Delbert M.

Ashby


© Copyright 1994-2004 by Delbert M. Ashby
All rights reserved under the laws oI the United States and provisions oI the Pan-
American and International Copyright Conventions. This book may not be
reproduced in whole or in part. in any Iorm or by any means. electronic or
mechanical - including photocopying. recording or by any inIormation storage
and retrieval system now known or hereaIter invented - without express written
permission Irom the publisher. This document is Ior inIormation purposes only.
Published by:
THE WELLINGTON COMPANY. INC.
2579 Rutland Road
Davidsonville. MD 21035
First Printing 1994.
Electronic Version Published 2004 by The Paper Source. Inc.
Library oI Congress Catalog Card Number: 94-61113
ISBN 0-9642690-0-7
The ideas and suggestions contained in this book have been researched and
applied in actual cases by the Author. This publication is designed to provide
accurate and authoritative inIormation in regard to the subiect matter covered. but
it is sold with the understanding that the publisher is not engaged in rendering
legal. accounting or other proIessional service. II legal advice or other expert
assistance is required. the services oI a competent proIessional person should be
sought. The Author and Publisher speciIically disclaim any liability. loss. or risk.
personal or otherwise. incurred as a consequence directly or indirectly oI the use
and application oI any oI the contents oI this book.

Printed in the United States oI America
ABOUT THE AUTHOR
Del Ashby is a mortgage investor. real estate investor and
businessman with more than 20 years experience. He is President
oI Charter Capital Corporation. a privately held mortgage
investment Iirm. He is also President oI The Wellington Company.
Inc. which publishes his educational materials and manages his
training seminars.
He originally taught "High Yield Investing in SaIe Discounted
Mortgages" at the University oI Maryland. He wrote a continuing
education newsletter Ior the mortgage investing community. He has
taught hundreds oI people how to make money and invest saIely in
the discounted mortgage business. Many oI his graduates continue
to be involved with his companies either as investors or as note
sellers/brokers.
He has consistently been reIerred to as one oI the most
knowledgeable people in the business. His natural teaching skills
along with extraordinary patience makes his training seminars on
the subiect an easy way to learn the business. His accessibility by
telephone aIter the Iormal trainin. to tutor his graduates is unusual.
He has owned and run several companies and has invested in
everything Irom residential housing to hog Iarms. This unusual
diversity makes him a popular speaker at real estate and investment
Iunctions.
His early career was spent working Ior others in the electronics and
computer business. StiIled creativity and the need Ior Ireedom to
control his own destiny pointed him to his own business in 1974.
ACKNOWLEDGEMENTS
AIter many hours burning the midnight oil in writing this book. I thought I had
done it all.... by myselI. Then I Iound out what was yet to be done. My adult
daughters. Cheryl Ann in Michigan and Tracie Marie in Oregon agreed to edit
it. I told them to tear it apart without sparing my Ieelings. They did. and boy did
my Iirst version need it. They invested many hours in reading and actually
working the numerical problems in the book. Without their help. the results
would have been impossible.
Gerry. who has been by my side since I was nineteen years old. was the real
backbone oI the proiect. Not only did she put up with my moods and late hours
but she handled so much oI the work herselI. She handles all oI the Iormatting.
desktop publishing. reIormatting and more. From my point oI view. she is a Iull
partner in what went into this book. It could not have happened without her.
Finally. there was the encouragement. support and help oI special Iriends.
Among them were George Spiers. a very exceptional mortgage expert and
Margaret Clary. a proIessional in the writing and publishing business.
To these and many others who Iinished the iob aIter I thought it was done. I
acknowledge and thank you Ior your contributions to this work.
This book is dedicated to two groups of
people.
First. there are those who taught me the business.
Thev are Mr. Jimmv Napier. Mr. Mike Meeker. mv
past students and mv customers.
Second are those people who want more than
mediocritv out of life and are willing to seize the
opportunitv. with all the commitment and hard work
it takes. to achieve for themselves and those thev love.
