Why Does Kissing The Note Add Value?

Question

Okay note pros...I have seen some discussion over the last several months about people kissing (guaranteeing) the notes adding value. It seems like you buy notes with sufficient ITV to protect your investment.

So how does someone kissing the note add value in these instances? How much value does it add?

Marc Faulkner · Answer

Most note buyers that are looking for this type of kiss are not in the note business to end up owning the property. To note buyers that just buy notes so they can sit back and get the mail box money. By kissing the note you are saying that you will make the payments if the borrower fails to do so. You are also saying that you will handle the foreclosure, rehab and re sale of the property when things head South. For an IRA and private investor that want to keep as hands off (no work / just collect payments:)- as possible this should add a ton of value or make the difference in them being comfortable or just passing on the opportunity, assuming the guarantor is professional and in good financial shape. For these types of buyers, owning property equates to paying taxes, insurance, maintenance and no more cash flow. They buy notes to avoid these headaches. To the institutions that buy notes, your guarantee does not mean a thing and will not add any value in this current market. Most likely they will only buy partials from buy and flip note sellers /investors and, this will force you to guarantee the note if something goes wrong, to keep your interest in the tail end. I hope this answers your question.

Jeff S. · Answer

Marc, so the idea of buying a series of pymts would allow one to purchase pymts for a certain amt, so if someone bought in a self directed roth would it be worth anyones time to sell 6k per year?

Bill Gulley · Answer

You can guarantee a note by signing the note as a guantor or you can do it by a seperate agreement, which is best IMO. I guanteed notes as well as installment purchase contracts as a servicer. Over a thousand of them. My agreement stated that in the even of a continious default for 60 or 90 days that I would bring the loan/contract current and advance payments for a certain period of time, or assume the note, or until the property sold, or for so many days at which time I would pay it off in full. There are many ways to provide different levels of assurances. Under the agreement, I had the right to proceed with any foreclosure action or file any deeds required. I would step in the shoes of the note holder or seller. This is a great way to limit exposure to financial loss and providing an opportunity to acquire properties while receiving a fee or premium for the service. :mrgreen: Bryan, sorry I missed you response back when, the value may only be intrinsic and not so much in terms of dollars, but a good guarantor can get you more when selling a note to an investor who really wants the money paid as Marc mentioned.

Marc Faulkner · Answer

You would need to make arrangements to get together with me in person or get referred from someone we have already done business with first. I would then show you how to buy partials from professionals that create notes as part of their day to day business.

Jeff S. · Answer

Marc, If someone wanted a gauranteed note and contacted you for help, what would happen? What is the process?

Marc Faulkner · Answer

No we do not get involved in guaranteeing any of the notes we sell. I have, however, brokered many transactions that would have not gotten done otherwise and am familiar with the process. We do not typically sell the notes we have purchased for our own portfolio.

Jeff S. · Answer

Marc, does your business guarantee notes for those types you mentioned? The actual guarantee sounds a little complicated figuring out if and when an actual default has occurred or whether they just aren't always perfectly on time.

Bryan Hancock · Answer

Okay...so WHY does it add value? I don't understand how that is valuable to a note buyer if they buy with sufficient ITV. I understand being able to sue for a deficiency, but this is not needed if you buy right...right? It seems like if you buy the note right and the borrower stops paying it is good news for you. Am I missing something?

Bill Gulley · Answer

The value added by a guarantor depends on the financial position and credit worthyness of that guarantor. Down there in Texas, if you got Bob Perry to guarantee a note for you, the holder of the note could sell it for a much higher price than if he had not kissed your note, if an investor there wanted it just for the note rate as the yield, the note could sell at the par value. Good luck getting Bob to do that....

Jeff S. · Answer

It is easier to use them as currency. When times were tough and financing unavailable we took notes for commissions and gave them to our landlord. Had to guarantee them but when I did he gobbled them up.