Note Selling Experience (long) - Posted by Jackie in Dallas

Posted by John Behle on May 03, 1999 at 12:01:42:

There’s actually a couple scenarios in the industry. Maybe just some slight differences. What I might call the “Broker/broker” syndrome is a pain in the neck. One “Bird dog” gets ahold of your note and sends it on to another, who sends it to another, who …

We had one a few years ago that would just take the forms sent to him by another broker and paste his name over the top and send it on to us. Sometimes we would get the same note coming in from 3-4 sources. One local note actually came full circle. A bird dog brought it to us. I thought, hey I know a couple people that are involved in that condo project and might want this note. In trying to track backward through all the brokers, I found that one of these was the owner of the note and the other was the payor.

The scenario that is even more dangerous is the “Broke-broker”. “Broke” as in no money. A broker/bird dog pretending to be a funding source. A select few can make it work somewhat because of their expertise, relationship with the funding sources, etc. Most waste your time and can cause you to lose deals and money.

There are so many problems with the practice of brokering notes. That is one of the reasons I suggest investing in notes. It is easier, more profitable and is an investment that pays you to buy it as opposed to a job.

Some “bird dogs” could make more money at 7-11. Most would do better in a simpler form of sales or marketing like real estate, insurance or MLM. A small percentage continue their education, wade through the nonsense in the business and learn to buy notes, not play the broker games. Some become successful brokers, but most don’t make it.

I suggest students learn all they can. Especially if they are what might be termed “one week wonders”. They’ve paid thousands to spend a week getting hyped, pitched, teased and tantalized. They are told they are the top of the top - the elite - that the cost of their education relates to the quality. It does - inversely. If they do not expand, continue and in many ways “re-shape” their educational experience, they rarely have anything close to success.

Brokering notes is only a way to begin. Some catch on and begin investing without ever brokering a note. I encourage students to get out of the brokering trap ASAP. Broker a couple, learn the business, develop financing sources and approach it as an incredible investment, not a mediocre job. Investing in notes is wonderful. Brokering notes is a job.

Note Selling Experience (long) - Posted by Jackie in Dallas

Posted by Jackie in Dallas on May 02, 1999 at 15:00:08:

In an effort to get mortgage companies (and their petty nonsense) out of my life, I made the decision to sell some houses with owner financing and sell the note to see if it was a better and easier way to go. Here’s what I’ve found thus far.

I’m in the process of selling a note for the first time and thought everyone could learn a thing or two from what I’m going through.

First some details about the note:

Sales price of the house $59,500
Downpayment $10,000
Note $49,500
Terms 10% for 15 years
FICA scores of buyers 670 and 550 (B credit)

I saw a post from John Behle that you could post info about notes for sale on and get “quotes” from buyers so I gave this a try. Within the first 48 hours I had more than 28 “offers” for my note, the prices were anywhere from $36,500 to $48,500 with me paying the closing costs.

The BIG thing these people DON’T tell you is that they are not ACTUALLY buyers - they are just brokers (mostly rookies), looking for a way to stuff their pockets on YOUR deal. They’ll tell you just about anything to get your note (guess it’s in the note broker courses).

Their goal seems to be, get control of your note so they can shop it around to the REAL note buyers. Thus the very high offers that say it is subject to this or subject to that…

Lesson #1 - do NOT give up control of your note until you have a FIRM offer, in writing from the company that’s actually writing the check. When they ask you to sign an option agreement for 30 days DON’T DO IT!

One really interesting thing happened, one guy that CLAIMED to be the one writing the check offered me $43,500 for my note - but a few days later I got a quote from a guy (in Texas) that said he sells notes to the guy that claimed to buy the note - guy #2 offered me $46,500 - come to find out - they were BOTH just brokers and neither had money to write checks - so they were BOTH trying to make money on MY deal.

Lesson #2 - know who you are dealing with and what their REAL capacity is

Another broker gave me a written “quote” after he pulled the credit of my buyers - then later said he would have to reduce the quote ( guess he decided he wanted to make more money) By the way - quote does not mean this is what we will really pay you - it seems to be just a number they throw out to try to get you to sign an option - it’s all subject to change.