TABLE OF CONTENTS
INTRODUCTION
CHAPTER 1
HIGH YIELD MORTGAGE INVESTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
· The Basic Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
· In Real LiIe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
· How We Become the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
· Here Is How it Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
· That's Where We Come In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
· Here is How You Make Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
· Why Isn't Everybody Doing It? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
CHAPTER 2
THE NATURE OF A MORTGAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
· Security Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
· The Investment Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
CHAPTER 3
SAFETY ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
· Basic Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
· Protective Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
· He Forged Her Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
· We Will Have An Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
· Ordering a Credit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
· SaIety oI Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
· Make Sure the Paperwork is Done Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
· In Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CHAPTER 4
FINDING THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
· Private Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
· A More Direct Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
· Real Estate Sales People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
· Research Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
· Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
· Contacting the Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CHAPTER 5
NEGOTIATING THE PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
· The Average Note Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
· Alternative Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
· Discover the Note Seller's Need and SatisIy It . . . . . . . . . . . . . . . . . . . . . . . . 30
CHAPTER 6
PRICING THE NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
· The Cash Flow Stream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
· Lump Sum Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
· A Combination oI Both . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
· Assessing the Note Ior Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CHAPTER 7
GETTING THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
· AIter You Have the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
· What Will We Do With the Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CHAPTER 8
THE DOCUMENTATION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
· The Three Initial Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
· The Next Set oI Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
· The Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
· Senior Debt Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
· Senior Loan Status VeriIication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
· Estoppel AIIadavit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
· Commercial Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
· In Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
CHAPTER 9
CLOSING THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
· II You Plan to Keep the Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
· Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
· Post-Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
· Settlement Process Ior Note Resales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
· Post-Settlement Ior Resales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
CHAPTER 10
THE INCREDIBLE POTENTIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
· Using Borrowed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
· Using Your Own Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
CHAPTER 11
THE FINANCIAL CALCULATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
CHAPTER 12
ADVANCED PRICING STRATEGIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
· The Builder's House . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
· It is a Word Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
· The Periodic Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
· The Lump Sum Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
· II We Buy the Entire Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
· Let's Think Creative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
CHAPTER 13
THE BIGGER PICTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
· The Time Value oI Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
· International and Other Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
· Now You Know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
· The Process in Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
USING THE FINANCIAL CALCULATOR . . . . . . . . . . . . . . . . . . . . . . . . . . 67
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
CASE HISTORIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
APPENDIX C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
ANSWER KEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
APPENDIX D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SAMPLE DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
AFTERWORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
IN1RODUC1ION
Each of us has twenty-four hours a day and the right of self determination.
Yet, in terms of earthly possessions, only a few excel to the extent of having
more than we will ever need. That should give each of us cause to wonder why.
Why not me? Does the other person know something that I don't?
Yes, he does.
There exists a private market, a private network of people with knowledge and
connections, who somehow achieve what the average person does not. Do they
work harder? Are they inherently smarter? Do they aspire for more? What
makes the difference, anyway?
What you are about to learn is not new. I learned about it in 1959 and it had
been around almost as long as time even then. At that time, I didn't believe it.
I thought it was too good to be true. If only I had pursued it then, time would
have worked wonders.
Even now, only a few people will come to understand and take advantage of this
knowledge, act on it and make something happen for themselves and those they
care about.
I hope that you will be one of them.
7~· -·.é.
MAKE MONEY TRADING MORTGAGES
10
CHAPTER
HIGH-YIELD MORTGAGE INVESTING
elcome to the world oI high-yield mortgage investing. Never again
will you want to accept the paltry returns available Irom banks and other
lending institutions. Once you understand this investment. you will realize
that a high return on your investment does not necessarily mean high risk.
II you know what you are doing and use common sense. you will Iind that
mortgage investments can be saIer than government bonds. In this book.
you will discover how this amazing investment works and why you should
never accept less than a double-digit return on your money...and you can
oIten earn much more. You will also discover that you can create a
business oI buying and reselling mortgages that can be very lucrative. It
can be run on a Iull- or part-time basis. There are many other creative
approaches to using these investment vehicles. as you are about to learn.
The Basic Concept
II you owned a house which you rented to tenants at $1.000 per month and
that house had cost you $100.000 to purchase. what would your return on
your investment be? You would have $12.000 per year income on a
$100.000 investment. That is a return oI 12°. Suppose you were to Iind
an identical house Ior sale in a situation where the seller was desperate to
sell and you were able to buy it Ior $50.000. Since you bought it Ior halI
price. would you rent it Ior halI the normal rent? OI course not. You
would still get your $12.000 per year rental income. With only one halI
MAKE MONEY TRADING MORTGAGES
11
as much invested. what would your return be? Twice as much as on your
Iirst house? Exactly. Think careIully about this concept. Simply put.
when we invest in something that produces income. the less we pay Ior it.
the better our return. as long as the income stays the same.
