I received three calls last week from note sellers with payors who have low credit scores, small equity in the property, yet high interest rate yields on the notes. The note sellers were using pre-subprime meltdown criteria for guessing the value of their notes. One note seller summarizes perfectly the pre-subprime pricing criteria that many sellers are trying to hold on to.

This note seller had several notes with below 600 credit score payors, with 10% to 12% yield, along with the payors putting almost nothing down. I explained that in today's market, low credit and low equity notes translate into the 60% to 65% of face value range. He said he was looking for a Note Buyer who wants to purchase high yield notes without counting the credit worthiness of the payor, or the equity in the property. I did my best to try to explain to him that no longer is yield the main criteria for purchasing notes, but rather equity in the property, and the credit worthiness of the payors. He did not hear me. He went on to explain that subprime lenders did not lend out of the kindness of their hearts, but to achieve high yields, and this is what Note Buyers should be looking for.

Again I tried to explain. "If a $100,000 note has a 12% interest, and the note holder has to foreclose in the next year, what is his yield if the house has lost value of 10% to 15% and is worth only $90,000"? Still confused, he replied, "the high interest rate makes up for it." Maybe in his world, having a high interest note makes up for loosing money in the foreclosure process, but not mine. Did I mention this guy was a CPA? The last straw was when he insisted that having 30 notes at high interest, low credit, and no equity would also make up for having to foreclose on a few of the notes. In other words, "you might loose some money, but you will make it up in volume".

It was at this point that I started to bring this conversation to an end. I again pointed out that in today's market, Note Buyers are looking for security , as well as yield. A year ago a high interest note would command a good price, because real estate was going up in value almost nation wide. This is not reality now and may not be for several more years

Amazingly, he ended the conversation with "take my name and number in case you find a buyer who wants to invest a couple of million into high yield notes". Again I told him "maybe" if he was willing to take a 60% to 65% of the face value. But, he was not hearing a word I had said.

If you are about to sell your property using owner financing, get as at least !0% down. DEMAND IT. The lower the credit score, the more down payment you receive. Or you might do an 80-10- 10, where your owner finance 80%, the seller puts 10% down, and you carry second for the remaining 10%. This will make the Note Buyer feel a little more "warm and fuzzy" because the note buyer will have equity in the note should he have to foreclose. The interest rate should be around 9% to 11% depending on the credit scores.

Using owner financing is a great way to move your property. Just take steps to make sure your note is as valuable as possible. This way should you want to sell in the future, you will not loose money because you did not structure the note correctly.

If you already have these types of notes with high yield, low equity and low payor credit scores, I strongly advise the following:
1. keep good records of the monthly payments
2. keep copies of the checks and money orders, or the deposit slip
3. keep up with the property taxes and insurance payments
4. keep up with any changes in value of the property area
(If you need a payment history form, email me. I will be happy to send you one)

After the payor has established a payment history for approximately one year, there are institutions who are starting to loosen up , and may look at these notes more favorably. But for now selling low credit score notes is only advisable if you just need to get out of the note .

If you have a question on your note or a Note to convert to cash, contact me I will be happy to discuss your specifics.


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If you would like to learn the hands on mechanics of how to broker notes, you can bring a note to "co-broker" we will split the profits. I also pay referal fees for notes that are refered to me.

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