“who u.s. - paper source online · unable to imagineer (or cannot manage by regulation) into ......

April, 2015 Our 27th YearApril, 2015 Our 27th YearApril, 2015 Our 27th YearApril, 2015 Our 27th Year

OnMay 6 Fannie Mae will hold its first-ever auction

of non-performing loans, and individual investors

are welcome to bid. On the block will be about 3,200 loans

representing $786 million in unpaid principal. Go to

snipurl.com/fannie-npl-sale to receive announcements,

training and other information.

“Who are good candidates for seller carrybacks?

* The owners/sellers who have equity but cannot compete

with the down-driven foreclosure and short-sale market and

so have held themselves off the market;

* Those parties who have deals they could or would

accept, but fruitlessly are seeking reasonable residential

jumbos and commercial loans to facilitate them but have

been frustrated by the access hurdles (too much down, too

much invasion for privacy to qualify for the loan, willing to

pay but the property won't appraise in the current market

enough to get conventional money, complexities in source

verifications, self-employed, otherwise unable to squeeze

into the "one-size-must-fit-all" financial straitjacket

uniformly offered by banks etc.);

* Those parties seeking "business opp" loans;

* Those potential buyers who are wanting to move in or up

and who are waiting endlessly for the market to bottom, but

who would jump if they had better financing options,

including options that delayed price computation or "going

hard" on price for a few years;

* Those who have one "credit ding" but are otherwise in

great current financial shape;

* Those whose all-cash history has generated no credit

rating or history at all;

* Those parties wanting real estate

investment leverage but who cannot

get it with high bank-required points

and down payments;

* Those who want high cash-on-cash cap rates, but cannot

get it with high downs and straight amortizations;

* Lenders wanting to sell salvageable paper they are

unable to imagineer (or cannot manage by regulation) into

working, all with resulting down-pressure.

“There's more, but that is enough for examples.”

— attorney J. Robert Eckley of Eckley & Associates

(www.EckleyLaw.com Phone 800-999-4LAW)

U.S.government budgets are confusing.

I wrestled with them for years as a

legislative director in the US House of Representatives.

Here are some recent figures to wade through:

Tax income: $3,176,000,000,000

Spending: $3,759,000,000,000

Deficit: $583,000,000,000

National (total) debt: $18,082,294,157,510

Budget cuts approved by Congress and the president:

$38,500,000,000

Let’s simplify it by removing 8 zeros and pretending

it's a family budget:

Annual family income: $31,760

Spending: $37,590

Deficit (new debt on the credit cards): $5,830

Total family debt (including credit cards): $180,822

Budget cuts approved by the family: $385

What do you think the future of this “family” is?

I’velived in Chicago and in Washington, DC. They

have their advantages, but Alison and I moved

to a small town as soon as we could. We’re close enough

to cities to enjoy the amenities but far enough away to

avoid the problems. Case in point: Last week we closed

on a nice investment house. When I asked the seller for the

key, he said he didn’t have one. Never used the lock.

Cheers,

BillW. J. Mencarow

“The secret of business is to know something that

nobody else knows.” — Aristotle Onassis

THE PAPER SOURCE JOURNAL, April, 2015 To Subscribe: 1-800-542-2270 or www.PaperSourceOnline.com

-2-

Asa practitioner and master

buyer in the seller install-

ment (a.k.a. “seller financed”) note

business since 1991 I have seen some

note brokers come and go... and just

as many note brokers come and stay.

I am often asked what to

“do,” or how to get started. But not

many ask me what “not to do” or

what mistakes to avoid. Here are my

a top 10 list of mistakes — hopefully

you will learn from this list what as a

note broker you should avoid.

Mistake #1 - Thinking that Just

Having A Website will Generate

Leads – Should you have a website?

Yes. However, too many people

incorrectly think that by just having a

website they will get leads or even

deals. Your website can be the main

hub of your business — if used and

promoted properly. There is an ocean

of websites. What makes you think

note holders are going to somehow

find yours? You need to market your

website to get people to go to it.

Include your web address on every

piece of marketing that you do;

including your business card.

Mistake #2 - Trying to be

Everything to Everyone – There are

so many different little niches with

our note and cash flow industry that

it can be overwhelming. Whichever

niche you choose you must become

niche specific: Become a specialist

in your niche, and become a

recognized authority in your

particular area of expertise.

Mistake #3 - Doing What

Everyone Else Does – There are

certain ways that many of us market

for notes and negotiate with the

note holders. Try to do something

outside of the norm so you stand

out. Try not to blend in with the

crowd; differentiate yourself and

your business.

Mistake #4 - Not Having a “Call

To Action” In Marketing Pieces –

This seems self-explanatory, but it

must be said. I can’t tell you how

many times I have reviewed a note

broker’s marketing materials to find

out that their phone number was not

on their direct mail piece (no

wonder they didn’t get any calls)

OR their email address was not on

their business card! Your

marketing materials MUST have a

“Call to Action.” For example:

“Call today for a $500 bonus!”

