For all of you I met at the NoteWorthy Summit in Dallas, thanks for all the positive feedback. I received several questions about partials and different ways to buy partials. I thought a reprint of my July/August 2004 NOTE PROFESSOR NEWSLETTER might help many of you start to grasp how partials work.

Partials---The Good, The Bad, and The Ugly

Let's review a little. First, what do we mean when we talk of "partials"? This merely means instead of buying or selling all of a note, we sell or buy a portion of the note. For example, in the last issue of THE NOTE PROFESSOR NEWSLETTER, we discussed how rehabbers would be eaten alive by hard money, and the only buyer available had a mediocre or low credit score. Ever been in this situation? To solve this problem the rehabbers could sell their property, finance it themselves by taking back a first lien note. The rehabbers could then sell a portion of the note to pay off the hard money lender, and this would leave the rehabbers with the back portion, or "tail end" of the note for their profit. I call this technique the REHABBER BAIL OUT.

Another beneficial scenario of selling a partial, or portion of a note, would be someone who has a $100K note, and needs only $20K cash, but does not want to take a deep discount to sell the entire note. The seller could then sell enough monthly payments to get him his $20K, and at the same time have the note revert to him in the future, often in a three years or so. WIN/WIN for note buyer and note seller. Happens all the time. Remember---THE MORE DOWN PAYMENT, THE MORE MONEY IN YOUR POCKET.

In PARTIAL TO PARTIALS lesson in the NOTE PROFESSOR NOTEBOOK , I illustrated a simple way for sellers to get their money, the Note Buyers to achieve their yield, and all walk away happy campers. However, in other lessons like How To Double Your Yield with Half and Half and FOR THE GREEDY ONLY , I show how you can easily be deceived into thinking you are getting 100% for your note, or there is no, or little discount.

After you have read these articles, you will not be one of the suckers. Here is the only thing I want you to get out of this issue---NO NOTE BUYER PAYS 100% FOR A NOTE, (unless they are stupid). But there are those Note Buyers who will try to deceive you into thinking you are getting 100%. Anytime a Note Buyer advertises 100% for your note, you can rest assured there is some sort of split payment or partial involved, SO BE AWARE and PROTECTED.

Let' take a quick look at the example in Double Your Yield With Half and Half where a note seller has a note balance of $85,562.87 being paid off at $660.39 monthly for 300 months @ 8%. The Note Buyer wants 16% yield. If you sold the entire note, you would pay $48,597.61. OUCH!!!!! Deep discount. Most note sellers would not take this deep discount. Here is one way some Note Buyers will present their offer to infer there is no discount. They will say, "I will give you 50% of the note, for ½ of the payments. In other words, the note buyer will pay $42,781.44 for the right to receive the next 150 payments. After that time, the note reverts to the seller.

Another version is "I will give you 100% for your note, 50% now, and 50% in 150 months. Sounds like there is no discount, right---wrong.

For those following on the calculator, what is the Note Buyers yield? In the first example where the Note Buyer is buying 50% of the note for 50% of the payments, what is your yield if you is receive $660.39 for 150 months, and paid $42, 781.44 for the note?--bingo--15.98%. What is the note balance after 150 months $62,495.60.

Here is where the sleight of hand comes in, and the discount becomes noticeable. If he were to give $42,781.44, for the remainder, you can see that is around a 30% discount. I cannot go into the details in this issue, of how much of a discount actually takes place, I just want you to put your hand on your billfold if anyone says, he will give you a 100% for your note.

In For The Greedy Only , the sleight of hand is even more hidden. It, also, takes advantage of the complexities of the time value of money to deceive sellers into thinking there is no discount. But this one is more subtle. I will go into more detail on this one in future issue. Does this mean that if you sell a partial of your note, you are getting ripped off? Heavens, no.

In HAPPY TAILS TO YOU , I show you how you can get free notes for your retirement, using partials. When I sell my notes, I will always ask first, how much will the buyer pay for a portion of the note, instead of the entire note. There are many instances where I can sell ½ of my note for practically the same price as the whole note. But Professor, how can this be? It is just the wonders of the compound interest and the time value of money. It is all discussed in detail in THE NOTE PROFESSOR NOTEBOOK.

There are some other cautions on partials that I will go into in a future issue, but this is all I have time for now, and my fingers are getting tired. Again, this does not mean you should not sell a portion of your note, just be aware you are not getting 100% and there is A Discount. By being educated, you will know, not only how to buy a partial, but how not to get ripped off.

Please CONTACT ME if you have questions or have a topic you would like me to discuss.

If you know of someone who has a Note they want to convert to cash, remember me. I do pay referral fees.

Tom Henderson
a.k.a. THE NOTE PROFESSOR
Copyright © H&P Capital Investments LLC
All rights reserved

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By popular demand, THE NOTE PROFESSOR NOTEBOOK is now available in easy, downloadable E- book form for a the low, affordable price of $39.95. Other products are also available, including HOW TO MAKE OBSCENE PROFITS with SMALL MONEY, and GUIDE FOR SECOND LIENS. There is also a FREE download of CHECK LIST FOR OWNER FINANCING. Simply go to the NOTE BUYERS STORE. I can think of nowhere that you can find such information packed products at such incredibly low prices. We are still working out the bugs, so if you have any problems, be sure to contact me.

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When I am asked to discuss possible end scenarios of the American and/or the world economy, with great trepidation I point out that we are in turbulent times, and there is no EASY way out. Why? Because as I have pointed out in several previous articles, consumption cannot exceed production.