Lesson #3 - Don’t believe anything BROKERS tell you just because it’s in writing.

One guy offered me a GREAT price then later said he would have to renig because of the credit of the buyers - come to find out he typed in the wrong social security number of the buyer and didn’t even verify their name. But of course, he wanted to try to get control of the note and shop it around so he could put money in his pocket anyway.

I did have several favorable experiences with the REAL NATIONAL companies - I called their 800 number, faxed over the credit of my buyers and a copy of the note. Within 10 minutes they faxed a quote and a list of what I need to do to get the ball rolling.

How can you determine if you are dealing with a REAL note buyer or a rookie note broker?

Hint, Hint, note BROKERS always say they’ll have to get back in touch with you in a few days so they have time to call all the NATIONAL companies and shop your note.

The Bottom Line #1 - you get quick results and honest answers by dealing with national companies directly. Most of the brokers I’ve talked to don’t really know what in the world they are doing.

The Bottom Line #2 - maybe it’s better to just deal with the hassles of getting financing for your buyers with a mortgage company - just make sure you find a really good mortgage broker that knows what they are doing.

Heck, I could have gotten the mortgage through in 3 weeks and I’ve already wasted 2 weeks dealing with unknowledgeable note brokers - that would require me taking a discount on the deal to boot!

If your buyer’s credit is marginal - understand and expect that the mortgage company may change the LTV they will loan on at the last minute - if you can’t deal with carrying back a second, find another buyer. Or even worse, if their credit is real marginal - the whole deal could die at the last minute - so maybe it’s better to wait for a better buyer.

Just because the buyer is READY and WILLING to sign the contract doesn’t necessarly mean they are the ones that will be ABLE to perform in the end. So it’s better to have your mortgage broker pull credit on your buyers and determine their creditworthiness BEFORE you sign a contract and get your hopes up and their hopes about buying the house.

The Bottom Line #3 - We work hard for each and every one of our deals - so why take a DISCOUNT on OUR profit? It’s just not worth it! Same hassles - just a different arena!

One of my main motivations - Posted by John Behle

Posted by John Behle on May 03, 1999 at 24:55:46:

One of the main reasons I take my time with the cash flow forum, answering questions, emails, etc. is that I am so appalled by the DECREASING level of professionalism and expertise in the note industry.

Everything has to be in context as you know. Once or twice I’ve mentioned among other sources that notes can be listed on ANN. Many many times, I’ve encouraged some due-diligence on the potential buyers and pointed out the “BROKE-BROKER SYNDROME” - that you just experienced. Just a couple days ago Myself, Bud and some others posted some direct contact websites to the national funding sources.

Usually I’m pretty harsh on the “broke-brokers” and those that have ONLY had one of the high priced seminars as their education. Bottom line is few have any clue what they are doing and they are taught the tactics that caused you grief.

I advocate again and again the advantages of buying notes and discourage people from selling them. There’s a couple reasons. One is that there are greater profits in just buying notes for your own behalf and it can avoid some of the laws and licensing.

As far as creating seller financing to finance real estate deals I advocate to first check for cheaper conventional or BC type funding. 90% of the time you can get what you need cheaper in that arena.

Creating notes is wonderful - if you have a relationship with a funding source. That is why I encourage finding the buyer first, checking them out and then creating notes in cooperation with what they will buy. It is usually best to deal with one of the old time local sources - unless you go direct to one of the national companies. Most will work with anyone and believe me - you know more than many of the people they deal with. I like the local buyers - when I sell a note or need funding which is rare. Usually I end up turning to the institutions when we need money for a deal. It takes a little while to develop, but the way to really do the note business or use paper in acquisition or sales of properties is to put together private financing.

How do you check out buyers? Well, as you mentioned, the “I’ll get back to you” can be a sign. When they say they have 100 or 200 funding sources, that is another. Ask them how long they’ve been in the business. A pro won’t be offended. If someone were to ask me, I’d just know they’ve run into some of the one week wonders out there.

