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Flipping Notes - How To Secure My Interests (LEGALLY)

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Matt Yates

Real Estate Investor from Tualatin, Oregon

Dec 11 '12, 01:05 PM


So, I'm getting a MILLION emails from everyone about a webinar Mike Warren is doing regarding flipping notes. I watched the webinar, and everything sounds amazing for the simple fact I have a LOT of friends in the business of dealing with clients that do these carry backs. I also have a few friends of mine that carried back on some commercial properties, and so happens to be a few weeks back asked me about cashing in on them.

I was wondering if anyone here has bought Mike's course, or has the documents that he speaks about that would let me market my friends notes, and secure my interests in the flips?

I also have the ability and capital to close on these deals first, and then flip so I wouldn't have to expose how much I am getting the notes for vs selling them for.

Any help would be appreciated, and you can either reply to me on here or email me at [REMOVED].

Thanks my BP friends!


Edited Dec 11 2012, 14:16 by Moderator: email in signature, please


Dion DePaoli

Note Investor from Fort Lauderdale, Florida

Dec 12 '12, 09:30 AM
1 vote


Generally speaking, Gurus do not get much fan fair on BP. I do not know what he is teaching but you seem to be asking about how you can be some type of "protected broker". The only real way you will have an interest in a deal is have an interest in a deal as a principal. There is no magic there. That paperwork is simply a contract.

Additionally, "flipping" notes can be pretty dangerous if you have no idea what you are doing. As with most of these training gurus, they paint a rose colored picture with nothing but gains and profits. Far from true. These guys do not not teach you how to do any financial analysis or valuation on the asset. They teach you little to nothing about the regulations involved in the mortgage industry or debt collections.

This is not a very broker friendly industry as most of the brokers have no clue what they are doing and only serve to prevent real deals from happening. Additionally most tend to highly inflate their value and role in terms of monetary gain. They have never really purchased an asset, owned an asset or dispostioned an asset so how could they possibly know about any of it? (they can't and don't) Because of this they spend a bunch of time talk among themselves instead of anyone who actually is in the business.

Flipping notes/loans is a very misleading concept in this industry as it assumes that you will always have someone who will pay you more than what you paid for an asset. But if you do not have any experience with the costs and time it takes to work through the assets, how is it you plan to be able to put a price on them? How will you ensure you pay less than your buyer to you? It further assumes, not only do you know how to price these assets out but relies on the Seller not knowing what the asset is worth either. Completely backwards and opposite to reality. A knowledgeable seller will pick you off faster than a sniper in a watch tower on a clear sunny day. Aside from that, most Seller's are not going to hand you a return on a silver platter, the bid and ask is already separated in the market. Being the highest bidder really means just that, you just paid too much.

What will you do if you purchase defective collateral? What is defective collateral? How do you cure broken endorsements and assignments? What is the value of a NPN in California and New York? What is the value of a second lien versus a first lien? How will you evaluate your default risk? How will you determine the loans prepayment risk? What do you do if a borrower files for bankruptcy? What is a high cost loan? What is section 32 disclosures? What paperwork do you need for due diligence? What reps and warrants do you need from a seller? What reps and warrants will you need to offer a buyer?

I can likely keep that going for a good page or two before I even slow down to think of one question. You simply do not even know what you do not know right now and will not gain that from a Guru course.

Bottom line, you want to learn the business, go find a legitimate party in the industry that is willing to teach you. Plan on it taking a while to learn. Plan on it being a good share of work. Whole loan mortgages are more complicated than real property in their nature as real property is only one of several pieces of the industry. Gurus, are usually not in the industry they teach, they are in the Guru industry which sells CD's and books where they like to hear themselves talk.

Good luck.



K. Marie Poe

Real Estate Investor from Central Valley, California

Dec 12 '12, 11:16 AM
1 vote


Great to see that @Dion DePaoli is back and is telling like it is!

Take everything he says about the note "business' to heart. Also know that there is good money to be made in understanding the basics of notes as a Main Street investor (as opposed to getting into notes as a new career in finance or getting involved in get rich quick schemes). Knowing how notes work and how to acquire interest in properties using notes can be another valuable tool to facilitate adding good deals to your portfolio or finding deals for rehab. Knowing how to create paper can be profitable too.

I learn as I go with notes, taking only as much risk as I can afford. Not sure where others can best learn. It's getting more challenging with all the new regs. But IMO note basics are worth learning and understanding.



Callum K.

SFR Investor from Tulsa, Oklahoma

Dec 16 '12, 11:25 PM


Never had plans to enter this niche, and now I certainly have little to no interest in doing so or learning as I go. Thank you @Dion DePaoli calling it like you see it!



Matt Yates

Real Estate Investor from Tualatin, Oregon

Dec 17 '12, 10:28 AM


@Dion DePaoli although your rant was appreciated, it was simply that...a rant, and gave me nothing useful. No where in the above did I say I had no experience in the industry, know terminology, own assets, etc.

I have a ton of success in real estate and if you ask around you'll find out a tad bit more about what I do.

However, I am STILL looking for someone that wants to participate and help me answer my questions.

I was simply looking for the contracts. I know how to evaluate all of the above that you stated, so that is the least of my worries. Plus my positioning is quite unique, and the due diligence is on the buyers, so having the contracts to simply secure my interests are all I am interested in.

**Instead of more rants aimed at trying to downplay someone's questions, can I get someone that wants to help provide the answers?

Thanks!



