Become an expert at screening notes

Finally, I want you to know what you're doing so you'll be
able to spot the occasional note that is just so good you want it
for your own portfolio. That takes an educated and experienced eye,
and just knowing how to find notes and who to sell them to will
never prepare you to invest and never make you really wealthy.

*

Screening Notes
When your marketing efforts begin to pay off and note holders
start calling...what will you say?

The sad fact is that many note buyers don't know how to
quickly cull. They waste their precious time negotiating with note
holders on notes that no investor will buy. You simply can't do
that and last very long in this business.

Unless you know how to rehab notes, and most beginners don't,
you must become an expert at screening notes and only work with the
ones that are marketable or that need slight improvements.
If not, you will go out of business.

A lot of note buyers think the order is: Find the note,
send it to an investor and have him screen it. That's wrong.
The right way is to find the note, screen it, and only if it passes
your screening do you send it to the investor.

Here's a series of questions that can keep you in business.
Both the wording and the order in which they are to be asked are
important. If you use them in order you will be able to determine,
in a very short time, if the caller has a mortg*age you can buy
(since that's the bread-and-butter note for almost everyone).
This does not replace your intake sheet or worksheet (we'll get to
that a little later). It is to be used before you start filling
that out. Keep this by your phone, and every time it rings
ask the questions. If they say, "I'm calling about your ad,"
ask the questions. If they say, "I read your ad, what do you mean
you buy mortgages?" ask the questions. If they say, "Hi, it's Mom,"
ask the questions (you never know!).

These questions are to screen real estate-secured notes,
by far the most traded "cash flow" in our business. You can easily
modify them to deal with other kinds of income streams. The wrong
answer to any one of them is an automatic cull. Terminate the call
when you do not receive an acceptable answer.

1. Are you currently receiving payments on a mortgage? (depending
on where the property is, it could be a mortgage, a trust deed, a
contract for deed or, in Louisiana, a bond for deed. It doesn't
matter at this stage what it is called).

If the answer is no, you know what to do. You'll get many
calls from people who are PAYING on a mortgage and think they can
sell it. I once received a call from a tenant who wanted me to
"buy" his rent payments, whatever that means. That was one
transaction that to this day I have never been able to figure
out!

2. Are all the payments current?

The market for defaulted notes is small and they are deeply
discounted. It's essentially a real estate investment. If the payor
is in default, and you don't know of any investors for defaulted
paper, it's best to move on to the next note.

3. What kind of property secures the note?

I used to advise terminating the call if the answer is
industrial, chattels (i.e., restaurant equipment), signature notes,
gas stations, mobile homes with no land, timeshares, churches,
co-ops, taverns/bars, properties with hazardous waste potential, etc.
If there is someone who buys such paper, I used to say you'll go
out of business trying to find them. How the business has changed!
Today THE PAPER SOURCE REGISTRY OF NOTE INVESTORS has buyers for
almost all of those kinds of notes. However, it remains harder to
find investors for paper secured by that list.


4. What was the sales price and when was it sold?

Some investors won't consider a note on a property that is
valued under a certain amount, such as $25,000 or even $50,000.
Know your investors' limits. This question also tells you if the
note is a new or *green* note. Green paper is worth less.

5. What is the balance of the mortgage?

Know your investors' LTV limits. With some exceptions,
notes over 85% LTV are difficult to market. 3rd liens are almost
impossible to sell and if you find a buyer he will want a deep
discount. Small notes (under $10K) are not worth fooling with
unless you have private investors. Although there are exceptions
to every rule, large single notes (over $500K) are very difficult
to place.

6. How much cash did the buyer put down?

If the answer is none, or "rent credits," or "$1,000" or
"you should see what he did to the property..." or
"unnnhhh.........what?" say goodbye. By the way, $1,000 down
(not to mention zero) is almost a guarantee of default.

7. Is there a balloon and, if so, when is it due?

If the answer is 6 months or less, terminate the call
(and be suspicious if it is less than a year). Your investor
will ask you questions you can't answer: If the balloon
will pay off so soon, why doesn't the seller just wait for his
money? What is wrong with the note, the payor or the property? Of
course, it is entirely possible that the note holder is so desperate
for money that he can't wait, but your investor will have to be
absolutely convinced that that is the only reason he's selling now.

