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Straightforward, Honest, Fair....The Way It Should Be.

    Some new consultants may think that just because they found a potential note seller and filled out a worksheet that it is a deal. That is far from reality. It only gets to the deal stage when a note holder says yes and accepts one of your offers. Then you have a transaction. As a Master Broker for private mortgage notes, a visiting instructor for the American Cash Flow Corporation and an experienced note broker and cash flow consultant I have all kinds of stories as to why a transaction might not get to closing. With over 13 years of experience buying and brokering real estate secured notes and with just under 1400 actual transactions closed I have had my share of transactions fall through. In looking over this year I wanted to share with you just some of the reasons why a transaction may not get to the closing table even after the note holder accepts your offer.

    We’ll start with the obvious (or maybe not so obvious) reasons of poor credit, poor appraisal and clouded title. One reason is that the payor could have poor credit. When the credit is poor the funding source will either pass on the transaction or lower their pay price to a more acceptable risk level for themselves. If you can’t get the seller to accept the "cut" the transaction is cancelled. Another reason for a transaction to be cancelled would be a poor appraisal of the subject property. A transaction will be cancelled immediately if the appraisal of the subject property turns out to be less than the balance on the note. If the appraisal comes in for less than what the property sold for then the funding source will have the option of lowering their pay price or canceling the transaction. If the appraisal value comes in acceptable but the property condition is less than desirable the funding source may cancel the transaction. The third most common reason for a transaction to be cancelled would be clouded title. Meaning that the title to the property is unclear. Maybe there is an old lien that was never satisfied, association liens, mechanics liens, delinquent property taxes or maybe the chain of title is out of order. All of these things could affect the value of the note and the risk level of the funding source purchasing the note. If the risk is too great the transaction will be cancelled. Let me also say that the funding sources will bend over backwards to make a transaction go through by getting the title cleared, coming up with different options when the risk is higher and by doing everything possible to get a particular transaction to closing. The funding sources do not make money if the transaction does not close.

    Some of the more strange reasons why some of my transactions this year have been cancelled include issues involving weather, disasters and untruthful sellers. In early February there were some torrential rains in San Antonio, Texas. I was working on a note that was secured by a mobile home with land. After the rains had subsided we were finally able to get an appraiser out to the property. When we received the appraisal back the mobile home had been washed away and all that was remaining was the wet land. Transaction cancelled. In Bullhead City, Arizona we were working on a note secured by a single family home in early summer. For those of you that don’t know this area of the country heats up very rapidly in the summer and quite often there are thunderstorms in the afternoon with lightning associated with them. Well, the subject property was struck by lightning and the entire electrical system to the house was burned out. Transaction canceled. (When the electrical system is repaired we will be happy to continue with our transaction).

    In the spring of this year I was looking at buying a small note for myself secured by a cabin in Lake Arrowhead, CA. Well, during the course of the transaction, (when we got the appraisal back) we discovered that the "cabin" had been burned down! No wonder the seller wanted to sell the note, the payor didn’t have any hazard insurance and all that was left was the charred remains of the cabin on a blackened lot. Transaction canceled. In June of this year we were working on a note secured by what we were told was a single family home, a residential property, in Denver, CO. However, when we received the appraisal back the property turned out to be a home that was being used as a dog kennel with 60 dog runs in the back yard, a commercial property! There was a big sign in the front yard that said "…Dog Kennel". Did the seller think we were not going to find out? We find out everything, which is why the funding sources do their due diligence. In this case the pricing changed because of the type of property and the seller argued with us until he was blue in the face. Long story short, transaction canceled.

    In the late summer, early fall we were working on a note secured by a mobile home with land in Kissimmee, FL. Well, we all know that Florida had several hurricanes roll through their state within about 4 weeks. The end result for me was the mobile home was severely damaged and the payors decided to move out of state. Which meant they had stopped making payments and thus defaulted on the note. What happened to my transaction, you guessed it, transaction canceled.

    I am not writing this to discourage you but to show you that sometimes things happen that are out of our control and that not every accepted deal would result in a closed transaction. My personal statistics over the last thirteen years suggests that I need to fill out approximately fifteen worksheets to get one note holder to accept an offer. Of those that accept an offer my personal statistic is that seven out of ten of those accepted offers will get to the closing table and funded. Stay positive, keep marketing and never stop until you succeed.

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Last edited:  11/14/08 08:15:02 PM