In Real Life
In real liIe. iI you bought either house. where would most oI your rental
income go? Would it not go to pay the bank Ior the mortgage loan you
took out to buy the house in the Iirst place? The bank gets the money
while you put up with the tenants. Iix the toilets. and put up with all the
other problems oI property ownership. Wouldn't you rather be the bank?
That's what the private mortgage business is all about. You become the
bank.
You don't have the money. you say? Where does the bank get the money
it loans you to buy that rental house? Doesn't the bank borrow it Irom you
and their other customers by way oI savings and checking accounts? And
what about the money you loan them through those high return CD's? Do
they make a proIit on your money? Couldn't we buy mortgages with
borrowed money? You bet we can. and we do. You can too.
What happens iI you don't make the mortgage payments on the house you
bought with the money you borrowed Irom the bank? They will take it
away Irom you. won't they? Could we play by the same rules in protecting
our investment? Absolutely. And. by the way. do you think the bank ever
makes a proIit on the house aIter they take it back in Ioreclosure? Could
we? You know the answer to that.
II the banker has to Ioreclose. does he do that personally? OI course not.
He uses an attorney iust as you would do. And who pays Ior the
Ioreclosure? Doesn't it come out oI the proceeds oI the sale oI the
Ioreclosed house? That good old banker never gets his hands dirty. and
you don't have to either.
MAKE MONEY TRADING MORTGAGES
12
How We Become the Bank
When a person buys a house or other real estate. we ordinarily think oI that
person going down to the local bank or mortgage company to take out a
loan. commonly reIerred to as a mortgage loan. When the ownership oI
the property is transIerred to him. the previous owner gets his money Irom
the loan proceeds. and the proud new homeowner gets to make payments
on the mortgage loan Ior the next thirty years.
There are times when properties are sold using private loan money rather
than a bank being involved. It is in these circumstances that we can
become the bank and make money Irom the transaction.
Here Is How it Works
Let's suppose that John has a house Ior sale priced at $100.000. Suppose
also that he has an existing mortgage oI $50.000 Irom the local bank and
that his mortgage could be assumed by the buyer. This means that the
buyer can simply take over the existing mortgage payments without taking
out a new mortgage. Let's also suppose that he has $25.000 cash as a very
respectable down payment on the house. That takes care oI the Iirst
$75.000 oI the purchase price (the existing $50.000 mortgage plus the
buyer`s $25.000 down payment). The buyer has told John that he iust
changed iobs two weeks ago and the mortgage company probably won't
want to give him a loan. Where is he going to get the remaining $25.000?
1ohn is going to loan it to him! Since John only owed $50.000 on the
property. he had $50.000 oI equity in the property. The buyer is going to
pay John his $25.000 cash down payment Ior halI oI that equity and John
is going to let the buyer owe him the other $25.000. John will get a
mortgage note Irom the seller showing that he owes John the money. He
will then make a payment to John every month in addition to making the
bank payment he took over. Suddenly. John is a banker too...and he didn't
MAKE MONEY TRADING MORTGAGES
13
want to be! Now John doesn't have all the cash out oI his house that he
thought he would have. What will he do now?
That's Where We Come In
Could he sell that mortgage note to someone else Ior cash. and let that
someone collect the payments over the next 30 years? Yes. We will buy
that mortgage note Irom John Ior a lump sum oI cash. However. we don't
pay Iull price. We buy at a discount. and here is why.
II I oIIered to give you either a $5.00 bill or a $10.00 bill Iree. you would
obviously choose the $10.00. II. however. I oIIered you the same choice
except that you have to wait Ior 15 years to get the ten dollars. you would
probably take the Iive dollars now rather than wait. Most people would.
The moral oI the story is that today's dollars are worth more than those we
have to wait Ior. Clearly. the monthly mortgage payments which we must
wait to collect in the Iuture are worth less than Iace value. They must be
discounted iI the note seller wants it all now. in today's dollars. Let's see
how you can make money with this.
