Turnkey investment – Newly rehabbed (former REOs) middleclass homes with large equity positions, leased, and positive cash flow in a market beginning to rebound.

I think you achieve Jadedness levels of “10″ when those kinds of deals make me go “hmmm, wonder what’s under the covers on this one.”

What was coincidental was that earlier the same day that I received this email, I’d just read a notice from someone else advertising an “amazing turnkey investment program”.

If people don’t take the time to educate themselves about notes, they’re bound to fail as a note broker.

I’ve seen many brokers fail.

The only ones that survive are those that really understand the business.

There are very few products out there teaching anyone what bank paper, let alone non-performing bank paper, actually is, and what to do with it.

And if you don’t take advantage of drawing on my knowledge of the business, organized into an easy-to-digest and comprehensive 16-hour Note Buying training course where I take you from Start to Finish on note deal after note deal, using “live” deals from my own portfolio, then you’re missing the point about the brokerage business altogether, and you’ll be one of the “Ugly” brokers out there.

You don’t want to be chasing buyers and sellers your whole life.

If you are a Broker, you want to close a trade. For that, you want ’sticky’ relationships, where sticky isn’t just defined as how many deals you do with someone, but rather, how much VALUE you bring to your Buyers and your Sellers.

The more you bring, the more you get paid.

It’s as simple as that.

What worried me was when he said: “Dean, I want to get into buying defaulted mortgages in order to keep people in their homes and get some good cash flow.”

Don’t get me wrong. I’ll be the first to admit that Humanity counts.

But …

Don’t lose sight of the forest for the tree.

In other words – don’t try to force your Note deals down one note buying exit strategy.

It just won’t work.

You see, you may WANT to pursue A SINGLE exit strategy for the defaulted mortgages you purchase (in this case, he was looking to re-perform all the notes he bought – possibly by modifying them all – and then to hold them for cash flow).

DON’T FALL INTO THE SAME TRAP.

In order to invest successfully in non-performing notes, you need to be like Rafael Nadal.

Nadal is a really well-balanced tennis star. He has an amazing serve, excellent grass court experience, plays solidly on clay, and can fire a wicked forehand.

Follow the same approach to your Note buying. Learn how to pursue MULTIPLE Note Buying Exit Strategies at once.

Below is a useful Video snippet (straight out of the ‘A-Z Profiting from Discounted Mortgages Business-in-a-Box) to really hammer this point home to you.

Be careful you don’t “stick yourself” with one strategy. For example, one useful tool to get a borrower to cooperate with you in getting a loan modified can often be to start a foreclosure action.

Why? Because for someone who has been missing payments regularly and hasn’t been current for a while, sometimes a wake-up call with a foreclosure notice (combined with a helping hand from you to help them with a loan modification) is what prompts them to get their act together, take control of their situation, and to work their way out of their delinquency.

Don’t fall into the same trap the investor I talked to did. Don’t think that 1 Exit Strategy to your Note Buying business is enough to make you successful.

You really need to be a jack of all 5 Exit Strategies to do well in this business.

(You can watch a full hour just on Exit Strategies for FREE  right HERE, straight out of my massive 16-hour course on how to profit from defaulted mortgages.)

Good.

You’ll want to meet Saprina.

She’s a veteran – a former seller of Notes at one of the largest national banks.

And I’ve asked her to share tips on how to get YOU in the door with banks.

She was a mentor for me on my first note purchase. The one I made $96,500 on that I’ve highlighted on www.notebuyingprofits.com (first Video at top of that page).

If she can help me, she can help you.

Some of the questions I’ll be asking her:

• How did new investors/note buyers introduce themselves to you and “get approved”?
• What are the biggest “no-no’s” you look for when interviewing non-performing notes investors – any words that give away certain info that “kills” their chances to buy from you?
• Did you ever ask note buyers for references?
• Are there “blacklists” of non-performing note buyers? If so, how are they used in the industry today?
• Would you receive gifts from a real estate investor? What kinds?
• Who’s your best investor of all time? Why?
• Do banks proactively go looking for investors?
• Did you sell single non-performing notes?

You’ll have a chance to ask her additional questions yourself TODAY AT 5pm PST/8pm EST.
(For Private Access Club (PAC) members, the recording will be available later inside of PAC.)

Join me for this unique opportunity, today at 5pm PST/8pm EST.

Register now for this how-to-buy-defaulted-mortgages Special Interview.

Webinar spots are limited.

