Tag Archives: real estate

Brown and Gray in California

Although this article does not deal directly with real estate, mortgage notes, or mortgage note buyers, overall economic conditions and state regulations affect all of these areas and more.  I share the information below to make the readers aware of what is happening in California and the path that we are heading down. 

Leading up to the election a few weeks ago, Californians experienced a barrage of TV advertising and seemingly signs on every street corner telling us to vote for Proposition 30, which would raise the sales tax ¼ percent-point and increase the income tax for anyone making over $250,000 per year.  Failure to pass the proposition, we were told, would mean massive budget cuts, especially to schools.  The implied message was that “if you care about children, you have to vote for this law.”  A majority of under-informed voters bought that argument, and the proposition easily passed.

Shortly thereafter, the legislative budget analyst assured Californians that the budget would soon be balanced.  “Yeah, we’re saved,” cheered the masses.

The problecalifornia-BANKRUPTm is that higher taxes do not lead to higher revenues, especially for a poorly managed, economic basket case like California.  According to the state controller and Mish, November’s tax receipts were $807 million below expectations, and overall revenues are below target since the fiscal year started in July.  Meanwhile, actual expenditures were $2.2 billion higher than expected.  Throughout the first five months of the fiscal year, the state has already put itself in a financial hole.  The higher taxes kicking in next month will only hurt economic growth and drive investments to other states.

Bloomberg has started running a series of articles about how California got to be such a fiscal mess.  It started when Jerry Brown granted collective-bargaining rights to state workers during his first term as governor more than thirty years ago.  Gray Davis, who was recalled by voters in 2003, made a further mess of things by giving public unions nearly everything they asked for.  Not coincidentally, the unions were exceedingly generous in their donations to his political campaign.  Jerry Brown, elected again a couple of years ago for another term as governor, is continuing down that path.

The list of despicable actions by Brown and Gray Davis is long, but here a few examples comparing California to the next 11 most populous states, courtesy of Bloomberg:

* California public employees earned more than their counterparts in nearly every type of compensation – wages, overtime, extra duty, and one-time lump sum payments.
* Brown has chosen not to curb overtime expenses or limit payments for accumulated vacation time despite the state’s budget problems.
* The per-worker costs of delivering services in California vastly exceed even those in other collective bargaining states like New York, New Jersey, Illinois, and Ohio.
* Californians have suffered through ongoing budget deficits over the past decade, and now face the country’s highest debt and Standard & Poor’s lowest credit rating for a state.
* 240 California state employees received at least $100,000 in accrued leave payouts last year, compared with 42 for all of the other 11 states combined.  Chris Christie, the governor of New Jersey, calls such payments “boat checks” because they can be large enough to buy a yacht.
* When Davis took over as governor in 1999, he unwound curbs put on pensions, leading California’s annual payment to pension obligations to go from $300 million that year to $3.7 billion in the current fiscal year.

Prison guards, highway patrol troopers, prison guards and nurses, and other public employee unions have made out like pigs at the trough of taxpayer money.  Despite the escalating financial crisis in the state, public employee unions have made only minor concessions.  The governor and Democratic legislature continue to insist that the state has a revenue problem instead of recognizing that it is entirely a spending problem.  Since that philosophy is unlikely to change, I’m confident in predicting more propositions for higher taxes within the next four years.

Finding a Floor in Housing

“U.S. home prices rose in September for the sixth straight month, signaling that the housing market is in the midst of a recovery” screamed the headline in MarketWatch earlier this week.  Indeed, there has been positive news for housing lately.  Besides rising home sales and prices, foreclosures have been declining and stocks of homebuilders have done well this year.  Prices have risen significantly in Phoenix and some coastal areas in California and Florida, with numerous stories of bidding wars and sellers’ markets.

Consumer confidence has also reached up to levels not seen in the last few years, and housing is seen by most economists now as more of a help than a hindrance to the general economy.  One large financial institution is predicting that home prices will increase 4-5% annually for the next several years.  On the note buying side, some of my fellow mortgage note buyers are acting like we have returned to the glory days of 2005 and 2006.  Clearly, the media and many “experts” believe that the real estate recovery is well underway.

