About Short Sales

Buy Notes - Who is Your Borrower?

I just got off the phone with the Sr. Vice President of a California bank in charge of note sales, and a note broker friend of mine who set up the call.

The bank had 3 defaulted mortgages which were commercial loans based in the Los Angeles area.

How to Buy Notes…communicate with your borrower

Hear me out…

So the SVP told me that one of the loans has a foreclosure sale scheduled 2 weeks from now.

The bank had not been in contact with the builder/developer (borrower).

I asked her if she was concerned about the loans or not, and if she was worried about whether she would have any problems taking over the properties through the foreclosure.

She told me she wasnt concerned because the property values would allow them to pay off their loan.

Buy Notes - My Concerns

The most important thing that I have learned is that building the relationship with your borrower is key. This is probably one of the most important concepts in the note buying business. Manage your relationships.

By not working with your borrower, you can really mess up your chances of getting out of your note deals.

This is why…

For all loans, there are 5 Note Buying Exit Strategies:

foreclosure, refinance, short sale or deed-in-lieu, note sale, and reperformance.

Out of these options, the only 2 that will succeed with no borrower contact are foreclosure and note sale.

In this example, the bank has chosen foreclosure as the exit. But the time it could take to recover the property can easily be postponed, if the borrowers file for bankruptcy. This is one of the risks associatied with foreclosures.

My Advice on Buying Notes

Buying notes can bring you high returns without have to foreclose or to sell the note to someone else.

So if you lose contact with your borrower, you are essentially killing about 60% of your note buying exits. (3 of the 5)

Would a professional golfer get onto a course with only 5 of 12 clubs?

Wouldn’t that limit their game?

Probably.

It sure would be entertaining watching him hit a putt with a 9-iron.

I know it can be painful, but working with your borrower is essential in the note buying business.

This is the same advice that I shared with the LA bank today.

I will be tracking her non performing notes so see if any of them end up in bankruptcy. Then we will know if she took my advice.

And if the notes do end up in BK, I am pretty sure that she will be regretting the fact that she lost communication with her borrowers.

The Cash Flow Note Business, An Insight

My friend Heather, flew in this weekend to celebrate her 40th birthday.

We just spent four hours catching up over expensive white tea and salmon salad at the Samovar Tea Lounge near our house.

It was blissful.

But what made an impression on me was what she shared with me about one project she’s working on.

I instantly thought about how her story related to my cash flow note business. Simply because not only did the story have a direct impact on your life but it also impacted the way you interacted with other people in your community.

The Cash Flow Note Business and its Relation to Heather

Heather’s an artist, a very talented one, who has specialized in story-telling through different media. Very different from my speciality which is buying notes.

The project that she is working on now, documents the life of a member of the Skagit Indians in the state of Washington.

The wise woman was considered a community builder within her tribe. And during a pre 9/11 interview, this woman told Heather that people were empty. They were no longer fulfilled.

This when Heather brought up the Hopi poem about the Lone Wolf.

As I read the poem, I knew that I wanted to share it with all of you. This poem serves as wisdom to everyone, especially to those of you new to the cash flow note business.

Words of Wisdom, Gaining Success in the Cash Flow Note Business

Let me share the poem with you ..

“There is a river flowing now very fast. It is so great and swift that there are those who will be afraid. They will try to hold on to the shore. They will feel they are torn apart and will suffer greatly. Know the river has its destination. The elders say we must let go of the shore, push off into the middle of the river, keep our eyes open, and our heads above water. And I say, see who is in there with you and celebrate. At this time in history, we are to take nothing personally, Least of all ourselves. For the moment that we do, our spiritual growth and journey comes to a halt. The time for the lone wolf is over. Gather yourselves! Banish the word struggle from you attitude and your vocabulary. All that we do now must be done in a sacred manner and in celebration. The poem ends with the words: “We are the ones we’ve been waiting for.”

How Does This Relate To The Cash Flow Note Business

And here is how it applies to your note buying business.

a) Your new world of investing in non performing notes is like the river flowing very fast.

b) The less adventureous will “hold onto the shore” while you you push forward.

c) If you flow with the river, and trust it, you will reach your destination. (same goes for notes when figuring out the multiple exit strategies in your defaulted mortgage business)

d) Think about it from this perspective, the time for the lone wolf has reached its end. In order to succeed in your cash flow note business, reach out to those bankers, investors, title officers, and real estate agents.

e) Don’t ever think about this as a “struggle” - this is you learning how to swim in a river that moves faster than you’re used to - but once you learn how to float (in regards to the cash flow note business - you learn the lingo, you learn what a trade looks like, you study the process and you eventually close your first deal), you learn to let the river carry you along.

Tip on the Cash Flow Note Business

And the most important lesson of all: “We are the ones we’ve been waiting for.”

Write that last line down. Print it out and put it on your bedside table. Put it on your desk. Tape it to your wall. Let it be the motto for your new Non Performing Note Business.

You can do whatever you put your mind to. You don’t have to wait for anyone.

Imagine this conversation…”Me, meet Me”.

A little realization shouldn’t be underestimated.

As Heather put it to me earlier tonight, she said: “the most powerfully creative moments for an artist are when we get out of our way, and just let our creative energy flow.”

Remember - you’re the one you’ve been waiting for.

Make use of all the wolves out there and get out of the river.

Buying Mortgages from Banks, What To Do

Here is a question that is asked quite a lot.

“My understanding is the federal government is going to be offering financing to private equity and hedge funds to buy up the bad debt aka defaulted mortgages.”

It seems to me, that this would create more competition?

“What are your thoughts on this?”

Well, here are my thoughts:

How to Buy Mortgages from Banks - The Four Buckets

The competition is adding to the deal sources when buying mortgages from banks.

There are 4 “buckets” in the note buying industry:

a) Big boys - buying $100M and above

b) $20-100M - Big Boys

c) Small boys - buy $1-20M

d) Less than $1M - Mom and pops

A lot of the shifting is happening between the big boys and mid boy stage. That is just my opinion in terms of raw dollars.

So lets think about these investors financials for a second.

The only thing that they are hungry for is the yields on their note buying investments.

Defining Your Deal Sources & How to Buy Mortgages from Banks

If you fall into the mom and pop or small boy category, guess who just became your new deal source for buying notes? Yes, the mid and big boys.

They are looking for a huge internal rate of return (IRR) so they are buying more aggressively than what you will see compared to the small boys and the mom and pops.

View them as a note buying deal source, partner up with them, come up with some transparent “Cost plus 5? type of approach where you give them 5 points in exchange for cherry-picking their portfolio and piggy-backing off their due diligence, and why wouldn’t they be interested in selling notes to you?

So you don’t have to be worried about the the water from the your fountain being intercepted. All you have to worry about is repositioning yourself in a way so that the water still drips in your direction.

And you can always look for other opportunities to buy your non performing notes.

Hope this information helps you.

It’s time for some action!