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.

[Jamie Bateman]

This seems a bit risky and too complicated, in my opinion. Assume the borrower defaults, then what? If I were you, I would focus on one or the other (sell a greater # of payments through the partial, or hypothecate at a higher LTV. I am guessing you have considered these options, though.

[Sam Tright]

It's a high leverage strategy no doubt. I have the reserves to weather defaults and my team knows their portfolio level numbers, so it's just a matter of getting note investors and lenders on board.

15 years payments and 50% LTV are the limits we're seeing for each individual method by the way.

[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?

[Sam Tright]

Chris, it would only be sold to one person, the partial buyer. It may be used as loan collateral for a second entity, a lender. This is why I want to take out the loan first before partialing it.

[Chris Seveney]

@Sam Tright

The agreement with the lender most likely will forbid you from selling any part of the loan, and if you did those funds would be to pay off the loan.

As an example if you had a note worth $30k and lender gave you $15k, if you sold a partial for $20k the lender would require you to pay off the loan.

Also most partial agreements also explicitly state the loan is not leveraged.

This seems like walking or crossing some fine securities law lines. Just my 2 cents not an attorney.

[Joe Yobaccio]

@Chris Seveney I am trying a simpler version of a loan partial, but want to keep my name on the note and Colllaterlize it for safety of a lender and would like some feedback on the terms.  If I Hypothicate and get a loan for $35k, I use the note as collateral and pay the loan like any other loan.  Or, if I  sell $500 of a $600/mo payment, I'll create a Ammortization schedule for the borrower and their payment comes from the Servicer.

I prefer to use the Partial method and also Collateralize the loan.  This would be with just one Partial buyer or you might call that person a lender.  This seems better for me as the loan is really just part of the payment and not another personal loan.  Any feedback on setting up loan partials this way?

[Chris Seveney]

Quote from @Joe Yobaccio:

@Chris Seveney I am trying a simpler version of a loan partial, but want to keep my name on the note and Colllaterlize it for safety of a lender and would like some feedback on the terms.  If I Hypothicate and get a loan for $35k, I use the note as collateral and pay the loan like any other loan.  Or, if I  sell $500 of a $600/mo payment, I'll create a Ammortization schedule for the borrower and their payment comes from the Servicer.

I prefer to use the Partial method and also Collateralize the loan.  This would be with just one Partial buyer or you might call that person a lender.  This seems better for me as the loan is really just part of the payment and not another personal loan.  Any feedback on setting up loan partials this way?

 I have done this in the past. That is the simple way

[Joe Yobaccio]

@Chris Seveney thanks!   My next challenge is finding and partial buyer who will do it without taking over the entire note.  I am on Paperstac and JKP, but not Note Exchange or LoanMLS.  I have been looking at local private lenders, too.  Any suggestions?  I in in Los Angeles, Pasadena, specifically.

[Chris Seveney]

Quote from @Joe Yobaccio:

@Chris Seveney thanks!   My next challenge is finding and partial buyer who will do it without taking over the entire note.  I am on Paperstac and JKP, but not Note Exchange or LoanMLS.  I have been looking at local private lenders, too.  Any suggestions?  I in in Los Angeles, Pasadena, specifically.

 Note buyers and partial buyers are very hard to come by nowadays. We have had people recently bid on our assets and they think its 2012 with some of the pricing. 

While there are a lot of people window shopping, those actually buying are far and few between from what we are seeing right now.

[Dan Deppen]

Quote from @Joe Yobaccio:

@Chris Seveney thanks!   My next challenge is finding and partial buyer who will do it without taking over the entire note.  I am on Paperstac and JKP, but not Note Exchange or LoanMLS.  I have been looking at local private lenders, too.  Any suggestions?  I in in Los Angeles, Pasadena, specifically.

Check out https://iereic.org/, they are based in SoCal and do a note exchange on Wednesdays. They actually have lots of active investors, so you might find someone there.