Posted by John Behle on November 10, 1998 at 11:51:52:
As I mention in the materials, you cannot just arbitrarily change the note of course. You will need the co-operation and signature of the payor.
The mechanics depend a little on what particular technique you are using. Most of the time you can make your minor modifications with just an addendum. The addendum should be signed by the payor and yourself. The addendum can then be recorded - or a notice that there is an addendum.
Also, depending on the type of changes, you may need some co-operation from other lien holders in a junior position. If you are modifying a second trust deed note and there is a third, you may need co-operation.
This is because there are provisions where altering a note could be construed to jeopardize the security of someone junior (in back of) to you. Actually many of the techniques would also benefit any junior lienholder, but you want to always be safe. If they don’t readily give their permission, then throw in some benefits like some cash, a shorter amortization, a slightly higher rate, etc.
Some of the techniques are more like major surgery and require some good technical expertise. a GOOD title company or attorney can help here. If they don’t know what you are talking about or start to quote hundreds of dollars in fees - go find someone that does.
A good example was a student of mine that wanted to modify the terms of a note. The first title company he called quoted him almost a thousand dollars. He called me and I encouraged him to make a few more calls. He found one that made the changes for about $50.
Like the “stunt shows” you see on TV, when it comes to modifying or restructuring notes “Kids, don’t try this at home”. One of the most important things you can ever do in this industry is to have a good team to back you up. The best member of that time should be a good title company or attorney. For me, that is usually a good attorney at a title company. Usually a small title company where the attorney/owner is accessible.
Get to know the note improvement techniques. The most common ones actually are the most simple to use like:
Graduated payment to pop a balloon
Raised payment to pop a balloon
Raised payment for a lowered rate
Refinancing high rate senior liens
Make the P.A.M. chart (Paper Analysis Matrix) a source of constant study so that you know the techniques. You don’t need to know the mechanics of each right now, just which one to use with certain notes. When you come to a technique you are ready to apply, then quickly go through the details with me.