All Forum Posts by: Scott Arpan

Can someone point me to the specific Texas law(s) passed few years ago that made owner financing with a contract pretty much invalid?

When the law came out I did not think to save the information. I don’t buy many loans in Texas and when I do, they are always deeds of trust. I just remember the new Texas law was extremely bad for those holding contract for deeds.

A situation came up where a seller used a contract to sell her house in December 2012. The seller wants me to buy her contract. The buyer steadfastly refuses to convert the contract into a deed of trust because her relatives told her not to. She will not listen to /comprehend any logical reason a contract is not in her best interest.

I am trying to find a copy of the law to review it myself before determining if it is something worthy of incurring legal fees.

Eric,

There are a lot of companies that offer note holders lists. Most offer a certain quality of data at a price point to match the quality and data coverage.

You can pay as little as 5 cents a for a list with a ton of duplicate names that gives you nothing more than the note holder’s name and mailing address. On the other end of the spectrum 25 cents per record will get all duplicates removed, validated and move updated note holder addresses, loan and sale price, property type etc. Some companies require volume contracts, other don't

You might also look at Dataquick, Black Knight, Advanced Seller Data and Note Lead.com for comparisons on what fits your marketing plan best. If you are just looking for notes in your area, a local title company might pull a list for you with the expectation you send any title and escrow work their way.

You will want to talk to your CPA for a professional opinion that carries any weight. My CPA would feel this is a prohibited transaction and I think most would agree. There are some IRA custodians who would allow you to use funds out of your IRA with a separate note from your personal funds. I suspect they also require you to sign a waiver you are responsible for all consequences of your transaction and nothing they do or say qualifies as legal advise.

Russ Dalbey's students used to call me after he "Certified" them for thousands of dollars. Some said they paid over $20K for training. None of them had a clue about real estate, finance or marketing. However, they were so mesmerized by the hype and hope of the program they felt any failure to close a deal was their fault and all they had to do was buy more training. A good high pressure sales team to twist every last nickle out of a sucker also helps. 

Learning online and through BP does not offer the hype or brainwashing a bad guru spews. Not saying any other training is good or bad. Dalbey just operated in my neck of the woods so I had a front row seat to watch this bad actor in action.

First you need to get your message out consistently to your prospects. 

However you also need to keep working on and improving your mailer. Until you know your mailer is getting every interested prospect, test different offers, headlines, phrases,  images/graphics (if any), envelope size, fonts and other elements of you mailer. Keep the overall feel of your mailer the same so those receiving letters can identify each came from you. However test each element above and see if it creates a better close rate in the end.  When your revised mailer beats your standard mailer, start using the new mailer and test it against new changes. Keep switching anytime the new mailer preforms better than the version before it.

@Bill Gulley Bill excellent point.

The most obvious point slipped my mind when giving a quick outline what a note buyer will want to ask when buying the cash flow. Contracts for “mom and pop” seller financed sales are almost nonexistent in my area. At least I have not seen one in a long time.

Stephen,

Call a local contract buyer to get an evaluation of the note’s worth. To start, they will ask you about the vendee’s credit, how you will prove payments were made on time, the type and condition of the property. They will need to know the sale and contract terms and if there is a balloon payment, what is the vendee’s plan to pay it off. Based on those answers there will be many more specific questions. Some will want confirmation the note is not subject to Dodd-Frank or violates RESPA.

Chances are, even with a good interest rate the paper would be worth in the 50 to 80 cent range depending on the details.

I have seen Marc Faulkner post at times in BP. He is in Michigan and would probably be your best resource.

Good Luck

Josh,

I developed a flow chart to use when purchasing seller finance notes. I would be glad to share it with the community if I can figure a way to share a .pdf file. I would like to get some feedback myself.

I don’t know if there will be a consensus answer to anything with Dodd Frank. Here are my non attorney answers:

If you buy a seller financed loan and the loan was created on or after the new laws took effect, the law will apply to you. If you are buying a five year old note, Dodd Frank would not apply.

My understanding is if you renegotiated that note today and extended a balloon payment or changed other terms, you would need to be mindful of DF to stay safe.

I only focus on "mom and pop" note holders who are likely to create only one note in their entire life. That helps keep me away from DF issues but even those notes can fall under DF.

Amanda,

Congratulations on your first deal. The first one is always the hardest. How did you locate your seller?

My experience obtaining seller financed notes is through a website and direct mail. I never had much luck using referrals or social networking. Hopefully someone else can provide input how those methods work.

For websites you need to invest upfront to develop your site and in SEO and PPC to draw visitors. It will take a few months before note holders start visiting your website. I assume you are more anxious to get deals in your pipeline so I will give you a few tips about direct mail.

With direct mail, your response rate will get your phone ringing quicker and with lower start up costs then the web. The two keys for success using direct mail are 1) how well your mailer (post card, letter or trifold) resonates with the note holder and 2) the quality of your list.

If you need ideas for your mailer, I have mailers used by two of the most successful note buyers before the subprime crash put them out of business. Let me know if you want to see them to get ideas for your mailer.

You also need to find a high quality list of note holders. Many lists also include private lenders and interfamily transfers that will waste your money if you mail them. Most lists also get dated quickly because the seller’s address is not kept current leading to the post office not delivering them to your note holder.

As for the costs, $1000 should reach 1500 to 2500 note holders depending on the amount of color, stock and finish of your post card. Response rates of 0.75% to 1.5% are pretty typical. The better your mailer and list are, the higher your response and closing rates.

The investor is receiving almost 13% yield at a 72% LTV assuming the note will refinance in 5 years and the true value of the house is $129K. From a yield and investment to value (LTV component) standpoint, the note purchase would be acceptable to note buyers.

However, Dodd Frank issues aside, the lack of seasoning, inadequate buyer’s equity, short term balloon and the property requiring expensive repairs would cause any experienced note buyer to either pass until you have at least a year of seasoning to see if the picture improves or possibly offer something that keeps their investment below 30% RMV of the house and committed to collecting only a few years of payments. If the borrower has credit issues, I don’t think anyone would touch it.

Good Luck