Mistake #5 - No Way to Capture

Leads – This goes along with

having a good website — you must

have a way to capture the

information from the people that

visit your website. Things like an

online worksheet submission form,

a free e-book if they email you OR

even a sign up form for a monthly

email newsletter that you send to

them.

Mistake #6 - Not Building

Relationships – No matter how

much technology improves the way

we do business, the note industry will

always be a people business.

Building rapport and relationships

with note holders, investors and other

professionals within the industry will

always be a factor in the growth and

survival of a note business. The #1

way to build personal relationships

— not just phone or email

“relationships” — is to be part of

Paper Source conferences. They’ve

been educating and bringing together

note investors and brokers for over

27 years. That’s a track record no

others can match.

Mistake #7 - Forgetting Past

Clients – One of the best referrals

sources you can have is that note

holder from whom you just closed a

transaction. Do not forget to keep

the relationship going to generate

more leads and possibly another

transaction from the same person in

the future! This is yet another great

reason to have a monthly email

newsletter just for note holders.

Contact me if I can help you.

Mistake #8 – Assuming All

Investors Are The Same – There is

a great deal of misconception that

every note investor is the same. That

is hugely incorrect. With the

multitude of notes that come across

note brokers’ desks every month

there are countless variations of what

kinds of notes note holders have, and

there are just as many different

investors as well. Build relationships

with and learn what each individual

Good Judgment Comes From Experience...& Experience Comes From Bad Judgment

Top Note Broker Mistakesby Jeff Armstrong

Whichever cash flowniche you choose,you must becomeniche specific.


-3-

investor is looking for. Learn their

risk tolerances, demographic

preferences, property type

preferences, etc., and you will see a

difference in the number of

transactions you close.

Mistake #9 – Assuming the Highest

Price is the Best Price - Every note

situation that you are presented with

is different, and the puzzle of the

business is for you to figure out how

to fit the puzzle pieces together. Yes,

price is important, but so is the need

of the note holder to sell, the speed of

closing, partial purchases vs. full

purchases and ease of working with

the investor (among other things).

Too many note brokers only give

full purchase options and never get

into finding the true need or want

of the note holders. Often they will

take less — or a different option — if

the transaction will go smoothly and

quickly versus slowly with lots of

hassle.

Mistake #10 – Thinking Yield is

the Only Way Note Prices are

Given – When an investor buys a

note ONE thing that they look at is

their own personal yield

preferences. However, that is not

the only thing that is taken into

consideration when giving price

options on a note. Other

considerations include: credit of the

payor, type of property, location,

demography, cents on the dollar,

investment to value and minimum

discount just to name a few. Keep

in mind that every note is different

and will be priced according to its

attributes.

I hope this little list of things

to avoid will be helpful. There is

much more to this business than just

subtracting your fee and collecting

the payments. Keep alert for learning

opportunities, stay connected with

current practitioners and never stop

growing your business. Whatever

you do, remember, success demands

action! Keep on marketing, and being

persistent, it’s going to work!

TWITA! (That’s What I’m Talking

About!)

Jeff Armstrong of Armstrong

Capital has been a note broker and

investor specializing in the seller

financed note industry since 1991.

He can be reached by email at

[email protected]. For

more updated and current

information on how he can help you

with your note business, your note

investments or to request a quote on

a note you currently have visit

www.armstrongcapital.com

Atrue self-liquidating loan is a

short-term loan made against

the liquidation of inventory or the

sale of goods. The typical self-

liquidating loan is one made to

farmers against the sale of crops.

This is not what fraudsters

mean when they speak of millions to

be made using self-liquidating loans

and when they speak of borrowing

thousands of dollars that never have

to be paid back. The only ones to

make money on these "opportunities"

are those who charge $10.00 to

$125.00 and more for a "special

report." All the others make money

from up-front fees of one kind or

another or by getting you to give

them your bank account number or

hand over your securities for

"investment."

First you are told that you

can borrow thousands of dollars

with no collateral and no credit.

The bank doesn't even have to know

you. Then you are told that once the

bank hands over the money you use

some of it to purchase “Letters of

Credit” or “debentures” that you

turn over to the bank as collateral

for the loan. (First the bank gives

you the money, then they get their

collateral. If banks did that, they'd

all go broke in a week!)

According to the scam, you

don't really get the full loan, only a

portion. The rest is turned over to

(the terms vary) “special investment

bankers” or a “trader” or a “dealer”

or a “commitment holder” or a

“grand master” who invests it into a

“high-yield investment program”

using “arbitrage.” The proceeds

from the investment supposedly pay

off the loan, give you the balance of

the amount you borrowed plus some

more, and you walk off a millionaire.

And this is all accomplished within a

few days or even overnight!

Regardless of how badly you

or your company may need money,

this loan scenario simply isn't logical,

and of one thing you may be

absolutely certain — banking is as

logical a business as it gets. It’s a

SCAM!.

