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Buying and Selling Notes with Abby Shemesh
In today's show, Larry talked with Abby Shemesh, the founder and CEO of Amerinote Xchange.
Amerinote Xchange is a loan acquisition firm based out of San Francisco, California, primarily interested in the purchase and management of mortgage notes, mortgage loan portfolios, business notes, and other debt instruments that are purchased and traded on the secondary loan market.
In this episode, they discussed several key information when buying and selling notes as well as helpful business tips.
- Abby's background
- What Amerinote Xchange does
- What their typical deal looks like
- Things the note buyer looks at
- - downpayment
- - credit score of the borrower
- - loan terms and amortization
- 2 mechanisms that determine how much money you are going to get when you sell the note
- Structuring notes
- Originating a loan
- Recommended RMLO (Residential Mortgage Loan Originator)
- Credit reports
- Credit sensitivity
- Principal versus broker
- Reasons on buying partial notes
- Recommended servicers
- Buying defaulted notes
- Cash for keys
- Doing workout on non-performing notes
- Judicial versus non-judicial foreclosure
- Other property types
- "The characteristics and circumstances surrounding the asset and the collateral are going to determine how much they would pay and how much of it they would buy."
- "The shorter the term, the higher the payment."
RESOURCES AND LINKS FROM THIS SHOW:
- Kroll Factual Data
- Allied Servicing Corporation
- Specialty Loan Servicing by Madison Management Services
- August Real Estate Investments
- Amerinote Xchange
- Amerinote Xchange Contact information: 800 - 698 - 3650 ext. 3
Larry: Welcome to the Brain-Pick-A-Pro Show live from Lake Wylie South Carolina. I’m Larry Goins I’m really excited. Our special guest today I’ve had a lot of people ask me about note buying, note selling. They do these filthy riches deals and they need a place to sell their notes. They want to learn more about notes, the not space, the note industry.
So I’m really excited today. We have the Co-founder and CEO of Amerinote Xchange. Their whole business is buying and selling notes I don’t care if it’s performing, non-performing, commercial, residential, you name it. So I have the man, the legend and the myth right here live Abby Shemesh. How’s it going buddy?
Abby: Good, thank you very much Larry, thank you very much.
Larry: Awesome. I’m excited to have you on. Tell us I mean we got a lot to cover. I don’t like this to go much longer than 30 minutes because people start to drop off.
Larry: So I know we want to ask you a lot of questions, we got a lot of stuff to cover. So tell us about Abby and about Amerinote.
Abby: Well let’s talk a little bit about Abby. Abby started his mortgage career I should say in the late 90s in originations. So we really came from a place of residential and some commercial originations geared towards folks that were looking to refinance private individuals, corporations, that kind of thing.
Which led us into the secondary mortgage market or the acquisition of mortgage notes in the early to mid-2000s. And then I personally made the full transition from originations into acquisitions in late 2005 early 2006 with the creation of Amerinote Xchange which is a direct note buyer as you’d mentioned.
Larry: Right. That’s awesome. Now tell us what does Amerinote do? I know I gave a little 30,000ft view, but what does Amerinote do?
Abby: So Amerinote Xchange is a principle purchaser of residential and commercial mortgage notes. We operate primarily in the seller finance space. So really our sweet spot is seller financed notes. We will do performing, we will do non-performing, we will do portfolios, we’ll do land contracts, contracts for deeds. All types of receivables secured by real estate.
Larry: Right. That is cool man I love it. That’s great. So tell our listeners a little bit about what’s a typical deal look like, I know there’s no typical kind of deal.
Larry: But well first let’s start off this way, okay.
Larry: I have a lot of students, right that buy properties, they might pick up a property for say 25 or 30 grand. They’re going to seller finance it, probably on a land contract okay or contract for deed like you mentioned. They’re going to sell it for probably let’s say $59,900 or $69,900 they’re probably going to get five grand down. So tell us, first of all, is that something you would buy? And second of all, how is the best way for a person to structure that to make sure that you would buy that note?
Abby: Yes, very good questions. The first question that you had is would we buy a note like that. The answer is absolutely 100% that is exactly what we’re looking to purchase.
Abby: As far as the structuring the characteristics and circumstances surrounding the asset and the collateral are going to determine how much we would pay, and how much of it we would buy. In some cases we may only be able to purchase a portion of the loan, not necessarily the whole loan if there’s an equity deficiency.
