All Forum Posts by: Doug Smith

I do know a few. Let me get you some names.

@Erick V. There are quite a few ways that it can be done. I'll touch on a couple:

1) Some note lenders require that a separate LLC be set up that is either fully-owned by the lender or is partially owned by the lender. The note is then purchased in the name of that LLC with contractual language that states that, upon liquidation of the asset, the lender is paid their principal and interest before you, the investor, get to take your money. Sometimes there is even a profit participation that the lender takes.

2) In addition to the security agreement, an assignment of mortgage can be completed and held by either the lender or an escrow agent that, in the event of a default, the assignment can be filed and the lender becomes the new owner of the note.

3) I've also seen other lenders simply have you sign a security agreement along with the note without taking an assignment, but this is pretty rare.

4) The lender could use the entity that the asset is purchased in as collateral. In the event of default, they can exercise their rights against the owning LLC/entity that owns the collateral.

Those are the most common I have seen. Traditional banks often do not understand note investing like they do direct real estate investment. In many cases they want to include an Account Control Agreement of sorts to limit your ability to sell notes or REO that might be collateralized without their permission. Make sure you understand the security agreement.

Erick, I hope this helps a bit. It's not like securing real estate.

@Jon A. I wish you well in your new venture into the world of notes. The note business is very complex and took me 20 years to truly learn. It's not something to be entered into lightly and I suggest finding a partner that really knows what they are doing to assist you in your first few deals until you get it down. With regard to pricing, it depends on what type of note you are purchasing. We only buy non-performing notes (NPNs) at the present time. With NPNs, we use the value of the underlying real estate that is being used as collateral rather than unpaid balance (UPB). Just twelve months ago, we wouldn't go over 45% of the current property value to buy a deal. Recently, however, HUD pools have been trading in the mid-60% range. Particularly at higher-prices, note pricing takes a great deal of know-how and experience. Good luck with your venture.

There is some good news for you. I can say as a mortgage holder that the foreclosure laws in NY are so much of a pain in the behind for us as mortgage holders that our firm avoids the State all together. That being said, getting great information on this topic on a posting-board like this is not what you want to do. Hire a good, competent debtor's rights attorney to protect your family's interests. This can be a good forum to learn things and share information with other investors on many subjects...this is a subject that might be inappropriate for this venue. There are many on here that know the laws, others that answer every question posted because they like to see their brilliance in type, and others that have no idea what they are talking about. If you take any advice from this thread, I would have to say it would be to hire competent counsel in the area to look out for your family interests. Good luck.

@Andres Piedra This actually is our area of expertise. You do have to back off of contact if he has told you to do so. NC is a particularly debtor-friendly state. You're best bet is to decide if it is financially worth it to pay a collection attorney to try to recoup the money. What is the collateral? He can file BK and you're not only out the judgement money, but you'll be on the hood for your attorney's fees. Is it worth? I don't know enough about the deal to give you further advice. Good luck.

On NPNs, UPB is not entirely irrelevant, but it is not what we price off of. We look at the value of the underlying collateral, the likelihood/ease of getting the property back, the State laws for the market, condition of collateral, ease of sale, etc to price. We figure it as a percentage of value instead of percentage of UPB. To echo Dion, we rarely buy from brokers. By the time it gets to them its usually been picked over or was way overprices.

I typically say I won't work with a broker or wholesaler, but that really isn't completely true. There are a handful of pros out there that actually make it a strong business. The trouble with us dealing with wholesalers is the vast majority of them really don't act as professionals. #1: most of them lie and tell us that they are actually the principal and not acting as a broker, #2: most recycle product "lists" that have we've seen several times and are quite dated (I recently was offered a package with several notes...3 of which I owned), #3: most try to get too greedy and try to structure the deal so that it doesn't work for us, and #4: most haven't got a clue what they are doing. Keep in mind that most principals are not rookies. It took me 22 years to get to where I am today. I personally don't mind working with a wholesaler or broker that truly brings value...not just someone that sends me tapes.

@Sherrie P. I did a few of these loans for real estate buyers in my banking days. There are two ways to do the loan, on margin and as an installment loan through your bank. If you are going through your brokerage, then they will probably lend 50% of the current stock value (some securities, such as penny stocks excluded) through a margin account. The problem with this is that, if the stock market (value of your account) drops to the point where is to below the margin percentage limits, then you will have a margin call and have to immediately fork over a ton of cash to cover it. If you are going to use stocks as collateral, you may want to opt for an installment loan through your bank as an alternative. They will help get an account control agreement signed with the brokerage (a lot easier if the bank and brokerage are linked) and they will give you a much higher LTV with less risk of a margin call. The term will be shorter than a mortgage loan, but the real estate issues and insurance requirements won't apply as the real estate is not being used as collateral. You also will not be able to trade in the collateral account unless you go through hoops with the bank. It can be done and can be quite simple, but a mortgage broker can not do this type of loan. Use your local bank. You just have to get a lender that actually knows what he/she is talking about and not some flunky at the branch. Good luck.

I hate to tell you this, but I don't think you will find a financing solution that works for you. As you already know, you can't use a loan where recourse comes into play when you are using IRA funds for the investment. The only types of lower-interest financing packages that I have ever seen where there is no recourse come with either private money (very high rates) or very large commercial type of conduit-style loans. The only real exception that I have ever seen comes when you can sweet talk a seller into carrying back the financing, but it doesn't appear that this is the case with your scenario. I wish I had better news. Hopefully someone else on here can give you a name and a number of someone that can help you.

@Dawn Anastasi Hey Dawn, I have a different take as I spent 20 years actually working for banks. The answer is yes and no, it depends on the bank's financial position. The bank has to file their "call report" which details their financial position and impacts their cost of funds. If they sell at a discount, the call report takes a hit, therefore, they may actually want to wait until after the first of the year to sell if they can't afford the hit. If, however, they are having a strong quarter/year and know that they will eventually take the hit anyway, they may want to use the loss to offset some of the gains. So, in short, it really depends on the bank and their financial position. I hope that helps.