Dion DePaoli

Note Investor from Fort Lauderdale, Florida

Dec 17 '12, 11:42 AM


@Matt Yates, sorry you could not pull any valuable information out of my post. I did answer your question, there is no broker contract which gives you an interest in the asset. To gain said interest, you will need to be a principal party (buyer/seller) and that is a purchase and sale agreement.

Since your first role would be buyer, you will get a purchase and sale contract from your seller. When you are a seller you will supply the contract. There is no industry standard purchase and sale agreement really, they vary widely depending on transaction and parties. There is not a real standard to the reps and warrants inside said contract either, each seller and trade is a bit unique in that sense.

If you are looking for some agreement to function as a broker, there is no standard document for that either. That can be as simple as a success based fee agreement or as complex as you wish.

The shrug off of conducting due diligence and passing that through to your buyer is not a good plan. Trying to get into the middle of a trade as a pass through entity will be difficult at best. There are logistical barriers such as servicing transfer requirement time frames alone with time frames to receive collateral, all of which is agreed to in the purchase and sale agreement. As a function of being a legitimate party to the transaction you will have to record the assignments of mortgage, which is also a time barrier. Not having a complete chain of ownership from lender to current Seller creates issues with the enforcement of note and security agreement.

Generally speaking purchase and sale contracts prevent any type of arm's length assignment of contract. Generally speaking the concept of flipping is frowned upon in the industry and most sellers take every step they can to prevent such situations from occurring. Selling to a flipper implies that there is a better bid in the market place as flipping implies little to no value add to the asset.

You are not the first or last person to have relations with potential sellers of loans. That does not create any easier of a path to accomplish what think you are going to be able to do.

Hope that is less of a rant and specifically answers your questions.



Matt Yates

Real Estate Investor from Tualatin, Oregon

Dec 21 '12, 11:26 AM


@Dion DePaoli yes it was. Thanks. My interests sparked primarily from some personal friends asking me about selling their notes. I will call myself out on not being as clear, because I knew the contracts I would be looking at would be PSAs, but I was more specifically looking for the language used (Clauses/Addendums).

We currently place everything we do under a PSA with our various clauses to keep our options open, and give us the power as buyers/sellers. Just didn't know specifically what some may do as "Principals" aka "Buyers" on these notes.

Thanks for clarifying, but what I am really after is the language/clauses used in these PSAs from those that have done this before. I know there are investors out there that contract on these notes with PSAs, have their clauses/addendums, and turn around and assign or flip them to end buyers.

Heck, considering Transactional Funding, Title Holding Trusts, and Hard Money are my primary business, we even have the ability to close first, and then re-sell. Money is not the issue, just knowing how to appropriately structure these for best leverage.

Maybe this is beyond BP?



Will Barnard Moderator Donor

Real Estate Investor from Santa Clarita, California

Dec 21 '12, 03:59 PM


I am by no means an expert in this specific arena, so I will leave the answers up to others like Dion. What I do want to say is that if and when you do get your contracts together and have notes to offer, please contact me, I am an interested buyer so long as they pencil for me.



Medium_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]
Website: http://www.barnardenterprises.com
http://www.InvestorExperts.com


Dion DePaoli

Note Investor from Fort Lauderdale, Florida

Dec 23 '12, 09:47 PM


Originally posted by Matt Yates:
I know there are investors out there that contract on these notes with PSAs, have their clauses/addendums, and turn around and assign or flip them to end buyers.

Heck, considering Transactional Funding, Title Holding Trusts, and Hard Money are my primary business, we even have the ability to close first, and then re-sell. Money is not the issue, just knowing how to appropriately structure these for best leverage.

Maybe this is beyond BP?

Matt I think you are thinking of notes like real property and they are not the same. The market is not the same. The transaction does not flow the same. I buy and sell loans for a living, it is what my company does. You are never getting a contract from me or anyone else that I know of in this industry with an ability to flip the contract. If I caught you attempting to even shop my assets, I would kill the deal and we would never talk again. And there is nothing you could do about it at all. When I said, flips are frowned on, they are and they are non-existent. Flipping note contacts is a dream not reality anyone telling you otherwise is lying.

Once you purchase the assets you can certainly sell them. If you go back and read my first post, which you thought was a rant, I addressed all of this already.

Caveat emptor.

Good luck.



Marc Faulkner

Note Investor from Kalamazoo, Michigan

Jan 14 '13, 07:17 PM


I would be happy to send you a Sample Contract if you PM me. The least risky way to "flip" a note is to get a purchase price for the note BEFORE you get it under contract. This way you don;t tie up any of your own funds or risk anything! I would be happy to give you a price on any performing notes you might have.



Kent Anderson

Note Investor from Black Forest, Colorado

Jan 14 '13, 08:10 PM


I like K. Marie Poe concept of investing and Marc Faulkner reply's as well All the others are good too, just some more ill-tempered than others.

Assuming "flipping" is the same thing as "brokering" a note but only different...

How about after you find the note, make an offer your investor will buy the note. sub to appraisal, title, credit and documentation.

Put a little skinny in there for yourself. If accepted by the note seller, both sign a note purchase and sale agreement to "you and or your assigns" giving you time to complete the Sub to's.

After the sub to's are approved, use your investors funds to close. Your note seller will close directly with your investor.

You are not in the chain of title and pull our your "flip" fee at closing.

It does not tie up your capital...

... and you could keep a partial interest in the income stream by giving up some of your flip fee inexchange for a chunk of pmts on the back end via partial purchase agreement with your investor.

Preferable place those pmts in your SD IRA or better yet, a Roth for tax free growth and withdraw, for let's say, $100 good and valuable consideration.

Great way to direct profits to a tax free account with a very little investment.

Just an idea,
Kent



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