Novice questions on Risks associated with PPRs Performing Notes

24 Replies

Hi all. I'm very interested in getting into the note business, and have been checking out Dave Van Horn's PPR company. I would almost definitely be starting out with the more passive performing notes. I've watched the videos in his introductory Performing Notes Course and all sounds great.

As far as I understand it, if I do a good job of screening notes and make sure there is enough equity to protect my investment and the first mortgage is current….it's unlikely I'd end up loosing all my money. If the homeowner did stop making payments, PPR would help turn the note around or work on a foreclosure if necessary (for a fee).

It's all sounding a bit too good to be true at the moment so I'm hoping you all can bring some reality to the situation and give me some scenarios where I could (and you have) lost a significant amount of money.

I'm a little confused about what happens if the 1st mortgage is no longer current after I've owned the second for some time. Can't the 1st mortgage holder foreclose on the property, take ownership…and cut me out completely?

Is that the worst case scenario...or is it when the property value drops, so the equity available to the second mortgage holder drops with it?

Any and all additional information you can provide on the downsides or note investing, and particularly note investing through PPR would be very helpful.  

Hey Jamie, I'm not experienced with note investing, but I'm licensed in California, so I'll just explain this question:

"I'm a little confused about what happens if the 1st mortgage is no longer current after I've owned the second for some time. Can't the 1st mortgage holder foreclose on the property, take ownership…and cut me out completely?"

Liens on property operate in series, such that when the 1st is satisfied (paid), the 2nd gets next priority. In the example of a foreclosure, once the property is sold, the 1st gets paid. If the 1st is paid in full, the rest goes to pay off the 2nd. If the 2nd gets paid off, the 3rd gets paid off... and so on. If, upon foreclosure sale, there's insufficient money to pay off any of your 2nd or 3rd trust deed, you can sue for the differences (process is called Deficiency Judgment).

For more detail, check this out, straight from the CA BRE website: http://www.dre.ca.gov/files/pdf/re35.pdf 

Thanks Danny.  So if there's sufficient equity to cover both the first and my second mortgage, I'm still ok.  If not, I'd have to sue (the original homeowner??) and hope that they have enough cash to pay up.  Does that sound right?  Is this the case in most other states?

Hi Jamie - The rules for deficiency judgments vary from state to state. I would not rely too heavily on that as a mechanism for capital recovery in the event of default and foreclosure. The best protection is to select notes with equity in the collateral which exceeds the value of your note plus senior liens (the first mortgage in the case of a 2nd) by some margin (which you define). For example, 80% max LTV is a typical criteria used by investors and lenders which leaves a 20% unencumbered equity margin. If the equity margin is small or negative, the note should trade at a greater discount (and thus provide a greater yield) to reflect the additional risk level of the investment.

Medium sure dark blue   dark grayMike Hartzog, SureMark Capital Group

Hi Jamie,

PPR offers good reperforming notes for sale, generally in the 15% annual ROI range. Although you can do better by purchasing a nonperfomer, starting with a reperforming note is a good idea. It will be up to you to provision and manage the servicing and monitor the senior loan status. If the borrower defaults on the first and there is no equity to cover your note, then yes, potentially the first can foreclose and wipe you out. Note that you can foreclose from second position, subject to the first if the borrower defaults on your note. 
For more educational info/opinion, check out Gordon Moss's website, he has a bunch of good basic video tutorials: http://realestateandnoteinvesting.com/category/video/page/2/ I suggest starting with module 10 #1

Originally posted by @Jamie Greenberg:

I'm a little confused about what happens if the 1st mortgage is no longer current after I've owned the second for some time. Can't the 1st mortgage holder foreclose on the property, take ownership…and cut me out completely?

Is that the worst case scenario...or is it when the property value drops, so the equity available to the second mortgage holder drops with it?

Medium rcm circleBob Malecki, Resolution Capital Management | 360.850.1252 | http://www.rcm.company | Podcast Guest on Show #211

Some of the terms here are subjective.

"Having sufficient equity" - By whose standard?  What is sufficient equity?  

The state the Subject Property is located in and that states foreclosure process will affect the magnitude of the answer here as well.  

