MYTHS
FACTS
There are note funds that pitch investors with promises of high yields. The fund owns the notes, collects the payments, and promises to send money to investors. In the past few years, several note funds have been shut down by the SEC, and investors lost millions. This is why I do not allow note funds to exhibit at our Paper Source conferences. Some funds are prob- ably legitimate and run by good people, but I recommend that you buy a note directly from a property seller, get the original note signed over to you, and have all the other documents. Get the note, not a promise.
“YOU CAN BE A PASSIVE INVESTOR IN NOTES.”
In three decades of note investing, I have never foreclosed. There are alternatives to eviction: You can lower the amount of the payment to what they can afford and extend the term of the note. You can ask them to move (yes, that sometimes works). You can help them find another house. You can pay them to move (a.k.a. “cash for keys”).
“YOU MUST BE WILLING TO FORECLOSE.”
When you buy a non-performing note, you are buying a job. The job is to either work with the debtor to make the note re-perform-
ing, or to foreclose. If you try to make it reperforming, you become a “debt collector” as defined by the federal
Fair Debt Collection Practices Act and most state laws. You must comply with the requirements of those laws, and you may have to be licensed. (A friend who has bought non-performing notes for years says, “I have learned that 99 percent of hunting down delinquent debtors is a waste of time.”) The alter- native is to do nothing and hope that someday the debtor will try to sell the property and discover they can’t without paying you a lot of money. Non-per- forming notes are not easy and have more unknowns and “excitement” than most investors can stand. If none of that discourages you, and you have the time, knowledge, skills, and temperament, then go for it. It can be very profit- able. But beware: always take title to the note, and do not buy into a fund.
“NON-PERFORMING NOTES ARE A PASSIVE INVESTMENT.”
A few years ago, this was true for junior lien non-performing notes, but that ship has sailed. Today, if you buy a non-performing note for pennies on the dollar, you will get what you pay for.
“NON-PERFORMING NOTES ARE SOLD FOR PENNIES ON THE DOLLAR.”
> Continued on :: PG 81
W. J. Mencarow has been investing in notes and real estate since the 1980s. He offers a free e-course on notes at www.PaperSourceOnline.com.
32 | think realty housing news report :: october / november 2019
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