Self-Liquidating Loans


-4-

What does Notable Mortgage

Buyers do?

Notable Mortgage Buyers

(NMB) purchases mortgages and

deeds of trust nationwide and in all

US territories. We will also consider

Mexico. The majority of notes we

buy are seller financed, but we have

bought some bank and mortgage

broker originated loans. We buy

residential notes, but our special

niche lies in commercial notes.

What is the history of the business?

Both Becky Fowler and Ricki

Eskenazi have either been purchasing

or facilitating the sale of notes since

the early 1980s. The partnership

works well because both are equally

knowledgeable; if one doesn’t know

something, the other usually does.

Company president Becky

Fowler has been in the note business

since 1983. She began her career in

Pittsburgh, Pa. with Signal Financial

Services which was later acquired by

The Associates. She worked with a

large broker base quoting, under-

writing, processing and closing files.

From there her career took her to

Naples, Fl. where she and several

others started BAMaN Funding, Inc.

Then she decided to strike out on her

own and began Notable Mortgage

Buyers, Inc in May,1999. In 2010

Becky teamed up with Ricki

Eskenazi, whom she has known since

her Signal days, and they began

buying notes for themselves or

placing them with their private

investors.

Ricki Eskenazi has been

involved in all aspects of note

purchasing since 1982 when she

created SES Funding Corp. with 2

other partners. She started out

strictly brokering, but as time went

on the broker fees were pooled to

purchase notes. In 2008, when the

SES partners decided to go their

own way, she was part owner and

responsible for the servicing of over

300 performing notes. After 2008

she consulted for two startup

companies and helped form a

private placement. Her main focus

is on working with Becky Fowler to

buy notes for themselves or private

investors.

What makes NMB unique?

Our knowledge base. If a

deal can be closed, we will close it.

We are especially competitive on

commercial notes and larger notes

over $250,000, but the size of the

note is not our motivating factor.

If the deal meets our buying

parameters, we will go the extra

mile to purchase the note. With

both of us each having over 30+

years of experience in the note

industry, we make it our business to

close deals, not make up excuses to

turn the deals down.

What should a note broker do to

make a good impression on NMB?

They should provide complete

and accurate information when they

want to get a quote. Do simple

checks on the data to make sure it

makes sense. If there is any

background information, include that

in your quote request.

When a quote is accepted and

a note broker submits a package for

processing, provide a neat and

complete package. Provide a note

submission worksheet (we can supply

you with one) with the information

needed to process the file along with

clear copies of the documents.

Supply a complete description of the

collateral (property) so that we can

order an accurate appraisal or BPO.

We can provide a list of items that

should be asked for once there is a

signed contract; if the broker is not

comfortable asking for these, we can

do it for them. We protect our

brokers at all times and never go

around them.

What are common mistakes note

brokers make?

One common mistake is not

giving the note sellers a realistic time

frame for selling their notes. Most

notes sales cannot close in one week.

Another mistake is not staying

in touch with note sellers and giving

them frequent updates (at least once a

week). Keeping the note sellers

informed is probably one of the most

important aspects in completing the

sale of the note.

Spotlight On Investors

Notable Mortgage Buyers

Keeping sellersinformed is one of themost important aspectsin completing the sale

of the note.


-5-

What advice do you have for those

just starting out as a note broker?

Brokering notes is not a get rich

quick scheme. You will get as much

out of it as you put into it. Get your

name out there. Tell everyone what

you are doing. You might be

surprised when someone you know

actually holds a note.

There will always be seller

carryback notes to purchase.

Working with NMB makes this easier

to do because along with competitive

pricing, we can help with the

processing of the files.

What do you see for the future of

the business?

There will always be changes;

new laws, new investors and new

people getting in and out of the

business, but for the most part seller

financing stays consistent. Properties

will continue to be sold, sellers will

continue to carry mortgages and seller

carryback mortgages will be available.

Notable Mortgage Buyers, Inc.

Ricki Eskenazi

Phone: 407-831-8809

E-mail: [email protected]

I'dbe interested in knowing

how you handle tax

reporting for notes.

Suppose I buy a note for

$5,000 that has a balance of $10,000.

The note interest rate is 12%. I

collect interest for the year of $1,200

and principal of $1,000 in the first

year. How do I report the $1,000

principal collected on the tax return?

— Bruce Moeller

At first glance, this might seem

to be a complicated tax question, but

fortunately for note investors there

are two simple solutions. I'll show the

commonly used method first.

In the example you gave, the

note, which is an asset, was

purchased at a 50% discount. As the

payor makes the contractual

payments, half of each principal

dollar paid is your investment coming

back and half is profit. So on your

income tax return, with $1,000 of

annual principal paid, you would

show $500 of "discount earned" and

$1,200 of "interest," both of which

are taxable as income. The other

$500 of the cash flow is your

investment coming back, termed

"return of capital," and is not

taxable.

