All Forum Posts by: Les Goss

@Marcus Blalock, there are several things to consider when selling with owner financing and now most of them relate to the Dodd-Frank bill.

The main thing I would advise is to get an RMLO (residential mortgage loan originator) to qualify your buyer and write up the contract. Even though you aren't required to do this until your fourth deal in a year, they will know all the arcane rules and keep you out of trouble. They will pull credit reports and scores, and make sure the buyer has a good chance of making the deal work. 

After you sell, I would advise hooking up with a loan servicer to handle the hello and goodbye letters, to deal with payments in and out, to collect and set aside escrows, and to pay taxes and insurance. In addition, if your buyer is late, they will send out the approved late notices. Although you can contact the buyer directly after the sale, because of the exactness of the language you have to use ("We are a debt collector and are attempting to collect a debt." etc.) it's probably best to let the pros at the servicing company do that for you.

To make sure that your projected P&I payments are reasonable for your area, check with rentometer.com to see what people are paying for rent for a similar house nearby. I like to make it so that PITI payments will be less than rent. This will be an additional motivator for your buyer because if they lose the house their payments will go up if they have to rent nearby.

Once you have 12 months of payments you can sell the note to an investor. Be ready to sell at a discount off the unpaid balance (UPB). I'd advise against a balloon because many note buyers don't want that in there.

What are your experiences with either FCI Exchange, Watermark Exchange or others?

Thanks,

Les

Thanks, @Rasheema Abduls-Salaam!

@James Kramer, I consider two different factors. First, I prefer non-judicial foreclosure states because it's generally much faster to get your house back if you need to foreclose. Since the borrower doesn't have the deed (it's held by the county trustee), you don't need to have a judge hear the case.

Second, for non-performing notes I prefer states that have received Hardest Hit Funds since those funds can be used to pay the lender for any arrearages the borrower has accumulated. This is great for the owner, since they don't have to pay that back, and it's great for you because as the note holder, you are the lender, so any money they get goes straight to you. Currently, those states are:

Alabama

Arizona

California

Florida

Georgia

Indiana

Kentucky

Mississippi

Nevada

North Carolina

South Carolina

There were more, but they either disbursed all their funds, or they are no longer taking apps. 

@Sandi Hague, here are a couple places to start. The first is from the Consumer Protection Protection Bureau (CFPB) and is rather complete. The second is a shorter summary that might be a good place to start.

Good luck!

http://files.consumerfinance.gov/f/201509_cfpb_rea...

http://www.aba.com/Tools/Offers/Documents/FAS_What...

@Sandi Hague, I would recommend using a servicer for all your notes. Yes, it will eat into your bottom line a bit, but not as much as a law suit will if you screw something up. There are so many laws that apply and they can change at any time. There's a specific format you must follow when sending late letters or when talking in person with the borrower. Plus, if you're collecting escrows for taxes and insurance you have to segregate those accounts for each note you hold. I'd say the fee you pay is an important part of doing the note business.

@Jeff S., as I recall, it generally came in at 5-7%.

@Daniel Eisman, start here: https://click2mail.com/by-product/postcards

Once you choose your card size/style you will create an account and the site will walk you through it from there.

Good luck!

Les

@Rob Barta, I have performing notes go non-performing every month! Many of these buyers who weren't able to get bank financing but did get owner financing get behind fairly regularly and then catch up the next month. If you look at their pay histories you'll often see a pattern of missing a payment and then making two the next month. I had two get behind over the holidays and one of them made two payments around the first of the year. The other one is still AWOL and I just put forced place insurance on it since he hadn't paid that, either. And he had been in since 2012!

@Christopher Kelly, the reason the note has to be discounted is because of the time value of money. The $1013 a month you're getting now won't buy the same amount of stuff in 12 years when it's paid down. 

The market will determine what the note is worth and that will vary with each investor. One possibility is to sell a part of the note and retain the back end. 

For instance, if you could sell the next 120 payments for $75,000, the buyer would be getting a rate of 10.52%. You would have 79% of the UPB upfront and then get the final 29 payments, which would bring another $29,377.

Hi @Kevin K., I've used Sunflower Management for many years for apartments and now for a fourplex. They also do SFHs. Call Paige at Sunflower (Bigger Pockets won't let me post a phone number) to set up an appointment. I've been very happy with their people and services, but you still need to manage the managers!

Les