Every business will have experiences with difficult people. The note buiness may have more than its share. Let me share an approximation of a real call I experienced. Names and circumstances have been changed to protect the guilty:

The phone rings.

“California Note, good morning, this is Denny.”

“Yeah, you buy notes?”

( Oh! Oh! ).

“Yes, sir, that is what we do.”

“Yeah, I got a $100,000 note. How much you give me for it?”

“Well, I don’t know anything about your note, so I can’t answer your question. Who am I talking to?”

“John.”

“Hi, John. Why don’t you tell me a little about your note situation.”

“What do you want to know? I don’t have a lot of time.”

“Understand. So, what kind of property did you sell, how long did you own it, did you live in it, etc?”

“It’s a mobile home. You can get information from the County.”

“Of course I can. But you are the seller. I’d like to get 1st hand information from you and know as much as you do. You can understand that, right?”

“Not really. I can give you the address and you can do all the checking you want. But, I inherited the property from my Grandma. It was a rental for her for a long time. I fixed it up a little, lived in it for 5-6 years, and sold it to my cousinn for $100,000.

( John gives me the address, I Google Earth it and am looking at it on my computer.)

“John, looks like what I am looking at is about 6 months old. Tell me about the condition of the property.”

“I fixed it up some, but Andrew is a slob, he just doesn’t care.”

“I can see that. There is a broken down bike in the front yard, a car up on jacks with 2 tires missing. I see a lot of trash laying around the property. I don’t see any neighbors, the property looks pretty isolated..”

“Andrew is white trash.”

“What kind of work does Andrew do?”

“He doesn’t. He lives off Grandma’s inheritance and some state disability. He’s lazy, a junkie.”

“How much down payment did you get?”

“He’s family, I didn’t get a down payment. I am not charging him interest either.”

“OK. How many monthly payments have you received?”

“Two. He hasn’t paid me in over a year. I’m sick of it. Will you give me the $100,000 he owes me?”

“Well, John. Based upon what I am looking at and the information you are giving me, this would be a bad investment for us. We would not be interested in buying your note.”

“Click.”

“Hello? John? Hello, are you there?”

He’s gone.

An escrow officer once told me “Some people should not be allowed to carry a note.”

Amen!

If you watch much TV, especially sports, you have seen the Liberty Mutual commercial with the tag line, “Only Pay For what You Need.” The commercial features the character Doug and his ostrich like friend, LiMu Emu, pitching insurance coverage for your car. The latest version introduces Doug Jr. and LiMu Emu Jr., dressed like their “parents” and driving away in a little car through a bed of flowers. I kind of like it.

I think of the note business every time I see this commercial. Why? Because I come up with our own tag line:

“Sell Part of Your Note and Get What You Need.”

Here is an example of what I mean:

Let’s say a noteholder sold a property and carried a $100,000 note at 6% for 240 months, with a payment of $716.43 monthly. He has received 12 timely payments, likes his buyer and likes the income. But, he needs some cash. $25,000 to be exact. He can’t easily get his hands on this amount and hates the idea of selling his note. Possible solution?

“Sell Part of Your Note and Get What You Need.”

Looks like this:

1. Current principal balance is $97, 330.05.
2. 228 payments remain.
3. He sells 48 of the remaining 228 payments.
4. He receives $25,000 today.
5. The note buyer receives the next 48 payments of $716.43.
6. After the 48th payment is received, the note reverts back to the seller.
7. The principal balance at that time will be $84, 899.97.
8. The seller then receives the remaining 180 monthly payments of $716,43.

The note holder sold less than $13,000 in principal to get the $25,000 cash he needs today. He solves his “today” problem and at the same time helps his “tomorrow” income situation. It can be very enticing for this type of note holder to sell part of his note now knowing in advance the remainder will come back to him in the future.

“Sell What You Need.”

A recent New York Post article featured a man by the name of Raunaq Singh, a former Uber and Opendoor employee. He was looking for a home and became frustrated by the increasing mortgage rates and home prices. He started to look around for a more affordable way to buy a home, and in his words, “stumbled across the idea of assumable loans.” As a result, his brand new startup Roam was created.