Now that being said, as far as structuring is concerned, the very first thing that any note buyer looks at, is the down payment. The more the borrower pays as a down payment, the more the note is going to sell for, that is a fact of life in the note business. So if you’re planning on selling the note, you want to try to get as much down as possible.
10% would be my recommendation as a bare minimum, if you’re planning on selling the note or the whole note we should say. The second item that any note buyer is going to look at depending on the note buyer criteria maybe credit score of the borrower. But that’s not necessarily something that we totally hang our hat on.
We can do deals without any borrower credit score or having extremely poor credit. There are some circumstances that don’t allow for the purchase. Bankruptcies, foreclosures, unpaid child support, tax needs that may be construed as deal killers. But we have a tendency to work around some of those.
The next item that you want to make sure that you structure are the loan terms and amortization. So one of the two mechanisms that determine how much money you’re going to get when you sell the note, one being interest rate. The second mechanism or primary mechanism would be the payback period. How long, or the amortization, how long that that note is stretched over time.
So you want to make sure that you don’t charge a 3% interest rate if you’re looking to make an asset available to the market, that is going to sell for I wouldn’t say top dollar in some cases. But as close to top dollar as possible. In addition to that you want to make sure that if you’re going to stretch the loan over 30 years, be prepared to not be able to sell the whole note or to accept an extreme discount.
Because 30 years is a hell of a long time to wait for a return on investment for a lot of note buyers. Most note buyers like to be out of an investment within the first 10 to 15 years. Some like to be out of it within five to 10 years. So that’s why you may see a lot of partials.
Larry: That’s a really good point you brought up. I never structure any note on any of our deals longer than 20 years. Right, that max I ever do. And I try to shorten it as much as I can, right.
Larry: Which basically means the shorter the term, the higher the payment, right.
Larry: Which allows you to be able to pay more for that note, right?
Abby: Correct. But you do not want to drown the borrower in debt, something that they cannot. And that’s the balancing act that you got to deal with. So you don’t want to just shove someone into a property, a 12% interest barely touching on usury laws in whatever state you’re operating in, then also hit them at a 12 or 10 year amortization straight in with no balloon, you maybe have a recipe for default there in some cases. So you want to make sure that you are working synergistically with the borrower.
Larry: That’s really good. And like on our deals we charge 9% interest. I tell people that it’ll keep people low usury according to what I’ve been told by all the attorneys or many attorneys. So we try to keep it at 9% so that like you said unlike at 3% at least you get a little bit of interest rate there. So you don’t have to take as much of a discount. Correct?
Abby: Correct, absolutely. 9% is a nice round number. As a matter of fact I would very rarely recommend breaking double digits. You don’t want to give them a 2% rate because then you’re not giving them any-suppose they repair their credit if their credit is not so great, you’re not giving them any incentive to refinance either.
So you want to make sure that there’s some sort of incentive to pay you off. And in order to do that, some other folks may also structure a contract where it will be for the first five years you’ll have a 4% interest rate. And then after that it’ll jump up to six and then a couple years later it’ll jump up to 10. And then it’ll hover there until maturity. And that will induce we’ll say the borrower to consider refinancing if they can at all possible.
Larry: Exactly. So tell us a little bit about when someone originates a loan, and they’re sending it to you to look at purchasing it, do they need to have like a licensed mortgage broker or RMLO originate that for Dodd Frank or how does that work?
Abby: Yes that’s a very good question. I know especially in the state of South Carolina, yes. If the deal were to originate in certain state that would absolutely be the case. The first thing we’re going to ask the note seller is or one of the first things besides the loan characteristics would be how many loans do you originate on an annual basis. And if I am not mistaken, now I am not a licensed attorney as a matter of fact I’m not a licensed anything. I’m just a regular investor.
Larry: I’m not a licensed anything.
Abby: I just want to be very clear, I’ve been doing this for quite some time. And we go with our experience and the fact of the matter is that if you create, again correct me if I’m wrong, if you create more than three loans a year using seller financing you’re considered a lender. So it’s always recommended to spend the extra four, six, $800 on the closing cost to get an RMLO in there to take that risk off of your plate if and when you go to sell this loan.
