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1. How to purchase notes

2. Introduction
What is Tristate Mixer?
What is National Payment Relief?
Who is Rosalie Bucci?
Who is Alberto Artasanchez?

3. Questions
What is your question or
challenge?
What are your goals?
 Performing
 Non-performing – not paying
 Just learning

4. Overview
? What is a note, what is a mortgage?1
What are performing notes and how can you profit from them2
What are non-performing notes and how can you profit from them3
Case studies4

5. Terminology
An IOU, a note and a mortgage
 IOU – An acknowledgement of debt.
 Note – An acknowledgement of debt with specific
terms.
 Mortgage – A mortgage secures or ties a Note to real
property and is made by the borrower to the lender
pledging the property until the note is paid in full. In
some states referred to as Deed of Trust
 Secured debt vs. unsecured debt – Car loan, home
loan, student loans, credit cards.

6. Types of Notes
Note Types
 Performing note vs. Non-performing
 Secured vs. Unsecured
 Commercial vs. Residential
 Owner occupied vs. Investment properties
 1st mortgages vs. 2nd mortgages and beyond
 Who would buy a second?
 Who would buy a non-performing note?

7. The Banks
Banks are distressed sellers now
 What is a Non Performing Note?
 Why Banks want to sell?
 Why 2nd Liens;
 Lower price points
 Purchase more and spread out risk
 Make better returns once performing

8. Amortization Schedule

9. Mortgage Note Investing
What do you look for in an
investment?
 Secure – Secured by real estate
 Income producing – Payments are received monthly
 Appreciation – Payoffs, Equity build up, Underlying
asset appreciation, Inflationary appreciation

10. Benefits of 1st Mortgages
Benefits of performing 1st
mortgage notes
 Passive Income
 Secured by Real Estate
 Average sale price $100k to 500k
 Return on investment from 5 to 10%
 Purchase in an IRA

11. Benefits of 2nd Mortgages
Benefits of performing 2nd
mortgage notes
 Passive Income
 Secured by Real Estate
 Average sale price as low as $10k to 50k
 Return on investment from 10 to 30%
 Purchase in an IRA

12. Case Shiller Index

13. Market dislocation
Current Market
 Banks do not want mortgages and houses
 Homeowners still want their homes

14. Risks
Risks of performing notes
 Homeowner could stop paying 1st
 Homeowner could stop paying 2nd
 Home values could go down
 Home owner could declare bankruptcy
 Home owner could get an attorney

15. Winners and Losers
Who wins and who loses in note
investing?
 Banks. Hedge funds. NPN Sellers
 Workout companies
 Homeowners
 Servicers
 Performing note buyers

16. Due Diligence
What to find out before buying?
 Are other obligations current?
 What is the FMV?
 Is all the collateral complete and original?
 Is the note seller reputable? What are their reps and
warrants?
 When can I skip or minimize the due diligence?

17. Note Analysis
How to value a note
 Get the value of the property
 Determine the unpaid balance on the first mortgage
 Calculate fair market equity (FME)
 Find the status of the first mortgage
 Pull the homeowner’s credit report
 Research payment history

18. Note Pricing
Performance
Performing
Note
Equity
$$$$
Partial Equity
$$$
No or Negative
Equity
$$

19. Note Pricing
Performance
Re-
performing
Note
Non-
performing
Note
Equity
$$$$
$$$
Partial
Equity
$$$
$$
No/Negative
Equity
$$
$

20. Note Value Example 1
How much would you for this
note?
 FMV – $200,000
 1st mortgage UPB - $350,000 – not performing
 2nd mortgage UPB - $100,000 – not performing
 Borrower FICO – 550
 Foreclosure started by 1st mortgage in 6 months.
 How much would you pay for the 2nd mortgage?

21. Note Value Example 2
How much would you for this
note?
 FMV – $500,000
 1st mortgage UPB - $150,000 – always current
 2nd mortgage UPB - $50,000 – always current
 Borrower FICO – 800
 Face interest 19%. Seasoned for 36 months
 How much would you pay for the 2nd mortgage?

22. Due Diligence
What to do after buying a
performing note?
 Is the first mortgage being paid?
 Are taxes being paid?
 Is the home owner paying all other bills?

23. Due Diligence
What to do before buying a non-
performing note?
 Obtain 800 number
 Ability to pull credit
 Skip tracing. locateplus
 Find a mentor
 Get a website. Who is your audience?
 10 notes vs. 100 notes vs. 1000 notes

24. Servicing companies
What is a servicer? Why should I
use a servicer? What are the fees?
 Compliance
 Outsource management
 Simple ownership transfer
 $12 – $20 per month per performing note
 FCI Lender Services

25. Winners and Losers
Who wins and who loses in note
investing?
 Banks. Hedge funds. NPN Sellers
 Workout companies
 Homeowners
 Servicers
 Performing note buyers

