Note question - what is a fair fee??

Question

I have access to some asset managers for banks wanting to sell residential NPN.

I have these contacts by working through commercial short sales on listings.

I have a direct buyer who has already purchased 20 this year.(not through me).They only buy in Georgia currently.They want to pay 300 per note fee to me for each one they buy which I think is low.

Wanting to get thoughts on this.
I have talked with them several times on the phone and they seem credible.

From the buyer.

"It was great talking to you earlier today.
I feel like we clarified several issues and hopefully can start working together soon.

Basically, we are looking for residential non performing notes in the state of Georgia.
We buy notes varying in price from $5K to $90K.
Most notes we tend to keep, but some either make no sense in keeping or simply need to be liquidated (borrower can't pay, chapter 7, borrower left the house, deed in lieu, etc.).

As I explained over the phone, unlike real estate deals where your involvement is crucial and time consuming, in note buying your involvement is minimal. You simply get the seller and the buyer in touch. We get a list of notes available, send our offers and after a short negotiation process (2-3 days) we reach an understanding with the seller about the notes.
From that moment on, we do our Due Diligence (again, about a week long) and if everything checks out, we purchase the note.

You will always be informed of the stages and be kept in the loop, but in terms of time & efforts invested by you, there's really not much for you to do.
As a side note, we've been collaborating with other real estate agents, asset managers, contractors and other people in this industry for quite some time now. We enjoy working with other professionals because we feel that one opportunity always leads to a second, a third...
We truly believe that in this business everybody could and should make money. We always show full transparency and pay on time.
If you can truly deliver notes like you mentioned you could, than we'll be happy to pay you the appropriate fees.
I suggest that we start slowly with a few case studies to see how we work together and for you to realize how little work you have to put into it and how great the compensation could be.
"

Dion DePaoli · Answer

First Georgia is a state that requires the investor into residential mortgages to have a state license. If the investor does not have a license they can be fined. The investor can not "piggyback" the license of a servicer. I also know the state from time to time checks the investors at various servicers and issues fines if they own loans and do not have state issued licenses. Secondly, I am not so sure the client here is really creditable based on the way they talk about trading. I have purchased, sold and advised on pool sales and one off assets and still due so as primary source of income for our firm. I have been around the block a time or two. We have done work with banks and institutional sellers and private equity firms. Transactions are not so whimsical as the tone of the buyer seems to elude to. Joel, think of your established paying client as the bank you should be a little protective of the relationship until you are sure these folks can execute. A bank would issue a pool typically after the buyer signs a non-disclosure agreement. The buyer would analyses the pool and do some value reconciliation and provide an indicative bid the bank. This is not an exhaustive effort typically to make sure buyer and seller on same price page. That time frame is usually a couple of days. If the bank decides to move forward with the bid, they will provide due diligence material include credit and collateral files along with servicing files/notes. The buyer would obtain, typically by a third party, some form of value report on the property, either Broker Price Opinions or Appraisals. Additionally the buyer will obtain title abstracts as well. Just the function of obtaining these third party services alone and reviewing them all is usually a 2 week process. It will take 4 days to get all your reports in and then you have to review them all. Somewhere in this process a site visit to either the bank or the bailee location will be required to check on original instruments and ensure the completeness or incompleteness of the files. During all this time floating back and forth is some form of Purchase ans Sale agreement which may come semi standard but tends to go through a couple revisions to hash out representations and warrants. A final update of price and a final acceptance of pricing is concluded and then the final contract is updated and executed. From that point you still have to wire funds, ship files, prepare assignments and record them and execute allonges. Minimum servicing transfer time is 15 days post approval and delivery of hello and good bye letters. So that is a general broad overview. Trading a pool of mortgages is not small task nor is it a quick time frame. Somewhere in the broker joker world, this miss-understanding arose and folks think you can trade a pool in a week. Far from true, not only by simple transaction logistics but banks typically don't move that fast as usually the bid and final bid needs to go to committee (depending on bank size). I don't fully understand the statement they made about what they keep and what they "liquidate or what they "hold". NPN's have no cash flow, so holding it does you no good, you have to get out and work the assets. Deed in Lieu and Short Pay/Sales are a good thing, it means you make your return, so the faster you do that the better. When you can't get the borrower to cure the default either by no contact or their lack of income, the result is foreclosure. When you purchase loans you will know what loans are in bankruptcy, chapter 13's are not scarey, we actually like them. A chapter 7 is just a brief pause in the FCL cycle, file for relief of stay and move forward. So his filler paragraph of what they do sounds to me like he is talking out his back side and does not really have too much of an idea of what he is doing. When we work on a pool trade or even a one off loan for any of our third party investors ("broker") we provide a full set of services including pool stratification, cash flow analysis, bid prep, trade term negotiations, trade confirmation as well as a suite of due diligence depending on investor experience and desire. Our fees are a percentage of purchase price and vary depending on size of the trade and work requested ranging from 1.0% to 4.0%. We rarely take a minor role in the transaction which has always been welcomed by our clients and counter-parties. Sometimes we are involved when an additional agent such as a real estate agent is present and we perceive that as a added benefit. We protect the agent for fees of 10% to 20% of our net proceeds and try to create a working relations with the agent to assist with BPO review, property visits, listing of REO and other services that are typical and in the wheelhouse of the agent. An agent working in tandem with a pool is always great as DILs and short sales can be realized quickly after settlement date. When an agent provides those services they are paid above and beyond as if the service was hired to complete the work normally. The $300 fee payment is low and the fact they do not understand how to utilize you to maximize their investment to me is not good. If I was a betting man, I would bet more of this party being a broker and not a legitimate principal. That said, I usually side with skeptic until proven otherwise, just seen too much "BS" around this space. That all said, show them the pool and have them deliver a bid on an asset level in 3 days. (make sure you put deadlines on responses) There is no real need to talk to your bank client until they do so, provided this is OK with your bank client. Have them include their trade terms in the written bid including reps and warrants, time frames, etc. Just like real property, make a written offer and then we can talk until such time it is just ideal chatter. Read their bid, ensure you understand what it all means and go over it with your bank client. If they know what they are doing it will show, if it starts to seem otherwise. Well, I think you know what do do from there. If they can continue in the trade, you have built a little presence in the transaction to be able to go back and negotiate your fee. Just be fair with your involvement but I would also say never move completely out of the way until the transaction is over and you see they are legit. Again, IMO, they are not legit.

Joel Owens · Answer

Thanks it seems like it is a lot of work for such a low fee.I can make much better returns transacting commercial real estate deals. These types of deals are out there for notes if you look and look and look.For 300 bucks it is not worth the effort for me.My relationship with banks I do not want to go bad because of a flaky note buyer.

Bill Gulley · Answer

I agree with Dion, just touched on my initial thought and his reply drills down on what does seem to be an unsophisticated broker.... Run Joel, run don't put your agents license at risk!

Steve K · Answer

The guys I know who are buying note pools are paying their contact 1% for his access. Legalities aside it seems like a pretty fair fee.

Bill Gulley · Answer

Well they may seem credible, but I don't think so paying a birddog fee for selling mortgages, if these are residential you'll need a license as a mortgage broker, if they are commercial notes or personal property loans that is acceptable at the federal level, but you better check on Ga. laws concerning finance companies and buying and selling paper for the wording, like facilitating a transaction or placing notes for transfers or financing dealers. In the old days $300 was a tip. The fact that these are NPN as opposed to current notes is totally irrelivant, it's a note and even in the old days it was frowned upon, today you can get in trouble acting in such a capacity but they may not be hurt by paying a fee, so watch yourself, especially since you hold an RE license......IMO Good luck, Joel!