As I begin to write this Newsletter, I have a Promissory Note dated May 20, 2014 in front of me. The first two sentences read as follows: "For value received, the undersigned hereby promises to pay to the order of(seller) the principal sum of Two Hundred Thirty Thousand and 00/100 Dollars, together with interest on the unpaid principal balance from time to time outstanding hereunder at a per annum rate equal to seven per cent (7%) per annum. Monthly payments of principal and interest in the amount of One Thousand Five Hundred Thirty and 20/100 Dollars($1,530.20) each shall be due and payable on the first day of each month commencing July 1, 2014 and continuing for the next three hundred and sixty months(360) until paid."

Question: What does this note holder have?

Answer: He has a promise to pay $1530.20 per month for 360 months. No more, no less.

This may be obvious to you. However, many note holders I talk to believe they have something else. Some believe they have a cash account of $230,000. Some believe they have a $230,000 CD sitting in the bank and collecting 7% interest. They have neither. They have a promise to pay.

This fact hits home should the note holder attempt to sell his note. Any potential buyer must make a determination as to how strong this promise to pay is. The strength - or weakness- lies in the type and condition of the property that secures the promise. It lies in the timeliness of the payments being made by the property buyer, his overall credit worthiness, and of course the terms that the buyer and seller agreed to. In other words, an assessment is made of the risk. And that risk is reflected in the price the note buyer is willing to pay. If the overall elements of the transaction are weak, the price will drift downward significantly from the principal balance. If the elements are strong, the price will be closer to the principal balance.

Price is always a result of risk assessment!

Because I talk to so many note holders, I know from experience that some of them have difficulty with this concept. They can't accept a discount of any kind. In fact, some of them feel they should receive more - not less - than the principal. Why? Because, as in my example above, the note calls for 7% interest to be paid over 30 years. If they sell the note, they are foregoing that interest. Since the note buyer is getting the benefit of that interest over all these years, they feel they should be compensated today for all the interest they will not be receiving in the future. That's the thinking.

Only God knows what the future holds, and He typically does not share this information with us today! On the other hand, suppose the buyer stops paying the $1530.20 due every month. Now what? He has reneged on his promise to pay.  Suppose these payments stop - for good. Now what? What are the foreclosure laws in his state? How long will his buyer be able to continue to live there? How many $1530.20 payments will be missed? What will the property look like when it is eventually vacated? What will it cost to make repairs? How long will it take to sell the property? What will the total emotional pain and financial strain truly amount to?

Generally speaking, note holders won't admit to someone like me this reality. Most may not want to admit it to themselves. The thought brings fear, and at that point, the myth of holding a cash account or CD becomes overwhelmingly obvious.

In the note buying business, this fear must be considered head on - upfront. We assess the downside.We have learned from painful experiences the difference between the myth and truth in the note business.

The bottom line is that a well constructed and performing note will attract top dollar, or close to it, if sold. A poorly constructed, poorly performing note will not.

Either way, risk determines the price. Risk assessment is an art. And that art is a compilation of experiences, market conditions and gut feelings.

"It is said that if you line up all the cars in the world end to end, someone would be stupid enough to try to pass them.".....  Murphy's Laws.

         Waggoner Ranch for Sale in Texas

If you live in Texas, you probably know about the Waggoner Ranch. To the rest of us, this place is an eye opener. 165 year old family ranch, covers 6 counties and 800 square miles, 1000 oil wells, staff of 120, etc, etc.

The heirs are squabbling and the court has ordered a sale. Asking price? 725 million!

Check it out at realestate.aol.com/blog/2015/02/26/waggoner-ranch-texas-sale-725-million.

"When you go into court, you are putting yourself in the hands of twelve people who weren't smart enough to get out of jury duty." .....Murphy's Laws.

                          Zombie Homes

Interesting article on foreclosures. According to realtor.org, 63% of foreclosed and vacant homes were "owned" by folks who had no mortgage on the property, they just left. It appears the poor condition of their city or neighborhood contributed to their departure. Unfortunately, my hometown area of Allentown, Pa. made the list of where this is occurring too much. 

visit: realtormag.realtor.org/daily-news-2015/10/08zombie-homes-spook-fewer-neighborhoods.

"The 50-50-90 rule: Any time you have a 50-50 chance of getting something right, there's a 90% probability you'll get it wrong." ..... Murphy's Laws.

                 U.S. Home Prices Rise 5.1%

The overall economy is slowing down, but home prices are steadily moving upward.

The Standard & Poor's/Case-Shiller home price index rose 5.1% from August 2014- August 2015. The 20 city index was led by Denver and San Francisco with 10.7% annual gains. Portland was a close third at 9.4%. New York City was 20th at 1.8%, with Washington D.C. and Chicago at 1.9%.

                          Handshake

I had an appointment with my orthopedic surgeon recently. He's a young guy and has a very big, warm handshake when he introduces himself and again when he says goodbye. Afterwards, as I walked to my car, I wondered how this handshake thing started, since we are all so different in how we "execute" our handshake.

I Googled "handshake". Looks like there are different theories, and apparently it predates written history, and it's use has evolved over the years. Where did it come from? I like the theory that it dates to the Romans, who would approach each other and grab the forearm to make sure the other man was not carrying a weapon. Makes sense to me.

Check it out at www.templestudy.com.

           Dodd-Frank and Seller Carry Back

We have had new rules since January 2014 that affect seller carry back transactions. I have discussed the new rules in prior Newsletters. I have had 2 occasions where I was approached by a Title Company Officer who asked a specific question about a possible violation of the new rules. In each case, I emailed the Consumer Financial Protection Bureau outlining the situation, and in each case an attorney called me back in a few days with the answer. Each attorney was cordial and helpful, and neither situation was an issue.

You need to know there is someone to go to if you have a question concerning the rules. 

Go to: www.consumerfinance.gov, and submit an email question. Or, try calling at 855-411-2372.

        Top Ten Travel Cities for Americans

1. London

2. Paris

3. Rome

4. Toronto

5. Vancouver

6. Montreal

7. Barcelona

8. Tokyo

9. Hong Kong

10. Amsterdam

I have been to 5 of them - how about you?

Source: Hotels.com

If you enjoyed this Newsletter, tell a friend.

         If you know how I can make it better, tell me.

         Thanks for reading.

Denny Stanz

CA Broker # 01915404

760-245-5366 

760-245-5367 fax 

dennystanz@verizon.net 

www.CaliforniaNoteBuyerLLC.com