And, as a special goodie & pre-taste: watch ANOTHER interview I did before with another veteran bank rep – straight out of my ‘A-Z Profiting from Discounted Mortgages Business-in-a-Box‘ Course. (You can get the complete interview FOR FREE, incl. online video, Audio MP3 & iPod video version, by putting in your name & email at the top right of this blog!)

“What is MERS, and how does it affect us as note buyers?”

My reply:

MERS stands for the Mortgage Electronic Registration System – it’s a service that most large servicers sign up with and what it does, in a nutshell, is to automate assignments so that the servicer or the note buying investor doesn’t have to record them.

How does it work? As an investor, you pay a membership fee of under $1,000, and you then pay a per-assignment fee if you’re assigning a loan FROM yourself TO someone else. You don’t pay anything when you receive an assignment of mortgage or deed of trust (e.g. when you’re buying notes), just when you’re selling (v. small fee and the fee doesn’t even apply in all cases).

Should I worry about it? No. You may see loans that appear to be currently held by MERS, but those are merely naming MERS as the beneficiary on a mortgage – they do not mean that MERS is the investor on the loan. It never is.

So what should I do differently with MERS loans? Nothing. Treat them as any other loan and know that when it comes time to receiving an assignment, you should take an assignment with the following words in it: “…in favor of Mortgage Electronic Registration Systems, solely as nominee for SELLING LENDER”.

You won’t get anything different on a MERS loan than you will on a non-MERS loan, unless you’re a MERS customer yourself.

The nice thing about MERS loans is that you can take the MIN (Mortgage Identification Number – included on many data tapes when loans are assigned to MERS) and plug that number into the following website.

It’ll tell you who the beneficiary of record is, and their contact number.

MIN lookup: http://www.mers-servicerid.org.

Nothing ventured, nothing gained.

Dean

Hope you enjoyed this article in our series on how to buy notes.

“Hello Dean, I have only been doing real estate for the last three years.
Can you please tell me, what is the difference, pros and cons of investing in the note vs investing in trust deeds/mortgages?”

My reply:

George, thanks for your question, let me address this one for you:

First, let’s get down to the basics:

A Note is a promise to pay signed by 1 person to another person. A Note can be unsecured – it is merely a promise to pay, and has no “collateral” connected to it like a car or a house or a boat. A Note can also be secured – usually to a house or a vehicle or boat, for example.

The “instrument” that “secures” that Note to the house (let’s just use the house example here) is the Mortgage or Deed of Trust (or Security Deed if you live in Georgia). I’ll refer to all of these generically as security instruments, by the way.

So that Trust Deed, as it’s also called, specifies what you as the beneficiary of the Trust Deed, can do if the borrower defaults, or breaks any commitments, specified in the Note. That’s where you’ll find references to foreclosure, for example. That won’t be in the Note.

So what happens when you buy a real estate Note, you ask?

You buy BOTH, the Note and the Deed of Trust or Mortgage. They’re part and parcel of the same transaction. Don’t think of them as separate.
Think of them as a pair – like a pair of socks. Whenever you buy a sock, you’ll always get 2. (I won’t go into unsecured liens here – we’ll save that for an advanced topic since I wouldn’t advise you to go out and pursue deficiency judgments Day 1!).

So don’t worry about whether you’re buying a Note or a Trust Deed – you’re getting both. Even if you’re an investor and you’re investing in partial Trust Deeds that are originated by some hard money lender, you should ALWAYS get a copy of the borrower’s Note and the Trust Deed or Mortgage securing that Note.

And just to round this out so that you see what happens as you “work out” your Note and make money from it. I’ll give you two situations:

a) If you end up foreclosing on the Borrower because they default on the terms of your Note (the terms of repayment are always defined in the Note rather than in the security instrument) and you take the property to foreclosure sale, the Note goes away at the point of sale.
Now there’s no more obligation to pay since you took the house. But so too does the Deed of Trust. Instead, you end up with a Deed – title to the house. But there’s no more Deed of Trust since that was just a piece of paper that tied your Note to the House. Now that you own the house that Deed of Trust is gone. So do all Junior (e.g. a 2nd Deed of Trust, a 3rd Deed of Trust, or junior judgments and liens – federal liens and county/city taxes excluded – topic for another post)

So in simple terms here’s what happened: the borrower defaulted on their Note. Since they weren’t paying you on your Note, you said – “well, I’m going to recover my loss on this Note by collecting on the collateral that is tied to that Note – the house.” The word “collecting” just means going through the process of filing a foreclosure action in order to force a transfer of the house from the Borrower to you.

b) if you end up, let’s say, buying a 2nd Trust Deed behind a 1st that is foreclosing, and that 1st takes the property to foreclosure sale, here’s what happens. The day of the sale, your Deed of Trust disappears. It’s gone. Worth nothing more than the paper it’s written on. BUT you still have your Note (in most cases – however there are exceptions to this in certain states with certain types of mortgages, e.g. a note secured by a California purchase money mortgage on an owner-occupied home in 2nd position does not survive post foreclosure on the 1st, but I’m getting off topic here …. !) And some investors just collect on those Notes through the courts, by filing a judgment against someone personally, and then working to collect on that judgment by calling/writing/garnishing wages, etc.

