Fast Funding-VS-Risk Management - Posted by Vernon

Posted by Jim-WI on December 28, 1999 at 10:25:08:

Thanks for sharing this information John!

I am going to put this in the Behle files (B-files for short).

Hope your x-mas was pleasant!

Fast Funding-VS-Risk Management - Posted by Vernon

Posted by Vernon on December 24, 1999 at 12:14:49:

Regarding being in a position to fund the purchase of notes
quickly to get a seller their cash within 12-24 hours(to be the early bird):

Having available cash/access to cash works in just about any situation to sometimes get a good deal–but in this situation where do note investors have the time to perform due diligence?

I am trying to get a handle on this paper business and have read most of the articles and am drawing a blank on this.


Creative Due diligence and contingent staged funding - Posted by John Behle

Posted by John Behle on December 27, 1999 at 14:38:25:

The key to being able to move quick SAFELY is to be able to use alternative sources for due diligence if the standard ones are not available.

For example - Let’s say it would be a few days to get a policy of title insurance from your title company.

You could:

  1. get a PR or preliminary title report - which is the research without the insurance. The title company could then issure the insurance later.

  2. Do your own title search through an employee, yourself or a third party. I have a friend who does his title searches for $10 by paying one of the county recorder’s employees to do it at lunch time or on a break. In some areas it is internet available. As long as you know how current they are, you may be able to pull an abstract in seconds. For example, in one of our counties it is available in seconds, but not necessarily current. You can always pull what they have available and research the last few weeks or months (the time since the last entry).

The value can be the same way. If you need an appraisal, but it is going to take a while, you can:

  1. Get a drive by. An appraiser may be able to give you a pre-liminary estimation of value quickly while they work on a more precise value.

  2. Have a non formal appraisal. An agent, broker, employee or someone else can do a drive by and gather comparables so that you have a good estimate of value. You can then follow up with an appraisal.

  3. Do your own appraisal or comps. You can learn the process to be able to establish value yourself. With the internet or MLS access, you can do this in seconds.

Even if I am getting a formal appraisal and title insurance, I do these things anyway. It saves time if the deal has problems as I can back out early if the deal is un-doable. It saves costs as I don’t have to follow through on a bad deal. It gives me the ability to “audit” the professionals. I do not trust or rely on appraisals and title reports even if I have them. I will not risk my money or that of an investor on the representations of others.

The same steps also give me the ability to close safely without the professionals.

If problems appear, we can do “contingent staged funding”. We can always fund a lower amount with the agreement to fund more when and if certain conditions are met.

For example, years ago we had a very hard time getting a credit report on the payor. This note deal went on for months because the institution couldn’t determine exactly what the buyer’s credit looked like. Amazingly the LTV ratio was about 10% and the note had been seasoned for 20 YEARS. I hadn’t really given much thought to the contingent funding yet, so we waited.

So let’s say a note is worth $45,000 if the credit turns out as good as represented, yet only $40,000 if the credit were poor. Could you fund 35-40k with an agreement to fund the balance when and if the credit turns up ok? Yes.

Title problems can be the same way. You could always hold back money to deal with the problems in a “Worst case scenario” like to pay off a lien that is supposedly cleared up. Then you fund the balance when the deal is clear.

Actually the contingent staged funding cases are rare, but it really opens up your options. The main thing that helps is to be able to do the due-diligence quickly. I can check out a note and be comfortable enough to buy it in just a few minutes. IF I were to broker it (I don’t broker), I could then follow up with their required due-diligence over the next few days or weeks that it might take.

Re: Creative Due diligence and contingent staged funding - Posted by Vernon

Posted by Vernon on December 29, 1999 at 07:39:07:

I agree with Jim-Good Info.Thanks for the details.