I'm Concerned About This Kind Of Partial Sale - Posted by Steve Carlson

Posted by David Butler ANN on November 01, 2000 at 12:20:00:

Schedule B is the Title Reports exceptions and exclusions section, listing all known matters affecting title (most always a chain of recorded “clouds” on title)- which is in effect, documenting “constructive” notice of the existence of these items.

The recording of the residual interest notice that Mike mentioned earlier would usually be a type of notice that would show up on a subsequent title report.

One thing I’ve done when the option is available - in most cases, the title companies I have run the deals through are also the trustee on the deeds of trust. Those that offer private note collections services are handy to keep in the loop on partials. I have them prepare the remaining interest notice and record it, and handle the collection on the note. When you also have a percentage of the monthly payment coming to you (as you indicated was the case in your deal), this procedure is especially helpful, and has other obvious benefits over and above any title considerations.

Hope this helps, and again, best of luck

David P. Butler VP Broker Relations
America’s Note Network

I’m Concerned About This Kind Of Partial Sale - Posted by Steve Carlson

Posted by Steve Carlson on October 29, 2000 at 24:15:57:

I offered my first owner financed RE note for sale on a couple of the national sales web sites and did not get real good offers (86K note, 5% down, seasoned 4 months, 12.85% interest, buyers credit scores ~500). The best deal I was offered was a 70% partial where they would get 70% of the payment and I?d get 30%. They offered 55,500 net to me. Well, I go to closing after much delays and I find that I seem to have no protection in case of default - I?m not listed as a lienholder anywhere. However, there is a non-recorded RECEIVABLE PURCHASE AND SALE AGREEMENT through which the brokerage company claims that I have 2 avenues of recourse in case of default ? they are:

FIRST
?1. Option To Purchase Prior To Repossession:
In the event of a Default on the Receivable, Purchaser may proceed with foreclosure, accept a Deed in Lieu of Foreclosure or initiate legal proceedings against the Payor to collect the amounts owing pursuant to the Receivable. In the event of a Default, which continues for a period or 30 days, Seller, upon written notice of such Default, shall have the opportunity to protect Seller?s residual interest in the installment due pursuant to the Receivable not sold to Purchaser by paying Purchaser, in cash, the remaining balance of the Amount Purchased then due Purchaser.?

SECOND
Basically it says that they will foreclose, sell the property, and pay me whatever is left after their investment and foreclosure expenses. Obviously this is not a viable option.

So, it seems that my only option in the event of default is to pay back what is they bought (fair enough) but the instrument is a non-recorded, non-notarized Purchase Agreement document.

Am I being overly cautious or is this not a good business move?

Thanks for all you help,

Steve Carlson

P.S.: I did sign an option agreement with the broker at the beginning of this process. Is this like a Real Estate Purchase Contract that, after it?s signed, can cloud the title and prevent future sales to other people? In other words, if I back out of this deal do they have any recourse?

Re: I’m Concerned About This Kind Of Partial Sale - Posted by David Butler ANN

Posted by David Butler ANN on October 30, 2000 at 10:49:11:

Hello Steve,

Mike has covered some good ground down below, but your post is loaded with several important issues, and Mike’s reply raises several others. I feel there is some clarification in order.

One real important issue is pricing. We have been spoiled the last few years during this most recent “easy-money” cycle. The major impetus for that was the rise of the subprime lending industry, fueled by securitization. And in the past six months, the Grim Reaper has come to get his due… these lenders have lost billions, and Billions, and BILLIONS of dollars on writing paper just like the note you are sitting on.

Almost every major subprime player has been whacked and whacked hard. Those that aren’t already in their graves, are hanging on to Chapter 11 ventilators - or
going through CPR by way of selling off assets or restructuring credit facilities as best they can.

The carnage has spilled over to the note industry as well - and we have seen the pinch in the institutional side of the game. Still, we see these incredible fliers and promotions coming through by mail, fax, and emails, with some new wonderful, nonsensical, program out there - like we always have in the lending game as well.

That’s been the nature of the business in the 23 years I have been out there, borrowing, lending, investing. So I’ll have to take issue with the “bait & switch” discussion. I’ve brokered loans, I’ve worked direct. I’ve seen the same things happen under both contexts.

As a note broker and investor, I have experienced a lot of the same as well. And I will have to say that as one of the original charter members in America’s Note Network, I have routinely received better deals working broker-to-broker, than I have from several of the prominent first and second tier institutional note buyers - especially on the tougher or more unusual types of deals.

In all honesty, I would have to say that up until about 10 years ago, it would have been almost impossible to sell that note of yours at just about any price. Now, we have the luxury of having a great deal more risk tolerance out in the note markets - and of course, the flexibility of partials. And from what information you have provided, it looks to me like you got a pretty good offer. For future reference, you might find it helpful to have a look at our FREE report, Note Grading/Pricing Guidelines at: notenetwork.com - This website is for sale! - notenetwork Resources and Information.

As to the partials themselves… Mike covered that almost to a tee. The two clauses and variations of them are usually in partials - a form of seller guarantee on an otherwise unbankable deal. But it is crucial to have backside protection by having a recorded interest remaining. Their are several ways to do that, and Mike has suggested one of the more generic simple ways to accomplish that in most jurisdictions. Simple is best. It helps to work with title company legal opinions if you have that luxury in the state you are in. And of course, you want the title company to get your interest on their Schedule B.

Hope this helps, and best of luck on putting this one together!

David P. Butler VP, Broker Relations
America’s Note Network

Re: Okay - but what is… - Posted by Steve Carlson

Posted by Steve Carlson on October 31, 2000 at 16:49:59:

We have title companies in Texas and they are handling the closing. What I’m not sure of is what a Schedule B is and why it is important. Please explain. It appears that the recording can happen but do not have confirmation yet.

Thanks for the education,
Steve