Maybe more than you wanted, but I wanted to make sure that you understood that when you’re buying Notes and when I or most other people online and in the real estate field are referring to buying Notes – we AUTOMATICALLY assume the associated security instrument.

Nothing ventured, nothing gained.

Dean

So here’s the question, which Brian K. posted in a comment on an earlier post, and which I’ve received numerous times over the past two weeks in my free 20-minute sessions …

“If I need money to buy a note, should I chase down notes or secure money first?”

So in order to answer this one, let me tell you a little story about Dean Engle and his early non-performing note purchases:

1. $23,500 – 1st note I bought. It’s there in black and white on the homepage (first video). All from my own money
2. $54,000 – 2nd note I bought. I didn’t have enough for this one and I didn’t have any other sources of financing lined up so I convinced my wife that she’d do better buying me a note and getting 13% on her investment, plus 2 points, than holding her Cisco options which were underwater (!)
3. $26,000 – 3rd note I bought. I invested out of my self-directed IRA
4. $14,500 – 4th note I bought. Also from my self-directed IRA
5. $23,000 – 5th note I bought – and my 2nd quick flip. I sold it for $30,000 within a month, but funded it from my self-directed IRA (had it under contract before I purchased it, but couldn’t close it in a single transaction so had to come out of pocket)
6. $8,750 – 6th note I bought. None of my own money – brokered deal on which I made $2,000 (YOU DON’T NEED MONEY FOR ALL NOTE DEALS!!!!)
7. $66,500 – 7th note I bought. I used hard money for this one – so I put up 25% of the note cost ($16,625) and the investor put up the rest, at 4 points and 13%
8. $12,500 – 8th note I bought. From my self-directed IRA
9. $153,550 – 9th note I bought. Used the hard money lender again that I’d used on my 7th note. Same terms
10. $7,000 – 10th note I bought. From my self-directed IRA

I want to point out three very important points about this list of notes:

1) You can buy small notes, for very little money
2) It doesn’t have to be your own money
3) You don’t need to have ANY money – you can broker notes or bird-dog notes (see #6 in the list)

I learned very slowly that I could go out and get money from someone to fund my notes. And here’s who that person was who funded that first note (note #7): a foreclosure auction buyer – (maybe you call them trustee sale buyers in your state).

Here are the three reasons why I like auction buyers when you’re starting out note buying:

• They know more about notes and non-performing notes than most lenders (after all, they’re dealing with banks and trustees and foreclosures all the time in their business)
• They can place a value on a property faster than anyone. Usually they’ll have completed a driveby of the property (if they even need to do one – some of those guys know their county so well they can judge value just based on a street address!)
• They can make a decision to fund a deal very quickly – as long as you have the right paperwork to give them, they can usually fund the next day if you need it

So how would I answer Brian K? With one of TWO recommendations:

1. Decide you want to be a bird-dog, and broker notes – to get it started.

OR

2. If you want to BUY your own notes, then line up the money first. Then chase the notes.

If you know you have no more than $50,000 available yourself, then you can chase notes worth less than $50,000.

But as I just suggested to Rick the other day (Rick’s in north Georgia chasing notes himself, and admits he has about $100,000 available of his own cash), why not line someone up at a 25-75% split and “leverage” yourself up?

Rick’s $100,000 could then be worth $400,000 in note purchases.

AND he gets to learn from someone with deep experience in buying foreclosures if he chooses his hard money lender right (you learn from every deal and every relationship)

Ah, but I hear you asking me: “so how do I convince my hard money lender to lend me money?!”

It’s simple – one of my Oklahoma readers used the Basic How-to-Raise-Money toolkit file – you know the one with those 2 deal summaries I wrote up on the southern California note and the Portland Oregon note? (If you haven’t already: watch my FREE 84-min Video on How-to-Raise-Money NOW!)

