JBehle . . . what's your take? - Posted by JoeKaiser

Posted by Jim FL on May 26, 2002 at 23:03:26:

Just make the payments on the first. You are the second lein holder, and are protecting your interest.
Something you are entitled to do per federal law I was told.
Besides, the first lein holder will be more than happy to have a performing note on the books, instead of going to court.
And, the good news is that now you own the note, as well as the house if you do this right.
You can do whatever you want with the second note, as John Behle talked about above.
Also, you are now into these houses for the 80% plus what ever you bought the second for.
Plenty of room to make deals work this way, as long as you can afford to buy the seconds, and get them cheap enough.

As I said, just late night rambling thoughts anyway, take em for what they are worth.

Have a nice day,
Jim FL

JBehle . . . what’s your take? - Posted by JoeKaiser

Posted by JoeKaiser on May 25, 2002 at 21:10:05:

In the last year I’ve had at least two dozen “20% owner carryback” type offers submitted to me on properties we’ve had for sale. It’s almost automatic, it seems. I’ve declined them all but one on a property I really really wanted to get out of. In my mind, the 2nd in that deal is icing on the cake and actually seeing that money is not something I’m counting on.

There was a time in the early 80’s, with no money available to anyone, owner contracting was everywhere and finding private note holders was easy. Either they financed or their houses didn’t sell.

Today, I’m seeing the flip side. With so much money available to nearly anyone, people who couldn’t qualify in the past are doing so now . . . only the seller has to carry back 20% to make it fly.

I see a local agent/investor who’s already bumping up the price of his properties and advertising the fact that he’ll do that sort of deal. His properties fly out the door. Smart.

Question . . . with all this little junk 2nds entering the marketplace, do you see any “play” here? I suspect they could be had cheap, but then again, cheap is probably all they’re ever going to be worth and the default rate must be astronomical. Ideas?


Re: JBehle . . . what’s your take? - Posted by John Behle

Posted by John Behle on May 26, 2002 at 03:03:15:

Most people view them as “throw away seconds”. I always try to look for the deal and alternative uses. Possibilities from a buyer’s point of view include:

1- Buy them real cheap and go with the odds. To me that is speculation, but it depends on what you buy them for. I’m not much into speculation.

2- Use partials. You or an investor might be comfortable up to 85 or 90% ITV. So, that means the buyer could look at an offer of 25-50% of face. Is that going to fly with a seller? Not too often at the lower discounts. So, try and offer of “Staged Funding” for safety and incentive reasons. Maybe advance 20-25% of face and a little more each year as it pays timely. If it pays well, the seller gets more and you are safer. If it doesn’t, you’re covered and the seller essentially got what the note was worth. On high risk notes, many times you can have the seller keep some of the risk. Of course, in foreclosure or early payoff, it is structured so that you get your profit first.

3- Add or substitute Collateral. It may be that the buyer has some other collateral they could put up if given the right incentive. In some cases the note seller can add additional or alternative collateral. I’ve had sellers of notes put up their own homes as collateral for a bad note they want to sell. Remember, sometimes their need isn’t a sale as much as it is cash.

4- Use them in trade. Just as they may be the “icing” to you, they may be passed on in a similar manner. I’ve used them in paper trade offers and in the purchase of properties with seller financing. An anxious, flexible or deperate seller may take a high leverage note for a sale. You then end up turning the note into equity in a property. In paper trade deals, we do “lemonading”. The offer might contain 6 notes, where 5 are good LTV’s payment records, etc, but 1 is a higher LTV less desirable one. The 5 are the sugar, the 1 is the lemon.

As far as being on the receiving end of these notes:

1- Sell for cash. Find or create a buyer that is willing to deal with these notes and the higher risk. You probably won’t get much - unless you sell partials and maybe structure it as a “rolling partial” where you have X amount funded each year.

2- Use them in trades, etc. as mentioned.

3- Qualify the buyers very carefully. The demand will be high as it is such an easily doable deal. Good qualification - more than for a tenant - can help.

If keeping the notes, in many areas a wrap would be preferable. You have better control of the first and in some cases quicker and easier foreclosure. In most states an “All Inclusive Trust Deed” is the best form, but in some others, a contract for deed can actually be best. In most states, you would never want to buy on contract and in many you wouldn’t want to sell on contract either, but in some the contract can be best as a seller.

The time period, costs and ease of foreclosure varies greatly and just might not make a high leverage second position feasable, but in other states you can protect your investment much better.

Hope that addressed the question. It’s late and I might have missed it entirely.

Re: JBehle . . . what’s your take? - Posted by Jim FL

Posted by Jim FL on May 25, 2002 at 22:32:37:

I’m not John Behle, but this post made me think a bit…
This is certainly not my area of expertise, nor something I think about often, so take this for what its worth.
But, what about somehow getting ahold of those seconds that are a few years old, like between 3 and 5, and maybe checking with the holders if they would sell at a SEVERE discount.
Perhaps while talking to these note holders, determine which ones have shaky pay history, or ones facing default.
As long as you got in cheap enough on that note, and the first was not too far, if at all in arrears, would’nt there be some things you could do with these houses.
Things like;

  1. Contact the barrower, now as the new note holder, tell them about possible foreclosure, and try to work them toward deeding you the house?
  2. Should they not go for the first option, then foreclose and maintain the first note. When the sellers are out, you should not be in for much more than the 80%.
    Then you have something to work with.

I don’t know, just late night rambling.
There has to be an angle for these things though, and I’m sure you are just the guy to work it out.

Good luck, and let us know if there is a new “Joe Kaiser’s Buying seconds to make millions” course coming out soon.

Take care,
Jim FL

Re: JBehle . . . what’s your take? - Posted by Ed Garcia

Posted by Ed Garcia on May 26, 2002 at 13:17:32:


I was going to respond to Joe’s post but am glad I didn’t. I like your answers better then I would have mine.

It’s good to see you here John, and I hope you continue to post. I know that your knowledge level exceeds far beyond notes and financing. I feel that you’re a wealth of information and wisdom to be shared with others, and this is a fitting place for you.

Stick around John, we need you.

Ed Garcia

Problem with # 2… - Posted by Brandi_TX

Posted by Brandi_TX on May 26, 2002 at 24:02:41:

You wrote…

“2. Should they not go for the first option, then foreclose and maintain the first note…”

I have never had to forclose on a second, so someone please correct me if I am wrong…

In order to foreclose on the second, wouldn’t you have to pay off the first - not just “maintain it”?


Thanks. - Posted by John Behle

Posted by John Behle on May 26, 2002 at 13:30:24:

Thanks. I enjoy posting from time to time. I kind of miss the old days so to speak where I could read every post and respond to most that I had input on. Way too many now - and way too little time.

Re: Problem with # 2… - Posted by JohnBoy

Posted by JohnBoy on May 26, 2002 at 01:08:50:

If you are the lender holding the second and foreclose on your loan then you only need to maintain the 1st. If the 1st is also in default then you would need to pay anything owed to bring it current and then maintain it after that.

Typically, the 1st would not require a second to pay off their 1st as long as the second maintains it.

Re: Problem with # 2… - Posted by CC

Posted by CC on May 26, 2002 at 07:12:34:

How does that work in maintaining the first? Do you just start making payments then have the lender start sending all correspondance to you? What exactly does a lender (1st position) require you to do if you get the 2nd and start paying on their 1st?