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.

Doug B