The reaction of European politicians to their economic calamity is the canary in the mine; a warning of things to come when countries consume more than the ability of producers to provide. We must realize when the decay of an economic system of wealth redistribution reaches the final stages before collapse; government officials will start confiscating wealth from all sources in order to try to keep alive a system that is already dead. The rationalization for the confiscation of wealth is always the same: "Shared sacrifice", "Fairness", "National security", "The common good" or the ole standby "To level the playing field".

Cyprus is a case in point. Without warning, government officials confiscated 40% of bank accounts over 100,000 euros. Calling it a "wealth tax", the confiscation was rationalized by declaring the deposits were mostly foreign accounts of ill gotten money, as well as 'only the wealthy' would be affected. The government officials then took the abrupt confiscation of wealth a step further by mandating no money or wealth could be taken out of the country.

What is being witnessed is the final stage of an economy where government has consumed more than the ability of producers to produce. Moreover, while the draconian seizing of individual's wealth might have appeared to be without notice or thought, it should be noted these actions were contemplated and planned as far back as 2009. In other words, they saw the writing on the wall 4 years ago, and planned for it.

Another case in point is Portugal. The Portuguese have the unenviable problem of having to shore up a 1.6 billion euro budget deficit for 2013. Their courts, in all their infinite wisdom, have ruled that cutting government employees' wages or pensions is unconstitutional with the reasoning it was "unfair" because it only affected the public sector and not the private sector. Do the courts indicate how the government is to solve its deficit problem or go broke? No! But Portugal is innovated. The Portuguese officials are contemplating paying their government employees once a year , NOT IN CASH, but with government debt or government bills.

Lessons can be learned from both of these scenarios. It should be remembered that in the final stages of a collapsing economy, where consumption is exceeding production, instead of acknowledging that a system based on collectivism is unsustainable, the politicians will fight to your last dollar to save the system that has given them power. Like Cyprus, politicians will be forced to seize heretofore "untouchable" wealth. Also, like Portugal, the powers that be, must monetize their obligations rather than paying in cash.

By "monetize" I refer to substituting monthly payments or stock, for cash. Our Social Security System is a good example of a monetized payout. Although we have paid into the system for years, we cannot receive a lump sum of cash, but rather only monthly payments, which the politicians can lower or change at their whims.

We also learned the "solutions" of seizing assets was not a decision that was made hastily, but contemplated and planned years in advance in anticipation of economic collapse. In America we see evidence
in bits and pieces the powers that be also see the possibility of financial collapse as consumption exceeds production at an expanding rate. For example, we are being "introduced" to the thought that our IRAs, once considered untouchable, are now going to be subject to caps. Under the guise of "fairness", politicians will determine how much an individual "needs" to retire comfortably. Likewise a "wealth tax" or a tax not on your income, but on your wealth and assets, is also on the drawing board. This will include your IRAs. Make no mistake, your retirement plan is coming under attack.

Like Cyprus, in the final stages of collapse, American politicians must look for assets to seize, no matter what or where the asset is located in the vain attempt to keep a failing system alive. To add insult to injury, politicians will be exempt from any of these draconian wealth confiscation, "for the common good", of course. (I make reference to the president being exempted from the IRA cap, and a push to exempt legislators and their aides from participating in Obamacare.)

We should take note of Portugal's solution to running out of money to fund everything their politicians' have promised. Is there any doubt the Federal Depository Insurance Corporation does not have the funds to cover bank deposits should there be a financial meltdown. What is the solution? It seems Portugal's scenario of monetizing payments has already being contemplated. The Dodd Frank Bill, as well as a joint paper by the FDIC and Bank of England says in a nutshell that should there be a banking crisis, depositors can be paid off, not in cash, but in stock from their bank. Yes!! You heard that correct. This is but another form of monetizing wealth; much like Portugal's issuing government bonds instead of cash.

It appears we are in the final stage of some sort of collapse. What action will American politicians take to protect a failing system? Look for more and more taxes to be initiated; from the internet tax, financial transfer tax and even taxing flu shots or medication, all in the vain attempt to avert the inevitable.

However, when the royal treasury is empty, and direct taxes are no longer a good political option, attacking personal wealth in the form of seizing assets, IRAs, or bank accounts is the only option they will have left. Make no mistake, it will be "bipartisan".

Conclusion: In the final stages of collapse, politicians MUST contemplate different scenarios to seize wealth in the attempt of keeping an unsustainable economic system alive.

Four tools at their disposal are outright seizing of assets, more and more taxing of wealth, and finally monetizing retirement funds and/or bank accounts, or the printing of money. All will be done in the name of "fairness", "shared sacrifice", "for the common good", "national security" or "to level the playing field". Before you say, "It cannot happen here", I will remind you of two points

1. It is happening in Cyprus and Portugal
2. YOU might think it could not happen here, but as the joint paper from the FDIC and Bank of England demonstrate, the powers of both nations believe it can happen here and have set up contingencies.

When consumption has exceeded production, politicians will take drastic measures to protect the system that has put them in power. With this in mind, I have to ask if Europe is the canary in the mine.

Is this a dooms day prediction? Not exactly, it is merely reality.

Consumption exceeding production cannot continue. Things that cannot continue WILL NOT continue. In this article I have pointed out what how other countries have reacted to their governments consuming more than what is produced.

Possible Solution: It might be that real estate owned free and clear, or with favorable terms you receive with seller financing is a viable strategy to account for any scenario the future might bring.

If you have a question or comment, please CONTACT ME. It is from your feedback that I get many of my topics.

Remember, if you know of someone who has a note to sell, I will pay a referral fee, or split my profits with you

Tom Henderson /a.k.a. THE NOTE PROFESSOR .

Copyright © H&P Capital Investments LLC
All rights reserved