Here Is How You Make Money
Suppose. as in the example above. a property is sold Ior $100.000. To
make the transaction work the seller reluctantly takes back a note Ior the
$25.000 shortage. Since the seller probably would have taken $90.000
cash Ior the property. he now turns to us and oIIers to sell us the mortgage
Ior the same $10.000 discount he would have taken oII oI the house. He
gets his lump sum cash Irom us now and. in exchange Ior our cash. we get
to collect the payments. Our beneIit is that we are collecting payments on
$25.000 with only $15.000 invested. Clearly. that makes our return on our
investment much higher.
MAKE MONEY TRADING MORTGAGES
14
Consider this question:. Could we Iind an investor who would like to
collect payments on $25.000 with only $20.000 invested? You bet we
could! Could we sell it to him Ior the $20.000 and pick ourselves up a
nice $5.000 proIit? You bet we could. We are doing it. BUT... I'll bet
you have a lot oI questions. including. where do you get the money to buy
it in the Iirst place. and. iI this business is so good. why isn't everybody
doing it?
Why Isn't Everybody Doing It?
There are Iour primary reasons. First. they don't know about it. Second.
there is the time and eIIort required to learn the business. Third. there is
work in Iinding and buying these investments as well as work in going to
the mailbox every month to get the checks. deposit them. keep records.
send out late letters. etc. Finally. there is a bit oI Iear that this investment
might be too risky.
By the time you have completed this book. you will see that knowledge
will deIeat Iear and that this kind oI investment. handled correctly. can be
very saIe. Again. knowledge will deIeat Iear or Iear will deIeat you! It's
your choice.


MAKE MONEY TRADING MORTGAGES
15
CHAPTER
THE NATURE OF A MORTGAGE
t is important to understand some basic deIinitions beIore we get into the
details. The words mortgage. trust deed. deed oI trust. note and contract
Ior deed are oIten used interchangeably although they are very diIIerent.
When you borrow money to buy real estate. you sign a promissory note.
That is a written promise to repay the money and describes the terms and
conditions oI repayment. But what happens iI you don't keep your
promise? The promissory note. commonly iust called a note. does not
provide Ior recourse. such as the right to take the house back. iI the
payments are not made. That provision is included in another document
known as a security instrument.
Security Instruments
Security instruments come in several diIIerent Iorms. Mortgages and
deeds oI trust (deeds oI trust are also known as trust deeds) are diIIerent
types oI security instruments. Usually. state law prescribes what type oI
security instrument is used in that iurisdiction. The law does not. however.
stipulate what can or cannot be written into that document. Ask a real
estate agent what type is used in your state. Your Iinancial saIety
obviously depends partly on how this document is written.
When the security instrument has been signed by the borrower. it should
then be "recorded" in the county land records so that the public can know
that you have an interest in the property. Price inIormation. interest rates.
payments and so on are not usually contained in the security instrument so
MAKE MONEY TRADING MORTGAGES
16
the public won't know your Iinancial details. That kind oI inIormation is
in the note. and the note is not usually recorded.
The security instrument. whatever type is used. will usually be several
pages long and will deIine the rules that the borrower must Iollow as a
condition oI the loan. These rules will include the Iact that he must keep
the property insured. pay the taxes. keep it in good condition. not use it Ior
illegal purposes and certainly must include the conditions under which the
property can be Ioreclosed or. iI you will. repossessed.
The Investment Process
With these basic deIinitions explained. we can now look at the investment
process. As we proceed. you should understand that it is not the mortgage
or security instrument we are buying. We are buying the note. We are
buying the person's promise to pay. That promise is simply guaranteed by
the security instrument.
The notes we are seeking to buy will not come Irom a bank or lending
institution but rather Irom a private individual. It should also be
understood that we DO AO1 make loans.
When an individual sells a property and agrees to let the buyer owe him
part oI the purchase price. they have a promissory note and "mortgage"
drawn up as the basis Ior that debt. It is Irom that property seller that we
would buy the note. We get to collect the payments owed to him under the
note in exchange Ior the lump sum oI cash we pay him. OI course. iust
like the $50.000 house. we buy at a discount. SpeciIically. we pay less
than the Iace value oI the note.
In the business. these notes or instruments are usually reIerred to as
"paper" thus we are in the "paper business."