Is the housing recovery sustainable in the short (< 2 years) and medium-term (2-5 years out)?  In the short term, anything is possible, so I would not even hazard a guess unless I could read the minds of politicians (though I’m sure that I would not like what I would find if I could).  Over the medium-term, any recovery is susceptible to headwinds, including:

1. Falling household incomes and high household debt, in combination with a high unemployment rate, means that most families are in no position buy a house.  The banks are still being fairly tight with real estate loans too.
2. A large percentage of current home buyers are investors (27% in 2011) or foreigners (including Chinese looking for a safer place to park their cash).  These are groups that are more volatile than typical homeowners and are likelier to jump ship at the first sign of trouble.
3. Lots of mortgages are still in trouble.  There are 1.6 million homes in some form of foreclosure backlog (per RealtyTrac), 2 million foreclosures in progress, between 1.5 million and 4 million homes at least three months behind on payments (per Barclays Capital Research), and 10 million mortgages underwater.  There have been 5 million completed foreclosures since 2006, out of 50 million households carrying a mortgage (per Dr. Housing Bubble).
4. Interest rates, currently around 3.5% for a 30-year fixed loan, have been held unnaturally low by the Fed.   Those rates must and will go back up, making loan payments more difficult for many.
5. The federal government is involved in nearly every mortgage loan out there.  This is the same government with trillions of dollars in debt that it has no way of paying back, where the Federal Housing Administration will soon need a bailout, and where a change to the mortgage interest deduction is being considered (though I don’t think the deduction will change much).

When considering what will happen with the U.S. real estate market, we must also consider indirectly related factors and competing investments like the stock market, real estate trends in other countries, world economies, and similar characteristics.  When I look at the structural issues facing the U.S. and other major economies, along with the continued ineptness of politicians and bureaucrats, it is hard to be optimistic about most investment types.  I’ll go out on a limb to predict that any current recovery will be short-lived and that housing prices will be at least 10% lower in five years than they are now.  Feel free to call me at the end of 2017 to either congratulate or ridicule me for my prediction.

Selling a Real Estate Note 101: Best tips for selling and buying a mortgage note

Welcome back to our series “Selling a Real Estate Note 101”. If you have been following along, hopefully you have gained a basic understanding of what is a mortgage note, the process of selling your mortgage note, how the value of your note is determined, what to look for in mortgage note buyers, and some knowledge of your note sale options. If you would like more information on any of the above topics, please call us directly so we can help answer your questions.

Now that we’ve covered the basics, we wanted to summarize the most important tips for selling a mortgage note (also called a real estate note or promissory note), and helpful tips on how to create a mortgage note for a future sale.

Best tips for selling a mortgage note:

  1. Familiarize yourself with the process of selling a mortgage note, how the worth of your note is determined, and what to look for in a mortgage note buyer- BEFORE you start requesting quotes. Having your paperwork and questions on hand when speaking with potential note buyers will facilitate the process of negotiating the sale of your note.
  2. Explore your options; every mortgage note is different. For example, selling only some of your payments (known as a partial) may be more advantageous for you and may offer a higher rate of return. A trusted and reputable note buyer can help you determine your best options.
  3. Verify that there are no upfront fees to the seller (with few exceptions), as these are already figured into the purchase price.
  4. Make sure the mortgage note investor checks the credit of the payor/buyer upfront to avoid any sudden drop in purchase price quotes due to unforeseen credit issues.
  5. Review your written purchase agreement with a Real Estate Attorney, if possible.

Seascape Capital Best Tips for Selling and Buyer a Mortgage Note

Tips on creating a mortgage note for owner financing (also called seller financing):

If you currently hold a note that you may consider selling in the future, one option is to sell your real estate note to a buyer using owner financing. Some of the common reasons people choose owner financing include: attracting more potential buyers for your property, offering more flexible terms (often the case when working with buyers who are not able to obtain financing through a bank), or managing a sale between family members or as part of a divorce agreement. These tips can help you create value and structure your mortgage note for an optimal sale through owner financing.

  1. The larger the down payment, the better. For residential, a down payment of 10% is ideal, 20-30% for commercial notes.
  2. The more equity in the property, the better. This is achieved, in part, with the down payment mentioned above, as well as principal payments received. This adds value to the mortgage note.
  3. Consider the credit of the buyer and always obtain a current credit report. Ideally, the credit score should be 600 or above (the higher, the better). Their credit rating can influence the value of the note and can play an important role in determining a down payment to protect your property.
  4. Make sure that the sales price is aligned with current market values and that interest rates are comparable to bank rates.
  5. As with most real estate, the condition of the property is another important consideration when creating value for your note. A note will be worth more when the property is in good condition, located in a desirable area (with access to power and water if it is a land contract), and is currently owner-occupied and well maintained.

Whether you want to sell your mortgage now or in the future, we hope you find these tips helpful. If you have any insight that you would like to offer our readers based on your experiences with selling notes, or would like us to address any particular topics of interest, please share them in the comments below. As always, thanks for reading and please feel free to pass this information on to others!

A hassle-free request to
Get an offer for your note

To ask questions or for a pressure-free discussionCall 1-800-634-4697

Selling a Real Estate Note 101: Can I only sell part of my mortgage note?