But you do not necessarily need to do it if you’re doing less than three deals a year. It’s a good habit to get into if you’re planning on doing more. Even if you haven’t broken that three deal mark I know every dollar counts with your proceeds and your profits. Especially if you’re just getting started off as a student, but you want to get into these positive habits so something doesn’t come and bite you down the road later.
Larry: There you go, that’s a really good point. Now having said that, do you have an RMLO that you recommend to people that they use?
Abby: I do have an RMLO. His name is Allan. We’ve had some hits and misses with some of the folks that we’ve used out there. But this guy is top notch.
Larry: That’s great. That’s really good. So let’s talk about credit, right.
Larry: When you buy a note, are you going to pull a new credit report? Are you going to VOEs VOMs, VORs not VOR but all that stuff?
Abby: Yes. So as far as credit is concerned, credit sensitivity does make for higher offers. For instance if we pull a credit report and we usually just do like a soft credit profile. We used to use I think Crawl Factual Data, LexisNexis also has a service that you can use. Right, even when your students or whoever is listening to this podcast decides to start using credit reports in their due diligence.
Just to give you an idea, credit sensitivity comes into play, we then start paying top dollar for these notes. For instance I just did one last month where we started the underwriting or the diligence in late April. I know I got a little on the long end there because of back and forth. But we found out that this borrower had a 717 flaker score.
We ended up paying, it was one of the highest offers we’ve ever made on a seller financed note. We ended up paying something like 96% of the UPB because it was the credit score, it was the geo-location of the property and it was the down payment along with the payment history. So all the stars align. Now that doesn’t mean we’re going to pay 96% of UPB on every single deal. That was ever happened before.
Larry: That’s unpaid balance.
Abby: Unpaid principle balance correct, excuse me yes. Unpaid principle balance, it was 95.8 or something like that if memory serves. But the interest rate was already set at like 8%, it was like a 10 year payback period with like seven remaining. They already had three years of seasoning. The property was located on coastal California which is the highly desirable area.
The appraised value was way greater than what the encumbrance was of the debt. So it was a no-brainer and we just wanted to kind of have a little bit of a footprint in that area. So it’s one area of California that we did not own a note. So we definitely jumped on that and made sure we kind of-forgive the term-blew everyone outside of the water with offers.
Larry: That’s really good. That’s good. So talk to us a little bit about partials.
Larry: Because I got to tell you, I’ve worked with a lot of note brokers and I like working with a principal like Abby right.
Larry: I want to work with a principal because when I put a note out there for sale, I mean the phone rings off the hook, you get all these emails. And I always ask people, “Hey are you a principal or are you a broker.” Their standard answer is, “We do both,” right. But the bottom line is they have no money and no access to any money and they’re just trying to broker my deal, right.
Larry: So in fact by the time you get to the principal they’ll tell you, “Hey several people have already shopped this note to me.” Right?
Abby: That’s right. That’s exactly how you know you’re dealing with brokers. And I do know brokers and I’m going to preface this comment by saying that I do know brokers that are worth their weight and gold. I mean they do the work, they make their sellers’ lives easier by presenting multiple offers and cutting out a lot of leg work.
And then unfortunately the majority of the brokers are exactly what you described. So I am a principal, our company is a principal buyer. So we broker? Absolutely. Have we brokered in the past? Most certainly. The ones that we do broker are usually 2.5 million unpaid principle balance or higher.
We’re not really looking to put out seven figures on any one note because we can diversify that seven figures into 10 separate notes across the country and insulate our loses if any at all. So we don’t play with the big boys and it’s not necessarily a good thing even. I love the industry and the level of the space that we operate within because it produces a lot of opportunities for a lot of folks to make a lot of money.
And I know some of the brokers in the seller financed space that are making more if not the same as some of these institutional brokers that are brokering portfolios and all this other stuff through hedge funds and whatnot. So it really depends on your level of experience that’s going to determine what your comfort level is there. But absolutely yes.
Larry: That’s good, so what about on the partials? There’s so many people out there, it seems like every time I send out a note they don’t want to buy the whole note, they want to buy the partial.
Larry: And for the longest time, I got to tell you Abby the longest time I didn’t understand that. But now that I own notes, I’ve sold notes, I’ve bought notes I’ve even brokered notes occasionally over the years. But now I get it and I understand. So would you share with our listeners, why does a guy like you want to buy a partial instead of buying the whole thing? And I know there’s multiple reasons but share that.
