Dual partialling and hypothecation of a note

[Sam Tright]

I will create a note during an owner finance sale. I want to partial 15 (out of 30) years payments and also hypothecate it at 50% LTV.

I know you guys see issues with this so let's try and talk them out to find solutions.

A partialled note done via assignment is not collateralizable by the Assignor

My thought here is to hypothecate first, partial afterwards. This creates a new issue because I deal with small notes under $75k in value and need to bundle them to meet a collateral lender's min loan amounts.

A partial buyer will look unfavorably upon a hypothecated note

You guys think there's any wiggle room here for negotiation or would this destroy the note's value from the note investor's perspective? I have a list of maybe 15 note buyers and feel that if it's not an absolute deal killer, one will accept that they get the head of the note and my loan is 100% LTV against the tail.

If you have to partial first to build a note portfolio that meets minimum loan amounts for lenders, then you have an order of operations problem

The only thing I can think of here is to write in the partial sale terms that I have the right to take a loan against up to 50% of the UPB on the note and retain the full right to collateralize it for loan purposes, as if I were the sole principal. If you guys have any other ideas please share.

[Chris Seveney]

@Sam Tright

Besides the other comments above you also start really walking or crossing the fine line of selling securities when you start bundling up parts of a note and selling it to different people. Call it a partial or hypothecating or both but that’s another concern.

Lastly does each person involved in the trade understand all these surrounding facts?