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National Mortgage Professional
Oct 06, 2008

Become the lenderJoe CornoFHA, VA, graduated interest payments, HUD I have been consulting with a retail tire franchise recently. This franchise uses balloons strung to their tires to raise attention of passing motorists to their retail store front. I am a grandfather, so I like using some of the balloons to give to children who come with a parent and are in the waiting area. The franchise has a certain color marquee and uses those colors of balloons. I use the odd colors to give to the children. Children are in amazement when they get handed a helium filled balloon. In about my third month of consulting, I realized the source of the helium-filled-balloon-excitement. It is not the balloon in itself that causes the excitement. It is the helium that causes the balloon to take flight. Children are astonished as a balloon tied to the string floats toward them. How can you make your business take flight? How can you utilize deflated properties and inflate them to becoming sought after deals? The answer: By converting your home purchasers into lenders and opening up a discarded target group. The investor is securing properties that the customers are not able to qualify to purchase as purchasers. Wow! That is a mouthful. Let me dissect the matter in explaining what I did as a retail broker. I, at times, would assist people by financing a small second mortgage. I would finance people who were struggling with default or potential foreclosure. I would evaluate risk, look at what would remedy the situation and work in their current financial crisis, and lend them a very short-term loan. I would have borrowers sign disclosures that the loan is a band-aid over a cancerous situation. The borrowers would adhere to a regimented strict finance plan (in which I supplied six written, instructional lessons), or they probably, and most likely, would lose their home to my company. I would not charge high interest or huge fees. I would have them sign a grant deed (except in the 13 original colonies which require attorneys) that I could record if they defaulted on a payment or pay-off. In the above scenario, I was not a home purchaser. I was a lender, and when I took over title, as a lender, there were no qualifying, no "subject to" assumption, or buyer fees. The first lien holder would simply accept my payments per lender rights and laws. My family and friends witnessed my increase in homeownership and wanted to invest in my notes. You can secure second deeds on properties that are not in financial conflict, as well. Another interesting thing happened: In states where taxes are based on purchase price, the taxes would not increase because it was a deed over (in lieu of foreclosure) and the tax base remained at the rate when the exiting owners purchased. I started pooling funds of family and friends (not recommended by this writer), and found that funds and family do not mix at reunions and gatherings. I found myself working with doctors, lawyers and accountants who had funds to invest. I started assigning the second deeds over to individuals that would potentially and ultimately receive ownership through default on the note that they purchased. Here is the Hitchcock twist to this relationship. They wanted to invest more because they were obtaining homeownership through lender rights and laws. They never needed to personally qualify or pay fees to acquire any first loan. I had investors obtaining Federal Housing Administration and Veterans Affairs (VA) loans (through the defaulting notes) that would have never allowed them to qualify as purchasers. Back in the days of "graduated interest payments," the investors/landlords (due to leasing out the acquired property) had legal right to increase rents, even in a rent freeze. This lender concept can attract and tap into the investors, not as purchasers, but as lenders of second deeds of trust. Certain states do not require licensing if you only fund second loans. The U.S. Department of Housing and Urban Development and VA defaults can be brought current with one of your second lien notes. During and at 90 days, if a payment is missed once or the note is not remedied with pay off, the previously signed and notarized grant deed is recorded and the lender (investor) takes the property away from the borrowers. Most of the time, it only takes a few thousand dollars to bring a default current. With the second loan, the borrowers have some breathing room to evaluate their circumstances, and to decide whether to work at paying the short-term debt off or initiate payment default to relieve them of the home payment. They benefit with a low rate and fees that can be added to the note balance. Please check your individual state "predatory lending" laws. Be sure to practice professionally and obey your specific state laws. In some states, if you finance a loan knowing that there will be no possible way for the borrowers to re-pay, this is considered a predatory act. The six lessons I provided protected me in all the states that I funded second loans in. In most cases, the borrowers did not change habits and did not follow the written instructions. They were pleased that they did not have a Notice of Default or Foreclosure attached to the credit record and were able to find a rental. Sometimes, it was one of my investors' homes that they would move into on a rent or lease-to-own. I hope the helium provided in this article has inflated your balloon againanother target group (investors) being overlooked and passed up. Make them lenders, not non-owner purchasers. You, as the finance company, can charge fees for securing and assigning the notes. You can receive monthly servicing fees for collecting payments and pay-offs. You can also manage (if so licensed) the properties that have been deeded over and became rental units for the private investing lenders. Fixing up and flipping could build up additional funds for privately-financed loans against more properties. As properties are removed off default and foreclosure lists are utilized for rental properties or improved and marketed again, what do you think would happen to your local property values? I love writing about target groups and concepts that benefit everyone involved. Those who did follow the written instructions kept their homes and became financially strong. They learned how to eliminate debt and remain financially independent. No, the six-lesson series does not include any multi-level marketing business, just common sense. If you have a specific need in your area, feel free to e-mail me. I love taking on specific target groups and concepts so that you can benefit. Joe Corno is president of Utah-based We Be Consulting and Seminars. He may be reached at (801) 836-2077 or e-mail [email protected]
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