Abby: The main reason is to limit your exposure to risk, period. That is the primary reason for majority of note buyers whether they say it or not, they’re trying to limit their exposure to risk. And risk may be that a lot could happen- let’s say you have I’m just going to give an example, 30 year payback period. 4.5% interest, 8% down five months of seasoning.
What I just described there is not a proven note and it’s not a note that is going to fetch top dollar in the market. The reason why is the long payback period, the brand new seasoning, the lower interest rate and the lack luster down payment. Now I understand that when folks have some issues borrowers have some issues getting cash together or credit issues.
And 8% may be a big number in certain parts of the country but in real estate terms and for the purpose of the mathematics of the transaction, it’s not tremendous, it’s not spectacular. So a partial, that would be an ideal candidate for a partial purchase for instance we can limit it by taking on let’s say 60 months of payment or five years.
Now what we do is we get them in our loan servicer. Our loan servicer will then start reporting the borrower to the credit bureaus. So assuming that the borrower is making their payments in the fashion that they agreed upon on the contract, their credit score will start going up, and assuming that they aren’t delinquent on every other bill that they owe.
Abby: The mortgages get the most bank for the buck on credit. So again I’m paraphrasing here and don’t quote me 100% on this. But I’m pretty sure credit score increase is anywhere between five and eight points per month if a mortgage is being paid on it and all others balance out. And I know there’s a lot of factors that go into that, but let’s just assume that that’s the case. Let’s just say it’s eight or five, right. Let’s just say five for example there.
Over 12 month period that could be a 60-point increase in credit from the time you took that borrower in, for a year later. So what happens then is two things, either we can then feel comfortable now that their credit score is good and we have good pay history with them, that we would step in a year or 18 months later and buy the rest of the note out for a higher percentage than what we offered originally.
Or we hand the borrower back to the original seller with a rehabilitated credit score. Either way, partial is not as bad as one may think other than just looking at how much money am I getting now. And I know that is some of the only concerns that some people may have to move on to the next deal. So I know it’s not a one-size-fits-all, but in a nutshell that’s what partials are.
Larry: That’s really good. So if somebody has a 20 year note, they could basically sell you five years of the note.
Abby: Correct. And they can retain 15 years of that note or whatever is left over. So they can retain it, pocket it. They can sell it off to another investor and you also got to keep in mind you’re creating a much less of a taxable event. I mean there’s a taxable event created once you sell any asset. But the taxes on what you pay on the proceeds diminish substantially. So that’s also something a positive to keep in mind when dealing in partials.
Larry: Yeah but you can do this in retirement accounts also, right?
Abby: Absolutely. You can absolutely do them in retirement accounts especially if you are lucky enough to have some sort of seasoned, self-directed raw [Inaudible] [18:17] where you’re doing it in some cases tax rate, which is not unheard of. But you can absolutely do it in retirement accounts, and that very well may be how you’re directing your students to operate for sure.
Larry: That’s awesome. One of the things- it took me a long time to figure this out. But because of the time value of money,
Larry: I could sell you a 20 year note, right. Let’s say it’s a $60,000 note. I’ll sell you the whole 20 years of that note. You might only give me $40,000 for that note possibly. I mean I’m just talking round numbers, right. So let’s just say $50,000 okay. $50,000 for that $60,000 note and it’s a 20 year note. But if I sold you five years’ worth of the note, you might give me 20 grand for it.
And then in another five years you give me another 20 grand, then in another five years you give me another 20 grand. And then the last five years you give me 20 grand. 2, 4, 6, 8 you could actually literally end up giving me more than the face value of the loan, right.
Abby: That is absolutely 100% correct. And you’re going to get more than the face value of the note with interest if you exercise the option to act as the lender and not exit the contract and sell it off to another individual or entity. You then will receive more than the face value of the note. You can also do that when you exit the contract or at least a portion of the contract through partials. So yes absolutely 100%.
Larry: That’s really cool. And the model I love, that I try to teach students to do is go out and buy property, let’s say you bought a property for 30 grand. You sell it for $69,900, you get five down. Let’s say you’re going to finance $64,900 for 20 years at 9%. Your payment’s going to be just under $600 a month, right. So with the five grand down, they’ve got $25,000 in that note.
Well they could probably sell you about maybe seven or eight years of that note for that $25,000. Now they’ve got 100% of their money back, and then they’ve got the back in, so in another seven or eight years they’ve got money coming back in to them, right?
