Armstrong Capital Newsletter

Over the last six months, we started to look at the different property types that notes are secured by. We looked at the different situations and the additional information that funding sources would like to know to initially give you accurate pricing. We have covered Residential, Mobile Homes with land, Condominiums, Commercial properties, land and properties sold with no down payment. This month we will cover some additional questions to ask the note holder as well as some requirements that need to be met when the note holder tells you they are holding a second position note.

Situations & Information Needed – Part 7

Second Position Notes

As you are talking to the note holder you will come across many types of properties and situations. With second mortgages there are more risks involved for the investor or funding source. There are too many negatives and we need some positives to help outweigh the negatives. Most of the time there are not enough positives to make it worth your while. Following are some good questions to ask and answers to get, in addition to the information on your mortgage worksheet, to help you be better able to recognize whether to or not to spin your wheels when the seller of a property carried back a second position mortgage.

Second Mortgages

Initially, the answer to these three questions will help you determine immediately whether to continue. If it is not current, the conversation is over. If it is current we use what we call the 1^st to 2^nd ratio. The size of the 1^st mortgage compared to the 2nd mortgage can be no greater than 4:1 for some funding sources and 2:1 for others. (Example: If the 2^nd mortgage has a balance of $20,000 the balance of the first mortgage can be no greater than $80,000. This is a 4:1 ratio). If the 2^nd mortgage does not meet these requirements it usually can not be sold to an institutional funding source. There may be some individual investors that would be interested in a second position note with ratios greater than the normal 2:1 or 4:1 ratios however there must be at least 10% cash down payment at the time the property was sold and the note created AND the buyer must have at least a 600 credit score or higher. Even if those criteria are met we are only talking about offers of 10-50 cents on the dollar. If you think these requirements are met then you can continue to ask a few more detailed questions such as:

- How did the buyer get the first mortgage? Did they assume it? Did they have to qualify for it?

- What is the balance, payment amount, interest rate, remaining term and account number of the first mortgage?

Keep in mind, what you are trying to do while completing the worksheet is to get the story behind the note. The more information we get up front the more likely the prices we get from the funding sources will not be cut later on down the road during the due diligence process. You will save yourself and the funding source lots of time and wasted effort by just asking a few pointed questions. Next Month we will look at some key questions to ask when the note is secured by a property with hazardous waste potential.

PS - Look for a special announcement email later this month about new programs to assist you with your marketing!

Armstrong Capital
800-845-3055
fax 818-865-2323
PO BOX 6517
Westlake Village, CA 91359
visit our website at www.armstrongcapital.com

Jeff is also the Editor of the Noteworthy Newsletter, a printed monthly publication. If you are new or experienced in the Cash Flow Industry I encourage you to check out and subscribe to the Noteworthy Newsletter, an indispensable newsletter for Note Brokers, Note Buyers and Real Estate Investors. Just click here and then click on "Newsletters" at the top of the page.

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Jeff Armstrong is president of Armstrong Capital and Editor of the NoteWorthy Newsletter, www.noteworthyusa.com. He is a member of the Million-Dollar Club, a Master Broker, visiting instructor for the American Cash Flow Institute, and the author of three best selling books. He can be reached by calling 800-845-3055, faxing 818-865-2323, e-mail jeff@armstrongcapital.com, or visit www.armstrongcapital.com and click on "Note Brokers" for questions and information about his Master Broker services, Mentorship program how Armstrong Capital can help you succeed.

Situations & Information Needed – Part 7

Second Position Notes

Second Mortgages