If you look at a typical two

column amortization schedule for

your example, principal and

interest, imagine the principal

column being split into two more

columns, 50% of which is "discount

earned" with the other 50% being

"return of capital."

To clarify with a slightly

different example, assume you

bought the $10,000 note at a $3000

discount, for a purchase price of

$7000. As each principal dollar was

collected, 30% would be taxable

"discount earned" and the

remaining 70% is your untaxed

"return of capital." Interest is still

interest.

There is another method

referenced by the IRS which is less

frequently used. You did not quote a

yield or a length of term in your

example, so let's just say it was priced

to yield 18%. You can print an

amortization schedule showing your

$5000 investment at 18%. The

principal column, although it won't

match the payor's schedule, is your

money coming back and the

"interest" column, which also does

not match the payor's, is really your

total taxable yield. The reason this is

not selected often by investors —

although the IRS unsurprisingly is

happy for you to use it — is that more

taxable income appears in the early

years with more untaxable "return of

capital" in the later years.

I hope that helped.

Happy investing!

John W. Moren, President

Princeton Investments, Inc.

John Moren is the author of

the NoteSmith family of loan

servicing software that tracks

mortgage notes, discounted notes,

leases, rent, and other cash flows.

www.NoteSmith.com

How To Report Income TaxOn Note Investments

by John W. Moren


-6-

The SAFE Act, Dodd-Frank& Seller Carrybacks

Part I

by J. Robert Eckley, J.D.

Thereare three sources for

alternative real estate

finance: Seller-carries; a private

secondary market for owner-carry

paper resale; private, non-

conventional lenders. In some cases,

the owner-carry is PRIMARY,

meaning directly between seller and

buyer; in others it can be "SECOND

PARTY" such as owner selling to an

investor who then leases (many times

with option) or sells back to the

buyer on an "owner-carry" or

"THIRD PARTY" where the investor

simply puts up the money to make a

seller-buyer deal work in the same

way a bank might or even "FOURTH

PARTY" as when the paper

generated in FIRST OR SECOND

PARTY deals is then sold to a paper-

buyer. In some cases it can be as

simple as owner selling to buyer as a

financier who then agrees to lease

back from buyer, sometimes with an

option to purchase at some point.

There are four approach tools

and disposal methods for this, and

these represent nothing more than a

return to what worked in the late

'80s. Here are the "old/new" tools:

(1) lease/purchase; (2) lease/option;

[note: (1) and (2) are NOT THE

SAME THING] (3) all inclusive

deed of trust; (4) all inclusive

mortgage; (5) installment land

agreement or land sale contract.

Incidentally, seller-carries are

exempt from RESPA! RESPA

excludes "an all cash sale, a sale

where the individual home seller

takes back the mortgage (seller-

carry), a rental property transaction

or other business purpose

transaction."

There are two newer federal

laws that affect seller financing.

On July 30, 2008, President Bush

signed into law the Secure and Fair

Enforcement for Mortgage

Licensing Act (the "SAFE" Act).

The SAFE Act requires licensing or

registration of loan originators. On

July 21, 2010, President Obama

signed into law the Dodd-Frank

Wall Street Reform and Consumer

Protection Act (the Dodd-Frank Act

or "DFA"). The Dodd-Frank Act

("DFA") restructures the oversight

of financial regulation and allocates

the consumer portion of it to a new

agency called the Consumer

Financial Protection Bureau

("CFPB"). The DFA also includes

amendments to the Truth in

Lending Act ("TILA") and RESPA.

Both of these laws affect seller

financing, except to the extent

exempted.

THE CFPB RULES FOR

SELLER-CARRIES

New Rule: What is a "Loan

Originator?"

The Consumer Financial

Protection Bureau (CFPB) released

the original rule on January 20, 2013,

as part of its implementation of

amendments to the Truth in Lending

Act (TILA) made by the DFA on

July 21, 2010. The rule took effect

on January 10, 2014, except for two

important provisions related to loan

originator qualifications that took

effect on June 1, 2013. See 12 CFR

section 1026.36.

Yes, it is true, the two acts are

actually trying to tell private citizens

what they can do with their own

property and what transactions they

can do with their own money without

having also to pay the banks a

percentage of the entire deal to

handle it for them. It actually tries to

prohibit all private transactions and

make bank intervention mandatory.

But, as in all law, after the shock

subsides of seeing the Feds with their

noses so deeply in the private

financing and loan affairs of the

average citizen and after some good

lawyers look at this, there are places

where the Acts miss the mark

entirely – and apparently

unintentionally – and still permit

private transactions.

The new rules provide in

general that only licensed "Loan

The law actually triesto prohibit all private

real estatetransactions and make

bank financingmandatory.


-7-

Originators" (usually called a

licensed mortgage originator or

"LMO") can approve the borrower's

credit or approve certain tough buyer

terms in most consumer residential

seller-carry transactions; otherwise

the transaction itself is void, and

those who facilitated it without being

an LMO are in violation (there are

civil and criminal penalties).