Abby: Absolutely. And if they sell the note to an investor who is reporting the borrowers to credit, it would even be a better situation because, the borrower may then have the ability to walk into a bank and refinance it. And then one day down the road you get a big fat cheque in the mail because the title company just cut you a cheque from a refi that you weren’t expecting.
You know what I mean? And that may or may not be a great thing depending on your investment strategy. But it will definitely allow for opportunity to come in and you get cash, cash is king. Obviously you can make more money, make more deals and of course turn a bigger profit. So absolutely yes.
Larry: That’s great. Now you mentioned servicing a couple of times and reporting to the credit bureau. Do you have specific servicers you use and/or recommend or do you service yourself?
Abby: No we do not service ourselves. We use FCI, we use Allied Loan Servicing. Now they don’t report to credit but they are in my opinion one of the better ones out there, just because of the simple fact that when I call, someone answers the phone almost immediately. And that’s a big deal for me. It’s impossible to do with FCI.
And then Madison, it’s the one in Jersey they charge, they’re definitely pricey but they report to credit. So they’re not the easiest to get on the phone either but sometimes you got to give and take a little. Allied, Melissa is the girl that I deal with over there.
She’s been in the business for many years going back to Metropolitan Mortgage back in the early 2000s I believe, which was one of the biggest note buyers back then. She’s our girl, but she does not report to credit. So we use in some cases we’ll use Madison. But those are the two that we use. And then you have August REI in Texas.
Larry: Right, yeah they’re just in Texas I believe.
Abby: They’re in Texas and Oklahoma. I put Texas primarily yeah but yes they also report to the credit bureaus as well.
Larry: That’s good.
Larry: So let’s talk about default, right.
Larry: Because I mean some of these notes you buy, they’re already in default. You’re buying them because they’re in default and then some of them are performing. So what happens in the event of default if you bought both a full note and a partial note?
Abby: Got you. So default on a partial I got to be honest it doesn’t happen often and the reason why is because we underwrite the, correctly. I don’t like to jump on partials that look like they’re going to go shaky because the last thing I want to do and my company wants to do is have to partner up with a seller who is like, “Come on let’s move this along and get me my money. You guys owe me this, this and this.
And especially if you’re in a judicial foreclosure state like New York which takes years to go through the foreclosure process. You had this person that you’re now married to or this company that you’re now married to so to speak who is just tagging at your shirt going, ‘Hey where’s my money?” and that’s not necessarily a situation that we like to find ourselves in.
Although with partials and defaults, what would happen is the first thing that we would like to do is we would like to get that loan performing. Because with partials, we only buy partials with the intention on collecting the cash flow. We do not have the intention of taking the property back. That is not our intention when buying that type of not.
So we want to make sure that cash flow is coming in. so we want to make sure that cash flow is coming in. so we try to rehabilitate the borrower, we try to work with them, we give them really a lot of leeway there. And only as a last and final resort will we begin the foreclosure process. We even try to do something called Cash for Keys which will allow us to avoid the foreclosure process if we have the blessing of the note seller at the time.
So that’s how we would handle a partial. As far as a full buy out default, some defaults go just as planned. For instance we buy the note knowing it’s going to default or we buy a defaulted note. But when we buy a note that’s a full offer and it goes into default, we definitely apply the same tactics that we would to a partial.
For instance cash for keys is a big winner for us. That really works and depending on the property location, will depend on if we want to take that property back do we want to keep the borrower in there, what’s the status? But it will really be case by case. So just to give you a firm answer, the first thing is we try to work them out.
If we own the note entirely, we will try to modify it to get them performing again. If these folks in the property are just not willing to cooperate in any way, shape or form, we have no choice but to initiate the foreclosure process and then take that through to foreclosure. But that would be how we would handle it in house. We’re not necessarily in the business of taking properties back. Although we do what we have to do to recoup our investment.
Larry: Good, that’s really good. Good explanation. So do you guys do your own work outs on your non-performing or do you have a third party that does them for you?
Abby: We do not do enough non-performing to hire a third party. We do our own work outs. Yes to answer your question because as we do buy non-performing loans, a lot of these notes are significantly non-performing, like severely non-performing, or way past that point where sometimes the borrower is not even there, there’s no number, there’s no email.