Roam claims to offer homebuyers who are facing escalating interest rates a chance to buy a home at a fraction of the price. How? Roam connects sellers who locked in low rates a few years back with prospective buyers. The sellers have assumable mortgages that can be transferred to a new buyer. Singh says “because we are a licensed real estate brokerage, we’re able to identify homes eligible for assumable mortgages from the MLS.” Roam will also advertise homes for sale eligible for assumable mortgages and take a 1% fee from the buyer’s closing costs.

Singh says Roam is targeting 4.4 million government backed homes in Georgia, Arizona, Colorado, Texas and Florida. “We’re addressing home affordability – rates over 7% means millions of American families are being priced out of the real estate market.”

You can learn more at www.withroam.com.

In the 1998 publication Owner Will Carry, the authors state: “The biggest mistake sellers make is when they sell their property for little or no down payment. Remember, in all markets, up, down or sidewise, Equity Is Your Guardian Angel.”

In the mortgage field, this margin of safety is known as Protective Equity. But, sometimes, real life gets in the way and we can’t get what we want. Let’s take a look:

You are selling a property and willing to carry the note. Upfront your key requirement is a 20% down payment. you will accept nothing less, you will not negotiate. Using simple numbers, your situation looks like this:

Sales Price      $100,000

Down Payment $20,000

Note Amount     $80,000

Term                   180 months

Interest Rate         7.0%

Monthly Payment  $719.06

You start showing your home and meeting potential buyers. You are not comfortable with any of them. Then, it happens. You meet this couple. No, not just the couple, but their kids and both set of grandparemts. The whole family wants to meet you, check you out and roam through the home. You like it. The vibe is strong. The Dad  says they love the home, but, he can’t give you $20,000. He can give you $10,000.

@$&%$ !!!!

Now what? You told yourself $20,000 – that’s it. So, why aren’t you saying no? Why aren’t you walking away? The asnswer is you like the “circumstance.” You like the “situation.” You like these “people.”

You pivot.

You tell him that you like him and his family, and respect the fact they want to feel as good aabout you as you want to feel about them. You will accept the $10,000. In return, you ask for stepped-up payments beginning year 2. The result will be to accelerate equity growth and allow him to pay off the note sooner. Looks like this:

Sales Price      $100,000

Down Payment   $10,000

Note Amount       $90,000

Term                      180 months

Interest Rate               7.0%

Monthly Payment    $808.95

Beginning month 13, the payment will increase by $100 to $908.95. Maintaing this schedule will pay off the note in about 151 months. If we increase another $100 in month 25 – to $1008.95 – the note will pay off in about 133 months. We both are more secure. Good deal for both of us.

You tell him it looks like he has a committed family and you want a committed buyer.

He agrees, done deal, let’s be each others’ Guardian Angel.

My home state of California has over 400,000 licensed real estate agents. On July 13 the California Department of Real Estate (DRE) sent out an advisory to all licensees. The warning was about fraudsters posing as owners of vacant land and contacting real estate agents, asking them to sell a property they do not own. Briefly, this is the modus operandi of the bad guys:

• They search property records for properties that are free of mortgages and any liens. They focus on vacant lots  and long term/vacation rentals preferably owned by the elderly or foreigners.
• They pose as the owner and contact an agent to request a listing.
• They ask the property be listed below market, no For Sale sign be posted, and seek a cash buyer for a quick close.
• They refuse to meet in person and refuse video calls.
• They refuse to attend the closing, pretending to be out of state or the country.
• They demand to use their own notary who provides false identification.
• They insist proceeds be wired to them

The DRE suggests realtors request in person/virtual meetings and see proper government identification. Conduct an online search using the property owner name, find a phone number, and contact that person to verify they are the owner. Send to that owner the electronically signed listing agreement. This may alert the owner to a potential fraud. Lastly, utilize a wire verification service.

We live in an uncertain world. Feel free to share this information with any real estate agents you know.

Communication!

It is so easy to miscommunicate, either verbally or in writing. So easy.

