What is a Note?
A Note is a promise to pay. It is a written IOU from the borrower to the lender. This important document contains details of the terms and the agreements between the borrower & lender. There are 2 broad categories of Notes...Collateralized and Non-Collateralized. A collateralized Note provides security to the lender because the borrower pledges to give the lender something of value (house, car, 1st born child, etc.) if the borrower fails to repay the debt.
Where Do Notes Come From?
Notes are created when people borrow money and sign a document detailing the repayment agreement.
What is the difference between a Performing, a Non-Performing and a Re-Performing Note?
When a Note is Performing, it means that the borrower is making payments as prescribed by the lender. When a borrower stops making payments for more than 90 days, the Note is classified as Non-Performing. If a Note is non-performing and the borrower resumes making payments, the Note is classified as Re-Performing until the borrower's payments are back on track for 12 months at which time the Note's classification is restored to Performing.
What is a Mortgage or Trust Deed?
When Real Estate is pledged as collateral for a debt, the document used to memorialize the pledge is known as a "security" instrument. The 2 predominate forms of security instruments accepted by lenders are Mortgages and Trust Deeds (aka: Deed of Trust).
While there are some legal differences between these documents, either of these documents can be used by the lender to foreclose and take possession of the real estate if the borrower fails to pay the lender as required by the Note. In order to protect the lender's position, these documents should always be recorded in the county where the collateral is located.
Why do banks sell the Mortgage?
Banks sell Mortgages for a variety of reasons. Quite often they sell the Mortgage when the borrower has stopped making payments. These non-performing mortgages are packaged up in "bundles" and the entire bundle is sold at a deep discount in order to raise cash.
Banks also sell performing Mortgages to raise cash. These are typically sold after the bank has collected interest for a number of years and simply wants to do something else with their capital. Performing Notes are sometimes sold at slightly discounted prices to other Banks, Mortgage Lenders and Investment Firms seeking cash flow.
What if I want to sell my Note in order to do something different with my capital?
Much like stocks, bonds and real estate, Mortgage Notes are traded everyday. There is a vibrant marketplace where institutional Investors buy & sell Mortgage Notes secured by every type of real estate.
The process is fast and easy. Here at the ACI Legacy Group, we buy and sell Mortgage Notes for our own account as well as for our clients every day. If you are looking to purchase Notes for your portfolio please feel free to reach out. www.thenotementor.com
What is the difference between a 1st Mortgage and a 2nd Mortgage?
From a practical standpoint, there is no significant difference between mortgages. The terms 1st Mortgage & 2nd Mortgage describe when the physical Mortgage document was recorded in the County Recorder's office.
When a Mortgage document is recorded in the county it is considered to be a 1st Mortgage if there are no other Mortgages already recorded which have not been paid in full. Subsequent Mortgages are ranked sequentially as 2nd, 3rd etc.
In the event of foreclosure and re-sale of the property, the 1st Mortgage gets paid first. If there is any money left after paying the 1st Mortgage, the next recorded Mortgage gets paid. And the process goes right down the line for all recorded mortgages.
How do I foreclose if the Borrowers fails to pay?
This is the one question that is asked by nearly 100% of our clients.
If the borrower defaults, there are specific laws which dictate our rights as Note holders. These laws vary state by state and even county by county. Here at the ACI Legacy Group we have established relationships with a network of Foreclosure Attorneys nationwide.
If your borrower fails to pay as agreed and if you decided to foreclose rather than "work it out" with the borrower, we will manage the foreclosure process for you. The timeline for this process can be anywhere from 60 days to 2 years depending on the State & County where the property is located. Foreclosure costs typically range from $1,500 to $5,000 depending on the complexity of the case and the State where the property is located.
There are alternatives to foreclosing. We will review all of your options with you and weigh the pros & cons of each before deciding on a course of action.
What do you do with non-performing assets after purchase?
We have multiple options available to us as Note holders. We always start by reviewing your options with you. Based on your investment objectives, we will develop a plan that moves you toward your desired outcome. For example, we could contact the Borrower and offer to modify the terms of the Note in order to help them stay in the property or we could initiate a foreclosure action and arrange to sell the property with a local Realtor.
Once a plan of action has been decided, we then execute the plan and keep you apprised of our progress on a regular basis.
How do I get the money to buy a note?
Many note buyers get money through equity lines of credit on properties, cash savings and retirement accounts/self directed IRA’s, HSA’s and CESA. We have also seen people form small partnerships with friends and relatives to buy Notes.
Are notes a secure investment?
