Selling your mortgage note is not all about or just about price. It is also about working wit a buyer who will follow through and actually close at the agreed price. If you have a note to sell and you are not sure who to call, who to trust or what to look for yo will want to watch this short 9 minute video
What’s My Note Worth?
A question all note sellers have and have a right to know.
Timing Your Mortgage Note Sale is everything.
So, when is the correct time to sell your mortgage note?
The following utube video with my friends Walter Wofford and Jim Ingersoll is so to the point as to the value of trusts in any form of a real estate transaction.
They discuss the ultra importance of transactional privacy and how that helps with asset protection.Under what circumstances would you want the general public to know the properties you own?
Trusts provide privacy and effectively separate all of your investment assets. They are not hard to use and provide tremendous privacy in your deals as a trustee is used to hold title and the trust agreement is not recorded at the courthouse.
Under what circumstances would you not like the public to know that you own a property?
What are the benefits of using trusts?
1. Privacy – Keep your name and LLC out of public records
2. Liens and judgments
3. Probate benefits
4. Sell the entity, not the property
5. Personal property trusts for IRAs, cars, boats, etc
Today I cam across this article title,” The Three Ds of Doom: Debt, Default, Depression”. Without sounding negative, it certainly makes one think about the current economy. Everything appears to be booming, at least here in the greater Phoenix Metroplex. But………..what is under the covers. What goes up always comes down. It is a fact of life. Now apply this to the niche business. It is the paper side of real estate.
In the very near future, Capstone will be launching a Utube note training series on buying Notes. One of the topics as part of the due diligence series will be a deep dive into Investment to Value and Loan to Value. In other words, what is the note buyers safety net in the event of a downturn. How to minimize the pain in your portfolio. The only way I know is to have an EQUITY SPREAD. For instance, if a note has a $100,000 unpaid loan balance (aka UPB), what is your risk tolerance. What safety net do you require? The Capstone safety net is an Investment to Value (ITV) not exceeding 65% and a Loan to Value not exceeding 70%. Some say this is too big a filter. I guess time will tell. Anyway–moving on to the article.
The Three Ds of Doom: Debt, Default, Depression
July 17, 2019
“Borrowing our way out of debt” generates the three Ds of Doom: debt leads to default which ushers in Depression.
Let’s start by defining Economic Depression: a Depression is a Recession that isn’t fixed by conventional fiscal and monetary stimulus. In other words, when a recession drags on despite massive fiscal and monetary stimulus being thrown into the economy, then the stimulus-resistant stagnation is called a Depression. Read more
The August 7th Note Investors Forum Meetup focus on:
TOPICS: Several New Case Studies
Where Does a New Note Investor Begin
Bring your questions, This will be an interactive meeting.
The Next Note Investors Forum Meeting will be
Wednesday, August 7th 11:30am-1:30pm
La Famiglia Restaurant, SE corner of Dobson & Guadalupe, Mesa
Over the past few months, Mick Mulvaney has provided smaller indications about how much differently the Consumer Financial Protection Bureau will function under his leadership than it did under the bureau’s former director, Richard Cordray.
But Monday, Mulvaney fully revealed his plan to dramatically alter how the CFPB operates.
The CFPB on Monday released a new strategic plan, in which Mulvaney lays out how the CFPB will now operate and established new goals for the bureau.
“If there is one way to summarize the strategic changes occurring at the bureau, it is this: we have committed to fulfill the bureau’s statutory responsibilities, but go no further,” Mulvaney said in a statement. “By hewing to the statute, this strategic plan provides the bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers.”
According to the CFPB, the plan “draws directly” from the Dodd-Frank Wall Street Reform and Consumer Protection Act, and “refocuses the bureau’s mission on regulating consumer financial products or services under existing federal consumer financial laws, enforcing those laws judiciously, and educating and empowering consumers to make better informed financial decisions.”
Included among the changes is that the CFPB will now focus on “equally protecting the legal rights of all, including those regulated by the bureau,” a tactic Mulvaney previously revealed in a memo to the CFPB’s employees.
Also, it appears that the only new rulemaking the CFPB will engage in will be to “address unwarranted regulatory burdens and to implement federal consumer financial law and will operate more efficiently, effectively, and transparently.”
As Mulvaney previously stated, the CFPB will no longer be “pushing the envelope” when it comes to new rules, regulations, or enforcement.
“Indeed, this should be an ironclad promise for any federal agency; pushing the envelope in pursuit of other objectives ignores the will of the American people, as established in law by their representatives in Congress and the White House,” Mulvaney says in the strategic plan. “Pushing the envelope also risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes. I have resolved that this will not happen at the bureau.”
