganized our office white board which houses all of our current and pending deals with the stages of the workout they are in, and other important information.
  5. E-Recorded a deed for a property.
  6. Read for 30 minutes.
  7. Updated my tax information for 2015 and sent to my accountant.

Thursday & Friday – New Years Eve & New Years Day, Time Off

Saturday

Read for 3 hours (just started Tony Robbins Money Master the Game) and I’m loving it so far!

Sunday (about 1 hour in all w/o reading)

  1. Finished today’s blog post
  2. Worked on my social media sites
  3. Ordered a new marketing case study from Fiverr.com
  4. Wrote my Jan. Newsletter – which if you aren’t receiving you can grab here! (Freebie code to try TapeTechs.com services included)
  5. Read for 2 hours

Total Income this week: $458

The Truth about Servicing Companies

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Servicing companies are big players in the note investing world. National laws allow each individual state to determine their rules & regulations for servicing loans and surprisingly do not always require you to have you loan serviced be a professional company.  While it’s possible to service your own loan, I  do not suggest it simply because of the time value. Is saving $25 – $50 per month really worth the hassle and liability/risk you’re putting yourself into but servicing itself? Hopefully your answer is no, it’s not. If you do decide to have your loan serviced by a company, the next problem you have to solve is; well, which company do I chose? There are TONS of servicing companies to chose from and each of the vary slightly in price and services but offer essentially the same thing:

  • Ability to collect payments.
  • Workout the loans (handle talking to the borrower, negotiating, or starting/executing foreclosure).
  • Filing & Sending paperwork (TILA/RESPA letters) borrower options, correspondence.
  • Keeping payment records from borrower.
  • Correctly taking out and holding escrow for taxes and insurance.

I talk with a lot of investors that ask “have you found a good servicing company yet?” and my current answer is, “I’m with _____ right now and I am happy with their results and services, but it hasn’t always been like that.” The truth is, I’ve gone through several different servicing companies and each of them have positives and negatives to their day to day operations and I’ve had to make a switch several times to hopefully find the one that works for me. Some have quick payout times when you’re collecting payments, and I’m able to get my money quickly, but their workout specialist services are not up to par. Or maybe they have lower rates, but do not respond to anything you ask and are terrible at follow up with both the borrower or the client. I even had one servicing company that didn’t send my TILA/RESPA letter but asked for a boarding fee when I was handling the workout! They literally did nothing for me or my loans, but expected their servicing fee. Let’s just say I will NOT be working with them again.

To be honest, there is no perfect servicing company. You’re just going to have to search around and do your own digging. My suggestion is to try working with them on 1 loan initially, actually receiving their services will be the true sign if their company will meet your needs or not. Even with client reviews you’re still going to have to try it out yourself and see if their services or expertise meet your needs. When I was dissatisfied with my last servicer, I asked a fellow colleague about switching to the company I’m currently using (and happy with). They said they had a very poor experience with the company I’m happy with, and that they were making a switch themselves to a new company because of it!

Here is a list of servicing companies. By including them on this list, I am in no way endorsing their company or services. My goal is to make the searching period easier for you by housing them in one location.

When you make your initial contact with them, ask them the following questions about their services; *Also check for their pricing online, if it’s not online ask for the pricing to be sent to you*

  • What information is needed from me if I board with you?
  • Do they send the TILA/RESPA letters?
  • What do they do as a part of their “workout/collection services” do they skiptkace? Send someone to the home of the borrower, or just try to send letters and make phone calls?
  • How quickly do they typically see results with their borrowers and when do they file foreclosure if the borrower is unresponsive?
  • How fast is the money deposited into my account when I am successfully receiving borrower payments?
  • Is there an online portal for me to access my records, borrower payment history, borrower correspondence, etc.?

So start interviewing and hopefully you’ll find the right servicing company for you!

Calculating a Deal – The Method’s and the Outcomes

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Lots of people have different methods for calculating and analyzing their note deals. While there is no “perfect” or one solution, you need to know that you’re coming up with the right numbers for your potential profit as well as your expected costs so you’re not stuck with a unpleasant surprise half way through your workout. Today I’ll be focusing on how we analyze our deals, plan for costs, and ultimately decide to do a deal or not.

Analyzing

While the old pen and paper work here, if you are not utilizing technology, such as excel you are doing yourself an extreme disservice! Excel has AMAZING tools to automatically calculate percentages, basic addition and subtraction, to even calculating complicated algorithms. I suggest watching basic explainer videos on youtube or doing some web research  on how to properly create your automated calculations and save into a spreadsheet. I have one for calculating yields for payments over time (such as a re-performing or performing note), and one that helps me with the DIL or Foreclosure routes (see examples below). All I have to do is plug my numbers in and it tells me my yield! Talk about easy. It’s so much better than working the numbers into your 10bii calculator every time (although I love my 10bii calculator and use it every day for other reasons).