The new Final Rule

establishing "Loan Originator

Compensation Requirements" not

only covers the new "loan originator"

definitions, but also sets allowable

fees. The rule applies broadly to loan

originators, including seller-financers

that do not qualify for an exclusion

from the definition of "loan

originator." One who falls into the

definition of a "loan originator" must

then comply with strict licensure

requirements and underwriting duties.

After making the general

statements, above, there are some

exceptions and qualifications.

A Broad Definition

The definition of a "loan

originator" is now very broad. It

covers anyone who, for compen-

sation, performs any activities related

to the origination of mortgage loans,

including (but not limited to): taking

an application or offering, arranging,

or assisting a consumer in obtaining

or applying for credit.

TILA, as amended, and CFPB's

implementing regulations exclude

from the definition of loan originator

some sellers who provide seller

financing, but only if they meet

narrowly-defined exclusions (below).

Because the requirements are

extremely complex, unless seller

financers qualify for exclusion, they

will as a practical matter have to use

another approach for financing the

sale of the property, including

engaging a licensed loan originator

("LMO") without risking penalties

for performing loan origination

activities themselves. This is similar

to the situation under the SAFE

Act's loan originator licensing

requirements where, unless one is

exempt from licensing under the

state law enacted to implement the

SAFE Act, it is not usually

practicable to provide seller

financing directly.

Two Seller-Carry Exclusion

Categories

In response to many

commentators, CFPB provided

some flexibility in the new Final

Rule by excluding from the

definition of "loan originator" two

categories of seller financing:

(1) those sellers who sell 3 or fewer

properties in any 12-month period

(2) those sellers who sell only one

in any 12-month period, and in both

cases meet other criteria.

If a seller sells one property

using the less restrictive exclusion

rules then one is unable to sell

another within 12 months of the

first sale, as the first sale would not

qualify for the more astringent

standards of the "more-than-one-

sale-every 12 months" exclusion.

Thus, if the seller sells under

exclusion 1, above, the single-sale

exclusion, then seeks to sell a

second property, the safest course

would be to wait for the expiration

of 12 months after consummation of

the first sale before selling the

second property.

The only other option for the

seller if there was any doubt which

exclusion to use would be to

routinely qualify under the 3-sale

exclusion, since in that case the

second sale and even third sale is

always permissible inside the 12

months.

Though the CFPB made minor

changes to the statute, such as the

one property exclusion noted above

and not requiring proof of

documentation of a borrower's

ability to repay, the Bureau

determined to not eliminate the

criteria in the seller financing

exclusion as defined in the Dodd-

Frank Act. Accordingly, credit

verifications and ability-to-pay

evaluations should continue to be

made.

Continued next month

Seller-carries areexempt from RESPA.

J. Robert Eckley is an

attorney, former Realtor® and

builder, present Realtor® Affiliate,

litigator, forensic engineer and

educator who deals primarily in real

estate, banking, construction and

finance on a multi-state basis.

He is president of the law firm

of ECKLEY & ASSOCIATES, a

multi-state practice, is the Forensic

Manager of National BuildMasters, a

forensic contractor, and is President

of and equity-holder in The

Westcourt Financial Group, Inc., an

investment firm and corporate owner

of the Institute of Real Estate Law &

Standards. His present practice

focuses upon real estate and

financing, banking prosecution and

defense, agency prosecution and

defense, securities, investment and

foreclosure litigation.

Phone: (800) 999-4LAW

www.eckleylaw.com


-8-

Wewill look back upon right

now as one of the best

times for note brokers and investors

in decades. Mortgagors (payors) are

faced with buying gas and food or

paying the mortgage. Note holders

are panicked.

Faced with non-payment, most

private note holders don’t know what

to do. They just want to be rid of the

problem. Usually they don’t know

where to turn, and they definitely

don’t want the property back. After

all, they had to take back paper to sell

it in the first place! That is, of course,

where we come in.

Here’s a transaction I did and

how you might want to try the same.

The ProblemI have chosen a couple of areas

of the country where I have

developed a few contacts and some

knowledge of the local area. One of

those is in New Mexico. I ran an ad

in the local newspaper wanting to

buy real estate contracts or

mortgages. From that ad, I got five

calls.

One of the calls was from a

lady, let’s call her Judy, with a

problem like I described above. She

had a real estate contract (in New

Mexico, seller carryback notes are

“contracts”) that had fallen 5 months

behind, and the “owner/tenant”

refused to leave. To her credit, Judy

had done a lot of the right stuff to

recover the property but wasn’t

succeeding. After a few questions, I

decided to meet with her at the local

title company’s offices.