In pursuit of this goal, the CFPB establishes a new mission that is much different from what it was previously.
Under Cordray, the CFPB’s mission (as taken from the CFPB’s previous strategic plan) was the following: “The CFPB is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.”
The CFPB’s new mission, as laid out by the new strategic plan is this: “To regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws and to educate and empower consumers to make better informed financial decisions.”
According to the new plan, the CFPB will accomplish its new mission by: seeking the counsel of others and making decisions after carefully considering the evidence, equally protecting the legal rights of all, confidently doing what is right, and acting with humility and moderation.
The new strategic plan also lays out new goals for the CFPB.
Previously, the CFPB had four goals:
- Prevent financial harm to consumers while promoting good practices that benefit them
- Empower consumers to live better financial lives
- Inform the public, policy makers, and the CFPB’s own policymaking with data-driven analysis of consumer finance markets and consumer behavior
- Advance the CFPB’s performance by maximizing resource productivity and enhancing impact
Under Mulvaney, the CFPB’s new goals are:
- Ensure that all consumers have access to markets for consumer financial products and services
- Implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive
- Foster operational excellence through efficient and effective processes, governance, and security of resources and information
Part of that first goal will be to “regularly identify and address outdated, unnecessary, or unduly burdensome regulations in order to reduce unwarranted regulatory burdens,” according to the plan.
Under the second goal, the CFPB lays out two objectives that are designed to help meet the goal, including protecting consumers from unfair, deceptive, or abusive acts and practices and from discrimination.
To meet that objective, the CFPB will “enhance compliance with federal laws intended to ensure the fair, equitable and nondiscriminatory access to credit for both individuals and companies and promote fair lending compliance and education,” and “strengthen prevention and response to elder financial exploitation.”
Additionally, under the “implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive” goal, the CFPB will “enforce federal consumer financial law consistently, without regard to the status of a person as a depository institution, in order to promote fair competition.”
Included in the strategies to achieve that objective is focusing supervision and enforcement resources on “institutions and their product lines that pose the greatest risk to consumers based on the nature of the product, field and market intelligence, and the size of the institution and product line.”
The third goal deals mainly with the CFPB’s internal operations, including safeguarding the CFPB’s data, maintaining a “talented, diverse, inclusive and engaged workforce,” and working to manage risk and promote accountability at the bureau.
To read the CFPB’s new strategic plan in full, click here.
Fellow Note Investors:
Our special guest will be Charles Parker of AZ Credit Medix.
He will discuss how to build business credit so a business owner can borrow funding without personal indemnification.
Additionally we discuss the broad basics of seller financing your investment properties with a case study.
Look forward to seeing everyone Tuesday March 6th 11:30am – 1:30pm!!
RESERVE YOUR SPOT @
1644 S Dobson Rd Mesa, AZ Dobson Ranch Inn Resort–Fiesta Bar & Grill
SW Corner of Dobson & Superstition Route 60
INVESTMENT GOALS & EXPECTATIONS
Our February Note Investors Forum Meeting will followup
on Stan Harley’s presentation– Taking what he shared and incorporating that with with YOUR individual goals. What is most important to you? Cash Flow or Capital Accumulation.
We’ll consider Performing and Non-Performing notes
How note due diligence can expand your expectations.
Case studies with 2 special out of state note investors
Dobson Ranch Inn Fiesta Bar & Grill
1644 S. Dobson Rd
SW Corner of Dobson & RT 60 – Superstition Freeway
In a former Newsletter, I (J.ROBERT ECKLEY) noted the increasing turn to seller-carried finance in residential, commercial & business sales. I predicted that the use of it would solidly increase as conventional lending became ever more deleveraged, inflexible, complex and adverse as sellers (now getting a 1/4 point on their savings accounts) saw the benefit of collecting comparatively generous interest on seller-carries (now running between 6% and 8%, many even higher). That prediction has certainly proven to be accurate.