We believe that Mortgages Notes are more secure than the stock market or even owning the physical property.
We sell Notes that have strong collateral to back them up. Our Notes are offered at discounted prices below the unpaid balance due on the Note and thereby they have a built-in "buffer" to minimize the risk of loss.
Is more profit found in notes then owning the property? Why is this?
Since have been Investors since 1982. We have invested in Real Property and Notes. We have found that the Return on Investment is just as strong and sometimes stronger than those generated by property. This is especially true when you consider the value of the personal time invested into each investment.
Notes tend to be "hands-off" while property requires a great deal of your time.
Why are Notes sold at discounted price?
Performing Notes are traded at discounted prices in order to provide the Buyer of the Note an opportunity to earn a higher "yield" than the actual Note interest rate.
Non-performing Notes are discounted in order to attract Investors that want to "work" the Note and attempt to resolve whatever problems exist with the Note. This is similar to Investors that buy "ugly houses" at a discount and invest the time and money to make them pretty again.
What do you mean when you say I am like the bank?
As a Note holder, you are literally the "mortgage company" to the property owner. We suggest that you use one of the professional "Servicing" companies that we recommend to interact with the property owner.
However, you own the Note and you have the option to "self service" the Note and deal with the property owner directly.
What kind of returns should I realistically expect?
Every Note has a rate of interest incorporated within the document. This is the rate that the Borrower has agreed to pay.
Whey you buy a Note you are entitled to receive that interest rate. However, when you acquire the Note a price which is less than the unpaid balance, your Yield or ROI is actually more than the stated rate in the Note.
How much of a discount you receive on the Note depends on a number of factors including risk and the motivation of the Note Seller.
The deeper the discount the higher your potential return will be.
How long after I purchase the note will I receive the assignment/collateral from ACI?
In most cases you will receive the transfer documents within a few days. However, since some of the documents must be recorded in county Recorder's office, it could take as much as 30 days to receive the original documents.
What do you do with non-performing assets after purchase?
Before we buy any asset we develop an "exit strategy". As soon as we own the asset, we begin taking the appropriate steps to implement the plan.
If we are in a Joint Venture arrangement with an Investor, we review the options with our JV partner and after coming to an agreement, we begin executing the strategy.
How do you determine the value of the collateral property?
We use multiple sources to estimate the value of the collateral. We have relationships with a nationwide network of licensed Real Estate Agents.
We hire a local agent to provide us with an opinion of value. We also use the algorithms developed by Zillow, Realtor.com and the National Association of Realtors (NARRPR) to provide insight into the property's value.
Can I sell a note?
Owning a Note is much like owning any other investment asset (rental house, stock, etc).
When you decide to exit your investment, simply call us and we will sell you Note for you. Selling a Note can be a faster transaction than selling real estate. You could have your sale proceeds as fast as 7 days but in most cases a few weeks is more realistic.
How long does it take to set up a note with a Servicer?
All of the Notes that ACI sells are already being serviced by a licensed servicing company. You can simply retain the same servicer to close the transaction. Once you own the Note, switching servicers is as simple as making a phone call and completing the servicing transfer package with a new servicing company. The two companies will handle the details of the transfer.
If there are delinquent taxes on a property, should I stay away from the deal?
Delinquent taxes do not go away, even if bankruptcy is filed. They have to be paid by someone. When you are looking to invest, figure the delinquent taxes into the scenario. If the numbers work, it may still be a good deal.
How is my money secured?
Your investment dollars are secured by the real estate pledged as collateral. We suggest to never pay more for a Note than the market value of the real estate which serves as collateral.
How can I use Notes to create passive income for myself and my family?
ACI provides Investors with secured Notes that pay interest every month. These are called Performing Notes. These Notes often provide a more reliable stream of income than rental properties without the headaches of being a landlord.
Does ACI foreclose against the homeowner?
At ACI we want to help people keep their property, however there are times when that is not a practical reality.
We have a professional loss mitigation department which will handle the foreclosure process for any of our clients or partners. One phone call starts the process and we manage every aspect of the process. We keep you "in the loop" as we work through the foreclosure notice process, auction process and ultimately the eviction process.
Upon request, we will also manage security and the sale of the real estate after foreclosure.
Where can I buy institutional Notes?
Institutional notes can be purchased through ACI or other banks and servicing companies.
I am interested. What is the next step?
If you want to get started, simply call us at (800)238-9840 and ask to speak with Patrick Franz, our Note Investment Strategist. We will help you develop an action plan based on your specific situation. It's a free consultation and there is no obligation to invest with or through the ACI Legacy Group.