After the first meeting, I had

a good insight to what she would

accept and how to approach the

opportunity. I took the documents

with me to study. The note was

seasoned for 8 years, had a face

interest rate of 8%, and was on a

3BR/2 bath, 1560 square foot

house. The outstanding balance

was about $37,500. The occupant

of the house was on disability and

had been making $400 monthly

payments. She had failed to make

the tax and insurance payments for

the last two years. Judy, the

contract holder, had to pay them to

protect her interests. Judy was also

retired with not a lot of income so

she had reached the end of her rope.

The OfferI offered Judy $32,000 and

she agreed to sell the contract. I

also told her that she would be

responsible for getting the property

vacated before we could go to

settlement. I guided her to the right

attorney to handle that issue. The

occupant immediately turned to

legal aid, so I knew it was going to

take awhile.

Knowing the contract was in

default, I put a special clause in my

purchase agreement that if the

default was not cured and Judy

foreclosed, I would have the right

to buy the house from her for the

same price I had offered for the

real estate contract.

Two OptionsI told Judy that I was leaving

and that I would return when she had

the house vacant and we could then

go to closing. I left myself the option

to extend the contract at will. I then

left with the understanding that she

would call me if I could help her

further or if she succeeded in getting

the house vacated.

I kept in touch with her, and

eventually she was able to foreclose

and get title to the house. It was now

empty, and she was ready to sell it to

me at our agreed-upon price of

$32,000. I immediately headed back

to New Mexico.

After inspecting the house I

concluded that I had two options.

First, I could keep it, rehab it and sell

it for around $95,000. Second, I

could try to sell it as-is to an investor

I knew in that town. Since I don’t

live in New Mexico and couldn’t

supervise a rehab, I chose the latter

option.

The InvestorWithin 24 hours after I was

back in town I had the house keys

and called the investor. I simply told

him I had a house he needed to see.

I offered to pick him up the next

morning.

Creating Notes By Flippingby Del Ashby

Faced with non-payment, most privatenote holders don’tknow what to do.

They just want to berid of the problem.That’s where we

come in.


-9-

We walked through the house,

out to the back yard, and I saw him

start to write on a small pad he had

brought with him. He handed me the

sheet of paper on which he had

written: $45,000, 8%, 10 years,

$5,000 down.

We walked on and neither of

us said anything. I finally said, “I

really would like to do business with

you, but I can’t do it at that price.

The very best I could do would be

$53,000.” No more discussion. I

took him back home.

I returned to the house, was

unlocking the door, and my cell

phone rang. It was his real estate

agent/advisor. She immediately told

me he wanted the deal as I had

offered it. I said okay, and it was

effectively sold.

Bought & Sold In 4 1/2 HoursFive days later, at 10:00 a.m., I

closed on the purchase of the house

from Judy. I paid $32,000 cash plus

$150.00 in closing costs. At 2:30

that afternoon I sold the house to the

investor for $53,000 with $5,000

cash to me and a real estate contract

payable to me in the amount of

$48,000 at 8% for 10 years. The

buyer paid all closing costs. Not a

bad day’s work.

The Key StepsHere are the key steps I used,

and you could do the same.

First, as you know, there are

different kinds of debt instruments. I

do not care for trust deeds. I prefer

real estate contracts. Mortgages are

my second choice. This has mostly

to do with how each of these

instruments handle defaults.

Step one is to choose a jurisdiction

or two that uses your chosen kind of

debt instrument.

Step two is to travel to that area to

get to know a little about the good

and bad sections of the town.

While there you will also want to

meet the manager of a title company

and get the names of a couple of the

smaller, well-respected real estate

brokers in town. They will also

know all the other professionals in

town that you may need. Screen

their recom-mendations yourself for

your own comfort level.

Step three is to find out the main

newspaper in town and run an ad. I

ran it for a month and it said

simply: Want to buy real estate

contracts. I can pay cash. Call

Del at 1-800-477-xxxx.

An alternative to paying for a

newspaper ad is to post on

craigslist.com for free. The

drawback is that you will have to

re-post every few days to keep your

ad near the top of the listings.

Step four is to return calls and

listen carefully for them to disclose

their problem as well as all the

other primary pertinent information

you will need. Get the address of

the property so you can determine if

it is even in a neighborhood with

which you are comfortable.

Determining The ValueYou are now prepared to

drive by the property or have

someone else look it over from the

street. You then want to head for

your chosen real estate broker and

ask them to run recent comps for

you. That will give you a price per

square foot for other houses in the

area. They should be able to give

you those figures for properties both

in fix-up condition and for nice,

ready to sell condition.

DO NOT depend on tax

appraisals or assessments!

You can now apply those

figures to your prospective property

to get a good insight for values and

what you can afford to do.

When you have reached this

point, simply use your normal buying

approach, being careful to understand

their problem. You don’t want to

buy into their problem unless you

can and want to solve the problem

profitably.

Especially if you plan to resell

rather than hold the property, keep

your mouth shut about your prices,

strategies and the like. The title

company can’t ethically or legally

disclose details of your transaction to

the other party. Notwithstanding, I

still meet the closing agent in

advance and tell them that such

disclosure is not to be made or

discussed in the presence of other

parties.