Well they used that EXACT document and showed it to a handful of target investors and said: “This is what we’re looking to do, would you fund something like this if we came to you asking for your money?”

That little document opened doors for them. They’re in talks with a number of those investors now. Why? Because it lays out a sample deal in simple terms that any investor will understand and appreciate.

And think of it from the investor’s perspective – especially the auction buyer’s perspective – they MAY look at you and think “hmmm, this is cool – I can use [YOUR NAME HERE] to learn something about bank notes, which I’m hearing all about right now. Maybe he can go find them, I can fund them, and we can work them out together.”

If you set it up right, and pick your partner right, this could be a very nice win-win relationship!

So, ACTION STEP: find out the next foreclosure trustee sale or sheriff sale or auction in your county, and GO THERE. And see who you meet. Strike up a conversation, say you’re starting to buy notes and looking for hard money.

I’ll be amazed if you don’t meet at least 1 investor who’s interested in hearing more about note buying!

And ACTION STEP #2: go out there and start Finding Notes and if you find one you don’t have the money for – BROKER it to someone who does. At least you can make some good money! (We pay 1% of the acquisition cost, for example, for notes or pools smaller than $1million – not that I’m recommending you to just come to us with notes – but rather to give you an idea of what you might be able to charge other note buyers, at a minimum.

That’s the equivalent of $1,000 on a relatively small $100,000 note. Better than working at the office!

Briana just sent me an email asking me the question re Short Sales below, and since I’ve gotten this one a lot recently, I thought I’d share my response to her with you in case you were curious yourself:

“Hey Dean, how successful are you at buying single notes from banks on a short sale?”

Those of you who know me, or those of you I’ve spoken to in our note buying training over the past few weeks in the Private Access Club, will know the distinction between short sale and note buying.

But in case you wanted yet another refresher, or in case you haven’t heard the comparison, here’s my reply to Briana:

“Briana, thanks for your question. It’s a great one, and one that a lot of people have.

Let me point out the fundamental differences between a short sale and a buying defaulted notes.

SHORT SALE

A Short Sale is a transaction in which a PROPERTY is sold, and all the notes/mortgages on a property are closed out.

The party selling is the homeowner. The party buying is either an investor (intermediary) or a new homeowner.

In simple terms, what this means is that in a short sale, you have a home being sold by the homeowner (let’s call that person Borrower A) – sometimes through an intermediary – to a new buyer (let’s call that person Borrower B).

The new buyer “brings” their own financing to the table, meaning they get 1 or more mortgages / deeds of trust on the property in order to finance their purchase.

So at the end of a short sale transaction, the ORIGINAL loans that Borrower A had, are gone. They’ve been “reconveyed” or “closed out”.

NOTE SALE

A Note Purchase (sometimes called “Note Sale”) is a transaction in which a NOTE is sold.

The party selling is a bank/lender. The party buying is an investor.

There is NO parallel sale of the property as part of this transaction. And the borrower on the Note (the homeowner) is typically NOT aware of the transaction, because they are not a party to the transaction.

In simple terms, what this means is that in a note sale, an investor makes an offer to a BANK on a particular note, and buys the note. Once the note is sold, the investor and the bank both let the borrower (who is almost always, but doesn’t have to be, the homeowner) know that the borrower now needs to make payments to the NEW bank, which is the investor.

As an interesting TWIST here: as the purchaser of a nonperforming note you can (and will) be on the OTHER END of a short sale, which is a lot more powerful, btw.

YOU are the bank now, and YOU can APPROVE or DENY a short sale – which may be very much in your interest (to accept a lower payoff), since you bought the note way below its face value, and there is enough room to forgive the borrower some of the debt – and still make a healthy profit yourself.

Let me show you a comparison between How to Do Short Sales and Note Buying again.

After watching it, you tell me which one is the more powerful strategy:

PS: In case you meant to ask how successful we are at buying single notes from banks rather than larger pools, let me tackle that question too…

It depends on the source, to be honest. There’s one bank that buy non-performing notes from where we cherry pick those notes we want, and pass on those loans we don’t want. A lot of other banks or mortgage companies we work with sell entire pools of non performing notes, so those bids typically end up being on entire pools.

P.P.S. It IS POSSIBLE to buy individual non-performing notes from banks at a discount.

That’s how I got started. And I’m still doing it today, so I definitely recommend it, unless you’re in the $100 million+ range, in which case buying singles may be difficult for you.

