A real estate co-heart of mine had a note he had purchased several years ago, when he lived in another state. Since he was now in Texas he decided to sell the note in order to utilize the proceeds on a new real estate endeavor, and of course,came to me to buy the note . I immediately began my earnest and organized research on his note, and contacted the original title company in the other state . I soon found out that, unknown to my friend, the note had been lost by the original seller and somehow a release of lien had been issued. My problem solving skills came immediately into play and I found a title company to research the situation and go about recovering the original note and reissue the deed of trust. However during this time we found out that the payor was in bankruptcy and the property was held by the court. So I had to contact the payor and encourage him to obtain the property's release. The wheels of the court moved very slowly, but I was optimistic and during this time, I had the appraisal of the property approved. The release of the property was finally granted. So with all the 3 P's ( paper, payor and property) back in financial and legal order I was able to buy a partial of the note (60 payments) with an option to buy the last 60 payments within the next 15 months. Another H&P Capital Investment success story.

TILA (Truth In Lending Act)

Part of the Consumer Protection Act which is implemented by the Federal Reserve Board through Regulation Z. Provides for disclosure of loans. If you owner-finance more than 5 properties to home owners within a calendar year, you must provide these home owners with a TILA form. Contact me, and I will be glad to email you one.

If you have not attended a Note Professor "How To Get Rich with Notes" class, be sure and purchase the Note Professor Note Book manual to enhance your knowledge of creative real estate financing and note selling.

Rehabber Bailout (solutions to subprime owner financing problems)


Contact me for questions or comments.

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Last month we covered the closing of some sub prime markets, and how this affects selling a note.

This month I want to talk about several of the most asked questions I have been receiving lately , plus outline for you how to structure a note to sell.

Question "If I get seasoning, will this make my note worth more?".
The answer is "sometimes" for mainly two reasons
#1 if you get a good down payment. Equity in the property should have increased after one year.
#2 and when your note has seasoned for approximately one year, your note is going to show a pay history.

Question "When will seasoning NOT increase the value of my note?"
The answer:
#1 when the buyer puts nothing down (NO EQUITY)
#2 has a sub 600 credit score
#3. ESPECIALLY WHEN TWO OR MORE OF THE ABOVE ARE COMBINED.

Contrary to what some guru's tell you, this note is still not worth maximum value. Think about it. You have a house worth $100,000 with a $97,0000 loan, and the payor has a credit score of 550. In six months or so you still have a 97% LTV, and in all probability, the payor still has a 550 credit. What has changed? Nothing. Why is it worth more now than 6 months ago? The answer is "it is not worth more". If you are owner financing to hold the paper for income, I do not want to discourage you from using notes as an exit strategy. But if you are planning on taking back sub prime paper, with little down, and expecting to sell it for maximum value after only six months, you are going to be very disappointed.

By the same token, if you plan to sell your note in the future, you need to Structure the Note to Sell, as well as have all the information needed to get maximum value.
This means:
#1. you should have a credit application filled out completely. (If you do not have one, contact me, and I will send you one).
#2.Have as much down payment as possible. The more down, the more money in your pocket. (The reverse is also true)
#3.Make the terms realistic. In today's market, around 9.% for 20 year to 30 years. Short term balloons ARE NOTE going to enhance the value of your note.
#4 Keep good records. If you are paid by check, make copies of the checks. If you are paid in cash, get money orders and make copies. This will make verifying payments much smoother. Remember, the lower the credit score, the more verification will be needed. If you would like a record keeping form, contact me and I will send you one.

Question "But Professor, all you are telling me is, if I have a buyer with a low credit score and not much down, you will not buy the not and if I had a good buyer with a lot of money down, I would not have to owner finance in the first place" .

This is true to a large extent. What I am trying to convey is do not try to substitute note buyers for sub prime lenders. These sub prime loans are being locked out because they did not perform, and certain real estate markets are going flat. Do not expect a note buyer to make the same mistakes.

Question"What do I do if I have a hard money loan, and need out, but the only buyers are sub prime borrowers."

This is where owner financing might solve your problem. Look for REBHABBERS BAIL OUT, for a solution, in next months newsletter.

Go to Note Professor Newsletter Archives to the October 2003 issue review the series of articles "How to Structure a Note to Sell at Closing".

Remember, if you want to sell your note, or want to discuss a specific transaction, do not hesitate to contact me.



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