Ask how long it takes them to fund a deal. Mr. Buyer, If I gave you a full package on this deal today, how long would it take. Do you use your own funds? Are you working with local or national investors?

There’s no way to know for sure, except that if you are working with someone like American Note, Metro, Associates, etc. then you know they have the experience (especially American Note - my students).

Local buyers. Ask how long they’ve been in the business. Visit their office. Check the business licenses - how many? how long? No office? probably not a player. Check the ads in the paper. When were they incorporated? Check archives on old papers. Check their company name for deals at the County Recorder’s office. Just a few ways, nothing set in stone, but you need to know the broker/funding source first. Avoid the brokers if you can go direct to the funding source, but A GOOD BROKER (just as in real estate) can be extremely valuable. I’m not against brokers, just those that don’t have a clue what they are doing.

Anyway, you’ve run into one of the problems of the note industry that both annoys and motivates me. It is possible to avoid the problems.

Thanks for sharing your insights (nt) - Posted by HR

Posted by HR on May 02, 1999 at 18:18:15:


The pot calling the kettle … - Posted by HankM

Posted by HankM on May 02, 1999 at 18:13:57:

While the title is a little provocative, I mean no dis-respect. But I find the irony too great to ignore that the one person on this site that seems to make the best go of the “quick flip” (Even authors the articles on the subject) in real estate gets upset when on the sell side of the same transaction in paper??

I agree wholeheartedly that there are a lot of newbies out there that don’t know what they are doing and make foolish offers and then reneg, but aren’t those the same newbies that get educated on quick flips in real estate right here (and then go and do foolish things the first couple times)??

I’ll also grant you that the note business is dominated by a few big institutional players (which real estate is not), that if you’re versed and can deal direct make you the broker in effect; that is you got you’re buyer a mortgage because you made it, knowing you had an outlet, the difference obviously is that you were a principal in the transaction as well.

So while I sympathize with you’re experience (I too have listed a note on ANN; and won’t again) I don’t really understand what you’re upset about, it’s the same thing that you and I do every day … just the paper side.



Re: Note Selling Experience (long) - Posted by Nancy Cason

Posted by Nancy Cason on May 02, 1999 at 17:48:27:

Thanks Jackie,

hearing of your experience was helpful and timely


Re: Conclusion… - Posted by Jackie in Dallas

Posted by Jackie in Dallas on May 02, 1999 at 15:04:09:

I sold this house on April 19th and carried back the note.

I’m just getting traditional financing for my buyers, we should close in about 2 weeks.

I won’t have to take a discount on my note and the buyers will be able to get a much better interest rate and terms - thus reducing their monthly payments.

Re: Not the same… - Posted by Jackie in Dallas

Posted by Jackie in Dallas on May 02, 1999 at 18:32:07:

I have not, and would never, recommend to anyone that they tie up someone’s house with an offer that they have no idea if they can perform on. Yet that seems to be common practice in the note side of the business.

When writing offers on houses to flip, there is considerable research and calculation that goes into what the offer should be that would give the owner what they need, the flipper what they need and the end buyer what they need. Then, and only then, is an offer made.

You should not just throw out any number that you think the owner wants to hear so they’ll sign on the dotted line - then later try to get the price down.

Furthermore, I’m not upset - just disappointed that the note side of the business seems to have less professionalism than the rest of real estate investing.

You’re right - Posted by Sean

Posted by Sean on May 02, 1999 at 17:16:09:

People seem to think that taking back a mortgage and then selling the note is a great way to avoid the whole bank thing. Well, it isn’t.

Let’s suppose a person who invests in notes is looking for an 18% return on their money. They like notes because they think they’re a little safer than doing “Lonnie deals.” That person is going to look at the terms on your note and put the figures into his calculator and arrive with a purchase price of $33,030.49 which means you just took a $16,469.51 hit straight to the bottom line.