Seller-carries are now a significant part of most markets and they are growing monthly, everywhere. By way of a growth example, for residential sales, in 2009, the various MLS systems and private escrow reports (a lot of seller-carries are not reported in MLS for various reasons) in the southwestern U.S. reported a seller-carry median average percentage of the reported “sold” of less than 0.5%; markets “sold” on seller-carries in the same areas are this year reported as just under 15% of the marketplace and growing. San Diego, which closed 0.5% of the reported sales on seller-carries in 2009, went to 2.3% in late December, 2010 and was at 12% in mid-2015. Phoenix went from almost zero in 2009 to a little under a current 17%. Seller-carried commercial sales (sale-buybacks, sale-leasebacks, lease/options, stock or equity swaps, 1031 exchanges and other creative transactions involving no or little conventional finance) are running 22% of all “sold” in the same areas. Sales of business opportunities using seller-carries are between 65% and 70% and seller-carries compose almost 80% for bare land and private sale farms and ranches. This is still below the historical levels of residential and residential development sales during the last downturn (1982-1988) which ranged closer to a third of all deals across the board. What this translates into is millions and millions of dollars of deals done and commissions paid that otherwise could not or would not necessarily have happened under conventional lending and deal models! That’s not chump change any time, let alone in these ruptured times.
But there is a problem. The transactional community-all of the way from the real estate broker, to the mortgage brokers, to escrow closers and title insurers-is not ready for this seller-carry onslaught, either practically or legally. Not only are there few basic real estate licensure schools that still even teach seller-carries to future brokers (they did away with those classes as “obsolete” when the country went through that period when conventional lenders would finance anyone buying anything at any price) but there are also few escrow officers left who are old enough to have learned how to set up and close them, in the 80’s, when seller finance was SOP in the industry. They retired.
Yet the problem is even greater than lack of understanding and experience. It’s the legal side – the Dodd-Frank Act, the SAFE Act, the Home Owners Equity Protection Act and the myriad of complex rules of the Consumer Financial Protection Bureau – with standards that all must be met to the letter, which confounds the job of lawfully creating and closing the seller-financed consumer/residential sales transaction, as 80% of the daily real estate sales market tends to be. All of those laws and rules now also apply to seller finance for the average residential property being purchased by an owner-occupier and some of these standards and legal requirements, if violated, can mete out not just licensure loss and liability to clients, not just stiff public fines and publishing in the CFPB’s national online “Hall of Shame,” but even some serious jail time. In the 80’s, these rules and the harsh penalties – all 24,000 pages of them to date – did not exist. With these rules, it just got more complex to write lawful seller-carries. It did not, by a far cry, make them non-viable, unpopular, or obsolete, as the doubling and tripling of their use in today’s market by those “in the know” more than can attest.
Is stiffer regulation the progressive end, though, of the explosively growing seller-carry market? Nope. But it is the end of any patience for ignorance about how to do seller financing under the new rules – and the current legal ignorance, if not obstinance – is shockingly rife and across the board. A lot of horror stories about what it cost some poor broker or title company for doing it wrong under the new rules, above, can be told, but this does not teach anything that is constructive (other than not to “mess with the Feds,” but does anyone really need to reminded of that eternal principle?) And it chases away a lot of good deals and good marketing people that could, with the right information and a hook-up with the right compliance support services, put people in properties, raise the market and allow many more attorneys, brokers and escrow officers to become “seller-finance masters” to the immense profit of themselves, their brokerages and firms, their clients and customers in this new marketplace. Ignorance has never been bliss. It is usually just a poverty-paved road to fatality.
To identify one resource for mastering the seller-carry market, some terrific classes on the “how-tos” of seller-finance are now developed and out there. Old seller-finance lawyers, like the author of this article, have been brought back to the forefronts they once enjoyed before they were unseated when the Banks lost their minds (and forgot a novel concept called “safe and sound banking practices”) for that decade or so until the Feds intervened with these new rules. When lenders were willing to shovel trillions of dollars into the Black Hole of Underwriting Abstinence, any competition from seller-carries was derailed and with it those who taught it. All of those great transactional techniques and forms developed from the experiences of those millions of seller-carry transactions done across the U.S. in the 80’s went to a dusty closet, until now. Those instructors and their magnificent forms are back in full force… and, well…finally out of the closet, so to speak! (P.S. One serious criterion to use in selecting which instructors, lead brokers, lawyers, escrow officers or other mentors to learn from or which can provide a capable support service is to seek those people out in your line of business who were there and did them in the 80’s-don’t just look for anyone old enough to have done them, but find those who were in the trenches making steady money marketing, writing and closing seller-carries. In an era which almost religiously worships youth, it is risky to say this but the fact is: Find and ally with the “Gray Hairs” in this transactional area and The Force will almost always be with you! It really is an art that starts with focusing the mind well before sharpening the pencil.