Before we go further, it is safe to assume, no real estate investment including whole loans are risk free.  

A loan is considered in default when it becomes 90 days past due.  A foreclosure process can start, but is not required to start, at 120 days past due.  Each period that passes by where the default is not cured means the amounts due to the lien holder will increase due to interest arrears.  In many cases, as the Borrower fails on the mortgage obligation, they will also fail on other property obligations such as taxes, insurance and perhaps general maintenance.  All of those items can become expenses the Mortgagee takes on in order to preserve the value of the property securing the loan and protect the liens priority.  The Mortgagee, per the security instrument, is allowed to include those arrears and advances made when finalizing the total amounts due under the note which is subject to review and approval by the system thus recovering those dues from the property at or from sale.   

It is important to understand as well, that just because an asset goes to sale does not mean it is sold to a third party buyer, which would create the payoffs for the lien holders in succession.  If the property does not sell due to lack of bidders or lack of a sufficient bid, as set by the Mortgagee who is carrying out the foreclosure, the property will revert back to that Mortgagee in title.  As a junior lien holder, you will have rights or equity of redemption which means if you desire, you can pay those amounts due to the foreclosing lien holder which would slide you up in priority and thus be able to include those amounts due under the guise of advancing to protect your interests if the Borrower wanted to then redeem from you.  Working through your own foreclosure cycle, etc.

So in states where the foreclosure process is longer or the advance demands are greater, the amounts included on top of the unpaid principal balance will be larger than simply the unpaid balance of the first lien.  This sort of erodes the equity of the second lien.  As explained above, liens are recovered via foreclosure sale proceeds in order of priority.  

The point is, the amount of equity a second position Mortgagee has going into the asset may not be what is available to recover from coming out of the asset in the case of a default or delinquency for that matter.  Ergo, what is "sufficient" equity?

Nobody will be able to answer that question.  Each asset will be a little different.  Point is, we should not just assume we are safe by the initial glance going in.  There is always a higher innate risk in second position because it is a junior position.

Some states have judicial foreclosures and some states non-judicial foreclosures.  Non-judicial foreclosure process generally moves faster than the other.  More time to get the process, which can include delays caused by the Borrower, courts or the Mortgagee just taking their sweet time, can serve to increase advances and thus payoff and thus erode junior lien holder equity.

Some states allow for a deficiency judgement and others do not.  So, it does not follow in all states that you can collect as a second position Mortgagee for deficiency.  Where a deficiency is the difference between the total due to the Mortgagee and the amounts recovered from the assets disposition.  As you can suspect, collecting on deficiency is not as simple or easy and will require additional expenses to create the judgement and then enforce the order.

For all of these reasons and perhaps a couple more, second position mortgages and deeds of trust are more risky than a first lien.  As such, they carry high interest rates to the borrower and larger rates of return (upon performance) to the Investor/Mortgagee.  In the secondary market they can quickly loose value and do hit zero.  Where value is what another mortgage investor might pay for the asset.  

Usually it seems folks are attracted to second positions as a function of lower amounts of money to invest.  Depending on what that real threshold is, there may be alternatives with a first lien that might be more 'comfortable'.  Obviously, in all of this, the details matter from all the angles.  The are several threads here around these topics, feel free to look around.  Ask more questions as needed.  Hope that helps.

Wow, thanks for all the detailed responses everyone.  I am starting to get a clearer picture and will continue my research before I dive in.  

When you get ready to dive in buy 1st non performing notes and forget about 2nds you can lose all your money when the 1st foreclose.

Joe Gore

@Joe Gore - First non-performing would involve a significant amount more work on my part to either get it performing or go through a foreclosure and sell the property, wouldn't it?  I was hoping to start out as passive as possible (with a performing 2nd and a servicer) and get more hands on (and higher returns) once I'm more comfortable with the process.  

In any case, right now I'm looking at everything and just trying to get educated before I come up with an exact strategy.  Is there a particular marketplace you can recommend where I'd be able to look at (and maybe one day buy) some 1st non-performing?  It looks like PPR has a few but their specialty is 2nds.  

Disclosure: President of PPR

Hi All,
I apologize that it took me awhile to chime in on here, as we’ve had several events over the last two weeks. @Steve Babiak   – Thanks for the mention.