Can I Only Sell Part of My Note?Selling a mortgage note (also called a real estate note or promissory note) can be confusing, especially if you are a first-time note holder and have never worked with a note buyer before.  This “Selling a Real Estate Note 101” series is designed to be a resource for those people.

In a previous post, we covered the common reasons why people sell their mortgage notes and how that process works. What we haven’t addressed yet, however, is the option to sell just part of your mortgage note (also called a partial). Here are some of the common questions about partials.

Why only sell part of the note?

  1. In tough economic times, the note seller may not be able to find a buyer for the full value of the note (or the seller would have to take a bigger discount). For more information on how the value of a note is figured, please read What is my mortgage note worth?.
  2. Sometimes the seller only needs a small sum of cash for a particular purpose (college tuition, unexpected medical bills, to reinvest, or pay down debt, for example).
  3. Selling a partial note provides the seller with immediate cash flow now while getting the note back in the future (once the partial sale’s terms have been fulfilled) to collect remaining scheduled payments.
  4. The seller also gets the flexibility to sell another part of the note at a later time, if they wish.
  5. A partial note sale will often yield the seller more money for their note in the long run.
  6. Another advantage to the partial note seller may be the delay in some of the capital gains taxes.
  7. It is easier to find a mortgage note buyer since buying a partial note is considered a less risky investment.

How does a Partial work?

  1. In a full note sale, the buyer purchases the entire amount of the note, meaning all of the remaining payments. In a partial, the buyer agrees to buy part of the note, usually in the form of a specified number of payments (e.g. 60 monthly payments), or a specified amount of the balloon payment. There are even partial sales (called a split partial) where the note seller and note buyer split the monthly payments. For more information on the different options for partial note sales, please contact us.
  2. Typically, note investors require a minimum note balance of $50,000 before they will consider investing in a partial note.
  3. The process of selling a partial mortgage note is very similar to selling a full note. Please refer to our post on Should I Sell My Mortgage Note? for more information on the process and paperwork required to get started.

The bottom line is that a partial can be a win-win when it reduces the amount of discount the
seller takes and makes for a more secure investment for the buyer. To talk about your options
with a partial sale or just have your questions answered, please give us a call.

Next week, we will be covering more important tips for selling a mortgage note. Please
comment below to let us know if you have found this information helpful or if you have been able
to share it with someone who has. We invite any and all feedback!

How to Sell Mortgages — The Recessionary Gene

As our national and global economies continue to be battered by nasty headwinds, it is useful to step back and gauge the place in which our economy rests.  Is the economy showing real growth, are we in a full recession, or somewhere in between?  In my mind, we can clearly cross out the first option.  Payroll reports, unemployment, exports, manufacturing, etc. are weak, with very few bright lights to reassure us.  Yes, in real estate, rents, home prices, and home sales are up slightly nationwide but keep in mind that these are from depressed prior numbers.  If you use to make $10,000 per month in salary, then went to $5000 and recently bounced up to $5500, that would be a big 10% increase from the bottom in percentage terms, but probably would not particularly excite you.  The same is true in real estate, and I expect prices to stay mostly flat for at least the next couple of years.

The U.S. does not meet the technical description of being in a recession, which is defined as two consecutive quarters of economic contraction.  However, by other definitions such as that used by the International Monetary Fund, both our country and many others across the globe are definitely in a recession.  Even our politicians, who are not exactly known for their honesty and candor, aren’t claiming that we’re in good times.  Let’s look at a few examples of what is happening.

Last week, we learned that the city of Scranton, Pennsylvania had only $5000 left in the bank and slashed all public worker wages to $7.25 per hour, including that of the mayor.  San Bernardino (population $209,000) just filed to be the third California city in two weeks to file for bankruptcy.  You can bet that many other cities are close behind.  The consistent theme across most problem municipalities is deficit spending, high union wages, and ridiculous pension obligations.  Often, bankruptcy is the only way to reduce costs and have a hope of returning a city to prosperity.

As I have harped on before, the economy needs to find its natural bottom in order to fully recover.  Instead, federal and state governments continue to offer silly programs that have been proven failures in the past.  A favorite quote that I recently saw was “Government – If you think the problems we create are bad, just wait until you see our solutions.”  The governor of California is getting ready to sign a law that will make it harder for lenders to foreclose.  A few parts of this law make sense and I agree with, namely (1) not starting foreclosure in parallel while doing a loan modification, (2) requiring banks to assign one group of employees to handle individual mortgage situations, and (3) banning robo- signed documents.  The rest of the bill is a mess which will only drive up costs for lenders, who will in turn pass those costs along to consumers.