If you’re looking to carry paper to avoid the bank and not carry it to term you’re better off cutting it up into several mortgages all near a 20% down payment on your average target house.

Then when you make an offer on the next house you offer them a fair price, a bank loan for 80% and a 20% down payment … in the form of one of the notes you just carried back.

The key point to remember is ONLY A MOTIVATED PERSON WILL GIVE YOU FACE VALUE FOR YOUR NOTE. Everyone else is aiming for a discount to make a profit.

Re: Conclusion… - Posted by ScottE

Posted by ScottE on May 02, 1999 at 16:40:46:

What have you found are the better ways to find mortgage brokers? Do you try to use just one or do you have a file full of ones that have proven themselves useful?


Re: Not the same… - Posted by HankM

Posted by HankM on May 02, 1999 at 19:00:26:

As I said, I sympathize with your experience, and in no way was I inferring that YOU conducted business this way in your flipping … but lots and lots and lots of inexperienced RE wannabees do.

There are many people who read something and think they have to “improve” upon it … it’s just human nature, for many that means “heck with the homework, lets make offers!!!”

Perhaps while we see the same result, I’m giving humanity the benefit of the doubt of being ignorant and foolish, while you thinking malicious and decieving … while I hope I’m right I know the otherside exists … truth must be somewhere in the middle;)


Re: Conclusion… - Posted by Jackie in Dallas

Posted by Jackie in Dallas on May 02, 1999 at 18:36:14:

Just like finding a good real estate attorney or title company - the best thing I have found is getting recommendations from other investors.

The funny thing is, when I called investors to get recommendations on who to sell a note to - the response I got most often was - there’s not anyone I’d recommend! It’s been a learning process.

Re: Conclusion… - Posted by Craig

Posted by Craig on May 03, 1999 at 10:40:52:

The real problem in the note industry is what John referred to as Broker-Broker deals. A large chunk of newbies in the note industry will go to a seminar or order some training materials from one of the industry newsletters. Those seminars and newsletters all publish a “Directory of Note Buyers”. In those directories there are about 100 or so advertised note buyers. The problem I encountered when first starting out was that only about 10% of those buyers were really buyers, meaning they used their own funds on most or all of the deals they did. The rest advertised as buyers because they could prove that they bought a few notes(probably small) with their own dough. So I had to sift through the B.S. to find the major players. One of the ways to do that is to call them up and ask that they send you their buying guidelines which should include their yield, LTV, min. discount requirements etc. The major players send them and you can get a pretty good idea of what you will get for a note before you ever ask them to buy it. The others will say to send whatever you have and they will make an offer. When you ask about their guidelines you get the runaround. They usually say they will look at any type, with no minimum or maximum amount, and the B.S goes on and on. I broker some notes, I don’t have a big fancy operation. I never went to a seminar but ordered book after book and sifted through tons of B.S. The problem is not so much the would be brokers that are just getting started, it has more to do with the veteran brokers, who, in my opinion quit marketing to actual note holders and begin posing as buyers in order to have newbies do the hard work for them. I have no problem with someone getting referrals from outside sources for business. The problem is that many consider themselves brokers when they are merely bird dogs. Has anyone ever heard of a mortgage broker brokering loans to another mortgage broker who then brokers the loan to the real lender? But this is exactly what is happening in the note buying/brokering business. 95% of the time it’s not that inexperienced newbies fault. They have been taught how to be a bird dog and don’t even know it. So Jackie there are many good reputable brokers out there who know what they are doing and have spent the time gathering info and resources that will make it much easier to get a good deal on your notes. And they really do earn their money. What you will have to do is learn how to tell them from the other 95%. The good news is that after you have sifted through all of the B.S. which takes time and is one big pain, you will have found some great resources whether direct buyers or very good brokers. I suggest you spend some more time looking for those resources and when you come across someone who isn’t as knowledgeable and experienced as you would like, keep in mind that for the most part it’s not their fault. It’s the fault of alot of those with that knowledge and experience that you would prefer to do business with.