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17
CHAPTER
SAFETY ISSUES
ince saIety is usually such a maior concern. and it should be. let's
address it Iirst. What I am going to do is point out some oI the potential
dangers and then show you how to protect yourselI against them. Don' let
this scare you out oI the investment. Let it scare you into learning how to
do it right and thereby avoid the risk issues.
Basic Rules
There are two basic rules that. iI you Iollow them religiously. will keep
you Iinancially saIe in this investment.
First. if vou would not want to own the real propertv, don't buv the note. II
the underlying property is a gas station or restaurant. I would not know
what to do with it iI I ended up owning it through Ioreclosure. I wouldn't
even know how to successIully get that kind oI property resold to recover
my money. Accordingly. I would not buy a note secured by that kind oI
property unless. as you will see later. I already had that note presold to
another note investor who does buy notes on that kind oI property. Those
kinds oI investors do exist. but that's not me. A single Iamily home. on the
other hand. would be quite easy Ior me to either resell or to keep as a
rental property. Again. the Iirst rule is don't buv the note if vou wouldn't
want to own the underlving propertv.
The second rule has to do with how much you pay Ior the note. II the note
has been in existence Ior a long time and the property value has risen. you
might Iind that the amount oI the note is small relative to the value oI the
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18
property. This ratio oI loan amount against property value is reIerred to
as loan-to-value. For example. iI the property value is $100.000 but there
is only $25.000 owed on the property and iI you hold that $25.000 note.
you would sleep very well at night. Your loan-to-value is only 25°.
Clearly. iI you had to Ioreclose the property. you could easily and quickly
resell it Ior more than the $25.000 due you under the note. Rule number
two then. is don't pav more for the note than vou would like to pav for the
propertv.
Protective Measures
Actually. notes that end up requiring Ioreclosure are. as a percentage oI
total properties Iinanced. very small....only in the 5° range.
Notwithstanding that. I still preIer to play it saIe with my money.
Accordingly. iust in case one oI my notes ends up in that 5° category. I
use rule number two Ior saIety. I try to learn the rules well and then live
bv them. You should do the same.
II the bank wants to protect itselI by staying below a certain loan-to-value.
commonly reIerred to as LTV. how is the banker able to routinely make
loans where the buyer puts only 5° down? It certainly would cost more
than that 5° to Ioreclose the property. The loan would clearly be very
risky. except...the banker eliminates his risk by Iorcing the borrower to
buy insurance to guarantee payment oI the loan. It's called mortgage
insurance. Let's use a $100.000 loan as an example. The banker takes the
risk Ior the Iirst 80° or $80.000 oI the loan while the insurance company
takes the risk Ior the upper 15° or $15.000 oI the loan. The property
purchaser. oI course. has put up the remaining 5° or $5.000 as a
downpayment.
This means that iI the house is Ioreclosed and sells at the Ioreclosure
auction Ior only 80° oI the original value. the banker gets that money. In
addition. the insurance company has to reimburse the bank Ior the extra
15° oI the original property value that it loaned. The banker always
makes sure he gets paid Iirst. We should. too.
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19
Only about 5° oI all residential loans go bad. while the insurance
company collects premiums on almost 100° oI all home loans made.
Clearly. the mortgage insurance business is a very saIe and lucrative
business Ior them.
Since mortgage insurance is not ordinarily available Ior privately held
notes. we must make sure we get paid by using our rule number two. We
simply make sure that the amount we invest in the note is small enough
that we could Ioreclose the house. resell it and recover our money Irom the
sale proceeds. There are many additional protective measures we must use
Ior maximum saIety. Some examples Iollow.
He Forged Her Signature
There was a case reported in the newspaper recently as Iollows. A woman
showed up on the Iront porch oI a house that a young couple had
purchased a Iew months beIore. She tried to unlock the Iront door only to
Iind that her key didn't Iit. She banged at the door until the young husband
came to the door. She asked the him what he was doing in her house. His
surprised response was "What do you mean your house? We own this
house. Who are you?" It turns out that the woman on the porch and her
husband had divorced and her husband had Iorged her signature when
selling the house to the young couple.