At the federal level, the Federal Housing Administration (FHA) is in trouble.  The FHA insures loans requiring only a 3.5% down payment, and accepts payers with credit scores as low as 580.  The FHA, along with fellow government-associated entities Fannie and Freddie are responsible for 90% of home loans in the U.S.  The number of delinquent loans with FHA soared in the first quarter of this year by 27% from the first quarter of 2011, while foreclosures jumped 17%.  Meanwhile, nearly half of all government-guaranteed mortgages that had been modified defaulted again within 12 months (source: 7/9/12 CNN Money).

The FHA model is clearly broken and the taxpayers will have to ride to the rescue to save it.  You do the math – if only a 3.5% down payment is needed but it later costs 5-6% in realtor commissions and 2% in other closing costs, then the property is upside down even if its value remains stable.

Over on the monetary side, the Federal Reserve keeps interest rates low (punishing savers), constantly throws money into the market, and snuggles up with the big banks.  Nothing that they have done so far has worked, and they are unlikely to succeed in the future.  As Simon Black stated, they have a “ … false premise which guides their decisions in that we can all grow wealthy by borrowing and consuming instead of by producing and saving.”  Our society has pushed this approach in recent decades and it is now time to pay the piper.  The command-control political elites have this “recessionary” gene that causes them to make decisions sounding good to the slow learners but that defy common sense in every way.  Until they get out of the way, we cannot experience a true recovery.

Alan Noblitt is a note buyer who also helps people who want to know how to sell mortgages.  For information on how to sell mortgages, go to the Articles section of the website or click on the red You Tube button found on most of the pages.
The U.S. does not meet the technical description of being in a recession, which is defined as two consecutive quarters of economic contraction.  However, by other definitions such as that used by the International Monetary Fund, both our country and many others across the globe are definitely in a recession.  Even our politicians, who are not exactly known for their honesty and candor, aren’t claiming that we’re in good times.  Let’s look at a few examples of what is happening.

Last week, we learned that the city of Scranton, Pennsylvania had only $5000 left in the bank and slashed all public worker wages to $7.25 per hour, including that of the mayor.  San Bernardino (population $209,000) just filed to be the third California city in two weeks to file for bankruptcy.  You can bet that many other cities are close behind.  The consistent theme across most problem municipalities is deficit spending, high union wages, and ridiculous pension obligations.  Often, bankruptcy is the only way to reduce costs and have a hope of returning a city to prosperity.

As I have harped on before, the economy needs to find its natural bottom in order to fully recover.  Instead, federal and state governments continue to offer silly programs that have been proven failures in the past.  A favorite quote that I recently saw was “Government – If you think the problems we create are bad, just wait until you see our solutions.”  The governor of California is getting ready to sign a law that will make it harder for lenders to foreclose.  A few parts of this law make sense and I agree with, namely (1) not starting foreclosure in parallel while doing a loan modification, (2) requiring banks to assign one group of employees to handle individual mortgage situations, and (3) banning robo- signed documents.  The rest of the bill is a mess which will only drive up costs for lenders, who will in turn pass those costs along to consumers.

At the federal level, the Federal Housing Administration (FHA) is in trouble.  The FHA insures loans requiring only a 3.5% down payment, and accepts payers with credit scores as low as 580.  The FHA, along with fellow government-associated entities Fannie and Freddie are responsible for 90% of home loans in the U.S.  The number of delinquent loans with FHA soared in the first quarter of this year by 27% from the first quarter of 2011, while foreclosures jumped 17%.  Meanwhile, nearly half of all government-guaranteed mortgages that had been modified defaulted again within 12 months (source: 7/9/12 CNN Money).

The FHA model is clearly broken and the taxpayers will have to ride to the rescue to save it.  You do the math – if only a 3.5% down payment is needed but it later costs 5-6% in realtor commissions and 2% in other closing costs, then the property is upside down even if its value remains stable.

Over on the monetary side, the Federal Reserve keeps interest rates low (punishing savers), constantly throws money into the market, and snuggles up with the big banks.  Nothing that they have done so far has worked, and they are unlikely to succeed in the future.  As Simon Black stated, they have a “ … false premise which guides their decisions in that we can all grow wealthy by borrowing and consuming instead of by producing and saving.”  Our society has pushed this approach in recent decades and it is now time to pay the piper.  The command-control political elites have this “recessionary” gene that causes them to make decisions sounding good to the slow learners but that defy common sense in every way.  Until they get out of the way, we cannot experience a true recovery.

Alan Noblitt is a note buyer who also helps people who want to know how to sell mortgages.  For information on how to sell mortgages, go to the Articles section of the website or click on the red You Tube button found on most of the pages.