At this point, you should be able to think of at least one
investor who will buy this note. If you can't, reject it and go
on to the next one.

After you've asked these questions and received satisfactory
answers, it's time to get more information. You're not negotiating
yet. Pick up your worksheet/intake sheet.

You'll notice that the worksheet asks for a lot of
information. All of it is needed by the investor to be able to give
you an accurate, dependable quote. After all, you don't want the
quote to change later because you didn't get the necessary
information.

But there's another reason for all the questions. If anyone
will sit with you for the time it takes to answer them, you'll know
they are serious about selling their note. And these are the only
people you should deal with.

******************************************************
"If you haven't read Lonnie Scruggs's books you're doing yourself a
HUGE dis-service. His books should be on the must-have "classics"
list for real estate investing. You won't find a better value for
the money anywhere. I'm buying a set for every member of my family
for the holidays. They're that good." -- Paul Horn, North Carolina

Details: http://papersourceonline.com/e-books-more/deals-on-wheels/
http://papersourceonline.com/e-books-more/make-w-mobile-homes/
http://papersourceonline.com/e-books-more/take-mystery-out-of-money/

******************************************************

Here's an intake sheet that I wrote for our business.
You're welcome to use it. I like it because it is a script that
anyone can follow, and it that makes gathering the information a
snap. Even if you're not in your office, anybody answering the
phone can ask the questions and fill in the blanks. You can answer
any of the note holder's questions when you call them back.
This form is from www.cashflows.org, which also has many other
contracts and forms for buying notes.

MORTGAGE/TRUST DEED INTAKE SHEET


TO (Investor): ___________________________________________
FAX (____)______________________
BROKER'S NAME: ___________________________________________
COMPANY___________________________________________________
BROKER'S FAX (____)_____________
PHONE(____)________________ E-MAIL________________________

About The Property
What is the address of the property securing the note?
__________________________________________________________
City _______________ State ___ County ____________________
ZIP ______________________
Does the note payor live there? _____
(If not) Is it currently rented? _____
For how much? $__________
What kind of property is it? (i.e., single family home, condo,
duplex, apt. bldg., lot /land, etc.)
__________________________________________________________

Describe the property & neighborhood in detail:








What was the sale price of the property? $_________________
What was the sale date? ____________
How much cash did the buyer put down? $__________
(If a second) How much was the 1st mortgage? $_________
If there is a current appraisal on the property how much
did it appraise for? $________
When was it done?_____ If there is no current appraisal,
how much is the property worth today? $______________

About The Mortgage (Trust Deed or Contract)
Is the mortgage to be sold a 1st mortgage? Yes ___ No ___
(If Yes, skip the next 7 questions)

What is the name of the lender holding the 1st mortgage?
________________________________
Is it a (check one) FHA mortgage ___ VA___ Conventional ___
Private ___
What is the original amount of the 1st mortgage? $__________
Current balance? $____________ Interest rate ? ___%
Monthly payment ? $__________
Does this include taxes & insurance?____

What was the original balance of the mortgage to be sold? $_______
Current balance? $_______
How long is the mortgage originally written for?__________
What interest rate? ____%
How much are the payments? $________ per ____
Are they current?___ If not, how far behind? ____ months
What was the date of the first payment? __________
When is the next payment due?
________________
How many payments have been made? _____
How many remain? ____
If a balloon payment will be due, how much is it? $___________
What is the date the balloon is due? ____________

About The Payor
How often have they been late? ____
What is the payor's employment? ______________________________
What is the employer's phone number and address?
______________________________________________________________
What is the payor's name(s), address and (if known) S.S. No.?
______________________________________________________________


About The Note Holder
Why does the note holder want to sell the note?
______________________________________________________________
How much cash does he/she need right now? $______________
What else should we know about the note, the payor, the property or
any other aspect of this?




What does the note holder think is a fair price for their note?
_____________


SELLER'S NAME:
_________________________________________________________
(Put seller's address and phone on the back, not to be faxed to
investor unless requested)

ADDITIONAL INFORMATION OF USE TO INVESTOR: