Which is better Partial Note Vs Fraction Note ?

Question

I have been researching this with no and little info. I do understand the basic understanding on both but not 100% sure which ones are good or better than the other. I heard the fraction notes investors have very little control, due to broker has the original paperwork.

If anybody can share the Pros and Cons Investing on Partial Note & Fraction Note I'd appreciate it.

Thank you

If anybody can share the Pros and Cons Investing on Partial Note & Fraction Note I'd appreciate it.

Thank you

Gerald Demers · Answer

I AM NOT AN ATTORNEY!

Your link references a 1995 article and mine references a 1998 article.  I did not notice that and I apologize for that oversight.  You need current info.

But the linked article you included speaks of a broker servicing the loan.  Are you dealing with a broker now?  Is broker an old term?

What I suspect is that more than one person owns the note and they have a servicer in place to communicate directly with the borrower.  I suspect the person wanting to sell their interest in the note engaged a broker to help manage the transaction?  If that is the role of the broker, they will be paid for their services out of the proceeds the seller gets.  I don't see where they would be holding the note itself unless they were also engaged to do so.

I ask because I, Brooks Young Financial Group, partnered with a private investor to purchase a note on a property.  It is publicly recorded that both parties own the note.  I have the actual note and the entire chain of title in my fire safe.

WE choose a loan SERVICER to manage the loan for us (manage payments, escrow taxes and insurance).  The servicer is a vendor; they have no ownership interests or control that we don't give them.

If my private investor needed his funds back before we completed our plans for the note, I simply substitute the investor with another one.  Again, I must ensure that the appropriate assignments and allonges are drafted and recorded to identify the change in ownership.

It sounds like this is what may be happening with you and the owner does not have the experience to manage the process themselves and so they are engaging some assistance which is smart.

If you purchase this partial interest, for you to be safe, it must be clear you own it.  And yes, one of you has to hold the original paper and the entire chain of title.  If you don't trust the other party, engage a real estate attorney to hold onto the paperwork for you both.

Gerald Demers

Jay Hinrichs · Answer

@Franky Juwana  as a HML in my day and virtually every loan we did was fractional..

your worries are not founded in reality.. vis a vi investing with a broker who his or her business is to provide funding and create fractional interest ( very common in CA).

you have the broker who handles or controls the documents.

Is it wise to buy a fractional interest over the counter or without knowing the players is not advised to down right financial suicide.. you only do fractionals with the broker you know like and trust.

partials ( hypothications) can be done when you do not know the players just be sure the asset will cover the moneyout.

Gerald Demers · Answer

I have never heard the term fraction note.

After some Google work, it seems you are talking about a partial interest in a note.  Hmmm, learned something new.  Check out this article: http://www.wallstreetbrokers.com/library/fractions...

Now I understand.  Do you buy a partial, which is a specific amount and number of payments (example, the note is 360 months, and I am going to buy the next 36 months) or a partial interest in the whole note?  I guess that depends on how long you want your money out there and what is your ROI.

If you purchase a partial, you are establishing when your payments start and stop.  To own a partial interest in the loan, if there are 300 payments left, your investment could be spread out over 25 years.  Does that work better for you or not.

I think your return and how long your money is out there are the deciding factors.  You state above "I heard the fraction notes investors have very little control, due to broker has the original paperwork."

Only if they are not structured correctly.  If you become a part owner of a note, you must have all the paperwork showing such ownership and you must have the ability to sell your partial interest in the note at any time to anybody.  Where does this broker come into play?  Something sounds fishy to me.

Read the article.  I suspect it will give you the ability to ask the seller some really good questions.  The answers may make you run.

Gerald Demers

Franky Juwana · Answer

@Gerald Demers , thank you again my friend, at this time, I'm still shopping around being really careful on what I'm getting into.

Btw, do you have recommendation for starter in note investing, I want to start small and get used to with the process as I get more comfortable to invest big later.

Franky Juwana · Answer

thanks @Gerald Demers,  based on this article says investors not getting the original doc http://www.viploan.com/DANGERS%20OF%20FRACTIONALIZ...

Which is better Partial Note Vs Fraction Note ?

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