Investing in Trust Deeds (Mortgage Notes) and LLPs

[EconProf]

Bearishgurl gives some, but not all, of the steps necessary to be sure your TD investment will be safe. All that takes time, which is why the up-front investment involves huge amounts of research, which adds to the “cost” of the investment, which lowers the real rate of return. Since many of the deals you investigate won’t pass the filters you need to apply, that multiplies your research investment costs at the outset.
Yes, some companies are set up to be intermediaries to do all the legwork & present you the investor with a take-it-or-leave-it package, as shown by the link. But think of it–15% to 18% interest rate, plus the sorry borrower pays 6 to 10 points on top of that! Who would do that? The Mafia could offer better terms. The borrower is such a bad risk they apparently can’t borrow from their relatives or a series of credit cards, so be prepared to own the property. Beware of far-away properties, 2d Trust Deeds, inflated appraisals, and the biggie–toxic waste or buried fuel tanks on the property from the 1920s. The property could have negative value.
Rather than the extortionate rates offered by the link, try TheNorrisGroup.com, which sticks to So CA houses, 65% LTV, 12% or so, 3 points to the borrower, and one year term. The borrower is typically a buy, fix up, & sell investor, so you are somewhat safer, LTV-wise. Not endorsing them; do your own due diligence, but it is where I’d put my excess liquidity.
A little history for those under 50 here. TD investments were once really big in the late 70s and 80s when prevailing interest rates were ramping up as inflation gathered steam. In those days existing mortgages were assumable by the next buyer of a house. Remember that mortgage rates and inflation rates peaked around 1980, pre-Reagan and pre-Volcker, at about 18% and 13% respectively. This meant that the lucky homeowners selling their house with a 6% assumable loan in an 18% new-loan-environment had a terrific selling point. So much so that it capitalized into a much higher market value of the house.
Trouble is, the mortgage might only be for 50% of the asking price. Enter the carry-back. The home seller would sell and create a 2d TD for 30% or 40% of the price, so the buyer would only have to come with 20% or 10% down. Terms of the 2d TD might be 10%, 3 – 5 years or so.
But the seller wants cash, not a note, so they immediately advertise in the classifieds (remember them?) or sell to a broker/middleman who would turn around and sell it. But who wants a 10% note in an 18% world? So the note would sell at a discount of, say, 50% or 25% off of face value. This bumps the effective yield to up to 15% or 20%. But if you buy this note, you are instantly buying safety because it is now at a better LTV. Plus, if the house sells or refi’s sometime in the five or so years till maturity, you must get paid off at FACE value, which makes the rate of return go through the ceiling. Trust me, nothing is more satisfying than to get a call from an escrow company saying your note is about to pay off and we’d like to confirm your address for sending the check! Ah, those were the days.

[Nor-LA-SD-guy]

Nice work Econ, and Bearish,

I think we may see those days again (like the 70’s and 80’s) in about 5 to 7 years.

I will keep these notes..

[Nor-LA-SD-guy]

Nice work Econ, and Bearish,

I think we may see those days again (like the 70’s and 80’s) in about 5 to 7 years.

I will keep these notes..

[Nor-LA-SD-guy]

Nice work Econ, and Bearish,

I think we may see those days again (like the 70’s and 80’s) in about 5 to 7 years.

I will keep these notes..

[Nor-LA-SD-guy]

Nice work Econ, and Bearish,

I think we may see those days again (like the 70’s and 80’s) in about 5 to 7 years.

I will keep these notes..

[Nor-LA-SD-guy]

Nice work Econ, and Bearish,

I think we may see those days again (like the 70’s and 80’s) in about 5 to 7 years.

I will keep these notes..

[bearishgurl]

[quote=EconProf]. . . Trouble is, the mortgage might only be for 50% of the asking price. Enter the carry-back. The home seller would sell and create a 2d TD for 30% or 40% of the price, so the buyer would only have to come with 20% or 10% down. Terms of the 2d TD might be 10%, 3 – 5 years or so. But the seller wants cash, not a note, so they immediately advertise in the classifieds (remember them?) or sell to a broker/middleman who would turn around and sell it. But who wants a 10% note in an 18% world? So the note would sell at a discount of, say, 50% or 25% off of face value. This bumps the effective yield to up to 15% or 20%. But if you buy this note, you are instantly buying safety because it is now at a better LTV. Plus, if the house sells or refi’s sometime in the five or so years till maturity, you must get paid off at FACE value, which makes the rate of return go through the ceiling. Trust me, nothing is more satisfying than to get a call from an escrow company saying your note is about to pay off and we’d like to confirm your address for sending the check! Ah, those were the days.[/quote]