A lot of the non-performers we’ll buy is in Texas. Texas is a very lender friendly state. So it makes the foreclosure process easy. California is another state that we like to take on foreclosures in. the main thing about foreclosures and non-performing notes that a lot of people aren’t aware of is they thing, “Well you’re going to take a non-performing note on.”
Our biggest issue has been trying to get some sort of payment method. Even if it’s non-performing in these seller financed notes, a lot of these folks don’t keep good records. So if we don’t have good records going into the sale and we try to foreclose and that borrower tries to fight us on that, which is their right of course, we go before a judge and we don’t have any way to prove that the note is in default, that’s not a good situation for a note buyer to be in.
So the biggest challenge we run into with seller financed non-performing notes are payment history. And if there’s not any payment history we usually won’t even touch it or we’ll refer it off or broker it to another entity that is a little bit more comfortable with that. Why? I don’t know. But we have an investor that loves those things. So we’ll offload them to her. But yeah that’s how we handle that.
Larry: That is good. You mentioned a minute ago judicial foreclosure state and there’s judicial and non-judicial. Would you mind explaining the difference to our listeners? And then also which one you prefer and why.
Abby: Absolutely. So non-judicial foreclosure is a state that has to get a court approval to go through the foreclosure process. It’s usually a state in which the property has a mortgage just like South Carolina, judicial foreclosure. Non-judicial foreclosures are usually referred to as deed of trust states. And those are out of court foreclosures which are usually conducted between the parties.
And those are mostly preferred in a lot of the note buying circles because of the ease in which and the low costs, how much it would cost for the foreclosure, how long it would take. For example in Texas, a foreclosure may take as much as 90 days to go through the entire process and to take the property to auction and recoup your investment. Very short period of time.
I mean it may go into 120 days. New York State can take upwards of three years and thousands and thousands of dollars. Who the heck wants to wait three years to go through that? Now there are some investors who specifically buy in New York because there’s no one else that’s touching it so they’re not going to pay top dollar and they do well there because they’re a New York based lender. But that is the primary difference. Judicial foreclosures are usually mortgage states. Non-judicial foreclosures are usually deed of trust states.
Larry: That’s really good explanation I’ve never heard anyone explain it any cleaner and clearer than that. That’s awesome.
Abby: Thank you.
Larry: That is awesome I love it. So man, this is good stuff. For me not having any questions to ask you I think we’ve done really well, don’t you?
Abby: Yeah, yes sir absolutely.
Larry: So tell us about other property types. Are you interested in mobile homes at all, manufactured homes?
Abby: Absolutely. Yes sir.
Larry: With land, without land, in parks or what?
Abby: So that’s a good question. We are absolutely interested in collateral referred to as mobile homes with land. So there has to be real estate attached. If you just have a mobile home in a mobile home park, and you have a note on that, that’s not really going to be a good fit for us. And quite frankly I’m not really sure of any note buyers out there with the exception of one local to Northern Nevada that would touch something like that.
Now if you have may or not may come up but if there’s someone out there listening that has a portfolio of just mobile homes with no land, that’s something that we would have a great interest in. but our primary interest and our primary dealing are with seller financed mobile home or manufactured home with land.
Either with a document referred to as an Affidavit of Affixture which means that the property is completely affixed to the property, or a mobile home title which is taxed as personal property not real property. And that’s the only difference.
If we do take a mobile home note and it is being taxed as personal property because it has a mobile home title like a vehicle, we would need to convert that in some cases to an affidavit of affixture before the process is over in certain states. But we definitely would handle that on our dime, our cost our dealings, it wouldn’t really affect your note sellers.
Larry: That affidavit affixture you mention, is that the same thing as what we call surrendering the title?
Abby: That is one question I do not know the answer to. And the reason why is I have not done a mobile home note purchase in South Carolina I would say since early 2010/11 something like that. But it very well may be. The surrendering of a mobile home title, correct me if I’m wrong, isn’t that because they are now affixing it to the property?
Larry: Yeah, some mobile homes were sold where they just financed the home but it’s on the land.
Larry: And then if you want it taxed as real property there’s a form you fill out and you send it to DMV and you prove through I think an appraiser or something, that it’s on a permanent foundation, the wheels are gone, there’s no tongue on it, it can’t be towed away.
Larry: So now from now on now it’s going to be taxed as real property so it’ll show up on a title search, as the land value the improvement value. Instead of just a mobile home sitting on a lot.
