Several years ago, I was reading an article written by a veteran in the note buisness. I think he had been buying notes for more than forty years. He argued that the note business was one of the few remnants from the old days of doing business - The Wild, Wild West.

The rules were few and interference from the government was minimal. One party had a property to sell. The other party was interested in buying. They sat down, and without Big Brother peering over their shoulder, they hammered out a deal.

He liked it this way. It was so American, he felt, so gentlemanly, so dignified, so respectful. A man's handshake signalled his commitment.

I agree. The one problem I see, however, in today's Wild Wild West is wnen our seller takes that agreement some time later and attempts to sell it for cash to a stranger. That stranger will now in fact "peer over the seller's shoulder" and take a dispassionate look at what was agreed upon before he is willing to part with his cash. So, this is where the problems can begin.

Let me give you examples of what I mean. So far this year I have had numerous conversations with sellers where the agreement they made with their buyer just made no sense - for either party.

1. Sales Price - $200,000; Down Payment - 0; Interest Only ; 2 year balloon, buyer is prior renter.

2. Sales Price - $39,000; $1500 Down Payment; buyer is always at least 10 days late.

3. Sales Price - $185,000; Down Payment - 0; 10 year balloon.

4. Sales Price - $188,000; $3000 Down Payment; Interest Only payments; 5 year balloon.

5. 2nd Trust Deed for $50,000; Interest Only payments; 5 year balloon; buyer has missed 12 monthly payments.

These sellers were talking to me because they were thinking about selling their note for cash. You don't have to be in the note buying business to see the common problem in these situations. The seller has a renter - not a buyer. The terms show a tremendous lack of commitment on the buyer's part. It is too easy for him to walk away if and when things get tough. Our seller has put himself in a very vulnerable position - a dangerous position, in fact. These terms may have allowed a transaction to take place, but they are unhealthy for both seller and buyer. And when our seller goes to the marketplace, speaks to a stranger, and in essence asks that stranger to part with his cash and buy the note, the resounding answer is "No Thank You."

What should have happened? The seller should not have sold his property to this particular buyer, or, should have demanded the following at a minimum:

10% Down Payment

625 Credit

Sales price equal to current property value

8% interest rate or more

30 year term amortized, 7 year balloon IF it appears buyer can refinance by then

These terms will be much more attractive to a potential note buyer. Remember, a note is a "Promise to Pay." The stronger the ability of the buyer to fullfill that promise, the stronger the note. The stronger the note, the more cash will be paid to the seller. Equity and ability to pay are key.

Learn from these mistakes and do not duplicate them!

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Sometimes the biggest shoes to fill are our own - Paul Azinger, Golf commentator.

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I enjoy a good cigar. Hoyo De Monterrey especially. The Food and Drug Administration is interested in regulating cigars because a 2009 law passed by Congress gives it authority over the tobacco industry. It appears a couple different bills are floating around Congressional committees. I guess the FDA is worried about kids hanging out, smoking cigars, and killing themselves. Keep an eye on this as our lawmakers continue to do their best to solve our country's problems.

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Most stress is caused by people who overestimate the importance of their problems. ( I plead guilty to this one).

Sincerely,

Denny Stanz

760-245-5366
760-245-5367 fax
dennystanz@verizon.net
www.CaliforniaNoteBuyerLLC.com