Doc, questions on Note Pooling - Posted by Rod - Mo

Posted by Charles K Clarkson (TX) on January 20, 2004 at 18:44:14:

“who knows what ‘skin a cat’ really refers to?”

Seems it refers to skinning cats:

Doc, questions on Note Pooling - Posted by Rod - Mo

Posted by Rod - Mo on January 17, 2004 at 12:52:09:

I a previous post you mentioned pooling notes. I have been thinking about this and am wondering…

Do the pooled notes back investments from multiple investors?

When you add a note to the pool, do existing promissory notes or note-holders get modified documents?

Are the liens re-assigned in any way?

Do you have sample documents?

Any other relevant details?

Do you consider pooling better or worse for the investor?

Thanks for all your posts here.


Not pooling v.s. note pooling - Posted by Dr. Craig Whisler

Posted by Dr. Craig Whisler on January 17, 2004 at 14:35:37:

Do pooled notes back investments from mulitple investors? Sounds like a possible securities law violation to me and possibly club Fed. if you do. No I never do it that way. I suggest a separate pool for each investor. That way if a note goes bad you have to repay the investor or replace the note with a comparable one at you own expense. the new rerplacement note never has exactly the same numbers so a new contract is used to make the numbers fit. You should do this, in my opinion, because most note investors are fairly passive in nature and risk-adverse. They do not want to have to deal with rerpossession, eviction, rehab, reselling, park rent in the interim etc. They just want a guaranteed rate of return on their investment with no hassle. You should give you personal or corporate guarantee in cases like this. Every change, be it a note addition to the pool or a repo, changes the contract numbers you have with that pool’s investor. You could do an agreement modification each time you have a change but I prefer a new contract for each change because its much cleaner that way. I can just visualize what a nightmare it might be to have to litigate a case someday and have to say to the judge, “Your honor, here is the original contract and here are the 2,394 modifications to it”. Most courts prefer ammeded complaints rather than ammendments to the original complaint because they only have to refer to one document instead of two to get all of the facts. What if he had to refer to 2,395 documents to get all of the facts? The same reasoning is applied to making a new contract each time. Its so much cleaner and easer to understand and less prone to the compounding of minor errors. Who cares if you have to write up a new contract with each modification since all you have to do is just pust a few buttons on your word processor to get a new contract reflecting your most recent change. The confused mind always says NO. Keep it simple if you want to attract investors and their money. Every time you want to add a note to the pool you will also want more money from the investor or you wouldn’t add any new notes, would you?. If your investor is short of funds when you have a new contract to hypothecate (that means to borrow against for you 20 somethings and spokes), you use a new investor and a separate pool.

Are liens reassigned in any way? Well maybe it just a matter of semantics but I call it creating new promissory notes to be secured by a new pool of loans.

Remember an investor may NEED some money from time to time and I may rewrite his loan-pool and subtract a few notes (basicall pay them off) by borrowing on these notes from another investor and moving s few notes to his pool. I mean I can move a note from one pool to another at the investors (plural) requests and adjust the dollar amount by passing funds from the new investor to the old one and giving the new investor the added security of the new notss that are being moved to his pool. This of course requires new loans and new promissory notes for every change. Its still simpler to keep track of it with new documents instead of modified existing ones, in my experience. It may not seem simpler with just a couple of modifications but it sure will when you have many changes, and you will eventually have a ton of them.

Yes I have sample documents. Well I mean I have my own samples that I use. If you mean can anyone else obtain copies from me tne answer is no. I am not an attorney, and I am not in the business of rendering legal advice. I further do not want the responsibility for the correctness or legality of my documents for your use in another state. I think if you wish to do this you should consult an attornew in you own state. This is all still experimental on my part and I make changes almost monthly in my m.o., trying to make improvement as I go along. Neither do I suggest that others do as I do. I am only telling you what I do, nothing more. Just sharing ideas. You must do your own thinking, make your own decisions, and accept personal responsibility therefore. I would suggest that you have a licensed attorney in your state carefully review any plans you have to do ANY of this.

Rod I feel pooling is a thousand time better for the investor. Getting investors has always been a problem for Lonnie deal investors. I am constantly experimenting with my own money to solve this problem. My interset in pooling is for the sole benefit of my investors and specifically to give them more protection with less headaches with repos. If I can give my investors more than you do, I can probably “borrow” some your investors. If you want investors who are satisfied with 10%-12% interest you must make them VERY secure and handle ALL of the problems for them or they would be better off buying 2nd TDs from their local loan brokers.