The professionals for the “Seller-Carry Team” need to be carefully selected for their competence and their complete compliance with the rules. Note the point that they must be “rule compliant.” That is entirely different than those holding themselves out as having a “system” or “technique” to AVOID the rules. That’s the Devil whispering. There are no “secret back doors” or “shortcuts for insiders” to by-pass these dense and very well-written rules. At least none that do not involve handcuffs at some point. The contentions that there are some “tricks” and “loopholes” came from a range of ignoramuses, charlatans and outright crooks. And compliance is not that hard or expensive when compared with the alternative of checking into Sing Sing. Here is the usual cast of professional players in a typical seller-carry now and what they can and cannot do:
One needs a lawyer who knows seller-carry dynamics AND those new consumer and licensure rules above to draft the core transactional documents. Not necessarily to draft the initial purchase commitment which the real estate broker typically first drafts to get the parties initially together (though it is smart to have a lawyer help even with that for the few couple of times to assure the initial deal is stated right so as to avoid the unsettling and embarrassing need to change a “done deal” later because it crashed into an adverse rule). The lawyer should ALWAYS draft the final core financing documents that come thereafter at closing. And that lawyer should be specifically working as the direct attorney for at least one the parties, typically the seller in seller-carries (where seller is in that scenario “the Bank” and has a solid right to fashion the paperwork on which his money will be lent). That attorney should not also do work for the same brokerage or for the title or escrow company who profits only from a closing-that is a clear conflict of interest. The same attorney should not work for a mortgage broker (though they can help with SAFE Act questions, truth-in-lending and other loan disclosure documents when the deal requires). And, good grief, they should be a REAL attorney and not “that guy at the front desk at the dry cleaners who did these once before in the 80s before he lost his license and went into bankruptcy. And the transactional documents should definitely not come from forms (probably drafted by that same guy at the dry cleaners or someone like him) found on the internet!
Next, a licensed Mortgage Loan Originator (“MLO”) will likely be required both as a matter of offloading the high-risk position of evaluating the borrower’s current credit and likely future loan performance, but also to comply with the new consumer protection laws which in some cases make use of the MLO mandatory in seller-carries. MLOs are the professionals now officially mandated by the SAFE Act to determine the creditworthiness of the buyer for the benefit of the seller’s final decision to make the loan represented by a seller-carry. The CFPB and drafters of the federal SAFE Act rightly believe that the seller needs professional-level underwriting input to competently make the decision to grant or deny a loan to the buyer and the buyer needs protection against rip-off, predatory loan terms (usually unlawful under HOEPA). Real estate brokers and escrow officers or attorneys for them are NOT authorized to act as MLOs nor are they permitted to make the same credit evaluations or engage in the same underwriting acts without an actual MLO license. MLOs take the buyer’s credit application, do balance and employment verifications, run FICOs, tri-merges, apply credit models and finally rate the buyer for the benefit of the seller. Yes, there are some deals where an MLO is not required by the SAFE Act to meet the seller-carry law, such as non-consumer transactions or consumer transactions involving a single seller-financed sale in any 12 month period (backward in time and forward in time) or sales of bare land with no residential building intentions but even for the exempt deals, is there EVER a time when an honest, knowledgeable, bright lawyer, real estate broker, title or escrow company wants to take the liability of certifying to the seller the buyers creditworthiness for years to come and without having a license for that and also doing so without having done any of the standard loan due diligence underwriters do? Want to be a free guarantor for the buyer’s perfect performance for years into the future? One word on that: Dumb. And if that single word did not make the point well enough, here’s another few to balance it out: Welcome to your Chapter 7. Obviously, this does not even cover the point that it is a severe conflict of interest for any of these professionals to both advise the seller that the buyer has the financial horsepower to do the deal AND make money from that deal only because the seller took that advice and did not cancel the deal when-in retrospect some day when it blows up–he should have.
Now to the title and escrow companies. Do not avoid the use of title insurance, closing and collection escrows, even in seller-carries and especially because it is a seller-carry. Seller-carries need the same closing and collection mechanisms as conventionals. They need a competent closer to get prorates and recordation properly done. They need title insurance to assure seller’s title status and an account servicer to be set up to count the beans correctly and assure that the interest paid and interest received statements that are given to IRS by each party each year actually match. They can and should hold final transactional fulfillment conveyance or lien release instruments for buyers’ safety and they can hold and pay reserves where needed. They are essential to a well-conducted deal. But lately, maybe because these vendors are hungry in this tight economy, some are running amok across all of the above consumer rules, exposing themselves and all of the other professionals, let alone the other transactional parties, to atrocious and devastating liabilities. More on that.