Excel Calculator for Notes

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Calculating Costs

I’ve noticed some investors low ball this area and I think it’s a huge mistake. I almost always round up and prepare for unexpected costs with every deal I do. I also ALWAYS prepare for the outcome of a foreclosure, meaning it’s built into my cost calculations and effects my expected yield before I place my bid. If the deal doesn’t make sense with those numbers, I counter, or move on to another deal. It’s always a potential and should be properly prepared for. Some additional costs I always factor in is servicing for 1 year. It if goes to foreclosure, I can expect (depending on the state) for my property to be tied up with a servicing company for roughly 6 – 12 months (sometimes more)! Even at the standard self-workout, non-collections fee of $25 – $35 that’s an additional $300 in a year. If you’re not prepared to pay that, it could effect your end yield. We also account for things like documentary stamps, property maintenance and security (which can be super costly surprise if you’re not factoring this in up front!), and forced placed insurance.

Deal or No Deal?
Ultimately, that’s up to you and you alone. Using the measures I mentioned above to analyze your deals will seriously help you determine if you move forward or not. I do want to remind you that it’s better to do no deal than a bad deal! You may want a deal bad, but remember you never want to be in a position that you want it bad enough to do a bad deal. Determine a yield % you expect in every deal that way if it’s above your required yield you’re good to go!

I hope you find this post helpful in understanding what better to prepare for in your deals and get you closer to a quick answer on each deal you do!

Orlando Note Deal Case Study

I was talking with a fellow note investor the other day about past deals we’ve completed over lunch. While we both swapped stories of great deals and ones that required a bit more work than expected, I was asked if we send out case studies on the deals we do? I’ve heard of doing this before, but had never actually taken the time to make one for our each of our deals, and quickly realized now how terrible that is! I need to continue to put our past deals out there for other investors and interested lenders to see what we’ve done, how we’re doing it, and the real ROI’s were getting on these deals.

So without further adieu, here is our first case study (I say first because there will be many more to come). This was completed with 2 joint venture partners, and worked out completely by us (Dennis Smith and Liz Brumer) owners of Seasoned Funding, LLC and Note Investing Club.com.

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We purchased the note from a fund and began the workout right away. What you don’t see in the case summary is how challenging it was to find the borrower initially. She was living in Georgia but had “relatives” living in the property. Initially, they refused to give us the number, but then realized who we were and what we were trying to do and happily gave us the number to the home she was living in Georgia.

As you saw in the case study, the borrower had a judgement with a credit card company. This took quiet a while to resolve because it required an document signed by the borrower authorizing us to negotiate with the company. When we requested the letter from the borrower, she got scared and worried we were doing some sort of harm and went dark on us for an entire month. Finally, after numerous letters, calls, and pleas with her grandson – she refused to answer the phone, we helped he realize we were there to help and pay off the judgement, we just needed her consent.

It then took another month to receive the release of judgement from the credit card company and get it publicly filed so we had clear title to receive the DIL. This set us back about two and a half months into the work out. All in all it took about 6 months to successfully get the Deed In Lieu from the borrower and have it publicly recorded. From there we did repairs/minor renovations, and got the property on the market. While we got an offer on day 3 of being listed, it was FHA which required an appraisal that put the property $10,000 under what the buyer offered it for! We we’re super bummed about having to lower the price, but still were happy with our ROI.

There were some issues with title when closing, apparently the legal description had been incorrectly recorded for multiple sales and no one had caught it until now. This took another month to rectify which pushed closing back! Talk about frustrating! This deal definitely took longer than expected at 10 months but that’s exactly why you always over estimate timeline, costs, and potential issues that way you over deliver in both the time and results to your partners or lenders. All parties involved were very happy with the outcomes and results and are looking forward to doing more deals!

The 5 Things the Note Gurus Aren’t Telling You!

Note investing was how I got my start in the real estate world. At my very first REIA meeting one of the leading Note Educators or “Gurus” spoke at our monthly meeting. I didn’t know much about notes or real estate at all, but boy did they sell me on the idea of no tenants, repairs, and the prices couldn’t be beat! I was in. I bought into their program and have continued our education ever since. While their programs gave me a wealth of knowledge and resources, I quickly came to realize there were a few key items the gurus were leaving out in their pitches and courses and I was learning the “hard way”.  So I’m here to tell you what I believe are the top 5 things they don’t tell you upfront.