Rod you and all others on this board are always welcome my posts, such as they are, thats why I take the time to do them. Please remember, though, even if something works well for me, I am never satisfied with the status quo. I guess I want I want status mo. :~) Therefore I am constantly experimenting and learning what works better and taking LOSES when I discover something that works worse. I don’t need more money, but ‘more better’ always peaks and tweaks my imagination and inginuity. I love the mobile home business and I love this board. I have learned far more that I have EVER taught here. For that I am truly grateful. Please always remember though, I am just as failable as the next guy and more than most, because of my quick of-the -cuff responses and outspokenness. I make mistreaks. I talk openly about my failures and problems because I get a lot of good feedback and ideas from the rest of you on this board. BE VERY careful that you don’t follow me or anyone else blindly. Analyse everything that we say, as though you were our worst critic. This will benefit you too because it will cause you to think and challenge you to find new and better ways to solve problems common to our industry as well as increase your satisfaction and profits immeasurably.

Regards, doc

Re: Not pooling v.s. note pooling - Posted by Rod - Mo

Posted by Rod - Mo on January 19, 2004 at 22:02:15:

Thanks for the response. I may have had the wrong idea about pooling - have no use for federally sponsored clubs. I do business through a C corp., so that may still be an option in the future. I’ll have to look into it some day.

Sounds like pooling as it is generally refered to is a good option for the investor who has more to invest than what a single note would go for. Or, to apply Bob’s suppestions, use 2 contracts to cover one promissory note that is equal to roughly have the principal value of both. Doc, if I remember correctly, you once mentioned a higher LTV. Have you tweaked yours lower?

Like your advice on tax sale lots, I’m not a good follower. But I definitely appreciate your posts.


Re: Not pooling v.s. note pooling - Posted by Bob

Posted by Bob on January 18, 2004 at 04:59:29:

I’m averse to paperwork. Therefore I prefer to draft paperwork that changes with the times rather than rewrite it. Here’s how I’d structure the paperwork. Tell me what you think.

A) The Pool
A personal property trust owning several notes. The investor has a security interest in the beneficial interest of the trust. The lender has no security interest in any specific note.

B) The Note
Hypothecates the pool. Has several key provisions.

  1. A future advances clause
    Permits additional funds to be lent, in addition to the initial balance. As you add notes to the pool, you can borrow more without rewriting the note. Be sure that your limit is much higher than your foreseeable needs.
  2. An LTV limit
    Specifies what fraction of the pool’s principal balance can be borrowed against. Only performing notes count. About 50-60% is a good number IMO. As long as you borrow only what you really need, which should be no more than about 40% to cover taxes and maybe a little spending money, a few non-performing notes won’t trigger default. In the note give yourself plenty of time to cure any default.
  3. A substitution of collateral clause
    Permits the trustee to buy, sell, or otherwise transfer notes into and out of the trust without the consent of the lender as long as you don’t violate (2).

Re: Not pooling v.s. note pooling - Posted by Dr. Craig Whisler

Posted by Dr. Craig Whisler on January 19, 2004 at 22:43:12:

Rod, can you give more me info on what you are refering to re: a higher LTV and have I tweaked mine lower.

Not being a good follower is fine for some folks. I guess if it weren’t for poor followers we wouldn’t have any leaders, would we? The pioneer often gets the easy pickins from virgin territory. Pioneers also tend to get more arrows in their backs. Hmmm…do you suppose that is where the name came from for Arrow shirts?

Regards, doc

Re: Not pooling v.s. note pooling - Posted by Rod - Mo

Posted by Rod - Mo on January 21, 2004 at 19:18:55:

Thanks for your response.

Another question: Do investors generaly prefer to be repaid and invest their returns in other notes/pools, reinvest into the same pool (assuming new notes are added and rule #2 is followed), or any combination plus other investments?


… my cat isn’t so happy about it. - Posted by Dr. Craig Whisler

Posted by Dr. Craig Whisler on January 19, 2004 at 11:55:41:

Your way should work fine. Run it past your atty. for securities regs. compliance first.

There many ways to skin a cat. I am still experimenting, though my cat isn’t so happy about it.

Regards, doc

Re: Not pooling v.s. note pooling - Posted by Rod - Mo

Posted by Rod - Mo on January 20, 2004 at 18:10:04:

Regarding the higher LTV… I think you once mentioned an LTV of 80% when writing notes against your contracts. Bob suggested 40-60%. You indicated you liked his suggestion, even though your cat in unhappy. BTW, who knows what ‘skin a cat’ really refers to?

I visited with a dealer last week who averages 75 notes. He said about 15% of those he had to chase down the payments, and about 3 of those he would wind up repossessing.