EconProf, I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley, who not only had several investors wanting to purchase these second trust deeds for a deep discount, besides himself, he had several who wanted to purchase trustees deeds, if profitable. At that time, I took all my lunch breaks in the recorder’s office, county-clerk business office and on the steps of the old courthouse downtown where I examined titles, sometimes ordered preliminary title reports (if there were advanced funds) and gathered information from the documents posted on two chained and locked clipboards, which were updated daily by the trustees, as well as observed selected trustees sales. At that time, the grantor-grantee index was comprised of hundreds of blue cloth binders in numerical order referencing the microfiche housing the filmed documents. Including reviewing microfiched documents, it could take hours at the recorder’s office to properly examine the title of ONE property.

When “buzzing thru” the county recorder in those days, I observed many others trying to do what I was doing who obviously didn’t know what they were doing in there, or where to start, turning their work into a multi-hour/multi-day endeavor, but I was too time-strapped myself to help anyone! Unfortunately, there were no “classes” avail. with which to learn this type of work. It could be compared to the (now old) lawyer who learned to shepardize cases by stacking the books and periodicals from his library open on top of one another so has no need for “CDs” or an online service at this late date – LOL!

The tax-payment information could be viewed in a very slow green liquid-line CRT (in a separate office on the other side of the bldg.) with a stick-figure in the corner that kept blinking, as would the screen. “Recent sales” info was on microfiche, updated every 4-6 mos. In 1984, I got access to the MLS.

If I found a viable investment deal with (distressed property with substantial equity) and also was able to view property, I would take photos, (both inside and out if I could get in). I would then present my “pkg.” to the lender who would pay me a one-half percent of what he and I determined the property was worth (usually a few hundred dollars). If he was able to successfully make a loan to the defaulting trustor on any of the properties I researched or successfully bid at the trustees sale and obtain a trustees deed, I would receive another one-half percent of the “value” of the property. I only performed due diligence in the cental SD area so this worked out fine for me as a “moonlighting gig” in addition to my “day job,” that I could do on my own time 🙂

Regarding assumable loans, I know them well, EconProf and yes, they ARE beneficial at the time of marketing a property. I have had these types of home loans almost all my life (and still have one). IMO, they were the cheapest to obtain and easiest to close loans in existence 🙂

Do any Piggs know if assumable loans are still available?

[bearishgurl]

[quote=EconProf]. . . Trouble is, the mortgage might only be for 50% of the asking price. Enter the carry-back. The home seller would sell and create a 2d TD for 30% or 40% of the price, so the buyer would only have to come with 20% or 10% down. Terms of the 2d TD might be 10%, 3 – 5 years or so. But the seller wants cash, not a note, so they immediately advertise in the classifieds (remember them?) or sell to a broker/middleman who would turn around and sell it. But who wants a 10% note in an 18% world? So the note would sell at a discount of, say, 50% or 25% off of face value. This bumps the effective yield to up to 15% or 20%. But if you buy this note, you are instantly buying safety because it is now at a better LTV. Plus, if the house sells or refi’s sometime in the five or so years till maturity, you must get paid off at FACE value, which makes the rate of return go through the ceiling. Trust me, nothing is more satisfying than to get a call from an escrow company saying your note is about to pay off and we’d like to confirm your address for sending the check! Ah, those were the days.[/quote]

EconProf, I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley, who not only had several investors wanting to purchase these second trust deeds for a deep discount, besides himself, he had several who wanted to purchase trustees deeds, if profitable. At that time, I took all my lunch breaks in the recorder’s office, county-clerk business office and on the steps of the old courthouse downtown where I examined titles, sometimes ordered preliminary title reports (if there were advanced funds) and gathered information from the documents posted on two chained and locked clipboards, which were updated daily by the trustees, as well as observed selected trustees sales. At that time, the grantor-grantee index was comprised of hundreds of blue cloth binders in numerical order referencing the microfiche housing the filmed documents. Including reviewing microfiched documents, it could take hours at the recorder’s office to properly examine the title of ONE property.

When “buzzing thru” the county recorder in those days, I observed many others trying to do what I was doing who obviously didn’t know what they were doing in there, or where to start, turning their work into a multi-hour/multi-day endeavor, but I was too time-strapped myself to help anyone! Unfortunately, there were no “classes” avail. with which to learn this type of work. It could be compared to the (now old) lawyer who learned to shepardize cases by stacking the books and periodicals from his library open on top of one another so has no need for “CDs” or an online service at this late date – LOL!