Whose house is it? Whose problem is it? How would you like to be
holding the note on that one? How do you protect yourselI against this
kind oI situation? The owners buy "title insurance" to protect themselves
against this kind oI thing. Under that policy. the insurance company
guarantees that the title is good and marketable except Ior things they
speciIically list as not being covered. We will want to protect ourselves
against any unknown or unrecorded risks by having lender's title
insurance. There are almost always exceptions listed in the policy. We
must read these and then decide whether they make the note too risky to
buy or not. Lenders title insurance is not only very inexpensive but
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20
obviously extremely important. It is a separate policy Irom the owners
policy and must be speciIically ordered.
We Will Have An Appraisal
Remembering the concept oI LTV. how will we protect ourselves on these
relative values? We will have an appraisal done.
The kind oI appraisal we will order is called a "drive by appraisal"
because the appraiser does not go into the property. He simply looks at the
exterior. compares it to the sale prices oI other similar properties and then
concludes a value Ior the property. We want it to be a Iast sale appraisal
which is his opinion oI what we could sell it Ior within 90 days. We will
also want the appraisal to include photo comps. This means we want
photographs oI the property on which we are buying the note. called the
subiect property. as well as the properties to which he compared the
subiect property.
To demonstrate this point: I was oIIered a note on a "hotel" by an out oI
state noteholder. The noteholder told me that it was on the water and gave
me the address. When I got there. it was an old wooden building that was
leaning about 15 degrees to one side. Its waterIront was a 50-Ioot right oI
way to the water alongside a boat yard. You could not even see the water
Irom the property. Two weeks later the building actually collapsed and
they had to have bulldozers and dump trucks come in to clear the lot. That
wasn't cheap. Point made?
Ordering A Credit Report
It is said that iI you walk like a duck and talk like a duck. you probably are
a duck. It is also generally true that iI a person has historically handled
MAKE MONEY TRADING MORTGAGES
21
their Iinancial liIe in a responsible manner. they will continue to do so. OI
course. iI the opposite is true. they will likely continue with the same
irresponsible patterns.
We can assess our risk on credit worthiness by ordering a credit report on
the person making the payments however..... it is illegal to run a credit
report on another person unless you meet certain conditions as deIined in
the Federal Law called the Fair Credit Reporting Act. It is ordinarily
believed that you must have a person's written authorization to check their
credit. One exception appears to be that iI you are in a "Iinancially at risk
position." you can legally check their credit without their express
permission. It is viewed by some that iI you have a signed contract to
purchase a note on which the person in question is responsible Ior making
the payments. you are Iinancially at risk. As such you can. presumably.
legally check their credit. YOU MUS1 check with your own attorney on
this point beIore you would want to risk having a credit report run on
another person. We. oI course. protect ourselves by making our note
purchasing agreement cancelable iI the person's credit is not satisIactory
to us.
Safety Of Loan Documents
Another area oI saIety to be considered is the manner in which all
documents. including the original loan documents. are written. Do they
provide Ior your protection on both legal and saIety issues? In most states.
there is a legal limit on the amount oI interest you can charge. It is
reIerred to as a "usury" law. II the person doing the loan originally wrote
it to charge usurious rates. you may become legally liable Ior that
violation. iI you buy the note. You are assuming the noteholder's position.
Violation oI this law is a criminal oIIense and iI blatantly ignored. can
provide Ior some iail time. See... I told you this was a saIe investment!
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Make Sure The Paperwork Is Done Right
As mentioned earlier. the securitv instrument provides for manv binding
conditions on the borrower. There was a case in South Carolina where an
elderly couple sold their condominium home to a young girl they knew.
liked and trusted. They held the note Ior her Iinancing. They moved to
the Washington. D.C.. area because oI the husband's severe health
problems. A year later. the young girl broke up with her boyIriend so she
decided she didn't want the house anymore.
She sold it to a couple with Iour children who turned out to be real
proIessional deadbeats. Since there was no provision in the security
instrument to keep her Irom doing so. she let them take over her payments
on the note held by the elderly couple. They in eIIect took over her
promise. They didn't keep that promise. Four years. two bankruptcy cases
(one by the husband and the other by the wiIe). and many attorney's Iees
later. the elderly couple Iinally got the house back.
