All Forum Posts by: Tracy Z. Rewey

The Sub-To is definitely on my top 5 list.  That day of reckoning is on the horizon. I'm on a mission to get everyone to think Wrap Mortgage (or AITD All Includive Trust Deed) over straight Sub-To.  There's still risk but at least everyone has an interest (and obligation) that is evidenced by paperwork that can be enforced.

Quote from @Joe S.:

 Are you talking about creating a first 50% of the note and a second for 50% of the Note and sell the first one? 

Yes, something similar.  In this case it might be more of a 20/65/15 to get what you need out of selling the 1st.  For example on your $400K sale it might look like: 20% down of $80,000, 65% LTV 1st of $260,000, and a 15% 2nd of $60,000. The structure will depend on the down payment, quality of borrower, terms of note, your cash out of the note sale needs, and other factors.  Each note is reviewed individually and most note buyers will provide quotes once the transaction has closed, recorded, and the first payment made.

@Joe S. There are some great suggestions here on down payment, interest rate, servicing, and underwriting the borrower.   I love partials for minimizing discount on notes (and to keep some of that interest rate working for you).  When you are creating notes from the start with the intent to sale, you can also consider a 1st/2nd structure that can help you achieve similar results as a partial but start getting cash flow sooner.  It depends on your objectives.  

Quote from @Abby H.:

Hey everybody! 

I am reaching out to get connected to some attorneys in Florida (preferably in the Orlando area) specifically who have experience drafting mortgages for owner financing deals. I am working with a seller who is open to owner financing and want to get her connected to an attorney! 

Thank you in advance!

Abby Hosey

Hello Abby, Did you find a good resource? We have a reference in Tampa area that could send docs to the closing in Orlando if needed.  I'd also suggest using an RMLO (Residential Mortgage Loan Originator) to qualify the borrower for the ability to repay, credit history, and income/expense (especially when selling to an owner occupant). 

Quote from @Jim Rice:

Would like to connect with Mortgage Note Investors/Buyers/Sellers of "Paper" (1st/2nd/PL/NPL) in SE USA (primarily AL/MS/GA/TN & Panhandle of FL). Thanks, Jim Rice

Hello Jim, We are located in Central Florida.  Let's connect.

As @Chris Seveney there are lots of buyers for the real estate backed notes but fewer for the business only notes (without real estate as collateral).  We have worked with a business note buyer over the years and the yields are in teens.  The underwriting is also very tight.  Here are some general guidelines: 

Lien Position

• 1st Position Lien

Equity

• Minimum Down Payment of 20-25% (a 30% equity to sale price is preferred)
• Down Payment made in certified funds and not borrowed
• Maximum Funding of 70% ITV (Investment to Value)

Seasoning

• Minimum of two monthly payments already made
• 12 months or more preferred

Payer Credit

• Credit Score of 650 or higher
• No major derogatory trade lines (No 90-180+ days delinquent, foreclosure, repossession, bankruptcy, etc.)
• No decline in credit since purchase of business

Terms

• Prefer 60 months or less
• Maximum of 72 months
• No Balloon Payment preferred

Cash Flow

• Business has positive cash flow
• 1.25 debt service coverage ratio preferred.

Documentation

• Personal guarantee from a creditworthy individual
• Standard documents including Note, Security Agreement, and UCC-1 filing.
• Tax Returns on the business that substantiate profit and loss statements.

Other

• Payment history current and verifiable
• Payer Interview indicating buyer is satisfied with business and comfortable making payments
• Motivation for selling the note is not a result of a deteriorating business
• Consideration of high risk businesses or geographic areas

In these situations, sometimes a partial is a better option.  The discount on the full hurts!

@Jennifer Turner I heard and appreciated your empathy in reading this in your post: "We know they're hard working and would like to continue working with them rather than move toward foreclosure, but we know they're in over their heads if we continue under the current terms of the mortgage and don't want to set them up for failure."  

We have modified many seller financed notes over the years (with input from the servicer and a qualified attorney as mentioned by others).  I 100% endorse adding in the escrows for taxes and insurance to set the buyer/borrower up for success. 

You might also consider changing their due date to later in the month going forward.  The lower rate or longer term can also make the payment more affordable.  Unfortunately that also lowers your return, so you might consider staggering the lower payments and rate (say 6%, then 7%, then back to 8%) over a couple of years.  It gives them the breathing room they need now but doesn't lock you in long term at that lower rate.  You could always extend if needed, but you have options.

Happy to discuss offline if that is helpful.  Let us know how it all turns out.

Quote from @Jamie Bateman:

@Amaris Benjamin any of the options @Chris Seveney mentioned would be solid starting points. Also, Fred and Tracy Rewey have training specifically geared toward note brokering. Noteinvestor dot com. @Tracy Z. Rewey

Thanks Jamie for the mention. If you want to refer notes to investors, the key is to get good at sourcing deals.  Most off-market type deals will come from mom and pop seller financed notes. Trying to broker any type of bank paper or portfolios will be very competitive and difficult as Chris mentioned.

@Chris Seveney So true.  When I was on the institutional side we would require a drive-by appraisal (since we couldn't get inside the property on an existing note). The BPO is so subjective and dependent on the quality of the agent performing the analysis, compared to an actual appraisal by a licensed appraiser.  A BPO can make sense if there's been some seasoning with obvious appreciation/value increases and you want to be sure the building is standing. However, it can miss the mark in other situations.

Great input @Brandon Plombon Cash Flow is king on commercial and investment properties.  Started the list for bread and butter residential (which makes me realize I should put that to the description). An add-on list or commercial, investment property, and land would be a great addition. Thanks for the idea.

@Brandon Plombon