The tax-payment information could be viewed in a very slow green liquid-line CRT (in a separate office on the other side of the bldg.) with a stick-figure in the corner that kept blinking, as would the screen. “Recent sales” info was on microfiche, updated every 4-6 mos. In 1984, I got access to the MLS.

If I found a viable investment deal with (distressed property with substantial equity) and also was able to view property, I would take photos, (both inside and out if I could get in). I would then present my “pkg.” to the lender who would pay me a one-half percent of what he and I determined the property was worth (usually a few hundred dollars). If he was able to successfully make a loan to the defaulting trustor on any of the properties I researched or successfully bid at the trustees sale and obtain a trustees deed, I would receive another one-half percent of the “value” of the property. I only performed due diligence in the cental SD area so this worked out fine for me as a “moonlighting gig” in addition to my “day job,” that I could do on my own time 🙂

Regarding assumable loans, I know them well, EconProf and yes, they ARE beneficial at the time of marketing a property. I have had these types of home loans almost all my life (and still have one). IMO, they were the cheapest to obtain and easiest to close loans in existence 🙂

Do any Piggs know if assumable loans are still available?

[bearishgurl]

[quote=EconProf]. . . Trouble is, the mortgage might only be for 50% of the asking price. Enter the carry-back. The home seller would sell and create a 2d TD for 30% or 40% of the price, so the buyer would only have to come with 20% or 10% down. Terms of the 2d TD might be 10%, 3 – 5 years or so. But the seller wants cash, not a note, so they immediately advertise in the classifieds (remember them?) or sell to a broker/middleman who would turn around and sell it. But who wants a 10% note in an 18% world? So the note would sell at a discount of, say, 50% or 25% off of face value. This bumps the effective yield to up to 15% or 20%. But if you buy this note, you are instantly buying safety because it is now at a better LTV. Plus, if the house sells or refi’s sometime in the five or so years till maturity, you must get paid off at FACE value, which makes the rate of return go through the ceiling. Trust me, nothing is more satisfying than to get a call from an escrow company saying your note is about to pay off and we’d like to confirm your address for sending the check! Ah, those were the days.[/quote]

EconProf, I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley, who not only had several investors wanting to purchase these second trust deeds for a deep discount, besides himself, he had several who wanted to purchase trustees deeds, if profitable. At that time, I took all my lunch breaks in the recorder’s office, county-clerk business office and on the steps of the old courthouse downtown where I examined titles, sometimes ordered preliminary title reports (if there were advanced funds) and gathered information from the documents posted on two chained and locked clipboards, which were updated daily by the trustees, as well as observed selected trustees sales. At that time, the grantor-grantee index was comprised of hundreds of blue cloth binders in numerical order referencing the microfiche housing the filmed documents. Including reviewing microfiched documents, it could take hours at the recorder’s office to properly examine the title of ONE property.

When “buzzing thru” the county recorder in those days, I observed many others trying to do what I was doing who obviously didn’t know what they were doing in there, or where to start, turning their work into a multi-hour/multi-day endeavor, but I was too time-strapped myself to help anyone! Unfortunately, there were no “classes” avail. with which to learn this type of work. It could be compared to the (now old) lawyer who learned to shepardize cases by stacking the books and periodicals from his library open on top of one another so has no need for “CDs” or an online service at this late date – LOL!

The tax-payment information could be viewed in a very slow green liquid-line CRT (in a separate office on the other side of the bldg.) with a stick-figure in the corner that kept blinking, as would the screen. “Recent sales” info was on microfiche, updated every 4-6 mos. In 1984, I got access to the MLS.

If I found a viable investment deal with (distressed property with substantial equity) and also was able to view property, I would take photos, (both inside and out if I could get in). I would then present my “pkg.” to the lender who would pay me a one-half percent of what he and I determined the property was worth (usually a few hundred dollars). If he was able to successfully make a loan to the defaulting trustor on any of the properties I researched or successfully bid at the trustees sale and obtain a trustees deed, I would receive another one-half percent of the “value” of the property. I only performed due diligence in the cental SD area so this worked out fine for me as a “moonlighting gig” in addition to my “day job,” that I could do on my own time 🙂

Regarding assumable loans, I know them well, EconProf and yes, they ARE beneficial at the time of marketing a property. I have had these types of home loans almost all my life (and still have one). IMO, they were the cheapest to obtain and easiest to close loans in existence 🙂

Do any Piggs know if assumable loans are still available?