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Non-Performing Note Investing 101: Understanding the Basics

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If you invest in real estate you’ve probably heard about this “new” investment strategy; Notes. Over the past few years, investing in Non-Performing Notes (NPN), has becoming increasingly well known. The recent surge in popularity is due to current market conditions. You can read more about why the current market lends is self to such success in buying non-performing notes by clicking here. Although this concept is new to some investors, note buying and investing has been around for decades and is really not that “new” at all.

I often find myself reading various posts from assorted blog platforms, social media sites, and company websites discussing different topics involved in note investing. There are numerous articles on the benefits of note buying, the risks involved, and topics such as “the top 10 things to know before buying notes” but amongst those great articles I struggled to find a post that did a good job of explaining note buying and investing in NPN’s using laymen terms.

My company is a privately funded investment group that works with individuals looking for a higher return on investment.  Some of these individuals have never invested in real estate before, and because of this I’ve had to develop an “easy” way to help our partners understand and feel comfortable with investing in non-performing notes. Now that I’ve built up my experience I wanted to share the basic process of investing in non-performing notes and some of the common questions or concerns I encounter in a manner that anyone can understand.

Now I know this is a simplified 101 Guide and there are a lot of caveats to this industry that a “new” investor needs to be aware of. I suggest that any interested party work with someone who is experienced and well versed in this area of investing before venturing out on your own. As I said before, the process outlined below is what I typically use when I meet with private individuals who are interested in working with our company, Seasoned Funding, LLC. There is a lot that goes into buying a NPN that can positively or negatively effect your experience in this industry and if you are not knowledgeable and prepared you can easily end up losing money or worse, your investors money.

With that being said, and without further adieu:

The 101 Guide to Non-Performing Note Investing!

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What is a note?

A promissory mortgage note is a signed document that stands as a promise to pay a specific mortgage loan. This document outlines the terms, dates, and requirements to fulfill the promise. 

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What is a mortgage?

A mortgage is a loan document that is secured by real property. This document is used as collateral for the promissory mortgage note, in essence it is the security for the promissory note debt (it gives the bank/lender the power to take your property in the event of default).

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Is a mortgage and a note the same thing? 

This is one of the most common areas of confusion for someone starting out and the answer is NO.

A mortgage and a note are two separate documents that reference the same property and loan, but outline very different things. A mortgage can be anywhere from 10 – 25 pages and outline important issues, rules, and regulations for both the lender and borrower. This can be anything from payment of principal, escrow, late charges, to taxes, insurance, the right of forbearance, and transfer of property of beneficial interest.

A note is typically a 2 – 5 page document that specifically outlines the terms on which the mortgage loan is written. This document explains the interest rate, term of the loan (typically 15 or 30 years), prepayment, time and place of payment, and explicitly states the obligations of the borrower in signing the mortgage (including in the event of default).

Basically, the mortgage references the responsibility of the property and the note references the payment of the loan.

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Why buy a mortgage note that isn’t paying?

This is a customary question I am asked after explaining what I do and I love getting the opportunity to answer this question.

My answer is simple; “Because buying a mortgage note that isn’t paying allows me to step into the shoes of the bank and find a more creative solution than a commercialized formal institution ever could. Sometime this means I modify their current loan and get them repaying, and sometimes this can be relieving them of their debt by getting a Deed In Lieu of foreclosure or through the foreclosure process itself.”

I also love adding the fact that I’m able to acquire these non-performing notes or assets for a deep discount, typically 35 – 55 cents on the dollar, leaving an enormous margin of profit no matter what my exit strategy.

If you found this post informational take a look at Part II of Non-Performing Note Investing 101.

The Dangers of Brokering

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When you start off in the real estate investing world most “gurus” or educational speakers suggest going into wholesaling or brokering. They talk about the benefits and ease of assigning a contract or mortgage for quick cash. The concept is great and works for many investors, but the negatives that are involved are almost never discussed.

My company, Seasoned Funding, LLC had success in a joint venture deal with two other investors, wholesaling a contract on a house in Central Florida in January of this year but we ran into our first real experience brokering a note this past week. It was a juicy non-performing note deal in Sanford, FL that was listed on a tape we had received from one of our direct contacts. We are in no way shape or form, exclusive to this tape, but took the time to go through and see if there was anything worthwhile. After doing some light due diligence we knew we had a deal. I decided to drive out to the property take some pictures to see it’s current condition and had a local realtor from our REIA group pull comparables and give me a valuation.

The following day we put in our offer and within an hour, it was accepted at $26,000! I immediately pulled an O&E report, which can cost anywhere from $50 – $100 and created a flyer to help us advertise through Postlets. We inserted the deal into our email-advertising host, Mailchimp, and blasted it out to all note investors, real estate investors, and connections our company has acquired on LinkedIn.