When I was renewing my California Brokers License, one of the courses I had to take was Real Estate Contracts. It resonated with me because in the note business, we read a lot of documents, and see very well written agreements and poorly drafted ones that lead to lawsuits between the parties. So, the course section entitled Say What you Mean and Mean What you Say hit home. Here are 3 simple rules to follow:

1. Never change your language unless you wish to change your meaning. And always change your language if you wish to change your meaning.
2. Do not use different words to denote the same things; and don’t use the same word to denote different things.
3. Do not use “and/or”. The expression is ambiguous. It has caused many lawsuits. The words “and” and “or” have quite different meanings. You might think “and/or” means A or B, or both. Not true. Some courts have even said “and/or” means the court can choose either “and” or “or”, whichever the justice of the situation requires. Other courts have come to other conclusions. Don’t use the expression.

Simply put – say what you mean and mean what you say.

There are a lot of reasons that a person selling a property will agree to carry the note rather than cash out. Talking to colleagues in the note buying business, we pretty much agree that the following are the key reasons we encounter:

Sellers

1. More Buyers. A seller who is willing to offer owner carry increases the buyer pool for his property. The more buyers he has to choose from, the higher the odds he will find the right buyer.

2. Income Stream. Some sellers do not want or need cash. They prefer an income stream to supplement retirement or other income.

3. Non-Conforming Property. If the property is an old mobile home, land or some other property that is not “loan friendly” for banks, the seller has 2 options – find an all cash buyer or offer owner carry.

Buyers

1. Self Employed. Many otherwise “qualified” buyers who may not have a strong Schedule C could face difficulty getting bank financing. These folks are ripe for owner carry.
2. Divorce. Many people have been ravaged by divorce, financially and emotionally. But a strong job/income and a lessening of family tension can make this buyer a great prospect.
3. Tight Credit. Some people have a little glitch but their overall picture looks good. Examine carefully and you may find a viable prospect.
4. Seasonal Job. Some people may have swings in income or work in fields like construction. If these folks have managed their finances accordingly, you may have a good buyer.
5. Foreclosure/Bankruptcy. This is a tough one. But, a buyer who is willing to ” spill the beans” and a seller who is willing to do his homework, may lead to a transaction that is good for both of them.

Bottom line – the housing market needs both of you.

Great article from Dana Anderson who writes for Redfin, published June 14. She is a data journalist and provides a lot of background information to answer the headline question. Simply put:

“91.8% of all U.S. homeowners with a mortgage have an interest rate below 6%. People holding onto their comparatively low mortgage rate is the main reason for today’s major shortage of new listings.”

Here is a full breakdown:

• Below 6% – 91.8%
• Below 5% – 52.4%
• Below 4% – 62.0%
• Below 3% – 23.5%

A person buying a median home price today of about $380,000 with a 30 year mortgage at 6.7% would pay about $1000 more per month than buying in 2018 with a median price of $280,000 and a 4.5% mortgage rate.

Many analysts feel this is where we will be for the remainder of this year. Stay tuned as realtors, sellers, buyers and investors try to navigate this crazy housing market.

Kmaskhome.com completed a study on home flipping. Their criteria was based on a strong housing market, growth opportunity, affordability, availability, access to major cities, homes in good condition, access to amenities, and a booming economy. Here is their top 11:

1. Baltimore
2. Kansas City
3. Detroit
4. Cincinnati
5. Pittsburgh
6. Philadelphia
7. Cleveland
8. Nashville
9. St. Louis
10. Houston
11. Minneapolis

Whenever we in the note business talk about you selling a property and carrying a note, we typically focus on 2 things: qualifying your buyer and agreeing to terms that are strong for you and encourage commitment from your buyer. Maybe we should add a 3rd – will your buyer be a good neighbor?

Think about it. If someone moves in next to you, what do you want in a new neighbor? Basically, you want someone like you. You want someone who is friendly, who you feel comfortable inviting into your home. You want someone who shows pride in taking care of his property. You want someone who will become rooted and invested – just like you are.

So, in the note business, when we carry a note, we have an opportunity to become a little altruistic and find a Good Neighbor to join the neighbors that are already there. And, for those folks to feel real good about us in finding and vetting their next Best Neighbor. When we find this kind of buyer, we are providing a service that helps make neighborhoods stronger.