[bearishgurl]

[quote=EconProf]. . . Trouble is, the mortgage might only be for 50% of the asking price. Enter the carry-back. The home seller would sell and create a 2d TD for 30% or 40% of the price, so the buyer would only have to come with 20% or 10% down. Terms of the 2d TD might be 10%, 3 – 5 years or so. But the seller wants cash, not a note, so they immediately advertise in the classifieds (remember them?) or sell to a broker/middleman who would turn around and sell it. But who wants a 10% note in an 18% world? So the note would sell at a discount of, say, 50% or 25% off of face value. This bumps the effective yield to up to 15% or 20%. But if you buy this note, you are instantly buying safety because it is now at a better LTV. Plus, if the house sells or refi’s sometime in the five or so years till maturity, you must get paid off at FACE value, which makes the rate of return go through the ceiling. Trust me, nothing is more satisfying than to get a call from an escrow company saying your note is about to pay off and we’d like to confirm your address for sending the check! Ah, those were the days.[/quote]

EconProf, I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley, who not only had several investors wanting to purchase these second trust deeds for a deep discount, besides himself, he had several who wanted to purchase trustees deeds, if profitable. At that time, I took all my lunch breaks in the recorder’s office, county-clerk business office and on the steps of the old courthouse downtown where I examined titles, sometimes ordered preliminary title reports (if there were advanced funds) and gathered information from the documents posted on two chained and locked clipboards, which were updated daily by the trustees, as well as observed selected trustees sales. At that time, the grantor-grantee index was comprised of hundreds of blue cloth binders in numerical order referencing the microfiche housing the filmed documents. Including reviewing microfiched documents, it could take hours at the recorder’s office to properly examine the title of ONE property.

When “buzzing thru” the county recorder in those days, I observed many others trying to do what I was doing who obviously didn’t know what they were doing in there, or where to start, turning their work into a multi-hour/multi-day endeavor, but I was too time-strapped myself to help anyone! Unfortunately, there were no “classes” avail. with which to learn this type of work. It could be compared to the (now old) lawyer who learned to shepardize cases by stacking the books and periodicals from his library open on top of one another so has no need for “CDs” or an online service at this late date – LOL!

The tax-payment information could be viewed in a very slow green liquid-line CRT (in a separate office on the other side of the bldg.) with a stick-figure in the corner that kept blinking, as would the screen. “Recent sales” info was on microfiche, updated every 4-6 mos. In 1984, I got access to the MLS.

If I found a viable investment deal with (distressed property with substantial equity) and also was able to view property, I would take photos, (both inside and out if I could get in). I would then present my “pkg.” to the lender who would pay me a one-half percent of what he and I determined the property was worth (usually a few hundred dollars). If he was able to successfully make a loan to the defaulting trustor on any of the properties I researched or successfully bid at the trustees sale and obtain a trustees deed, I would receive another one-half percent of the “value” of the property. I only performed due diligence in the cental SD area so this worked out fine for me as a “moonlighting gig” in addition to my “day job,” that I could do on my own time 🙂

Regarding assumable loans, I know them well, EconProf and yes, they ARE beneficial at the time of marketing a property. I have had these types of home loans almost all my life (and still have one). IMO, they were the cheapest to obtain and easiest to close loans in existence 🙂

Do any Piggs know if assumable loans are still available?

[bearishgurl]

[quote=EconProf]. . . Trouble is, the mortgage might only be for 50% of the asking price. Enter the carry-back. The home seller would sell and create a 2d TD for 30% or 40% of the price, so the buyer would only have to come with 20% or 10% down. Terms of the 2d TD might be 10%, 3 – 5 years or so. But the seller wants cash, not a note, so they immediately advertise in the classifieds (remember them?) or sell to a broker/middleman who would turn around and sell it. But who wants a 10% note in an 18% world? So the note would sell at a discount of, say, 50% or 25% off of face value. This bumps the effective yield to up to 15% or 20%. But if you buy this note, you are instantly buying safety because it is now at a better LTV. Plus, if the house sells or refi’s sometime in the five or so years till maturity, you must get paid off at FACE value, which makes the rate of return go through the ceiling. Trust me, nothing is more satisfying than to get a call from an escrow company saying your note is about to pay off and we’d like to confirm your address for sending the check! Ah, those were the days.[/quote]

EconProf, I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley, who not only had several investors wanting to purchase these second trust deeds for a deep discount, besides himself, he had several who wanted to purchase trustees deeds, if profitable. At that time, I took all my lunch breaks in the recorder’s office, county-clerk business office and on the steps of the old courthouse downtown where I examined titles, sometimes ordered preliminary title reports (if there were advanced funds) and gathered information from the documents posted on two chained and locked clipboards, which were updated daily by the trustees, as well as observed selected trustees sales. At that time, the grantor-grantee index was comprised of hundreds of blue cloth binders in numerical order referencing the microfiche housing the filmed documents. Including reviewing microfiched documents, it could take hours at the recorder’s office to properly examine the title of ONE property.