P.P.P.S. If you watch the Video on top of our home page at www.notebuyingprofits.com, I am actually showing you my very first note that I bought, which was quite a homerun. (Fair disclosure: this is not some get-rich-quick scheme… and not every deal brings in close to $100,000 in profits, but it’s possible to make those kinds of note buying profits.)

You might also want to check out the many free note buying videos on our site, and then see whether chasing after notes instead of short sales is for you or not.

Hope you enjoyed this post on the difference between note buying and how to do short sales.

Consider this – I get an email from a note broker friend of mine two Fridays ago about a $3 million 23-note pool of nonperforming loans (1st and 2nd mortgages), I review all the loan documents and submit a bid by the following Wednesday, and I find out the following Thursday that I’ve won the bid with around a $1.1M offer.

Hang on, hang on before you think “good for you, Dean, but I only have $20,000 to spend so this isn’t for me…” (Btw, our How-to-Raise-Money Toolkits can definitely assist you in that department.)

My original bid was for 6 non-performing loans in this note pool. And the seller told me I was on the short list based on my bid on those 6. Could you have bid 2 loans for say $50,000 a piece? Sure.

My point on How to buy Real Estate Notes is:

You never know ahead of time whether you’ll be able to pick off a few loans or not, so just go ahead and bid anyway!

Anway, back to the story … so that was last Thursday.

Then, on Friday – one day later – I get a call from the bank selling me the note pool asking me if I’d be interested in an $8 million pool of non-performing notes that they’re sending out in another month, out of which I can probably “cherry pick” the notes I want.

Ahhh… you see why I like note buying?

Isn’t that cool – you meet someone one week and a couple weeks later they’re sending you more and more opportunities! Compare that to having to CHASE DOWN your next ‘real estate investing deal’ (buying/finding a property).

Key point: your track record counts for a lot in the note buying business – so if you close a deal on time and at the price you say you will, you might end up the favored investor on the very next note buying deal coming from that same seller.

That’s an efficient way to build your pipeline of note buying deals – and that’s what makes the non performing notes business so attractive – for this fraction of Real Estate Investors out there who understands how to buy Real Estate Notes.

So Rick was asking me whether he could birddog non-performing notes if he’s able to find some that are available for purchase.

The answer is: Absolutely.

There are two rules in the world of non-performing notes: “he who has the gold, rules” – which you’ve heard before.

But the other one that is even more true is: “he who has the gold is always looking for more and better deals.”

So the key is to be able to line up “a deal” for someone like me – the investor.

Here are a couple of tips:

a) Note Lead vs Note Deal – they’re anagrams for each other, but when you switch the first and last letters, you TOTALLY change the value proposition to an investor – and you completely change your comp structure

b) Note Buying leads are a dime a dozen to an investor – they’re pieces of information that we (the investor) need to spend time and energy on without any guarantees that they’ll pan out. Worse, if you’re a birddog bringing me a note “lead”, I usually discount that lead because it’s coming from someone who isn’t intimately familiar with the note buying business … so I assume it’ll take me more time to turn into a “deal”

c) Deals have none of the elements of a Lead – they’re pre-negotiated (or at least partially negotiated) leads with a clear set of numbers and a clear set of risks already laid out for me. That’s valuable to me – and I’ll usually pay for that type of a referral very differently than for just a Lead

So that being said, let me share with you Rick’s question below, and my answer that I’ve posted as a comment below that. Feel free to comment!

“Dean – me again. At least you know I am studying your note buying material! I am working on my “blasts”. Bankruptcy and Foreclosure leads. I am currently learning the note buying business while I still pursue my regular real estate investing. 2 easy questions:1. I know you are releasing the “Determining the Purchase Price” Note Buying Course in a few weeks but is there a ball park figure I should use on my “blast” offers? You mentioned 70% (of BPO…correct?) but is that too high in the current market? 2. I do a lot of research (which I enjoy) and I come across potential note buying opportunities that I pass over because the dollar amount would be to high for me as a newbie. Is there a way to birddog these non-performing notes to anyone? I will give you an example. Tonight I spent 2 hours talking to a homeowner who responded to my Pre-Foreclosure flier. He has a $124,000 first mortgage that is 4 months behind, no Seconds and no Liens. The loan is from 2004. The tax assessment is $147,000. He thinks it’s worth $165,000 and I think it is worth $150,000. He is getting foreclosed on the first week in May. The lender is…..drum roll….EMC Mortgage…which took over the loan by assignment last year. Is this a type of loan that I could “blast” and then turn it over to someone else for a birddog fee? Thanks, Rick, North Georgia”
See my answer in the comment below!

And here are the numbers on this note buying deal: