SUCCEEDING AS A MORTGAGE NOTE FINDER

Most people in the U.S. haven’t a clue about what a mortgage note is, much less anything about the job of a note buyer. Owner-financed mortgage notes are a small slice of the overall real estate market and note buyers are in a fairly tiny niche.

However, there are people in the industry who come across owner-financed notes and present them for purchase to note brokers or buyers. We refer to these folks as note finders. These note finders are paid a fee when the note that they brought forward is purchased.

Over the years, I have been contacted by hundreds of these note finders; though have closed deals on a small percentage of what they brought to me. The reasons why we can’t buy more of these notes are usually due to the note finder not doing some basic homework, being too greedy with commissions, or not having any understanding of the real estate note business. So, if you are a note finder or are thinking of becoming one, here are my suggestions for being a successful one and really standing out.

1. Give the note buyer all of the needed information. Simply providing the mortgage note buyer with a copy of the note and deed of trust is not sufficient. You need to have a phone conversation with the note holder to get details about the property (type, condition, size, amenities), the financials (sales price, down payment, size of any other liens), buyer’s credit and job, history of on-time payments, etc. You can see all of the information needed at our website or on the websites of most major note buyers.

2. Don’t get greedy with the commissions. Some note finders expect fees of $5000 or more, while most buyers with whom I am familiar pay anywhere from $250 to $1500 per note, depending on the size of the note. If you are working with a note broker, you are likely to get 10-30% of the broker’s net commission.

If too many people get in the chain between the note holder and the final buyer, it becomes very unlikely that the note holder will get an adequate price due to all of the different hands being in the pot. Go for the “singles” instead of the home runs and you will make a lot more money. Remember that it is better to get a small percentage of something rather than 100% of nothing.

3.Become competent in the note business. While nobody expects a note finder to be an expert on the business, you should be familiar with the industry terminology and the note sale process. Regarding the latter, recognize that nearly all mortgage buyers will check payer credit, conduct a drive-by appraisal, and run a title search at a minimum.

By the way, don’t pay hundreds or thousands of dollars to learn about the industry. You can find free articles and videos on the website of Seascape Capital and elsewhere.

4.Do the work to get good leads. If you go to an Internet board listing hundreds of notes, and think that you can simply forward these leads to a bunch of note buyers, your chances of success are so remote as to not even be worth pursuing. It is better to build a referral network or, if you have a lot of free time, go to the county courthouse.

While I could go on with more details about how to be a successful note finder, you can see that the key is to be realistic about your likely income, build a base of competence, and do the work to earn your commission. You will not get rich being a note finder, but it is one way to get started and earn some extra income. If you develop a love for the business, you may decide to take the next steps to becoming a broker and eventually a note investor.