When “buzzing thru” the county recorder in those days, I observed many others trying to do what I was doing who obviously didn’t know what they were doing in there, or where to start, turning their work into a multi-hour/multi-day endeavor, but I was too time-strapped myself to help anyone! Unfortunately, there were no “classes” avail. with which to learn this type of work. It could be compared to the (now old) lawyer who learned to shepardize cases by stacking the books and periodicals from his library open on top of one another so has no need for “CDs” or an online service at this late date – LOL!

The tax-payment information could be viewed in a very slow green liquid-line CRT (in a separate office on the other side of the bldg.) with a stick-figure in the corner that kept blinking, as would the screen. “Recent sales” info was on microfiche, updated every 4-6 mos. In 1984, I got access to the MLS.

If I found a viable investment deal with (distressed property with substantial equity) and also was able to view property, I would take photos, (both inside and out if I could get in). I would then present my “pkg.” to the lender who would pay me a one-half percent of what he and I determined the property was worth (usually a few hundred dollars). If he was able to successfully make a loan to the defaulting trustor on any of the properties I researched or successfully bid at the trustees sale and obtain a trustees deed, I would receive another one-half percent of the “value” of the property. I only performed due diligence in the cental SD area so this worked out fine for me as a “moonlighting gig” in addition to my “day job,” that I could do on my own time 🙂

Regarding assumable loans, I know them well, EconProf and yes, they ARE beneficial at the time of marketing a property. I have had these types of home loans almost all my life (and still have one). IMO, they were the cheapest to obtain and easiest to close loans in existence 🙂

Do any Piggs know if assumable loans are still available?

[SK in CV]

[quote=bearishgurl]
I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley….[/quote]

Really? There was such a thing? Ok, maybe there was, but it was a slimy industry back then. Who knew the big boys were gonna get into it? I worked half a dozen bankruptcies in the late 80’s/early 90’s for hard money lenders, including one that I believe is still the biggest swindle in local history (dwarfs J David). Even though nobody really ended up stealing any serious money, just losing it. Lotta money to be made, on all different sides of the business. But if you don’t know what you’re doing, a whole lot of money to be lost too.

[SK in CV]

[quote=bearishgurl]
I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley….[/quote]

Really? There was such a thing? Ok, maybe there was, but it was a slimy industry back then. Who knew the big boys were gonna get into it? I worked half a dozen bankruptcies in the late 80’s/early 90’s for hard money lenders, including one that I believe is still the biggest swindle in local history (dwarfs J David). Even though nobody really ended up stealing any serious money, just losing it. Lotta money to be made, on all different sides of the business. But if you don’t know what you’re doing, a whole lot of money to be lost too.

[SK in CV]

[quote=bearishgurl]
I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley….[/quote]

Really? There was such a thing? Ok, maybe there was, but it was a slimy industry back then. Who knew the big boys were gonna get into it? I worked half a dozen bankruptcies in the late 80’s/early 90’s for hard money lenders, including one that I believe is still the biggest swindle in local history (dwarfs J David). Even though nobody really ended up stealing any serious money, just losing it. Lotta money to be made, on all different sides of the business. But if you don’t know what you’re doing, a whole lot of money to be lost too.

[SK in CV]

[quote=bearishgurl]
I guess you could have called me one of those “intermediaries.” In the early eighties, I did this “legwork” for a “respected” C, D paper-lender located in Mission Valley….[/quote]

Really? There was such a thing? Ok, maybe there was, but it was a slimy industry back then. Who knew the big boys were gonna get into it? I worked half a dozen bankruptcies in the late 80’s/early 90’s for hard money lenders, including one that I believe is still the biggest swindle in local history (dwarfs J David). Even though nobody really ended up stealing any serious money, just losing it. Lotta money to be made, on all different sides of the business. But if you don’t know what you’re doing, a whole lot of money to be lost too.

[Author]

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