Abby: That is exactly what it sounds like. That sounds right to me.
Larry: Okay good. The only other question I can think of is seasoning. If I bought a house today, and I put somebody in it and they move in this weekend and they’re supposed to make their first payment the next month 45 days from now or whatever. How long do I need to hang onto that before you would be interested in buying that note?
Abby: So this varies from deal to deal. The typical answer, the standard answer that you’re going to get if one of your students were to go down the list in Google and call every note buyer, the typical answer would be six to 12 months.
That is not practical for a lot of investors out there especially investors that are fix and flip and that kind of thing because their business model clashes with the note buying business model. For instance a property flipper wants to be in and out quickly as possible, get the money move on to the next project.
Abby: Note buyer wants to slow it down, take the time make sure everyone’s paying on time and the need to see data and seasoning and all this. So it clashes on that point. The short answer would be three payments. Now you can collect the first payment at the table if you so desire. Once you collect the second payment we can then start the underwriting period.
With that second payment and the first payment you can submit the copy of the note, the copy of the mortgage or the contract for deed or whatever the documents are. And then we can start underwriting it, order an appraisal, a title search and everything. And by the time the third payment rolls around and collected if all underwriting goes well, we can then fund the deal upon collection of the third payment.
That’s how we would work around that. Now if there is zero down or 5% down or something like that we can still do it but we can only do it with a partial not a full purchase buyout. So the Amerinote answer would be three months of seasoning, we can start underwriting on the second month.
Larry: Right. Yeah if you collect the first month after closing.
Abby: Sure. Or you can literally wait 60 days and then submit it to us if you so desire.
Larry: Yeah okay.
Abby: But I mean sometimes the borrower may say, “Hey I need that extra month to move in and costs and this and that. So that does come up. But if you can get that first payment at the table by all means do it if you’re planning on selling that note.
Larry: How long does that underwriting process take from the time we send the deal until you wire the money to the attorney?
Abby: Okay so from the time that you send us the deal for a quote to the time we wire money, three and a half weeks. From the time you actually sign and authorize us to move forward in writing after you submit the quote, two and a half weeks. So I always add a week in there for quoting back and forth. It only takes us 24 hours to get a quote.
We got to think about it, we got to get the documents together. It takes about a week from our experience. So under a month with the exception of like right around now people come in on the 15th June and they go, “Hey I need my note closed in two weeks,” and what they fail to realize is the 4th July holiday, I feel like the whole real estate mortgage and title industry just checks out until about the middle of June or July.
So even if we are here we still need an appraiser, we still need a title person we still need all that stuff and it’s hard around these summer holidays and any holiday season. So just be cautious of that if you submit in late November or mid-November and you need it done quickly or if you submit in mid-June or mid-August and you need it done quickly, no going to happen quickly.
Larry: That’s really good. Man this has been a lot of info we’ve been on here almost 40 minutes it’s flown by.
Abby: Yes sir flown by.
Larry: Flown by that’s awesome.
Abby: Yeah, yes sir.
Larry: So if somebody wanted to reach out to you to sell you a note buy a note from you, do whatever just reach out to you, how would they get in touch with you?
Abby: Well you can reach us by phone of course our number is 800-698-3650 my extension is number three. We’re a very small company there’s only five of us here so it’s not like you’re going to get lost in the shuffle. And we remain small for that purpose of making sure that we can keep our offers high. We’re not trying to take over the world so to speak, we’re just trying to make a living.
And that’s really what we’re doing at Amerinote and if you guys want to reach is online you can go to our website, amerinotexchange.com. Another easy way we call it the shortcut URL or the shortcut address is note-buyer.net that is the quickest way to get to us.
Larry: That’s awesome. Man it’s been really good talking with you hanging out with you and I learned a lot as well.
Abby: Thank you Larry. I really appreciate you inviting us on the podcast, I’d love to do it again.
Larry: That sounds good man, I really appreciate it. Let us know if we can do anything for you and hopefully some of the students will be sending you some notes and you cash them out and put some money in their pocket.
Abby: Sounds really good I look forward to it and I hope to do business with your students and maybe you someday as well. Hopefully we can do some business together.
Larry: Sounds great man. Thanks a lot I really appreciate it.
Abby: Take care, bye-bye.
Larry: See you later.
[End of Recording] [37:22]