Within 30 minutes I received 3 emails inquiring for more information on the NPN. I knew this deal was going to close quickly! The inquiries continued the following day and that night, I met with a fellow investor who was interested in the deal.

Somehow, with all of the advertising our company did on this note, fellow note investors or the people that sent us inquiries discovered who the direct source was and went to the source placing a higher bid than our accepted price, yet lower than our assignment fee (even though our fee was only discussed with 4 people). The timeline for closing had not been discussed with the fund manager after our offer was accepted, and I assumed that I had the typical due diligence period of about 2 – 7 days. Two days after our offer was accepted, the fund manager called to state that because of the increased interest and bids on this note within the last 24 hours if we were not able to have the money wired to the fund by the close of the business week, (which at this point was the following afternoon), we would lose the deal.

?????

We were fuming! We understood the funds perspectives and were EXTREMELY thankful that they stuck to their word and honored our offer, but we just couldn’t believe that even though a NDA was filled out and NO fund names were disclosed, a fellow investor(s) had no qualms going behind our backs and jeopardizing the deal for our company who did the brunt of the work.

We called the investor we had met with the previous night and disclosed what was happening and why the sudden urgency to close. Luckily, he was extremely understanding, and got to work with his SDIRA to get all of the paperwork completed to get the funding wired by deadline. Even with the sudden urgency, the fund wasn’t able to provide the SDIRA with all of the paperwork they wanted/needed in order to fund, something that happens quiet frequently when investing with NPN’s and SDIRA’s.

When we heard the news we immediately figured we’d not only lost the deal, but lost $100 from pulling the O&E but to our surprise, the fund manager commended our work and agreed to extend the closing date to the following business day using one of our other inquiring investors that they had previously done business with.

We found out that the “inquiring investor” was in fact the one who went directly to the source in an attempt to cut us out and was attempting to continue to do so. We spoke with the investor on Friday, in which they said “yes” to our fee and interest in closing, but then told us they had no interest in the deal on Tuesday (expected closing day). We found out from the fund manager directly that they were now trying to buy the deal for the price we had negotiated leaving no fee at all, even though we had come to an agreement on a fee price Thursday! The fund manager once again stuck to his word and told the investor unless the fee was included, they were not able to purchase the note. He allowed us 2 more days to contact one of our other funders and were able to close the deal for our original asking fee, $6,000! It took a lot longer than expected, and had more complications than I could have ever predicted but we luckily were able to close – all thanks to the fund manager!

Point blank, there are some people that are selfish and unethical. I understand the reason you get into investing is to make money, but I have trouble understanding how a fellow investor could do that to a company that’s simply trying to do the same thing. If you ask me, if someone does the work in finding the deal, crunching the numbers, and pulling/doing due diligence; they deserve a fee.What I want investors to learn from this story is how to better protect themselves when trying to wholesale or broker a deal. If you don’t advertise, the deal won’t be sold but if you advertise you run the risk of other investors attempting to “cut you out of the deal”; it’s a double edged sword.

So here are a few steps we’re going to make sure we are taking in the future to better protect ourselves:

  1. Have ALL inquiring investors fill out an NDA (that has been approved/drafted by an attorney to properly protect you) before giving ANY information out. No matter how badly you want to close or need the leads, if they’re serious, they’ll take the time to sign it and wait for the information. You can state the area (provide pictures and details) but don’t give them everything right away.
  2. When advertising – DO NOT list the address until an NDA has been signed and returned and you’ve spoken face-to-face or over the phone with the inquiring investor(s).
  3. Have a clause within the NDA or a separate agreement that states they will not go directly to the source(s) if it is disclosed or discovered. Remind them of this fact when you send the NDA or have the NDA returned.
  4. If at all possible, discuss having the entire “marked up” price funded directly to the seller. After they have received the funds, they will wire you your fee. This will keep an investor from knowing your negotiated price and keep them from attempting to negotiate your fee down.
  5. If your fund is not willing/able to accept the “marked up” price and wire you your fee, get a brokering or wholesaling agreement signed stating that if they want to follow through with this deal they must agree to pay you a the agreed upon fee.
  6. Try not to disclose the source of the deal if at all possible! Delete their name from any Sale/Purchase Agreements or any documents that could eventually tell the inquiring investor(s) where it is coming from until they are ready to wire the money to close.

Now these are not always going to protect you. People will do what they want to do, ethical or not, but I’m hoping by taking this steps and being smart about your investments you can learn from our mistake and get another deal under your belt.