Using Notes To Create Deals Out Of Thin...

thin Creating deals out of thin air?

Sounds like some sort of sleight-of-hand trick. But it’s not. It’s doable, perfectly legal and very profitable.

Hey Moguls, Jason Lucchesi here to talk about notes—a subject that I get lots of questions about. Many of you have been asking me for more information about notes. So, this lesson is it!

This strategy is one of the most lucrative that we’ve been using here in my business. It allows us to, literally, create deals that normally wouldn’t have been there. This is because of our particular strategies on non-performing notes.

Working with the Big Boys

Keep in mind that we have relationships with bank asset managers, which means we’re working at the state level and the regional level. Unless you have 1 million proof-of-funds letter, it’s going to be extremely difficult for you to try and get into the top 25 national banks.

Trying to crack the code to getting in with them is difficult, unless you have that proof-of-funds letter, which most of us small-time investors don’t have.

What to do?

You could pair up with hedge funds, who will supply those letters that you can give out, and then you can get access to “data tapes,” or “blocks of properties.” Typically, they come in 10k-property unit packages (or higher).

In my business, we work with:

Bank asset managers
Hedge funds
Private sellers
Private equity groups

We don’t work too much with brokers mainly because they have what’s called a “daisy chain product.” (If you’re not familiar with that term, just Google the words daisy chain product.)

Now that you know who’ll be working with, let’s check out how this strategy works…

How This Works

Here’s an example of how we find non-performing notes...

foreclosure Someone has a mortgage on their house and they’re in default by more than 1 payment, which causes a notice of default to be started on that property.

At that stage, we must know if the state we are working in is a judicial or non-judicial state, and then find out how far along the foreclosure process is at that time.

The state I work in has a longer process time. Sometimes, people stay in their home for years. If you contact the right people, you can get that process expedited. Just do it the right way so you’re not kicking homeowners out on the curb.

You can actually help a homeowner out in this situation…

This is a good way for somebody to get back on their feet. See, when they’re in default, they are suffering. I know this from having worked with many distressed sellers.

They may have lost a job; they may have lost a spouse. We never know exactly what’s going on. A lot of it stems from unemployment. Sometimes, the homeowner may have had to move out of state and the house is now vacant.

So, we talk to the homeowner about what’s called a deed-in-lieu.

We tell the homeowner that we are going to become the bank. When we become the bank, we want to work out this option with the homeowner – the homeowner will give us the property in exchange for being able to walk away without being foreclosed on.

When you become the bank, you can make the rules. Of course, you have to follow RESPA (Real Estate Settlement Procedures Act), but you can report back to the credit bureau that the account has been paid and there is a zero balance.

The way the large banks report this back is as account settled for less than what’s owed – now, this shows up as a zero balance, but it still affects the homeowner’s credit for at least 7 years.

When we report to the credit bureau agencies, it won’t affect their rating. It will be reported as account paid, zero balance. That’s it.

This will allow them to get into an apartment and rebound from this unfortunate incident.

They will avoid having any security-clearance issues. With government jobs, for instance, if they see you are behind on payments, it could possibly cause problems. Other employers look at their employee’s credit as well, which can have an adverse effect.

Good ‘Deed’

So, with deed-in-lieu, a few years ago, banks were offering homeowners $1k or $2k to just walk away and leave. But the homeowners didn’t know the negatives of working with a large bank. If that’s their only option, then definitely, this needs to be done.

But, we can offer the same thing, and they can receive that money at closing. Everything is legal – everything is on the closing statement.

Instead of selling a note, I have now created a brand-new property. It’s completely off-market—it’s not on the MLS, not on Zillow, not on Craigslist, not on Trulia.

It’s a new property.

If you have cash buyers (and you should have several on your list), they are crazy over deals like this. They’re actively looking for off-market properties.

When we do these deals, we’re able to re-sell them. We buy low and we also sell low, but still make a really good profit. We can close quickly, and the buyer can get access to the property immediately.

When we create the deal, part of the agreement is that the owner-of-record will leave the property in good condition.

Add to Your Business Model

This is a strategy that you can add to your business model…

Find non-performing notes, get them to the stage where you can do a deed-in-lieu, and do all this while being under contract with the seller you are buying the non-performing note from.

It’s a winner for everyone involved.