Now is a great time to help

other people solve their problems —

and make a handsome return in

the process.

Del Ashby has been buying

notes for decades. He wrote Make

Money Trading Mortgages, which

every note broker and investor should

read and re-read often. Visit

store.PaperSourceOnline.com

This is one of the besttimes for note brokers

and investors indecades!


-10-

Entity Formed For

One Purpose:

To Sue Appraisers Some appraisers are

now being targeted inlawsuits by an entitynamed "Mutual First,LLC." It has filed over 40lawsuits in the last year. Mutual First is not a

bank, credit union or anykind of financial institu-tion. It's an entity formedto make money by suingappraisers. It acquires foreclosed

loans, mostly seconds, forsmall fractions of the original princi-pal amounts. It then files lawsuitsagainst the appraisers who per-formed appraisals years ago. In itslawsuits, Mutual First claims that theappraisers are liable to Mutual Firstfor damages as the result of negligentovervaluation in the appraisals. Thedamages demanded include the fullunpaid balance of the long-ago fore-closed loan, even though MutualFirst itself only paid a very smallamount to buy the loan after it wasalready foreclosed and after the ap-praised property no longer served assecurity.

If you are an appraiser andyou are contacted by either MutualFirst or Savant Claims Management,immediately contact your profes-sional liability insurance provider,and do not provide any informationor respond to either company beforethen.www.appraiserlawblog.com

Contributed by DJ Scholl

Police Can Seize Your

Property Without

Charging You With CrimeCivil asset forfeiture is a

nationwide practice where police canseize your property and keep it —even if they don’t charge you with acrime. Then, you must go throughthe difficult, and often unsuccessfulprocess to get your property–whether it’s a vehicle, cash or yourreal estate–back from the police.

On April 10, that changed inNew Mexico. A new law makes itmore difficult for authorities to useasset forfeiture. The law makes twoimportant changes:1. Currently, when police seize prop-erty they can keep it even if you areinnocent. Under the new law, policecan still take property from you for ashort period, but would need a con-viction or a guilty plea in order tokeep it.2. Under the new law, if police do geta guilty verdict and your property isforfeited, it goes to the state’s generalfund rather than the police depart-ment’s budget. The difference at leastadds a layer of bureaucracy andoversight between police and thefunds they seize.

Don’t Lose The Docs!Standing, which is gaining

ground in Florida as a successful le-gal defense against foreclosure, isalso showing up in the latest roundof cases in New York. Some lendersare seeing foreclosures dismissed be-cause they were not able to provethat they were the assignee or hadphysical possession of the mortgageand underlying note. In another in-stance, a lender failed to lay theproper foundation in getting hearsayevidence admitted, causing the evi-dence to be thrown out of court. And,in another instance, not only did alender lose on the standing issue, butthe court ruled that the defendantswere not properly served.

Read more attinyurl.com/lyxcwqz

Foreclosed Owners Find A

Way To Void MortgagesSome foreclosed homeowners

are finding a way to keep their homemortgage-free by taking advantage oftheir state's statute of limitations withforeclosures.

Many of the 23 states that re-quire court-ordered foreclosures (theyare the dark states in the map below)are facing huge backlogs in theircourts, which has caused some foreclo-sures to drag on for years.

When these cases get draggedout five years or more, some homeowners are citing the state's statutes oflimitations for reason why lenderscan't take possession of the home now.They can then continue to live in thehome — without ever paying anotherdime on their mortgage.

In Florida, lawyers have arguedthat lenders have five years to file forforeclosure after default. Banks saythey have more time to file foreclosureand that the five-year clock resets ev-ery time a payment is missed.

"The statute of limitations doesnot halt a foreclosure case that is con-tinuing in court," the New York Timesreports. "But in some Florida courts,home owners' lawyers have arguedthat once a foreclosure is dismissedeven for technical reasons, the lendercannot refile a new foreclosure to seizethe home if the statute of limitationshas passed. Still, the lender has somerecourse: It can keep a lien on thehouse that must be paid off if the prop-erty is ever sold."

The Florida Supreme Court isnow deciding the issue.realtormag.realtor.org/

Contributed by Dale Morrison

“Christ died for our sins

according to the scriptures...he

was buried , and rose again the

third day...he was seen of over 500

brethren at once.”

— 1 Corinthians 15:3-6


-11-

Don’t Try To Sell Hawaii

Property With A NoteThe state of Hawaii now pro-

hibits homeowners from using “sellerfinancing” without a licensed broker.

According to an Hawaii realestate attorney, “The statute now re-quires any “seller financed” transac-tion to be handled by a licensed orregistered broker, even in a familysituation. I hear the registration pro-cess is too involved for most one-timesellers. The Hawaii State Bar has con-cluded that the law now prohibitsunregistered seller financing.”