@Jamie Greenberg   - Regarding our warranty on performing notes, you’re right that we would re-touch the loan in an effort to get it re-performing in the event of borrower default. If we are unable to get it re-performing in approx. 4-6 months (depending on the state), we buy the loan back for the initial investment principal minus any payments received during your time of ownership.

“I'm a little confused about what happens if the 1st mortgage is no longer current after I've owned the second for some time. Can't the 1st mortgage holder foreclose on the property, take ownership…and cut me out completely?

Is that the worst case scenario...or is it when the property value drops, so the equity available to the second mortgage holder drops with it?”

In most states, you have reinstatement rights as a junior lien holder, where you can bring the senior lien current in order to protect your interest. Then, you can foreclose from second position (if necessary) and take ownership of the property subject to the first without paying the full balance owed. There are additional options at that point, such as rehabbing and flipping out the property to pay the first and keep the profits, renting out the property (especially if the first’s payment is less than rent), and so on.

What you described is the worst case scenario that could happen, although it rarely does with the type of asset you’re describing, especially if you’re due diligence is accurate. Keep in mind that equity isn’t the only driver, and all seconds are not created equal. Lower-end categories of seconds statistically have a higher incidence of being wiped.

The senior lien status, to us, is more important than equity. For example, a homeowner who is delinquent on their second mortgage is typically in better financial shape than a homeowner who is delinquent on their first mortgage. Also, if the senior lien is current, this typically means that…1. They have a source of income, and 2. They want to stay in their house (or else they probably wouldn’t be paying on it).

With junior liens, you can’t discount emotional equity.

While the most common exit with first liens is through the property (i.e. foreclosure), the more common exits for second liens are through involvement with the borrower (i.e. payment plans, discounted payoff, short sale, deed in lieu, cash for keys, etc.).

Regarding deficiency judgments, although it may be a profitable business model for some (for example, collections attorneys), for most of us, it’s just not profitable to be chasing deficiency judgments.

I hope some of this info helps!

Best Regards,

Dave

Medium ppr no taglineDave Van Horn, PPR | 8773951290 | http://www.pprnoteco.com | PA Agent # RS161532A | Podcast Guest on Show #28

@Dave Van Horn  

  So your selling notes with Recourse endorsement?  and what would happen if there was a run on the bank.. do you have a reserve account set up that is used for buy backs.. And or if your out of business but your buy back provisions are still in force.. Is this a buy back for only a certain period of time say in the first year and it sunsets and then the investor is on their own.. How do you work all of that?

How many notes do you buy back in a month or a quarter? Given that your offering this form of guarantee to induce investors into thinking they can't lose either way if they do business with you how do you represent that to investors...

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

@Jamie Greenberg  .. I've worked with PPR and I know @Dave Van Horn  - you will get treated right.  There is no way to predict everything in this business, but if you do get a note that goes south, PPR will do their best to make good.  

Just like in any business, you have to learn it and find what works for you.  Would banks give billions upon billions of dollars of 2nd position loans (either 2nd mortgage, HELOCs) if they couldn't collect on it??

Each state is different and there are many facets but it's a great business if you learn it right and you can actually help people stay in their homes if you get into buying non-performing notes.

Marty Happle | 732‑903‑2522

Originally posted by @Jay Hinrichs :

@Dave Van Horn  

  So your selling notes with Recourse endorsement?  and what would happen if there was a run on the bank.. do you have a reserve account set up that is used for buy backs.. And or if your out of business but your buy back provisions are still in force.. Is this a buy back for only a certain period of time say in the first year and it sunsets and then the investor is on their own.. How do you work all of that?

How many notes do you buy back in a month or a quarter? Given that your offering this form of guarantee to induce investors into thinking they can't lose either way if they do business with you how do you represent that to investors...

Good questions Jay. 

If I understood correctly the warranty is only for the principal and those re-performing notes offer high returns (12%+) so all it takes is 8 years or less to have made your principal. After this PPR owes you nothing so I would argue there is a math based buy-back period. 

