Trust Deed Investments

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Potential problems:

 

You sold your property and agreed to finance your buyer (carry back paper) for some or most of the purchase price, you've done your "due diligence" your buyer appears to be a good credit risk and promises to make all the payments on time. Life is full of changes, the old proverb "the only consistent thing is change" is as true today as ever. Some changes we control, others are beyond our control; changes in health, job transfers, loss of employment, divorce etc. there are three common outcomes:

  • The buyer/payor makes all payments; the note goes "full-term". 
  • The buyer/payor sells or refinance property early. 
  • The buyer/payor defaults; the seller or investor must foreclose. 

The first scenario is easy, no further explanation is needed the seller receives all of their payments as agreed.

 

The other two scenarios however require some explanation. The biggest factor is the amount of time that has passed since the sale of the "partial".

 

Let’s discuss an early payoff first; as the payors makes their regular monthly payments their principal balance reduces according to the original amortization schedule, the investors principal balance reduces likewise however at a different rate because the note was purchased at a discount (please refer to amortization schedule).

 

We'll assume the payors sells or refinance the property 24 months later, the payoff balance according to their original amortization schedule is $196,519.89, the payoff balance on the investors amortization schedule (for the partial purchase) is $90,852.74 that means the investor is paid off and the original note seller receives the difference = $105,823.48. It's that simple!

 

The buyer has the same payoff balance they originally agreed to, the investor earned a good rate of return; the note seller received the cash he needed now plus the balance when the note was paid off.

 

In the event of a default or foreclosure, the scenario is identical with one caveat. We will make "best effort" to service and collect the account. In the event we are unable to collect the payments the note seller will be contacted and given numerous opportunities to "step in" to assist in collecting the payments.

 

Remember: This is still your note, you are in 1st place, and we have an "assignment" but like any other lender (mortgage, auto or otherwise) we never want the collateral. The real estate is merely the security to assure repayment. We don't want the real estate; we want the payments that we purchased.

 

So what are your options? 

  • Payoff the outstanding balance on the partial purchase and the note will be re-conveyed to you; allowing you to renegotiate the loan or handle the foreclosure in the normal fashion as though you had not done the partial purchase (it’s your note; they quit paying you're going to take action). 
  • Assist us in working with the defaulted payors; "cash for keys" or any other easy method of getting the homeowner out of the property so it can be cleaned up and resold. 
  • Make the payments on behalf of the payors and YOU handle the foreclosure; cleanup, repair and resell the property possibly at a profit. We receive the small payoff on the partial, you keep everything above that. 

The possibilities are too numerous to consider, but again; remember we never want the real estate.

 

In the event the note seller does not wish to exercise any options to mitigate the situation we will foreclose; the property will be sold at a foreclosure auction for the current balance on the original note (in our example $105,823.48) the note seller will receive all proceeds over the outstanding balance.

 

In all fairness; it must be said in the unlikely event the note seller refuses to participate or pay off the partial, we must foreclose on YOUR note to recoup our investment. If the property does not sell and becomes an REO; proceeds from any future sale or purchase money mortgage will not benefit the note seller.

 

And that's how a "Partial Purchase" works. You truly can have your cake and eat it too.

 

PS: let's talk about the "discount"; contrary to popular belief and unlimited misinformation on the Internet a discount on a payment stream of any type (seller financed note, lottery annuity payout, disability annuity payout) is NOT a result of gouging or someone taking advantage of the seller! The DISCOUNT is a result of the difference in the interest-rate being charged and the required "yield" or rate of return for the buyer. In this economy the cost of money is high so minimize the discount and sell only what you need to. 

 

Download This Entire Document with an Amortization Schedule Here.

 

Sincerely,

 

Randy Wilkins
Trust Deed Investments
Phone: 605-339-0625
Fax: 605-271-6669

randy@usenotes.com

www.usenotes.com  

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