Read more attinyurl.com/pvlmtdp

Big Brother Is WatchingWhen you have an account

with a US bank or broker, thereafteryou're being watched—continuously. US law requires financial insti-tutions and many other businesses tospy on their customers and report any"suspicious transactions" of $5,000 ormore to the Financial Crimes Enforce-ment Network (FinCEN), the USTreasury Department's "Financial In-telligence Unit."

The obligation to report“suspicious transactions” also appliesto securities brokers, mutual fundcompanies—even pawnshops, travelagents, jewelry and precious metaldealers, car, boat and airplane deal-ers, insurance companies, real estateagents and title companies.

Businesses that fail to reporttransactions they should haveregarded as "suspicious" face fines,and, in the case of banks, loss of theirbanking charters. Their owners oremployees can also be jailed. And it'sagainst the law for the bank or busi-ness to EVER inform the customerthat they are under suspicion or thata report has been filed.

FinCEN receives tens of thou-sand of suspicious activity reports, or"SARs." In 2013, the latest figuresmade public, over 1.64 million SARSwere filed nationwide. At least, that’swhat FinCEN admits to.

If an employee of a financialinstitution thinks you've done some-thing "suspicious" you might loseaccess to the assets in your account— or much worse. In one case a manmistakenly deposited a large per-sonal check in his business account.He immediately transferred the pro-ceeds to his personal account. A fewhours later he tried to withdrawmoney from this account at an ATM.He couldn't -- the account wasfrozen. Some bank employee de-cided that the deposit and transferof the man’s own legal funds was"suspicious" and froze his account.

Federal law requires that cashtransactions over $10,000 with a"financial institution," or with manytypes of businesses, be reported toFinCEN. Every day, FinCEN re-ceives about 13,000 of these reports.

Some make the mistake ofbreaking large cash transactionsinto smaller amounts to avoid thereporting requirements. That's acriminal offense, punishable byfines, imprisonment and confisca-tion of "all funds" involved.

But what defines“suspicious”? Just about every-thing! The SAR rules provide thatany transaction must be reported assuspicious "if the bank knows, sus-pects, or has reason to suspect...Thetransaction ...is not the sort of transac-tion in which the particular customerwould normally be expected to en-gage..."

That's a pretty big range.Aside from obvious triggers, such asattempting to wire funds to ISIS, thedefinition is remarkably broad.When the FBI tried to design a pro-file of how a bank might be used byterrorists it only came up with onemain characteristic: large depositswith withdrawals of cash in a seriesof small amounts. That's not particu-larly helpful, since this profilematches the account activity ofaround 25% of US bank customers.

It's no exaggeration to saythat if you're alive, you're asuspect.

Since businesses don't know inadvance which customers, if any, areengaged in illegal activity, all cus-tomers are subjected to pervasive,systematic and continuous surveil-lance. Software programs used by al-most all banks scan millions of trans-action records for triggers that mightindicate a problem. Seminars teachbusinesses how to analyze customers'behavior to determine if it's“suspicious.”

What can you do to protectyourself? First and foremost, bankstend to pay the most attention totransactions that don't fit the generalprofile of a customer or his or her pastpattern of use of the account. For ex-ample: Say that you have an averagebalance in your bank account of$2,500. One day, you sell your car for$7,500 in currency and deposit theproceeds in your bank account. Is thetransaction “suspicious”? Yes, be-cause it exceeds $5,000 and it's "notthe sort in which the particular cus-tomer would be expected to engage."Still, the bank isn't obligated to reportthe transaction as suspicious if youcan provide a reasonable explanationas to what occurred. When you de-posit the cash, inform the teller -- orpreferably, a bank officer -- that thetransaction is a one-time event, andbe prepared to show proof where themoney came from.

Yes, this strategy implies con-sent to a hugely unjust and immoralviolation of privacy by the govern-ment. But it could avoid your accountbeing frozen — or your arrest fortrying to protect your privacy.By Mark Nestmann, www.nestmann.com

ARE YOU

BREAKING THE LAW?

You could be – and not even know it.

Dodd-Frank threw a blanket of burdensome and complex rules overseller financing.

Our goal is to get residential installment sales removed from theTILA definition of Loan Originator and get the new restrictions removed.

Congress said Ma and Pa on Main Street would NOT be affected --but here we are.

We are a small group standing up for the rights of millions ofproperty owners. We will do the heavy lifting — if you will financiallysupport us.

Please take these 4 steps — now:

1. Visit our website: SaveSellerFinancing.org

2. Read our white paper for details.

3. Sign the petition to save seller financing .

4. PLEASE donate all you can. We cannot do this alone. We need the involvement of everyone who cares about the future of the note industry .

COALITION TO SAVE SELLER FINANCINGCall (253) 445-3599 to donate or send a check to P.O. Box 67, Puyallup,WA 98371

“The Coalition is working tirelessly to save our industry. I have contributed to it and

urge you to do the same.”

— Bill Mencarow, The Paper Source

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