Partial Note Early Payoff - Posted by DougB
Posted by DougB on March 29, 1999 at 14:39:04:
After Studying the boot camp video course, I believe
one of the most powerful techniques in discount paper
is purchasing partials. After studying that section a
couple of times in the video course, I haven’t found a
satisfactory answer on how to handle early payoffs
if you use the note as collateral. I can’t substitute RE
because I just took out a home equity loan for 100%
of the appraised value of my home. Let’s use an
example: John sells house on Oak street to Dan
for $110,000 with $10,000 down and John carrying
a mortgage of $100,000 for 360 months @ 10% interest.
Doug buys the first 120 payments of $877.57 from John
for $33,289.53 giving Doug a yield of 30%. Doug turns
around and borrows $54,394.38 from George giving him
a note for 120 payments of $877.57, a yield of 15%.
Doug earns immediate cash profit of $21,104.85. One
year later Dan refinances and pays off the loan. The
payoff amount is $99,444.12 for the whole loan of 360
payments of $877.57 @10%. The payoff amount for
George is $49,063. How can Doug preserve his entire
profit of $21,104.85 and not payoff John early?
Thank you in advance for your answer.