This warranty does NOT mean you cannot lose! If the note goes south, yes you get your principal back but in my eyes you still lost due to the opportunity cost of investing this money in a lower risk lower return investment. An example would be buying a 10k note with a monthly payment of $100 and collecting 100 payments and then the note going south. You got your principal back but you could have invested this 10k in stocks @ 6% making your investment worth ~16k in the same time frame. 

As for how they afford this warranty, I speculate that PPR can offer this warranty because performing notes are a small portion of their overall sales (I get the impression from their website that they mostly sell non-performing 2nds). They also probably offset the cost of the warranty by charging a significant premium for the work they did to get this note re-performing.Their warranty also states that they can replace your note with an equivalent note so if one fails and they don't want or have the money to give you your principal back they can just give you another note and buy themselves more time.Their business is also growing at a fast pace and they are betting the growth will offset any losses(low chance of them losing though after the premium, low volume of performing notes, and ability to replace notes) and the warranty helps grow it faster.

This is how their warranty makes sense to me. I hope Dave Van Horn can chime in and give us more insight. I am curious to know what PPR considers an equivalent note and what happens to their warranty if PPR was to go out of business.

@Ahmad Hijazi  

it is curious,, like what if you don't like the replacement note? And over time since there are not many new seconds being created these NPN seconds will be come farther and fewer in numbers...

I am sure there are small print disclosures that lawyers have developed that make this OK.

its just when you lead with your marketing that there is a warranty it does make the inference that hey you can't lose...

These types of notes bought in bulk have very little market value bordering on zero in the secondary resell market  @?DionDepoli would know... So if investors are buying these for very low amounts of money the risk is really not much because no one will take any significant hit or loss on any one note.

My motto for me personally is I really don't want to invest into trouble... To many good performing assets to consider... but that's me, and based on my experience as a fairly large HML who at all cost did NOT want any NPN's.... :)

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Well, a few comments, not a book this time.

Risks can come in various masks, borrower takes bankruptcy, the sale was flawed or originated improperly which can be missed, court tosses it out or does a cram down, reducing principal and the court may bar any deficiency.

People die, become incapacitated, or incarcerated, again, courts may hold up payments, while in default a lender may not proceed.

Collateral is destroyed by insured perils but it's not sufficient to pay a second off.

Other liens can take priority, child support, tax liens, student loans or government debts, so check the priority of liens, but what also might be the likelihood liens might be created that can still go the head of the line.

Fraud in the origination process, by the lender, it may not be discovered until later on, arising from some other matter.

I have  no idea what Dave does on a recourse basis. I will say that substitution of notes is a very difficult thing to do, similar and at the option of another is fine if accepted, but it's not the same investment, risk, maturity, the UBP won't be the same but that can be adjusted, credit standing and likelihood of refinancing may not be the same (a note paid off early increases the yield of a discounted note). Don't mean to screw up Dave's program, substitutions are fine if agreed to by the holder, but they won't necessarily meet the reality of same or similar in reality. I'm aware that other brokers make similar deals, so you need to check on recourse agreements to ensure a broker can buy back a note, I'd say PPR can simply because I've not heard a bad word about them or Dave, my comment is more to the practice of substation of notes as well as notes with agreements for the substitution of collateral; collateral should never be substituted without consent on an investor or holder.

I'm pretty sure Dave or PPR will assist in securing collateral, that may not mean they cover the costs of a trustee or sale, don't know, but I've not heard of no risk investing in notes. :) 

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by @Jay Hinrichs :

@Dave Van Horn  

  So your selling notes with Recourse endorsement?  and what would happen if there was a run on the bank.. do you have a reserve account set up that is used for buy backs.. And or if your out of business but your buy back provisions are still in force.. Is this a buy back for only a certain period of time say in the first year and it sunsets and then the investor is on their own.. How do you work all of that?

How many notes do you buy back in a month or a quarter? Given that your offering this form of guarantee to induce investors into thinking they can't lose either way if they do business with you how do you represent that to investors...

