Every MLS book contains thousands of dollars by-passed by agents who are focused solely, upon their commissions. Where? In the 'sold' listings that show the loans which encumber properties, including both conventional and private financing. This can be a ready source of cash for those who understand what happens.
Normally, a lender has no knowledge of a house sale until a title company or attorney contacts it to get an estoppel letter formally announcing the amount required to pay off the loan. That only happens after everything else has taken place. If a loan can be bought just before the closing, even a small discount can represent enormous yields. Being able to set up a program to continuously seek out these loans as they are generated allows even small profits to add up to a comfortable, high yield income stream. This might be ideal for a Roth IRA in which all profits can accrue tax free.
The trick is to contact the private lender and to buy the loan just prior to it being paid off. One way to do this is to be alert to privately financed mortgages on houses offered to sale to the public. You can usually get this information out of the MLS computer.
Suppose you'd sold your house for $100.000 and carried back a second mortgage loan in the amount of $25,000 at 7% payable over 15 years to make the deal? Each month you've been getting $224.71 and there's still $13,179.63 left to be paid out over the next 6 years. You receive a letter from me offering to pay, you $11,679.63 cash in full payment for your note; deal to be finalized within 30 days.
You'll have to give up $1,500, but you get your money 6 years sooner. No doubt there are a lot of things you could do with the money that would pay you more interest than the paltry 7% you've been receiving. Besides, with “cash in fist” you can stop doing all that record keeping and worrying about whether or not you'll receive the next payment,
What's your reaction? That's 89% of your loan balance, NOW! Most people would accept. The key, to their acceptance is the reasonable discount from the balance. And getting that much money can pay off credit cards and other personal debts that carry much higher interest rates. How can I afford to offer so much? Because it's ALL PROFIT! My little secret is that I buy Notes only on houses being refinanced!
My letter may contain $100 as Option consideration to offset your trouble in locating your paperwork, executing an assignment. and sending it in to the escrow company or attorney by certified mail. I offer to close the deal and pay the balance $11,679.63 to you only after you've sent in your ORIGINAL LOAN PAPERS and legally executed assignment to my Title Company (or Lawyer) for approval. I'm really just stalling until the new financing on the sale of your old home has been approved and the settlement date set.
In the interim, I drop a letter off to the closing attorney or title company informing them of my pending purchase of the note, and my expectation of providing them with an estoppel letter reflecting the current loan pay-off balance.
Immediately prior to the closing, having had my title company or lawyer send you $11,679.63, I next deliver the duly executed assignment of your Note/Mortgage along with my estoppel letter to the closing company for payment in full. In a few days I'll be $1500 or so richer. Usually, I'll make as much as the listing or selling brokers on the sale and WITH VERY LITTLE EFFORT.
If, for some reason, the deal doesn't close or the loan isn't refinanced, I just send the Assignment back and don't complete my purchase. I'm out $100, but that's a small price to pay for the profits I get. What would the annual yield be if I received $1500 profit in 2 weeks on a $11,679.63 investment? 333.91%? Nah!