Some very misinformed title companies, escrows and agencies are drafting the preliminary and even the final seller-carry transactional documents putting the deal together and apparently “approving” the buyer to the seller and closing the loan without any participation of outside counsel at least for the seller, any lawyer at all in some cases, and all without a licensed MLO. Worse, these rogue entities are even contending that they CAN lawfully do that. That’s the Devil’s whispering, again. They CANNOT do those things or play those roles without engaging in the unauthorized practice of law (see ** below after this article), without, even if they do have their own lawyer, a very serious conflict of interest, without engaging in unlicensed real estate brokerage and unlicensed MLO activity, all violating the SAFE Act and the CFPB and their own and other licensure rules. These wrongful acts seed the transaction with huge state and federal defects that have unbearable, non-dischargeable penalties (up to $1 million a day for all concerned which penetrates any entity to reach the principles). Moreover, the above consumer protection rules may require a number of technical and complex side-paperwork, phrases and broker disclosures to be in the transactional forms and the author of this article has yet to see a single form from title and escrow entities or their attorneys that comply with those. Who ran the APOR for the HOEPA interest test? Who underwrote the ATR and what convention was used? Where are the written SAFE Act seller and buyer personal exemption-statuses or exempt collateral verifications? Who determined that the buying or selling entity qualifies under the SAFE Act under the “Ladder Doctrine” (a rule in which a series of transactions which are substantively allied by a common entity or person inside the entity are all counted towards determining a SAFE Act transactional number or exemption)? The answer observed from most all of the escrow forms out there when asked these questions is:.. Huh?
As noted, above, the transaction may be one in which the use of an MLO is mandatory under the federal SAFE Act and companion state laws and these title and escrow entities are NOT MLO’s nor should they close anything unless they have an outside attorneys’ transactional documents in place, or an outside MLO’s Underwriting Certificate indicating that status or that it is non-exempt and the MLO has found the buyer to have the requisite ATR and “passed’ the deal OR that the deal is not subject to mandatory MLO review and may go forward without an ATR finding. Doing or purporting to do what ONLY a licensed MLO can do-just setting up and closing the deal without any of the rest, is courting disaster for all concerned and in some cases a crime by the perpetrator. And is generates a hell of a lot of civil liability, as it makes the loan defective and, for instance, then gives the buyer a right to rescind, demand all of his money back and WALK on the transaction for up to 2 years after closing! That has the added enjoyment of then getting ALL of the participating professionals-all of whom “should have known better”-sued as “aiders and abettors”, regardless of knowledge or intent! “Thank you for using Acme Title & Escrow, where causing the indictment and collapse of ourselves and all our trade partners by flagrant disregard of consumer protection laws is our motto!” This is surely not what title and escrow management wants to see in the company promo brochures or on CNN. And their trade partners – to whom they have been hard-selling “integrity and capability” – sure as heck don’t want to, either. There are a lot of Captain Ahabs out there. Stay off their ships.
THE CONCLUSION: Above all, do learn and use seller-carry finance! It can be the silver bullet that conquers a local market made flat by out-of-reach conventional finance, low appraisals and the bags of bad credit inherited by potential buyers from the financial calamities of the last decade. Just don’t do seller-carries on your own or at least not the first 10 or so. Use the existing education resources, classes and network of professionals to help you stay right, safe, legal and on-track to double or triple your income by learning the seller-financing art. Associate as your trade partners in this some good attorneys, several MLOs with SAFE Act experience, and title and escrow companies that will gladly stick to the business they are licensed to do which is to assure all mandatory documentation is assembled, to close and to collect on deals put together by preceding professionals. Look in all of this lineup for those who have truly “been there and done that”-those gray-haired ones mentioned who can help you do a truckload of lawful, no-hassle deals which leave your less-enlightened competition far, far behind.
‘Nuff said. From the J. Robert Eckley Newsletter
J. Robert Eckley, Real Estate & Banking Attorney
** See for examples of Bar’s opinion on non-lawyers like brokers and escrow officers drafting unique legal documents: Arizona, see Rules of the Supreme Court of Arizona, Sec. V., Regulation of the Practice of Law, Rule 31 A. (1) which provides in pertinent part that the act of “…preparing any document in any medium intended to affect or secure any rights of a specific person or entity..” is the practice of law needing a valid state license for law practice by the drafter. California: In California see the long-followed, definitive People v. Sipper, 61 Cal. App 2d Supp 844 (1943) [and a long list of consistent cases thereafter] in which the Court held that “law practice” needing licensure included “…legal advice and counsel and the preparation of legal instruments and contracts by which legal rights are secured…”