 Thanks @Jay Hinrichs for your excellent questions. Since PPR offers the warranty, I'm still trying to nail down all the risks to buying a performing 2nd from PPR if it goes south. Someone mentioned it could be the opportunity cost of interest that could have been earned elsewhere (since you only get your principle back if it goes south). But that isn't a major risk IMO. Major risks to me are risks of loss of principle. Jay mentioned they could go out of business, that is a risk. It seems like if they had to replace it, it may be difficult to find a replacement note that matched your note that went south (similar ROI, face value, equity cushion, etc..). How long is their warranty good for?

I looked into it a few years ago.

Basically what I got out of my research is the discounted notes are the seconds and they stop performing you are buying yourself a job to get them performing again with the borrower.

The 2nd's are not guaranteed by PPR. At least that is what I was told. The safety program was only for first notes and those are almost full value for purchasing. With Dodd Frank there has been a lot of regulation added onto to working notes etc. which in my mind makes them less desirable to invest in.

Also unless you are in their paid program then they will help with forms and the process. If you are just buying a note they refer you off to places they use etc.

I am being very vague here and it was a few years ago for my research so maybe things have changed.

The way they curb risk Is I was told they have tons of notes and some lose, some break even, and some do very well with returns. Knowing that if all you have is 40k for instance I do not think putting it into notes make sense. You would need to have the ability to buy tons of notes  and be committed  mostly to that strategy. For now I am passing on it as I like other investments better that are passive and give me great returns.

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

@Joel Owens   I agree with your assessment.. Having been a 1st position lender for many years and I know how painful it is to go through the foreclosure process as a bene.. It is not something that I would want to subject myself to knowingly. But that's me...

its not only the lose of opportunity its the sheer magnitude of dealing with the unknown.

But then again you probably have many that work out fine.. but like you said if you happen to get a few bummers those can be a real pain.

If you look at the reality of what one has to do to if your trustor goes dark on you.. Lots of work when that happens and expense  Been there done that   :)  And never again knowingly anyways

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Originally posted by @Joel Owens :

I looked into it a few years ago.

Basically what I got out of my research is the discounted notes are the seconds and they stop performing you are buying yourself a job to get them performing again with the borrower.

The 2nd's are not guaranteed by PPR. At least that is what I was told. The safety program was only for first notes and those are almost full value for purchasing. With Dodd Frank there has been a lot of regulation added onto to working notes etc. which in my mind makes them less desirable to invest in.

Also unless you are in their paid program then they will help with forms and the process. If you are just buying a note they refer you off to places they use etc.

I am being very vague here and it was a few years ago for my research so maybe things have changed.

The way they curb risk Is I was told they have tons of notes and some lose, some break even, and some do very well with returns. Knowing that if all you have is 40k for instance I do not think putting it into notes make sense. You would need to have the ability to buy tons of notes  and be committed  mostly to that strategy. For now I am passing on it as I like other investments better that are passive and give me great returns.

 I thought from what I read on the PPR site & watching their videos that if the performing 2nds you buy stop performing, they step in and deal with it to get it re-performing (and if they can't they replace it with another performing note), so it didn't seem like you are buying a job.  I guess I was confused, I thought I read that they warranty the performing 2nds they sell.  I have been doing a lot of hard money lending in CA (just 1st trust deeds) the past few years.  But the returns they talk about on their PPR Academy site look a lot better than what I'm getting lending.  The warranty would be key and understanding that completely.   But it all sounded too good to be true.  Wasn't much talk about what the risks  are and what can go wrong in their performing notes training videos.

@Rob Cee  

From my perspective if this was something I was going to do.. and I think NPN seconds can be bought for pennies on the dollars at least that has been the case on the tapes I have looked at over the years.. its like buying Asset tapes.. the bummers you just throw out and do nothing with.. So if you buy say 100 NPN seconds for next to nothing. and 60% work out you just walk from the rest since you paid pennies on the dollar.. and you concentrate on the big returns on the one's that are performing.

I do have a casual contact who bought 1.5 mil of NPN 2nds and this equated to 100 plus of them, when asked how is it going.. the reply was very stressful I have 40 attorneys hired across 10 states doing all these foreclosures for me the billings are out of site and I am worried I will not even recoup my principal.. now this is someone that had the smarts to attain that kind of capital to buy into this position but I don't think they fully understood the work it takes when you have 40 or more notes that your trying to work out or foreclose on.