26. Cumberland Case Study
 Fact Pattern
 Maurice and Madeline are an elderly couple living in Cumberland, Rhode Island. He is 65, she is 64.
 A few years ago he lost his job as a funeral director. His wife is on disability.
 In 2009 they got behind on a few bills including their 2nd mortgage. This is shown on their credit report.
 They have since caught up on all their obligations and worked out a payment plan on their 1st MGT
 He works delivering flowers and collects Social Security.
 They have about $600 in discretionary Income.
 In a few years, their credit score will be good enough to refinance and possibly a reverse mortgage.
 Workout Agreement
 $400 / mo. with automatic payment (ACH) deducted monthly by the note servicer and set up online. In
February 2012 that goes to $500.
 What would you pay for this note?
Amount
Fair Market Value $190,000
1st Mortgage Principal Balance $106,000
Fair Market Equity $84,000
2nd Mortgage Principal Balance $25,000
2nd Mortgage Arrears & Fees $9,684
2nd Mortgage Monthly Payment $384.47

27. Athens Case Study
 Fact Pattern
 Fred and Susan lives in Athens, GA with their three kids
 A few years ago Fred has had health issues and this has affected his business
 They fell behind on obligations for several months as a result of this - this is evident on her credit report
 By early 2009, they had caught up on their first mortgage but not on their second (classic case of the
bank not allowing a borrower to forebear the unpaid interest
 They can now start making payments but not their regular 614.58 payment.
 Workout Agreement
 $503 / mo. with automatic payment (ACH) deducted monthly by the note servicer and set up online.
 Payments could go down to $125.00/mo. for six months in the next two years for proven medical cause.
 What would you pay for this note?
Amount
Fair Market Value $178,200
1st Mortgage Principal Balance $133,500
Fair Market Equity $44,700
2nd Mortgage Principal Balance $46,582
2nd Mortgage Arrears & Fees $13,581
2nd Mortgage Monthly Payment $614.58

28. Columbiana Case Study
 Fact Pattern
 John and Susan lives in Columbiana, AL with their three kids and her father
 A few years ago John lost his job.
 They fell behind on obligations for several months as a result of this - this is evident on his credit report
 John tried to refinance his mortgages and had the credit to do it, but he was denied because he was in
default with his second mortgage. He is current on the first.
 They can now start making payments and they have agreed to again start paying 250.00 per month.
 Workout Agreement
 $250 / mo. with automatic payment (ACH) deducted monthly by the note servicer and set up online.
 Payments will go back to the regular monthly payment after one year. At that point John will also try
again to apply for a refinance. His chances will be greatly improved with 12 straight months of
payments on his second mortgage.
 What would you pay for this note?
Amount
Fair Market Value $76,700
1st Mortgage Principal Balance $47,264
Fair Market Equity $29,436
2nd Mortgage Principal Balance $12,578
2nd Mortgage Arrears & Fees 8121
2nd Mortgage Monthly Payment $290.43

29. Note investment recommendations
Self directed IRA’s. CAMA Plan and
CAMA Academy
Legal issues and compliance. Using a
servicer will ensure you are complaint
Diversification. Notes are not directly
affected by any other securities such
stocks, bonds or other mortgages.

30. Sources
Where do I find these notes?
 Accidently. Carry back a note (1st or 2nd) when selling
a property
 Brokering a property. Henry Dvorek
 Purchase a “carry back” or “owner financed” note
 Banks (almost as hard as getting a mortgage)
 Hedge funds
 Exchanges (fciexchange.com, loanmls.com,
loanmarket.net)

31. Non-performing notes
How do I get a hold of
homeowners?
 Letter campaign (vide0)
 Phone campaign (FDCPA)
 Email, online, Facebook (FDCPA)
 Hand written letters
 Foreclosure ($2000 to $4000, corporate advance)

32. Non-performing notes
What do I say when I get a hold
of the homeowner?
 Framing. Who are you? What is your philosophy?
 What happened?
 Where are you now?
 What do you want to do?
 Based on what they want to do, go through options
 Build rapport
 Financials
 Don’t speak
 Give folks the benefit of the doubt

33. Financial Documents
What financial documentation
should the homeowner submit?
 Tax returns
 Pay stubs
 Bank statements. Showing payment of first
 Home owner option agreement
 Hardship letter
 Copy of the driver’s license

34. Workout repayment structure
How do I structure the payment?
 Get a portion of the arrears
 Discounted payoff
 Principal reduction
 Stepped up repayment
 Address their pain based on your interview and
financials
 Find out what they want to do
 Modify terms
 Get creative
 Clause to revert to original terms if there is an issue

35. Worst case scenario
What is the worst that can
happen?
 Applies for performing and non-performing
 1st stops paying.
 Reinstatement
 Can’t reach home owner
 Start foreclosure. Complete foreclosure
 Sell the note. Note still has value.
 2nd takes back the house.
 Rent to the homeowner.

36. Exit Strategies
Owners Sell
 An average household moves every 5 to 7 years
Owners Refinance
 after 12 payments
Discounted Payoffs
 From the homeowner, a friend or a relative
Sell to an Investor
Borrow against the note (CAA)

37. I am ready. How do I get started?
Capital – Not necessarily yours
Product – Not necessarily yours
Know-how
Scalability

38. More information
How do I find out more about
this?
 Monthly meetings
 http://www.tristatemixer.com/
 http://www.meetup.com/Tristate-Note-Investors/
 http://www.meetup.com/Philadelphia-Note-Investors-Group/
 http://www.nationalpaymentrelief.com