Its a business for sure... Just not so sure its a great play for smaller investors.. But maybe.

And if this company does all the heavy lifting then of course they must be making a pretty darn good spread on the sale of the asset to the investor as this is a management intensive endeavor dealing with defaulted owners.. At least when I personally foreclosed on about 200 of my trustors it was all encompassing for a few years.. and I am still not done.. Just about but Phew never want to relive that again.

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Originally posted by @Jay Hinrichs :

@Rob Cee 

From my perspective if this was something I was going to do.. and I think NPN seconds can be bought for pennies on the dollars at least that has been the case on the tapes I have looked at over the years.. its like buying Asset tapes.. the bummers you just throw out and do nothing with.. So if you buy say 100 NPN seconds for next to nothing. and 60% work out you just walk from the rest since you paid pennies on the dollar.. and you concentrate on the big returns on the one's that are performing.

I do have a casual contact who bought 1.5 mil of NPN 2nds and this equated to 100 plus of them, when asked how is it going.. the reply was very stressful I have 40 attorneys hired across 10 states doing all these foreclosures for me the billings are out of site and I am worried I will not even recoup my principal.. now this is someone that had the smarts to attain that kind of capital to buy into this position but I don't think they fully understood the work it takes when you have 40 or more notes that your trying to work out or foreclose on.

Its a business for sure... Just not so sure its a great play for smaller investors.. But maybe.

And if this company does all the heavy lifting then of course they must be making a pretty darn good spread on the sale of the asset to the investor as this is a management intensive endeavor dealing with defaulted owners.. At least when I personally foreclosed on about 200 of my trustors it was all encompassing for a few years.. and I am still not done.. Just about but Phew never want to relive that again.

I'm just reading about this because I'm curious, I have not really looked into it thoroughly. But I did go on to PPR's site and read though and watch the videos on their performing note training. What I'm talking about is NOT buying NPN and doing all the work to get them re-performing or foreclosing, etc... That sounds like WAY too much brain damage for me. I'm talking about buying the performing 2nds that PPR sells that they already did all the heavy lifting and got performing. And that they warranty. From what Dave says on his BP podcast and what he and his partner say in their performing notes training videos, it doesn't sound like you do a lot of work as the investor buying their performing 2nds. It is just not really clear to me what the risks are if they fully warranty the performing 2nds they sell. Jay have you read though their stuff and watched their performing note videos on the PPR Academy site? Where they talk about the advantages of buying performing 2nds from them?

@Rob Cee  

No I have not looked at the site or watched it. Seconds are not anything I would ever buy performing or not... in 20 years of being a HML I might have made 5 seconds...

But from what I have read on the threads here is the warranty is a note replacement warranty and then the questions become as I stated earlier what if you don't like the replacement and what happens when this company finally decides to hang it up.. What happens to the warranty then...  It just strikes me as a little hyperbole to say hey buy these performing 2nds and of course you have no risk because you have our warranty... Maybe it is fine I have no reason to think it is not.. Other than I know the lending business like I think you do and when loans go pear shaped its a bummer.

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Hi Rob,

I actually did further research back then and called on the phone and asked many questions.

There is a student program that you buy in for that is not cheap and if you do that they give support. Again this was a few years ago. They were professional on the phone when I called.

The note selling seems like they are almost like turn key house sellers but with notes.

My whole point I was making is that if someone has say 70k laying around cash to buy a note but their whole worth is 100k then if that loan takes a dump they are in a world of hurt.

This versus an analogy they can buy 10 loans and place multiple bets on varying cards on the table. 

For every investor there are tons of different strategies out there. I investigated this one for me and it just didn't excite me like other avenues.

Hopefully Dave can come on here and shed some light on what the programs offer today. 

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

@Jamie Greenberg Came across this and I think it's worth the read for anyone interested in NPN.

http://papersourceonline.com/dirty-little-secret-n...

And actually, the article originated from a comment here on BP from @Don Konipol so you can stay on BP's site you'll just have to scroll a little to find it. 

https://www.biggerpockets.com/forums/70/topics/299555-re-residential-notes-quality-of-properties-and-forrates?page=1#p1947621