In the meantime. the deadbeats were living there rent Iree. not paying Ior
the insurance or real estate taxes. etc. It literally broke the elderly couple.
both Iinancially and emotionally. to recover the property. The attorney
who drew up the mortgage was clearly incompetent. II the mortgage had
contained a "due on sale clause." the note would not have been assumable
and would have had to be paid oII in Iull when the house was sold to the
deadbeats.
Clearly. Ior your own protection. you need to know what you are doing.
Clearly too. any attorney or other proIessional you use must have
experience in this business.
When you put your money into other "regular" investments. how much do
you really know about those investments? Be honest! Most people know
little or nothing about the saIety oI their bank. the company whose stock
they hold. the Iinancial stability oI the organization whose bond they
bought. or any oI the other "common investments." They go on someone
else's recommendations. Maybe it's their stock broker whose interest is
contrary to theirs.... he wants the commissions. Maybe it's their barber
MAKE MONEY TRADING MORTGAGES
23
giving them advice?
Whether it's the note investment business or any other investment. If you
really want to win. you must learn what you are doing and look after your
own money! It's work.... but it's necessary.
In Summary
In summary. you must look at the people responsible Ior making the
payments on the note. you must look at the property securing the note. and
you must look at the terms and conditions oI the paperwork used in the
transactions. II vou gain the necessary knowledge and take the proper
precautions. this can be a very lucrative business with very little risk.
Where else can you earn 18° and up on your money. I regularly get
returns oI over 30° on my money and you can too.... iI you will learn
how.

MAKE MONEY TRADING MORTGAGES
24
CHAPTER
FINDING THE NOTES
hen we earn the kind oI returns we do. part oI those returns are on our
money and part are returns on our knowledge and eIIorts. It will take both
Ior you to succeed in this investment. II you decide to have someone else
do these things Ior you. you will have to give up part oI your return Ior
that privilege.
Private Financing
It is claimed that 29° oI all real estate transactions involve some private
financing. Estimates suggest that over $400 billion oI these notes are in
existence with almost $100 billion being added annually. That is a whole
bunch oI notes out there. These numbers suggest that statistically. you
probably know someone who either holds a note or. in turn. knows
someone who does. Aetworking can and should play a very important part
in Iinding the notes. Not only can you network with your personal
acquaintances. but you can deliberately build a network with proIessionals
who might come into contact with these noteholders.
Many noteholders don't even know that their note is saleable. let alone
who would buy it. II you had a note to sell where would you take it or
who would you ask? Would you call your banker? They don't buy
privately held notes. Would you call your CPA? How about a real estate
agent? A mortgage broker? Your barber?
MAKE MONEY TRADING MORTGAGES
25
Whatever you answer. maybe you should include all oI those people in
your proIessional network and let them know you buy "mortgages." You
must let the world know that you are interested in these notes. The
interested note seller is trying to Iind you iust as hard as you are trying to
Iind him.
A More Direct Approach
A more direct approach to Iinding the notes is through land records
research. The security instruments Ior all real estate transactions should
be recorded in the land records at the county courthouse oI the county in
which the property is located. Occasionally. some are not. The problem
is that all the banks and mortgage companies record their notes there. too.
This means that you have to dig through a lot oI records to Iind the
privately held notes Ior which you are looking. Slowly but surely.
courthouse records are being computerized. This will eventually mean
that you should be able to buy a list oI the names oI those people who are
holding such notes.
II this direct research approach is to be a part oI your note Iinding
program. there are several things you will want to do. First. you will want
to visit your local courthouse and get the staII there to show you how to
use the land records to get the inIormation you need. Next. you will want
to set yourselI a regular schedule to visit the courthouse to do this
research. Only with this commitment will you ever get started and get the
research done.
Once you have been through the last two or three years oI records. you
will want to make regular visits. probably monthly. to get the inIormation
on those transactions recorded since your last visit. Older records tend to
be less productive. Since it is a good practice to contact the noteholders
you identiIy more than once. it is important that you keep good and orderly
records. While the availability oI a computer is not absolutely necessary.
you can begin to see that it would be a useIul tool.
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26
Real Estate Sales People
Real estate sales people usually have access to a computerized multiple list
svstem which lists properties Ior sale by all the participating real estate
companies. The system also keeps records oI past transactions. See iI you
can get one oI your real estate Iriends to do a computer search Ior you.
The search should be based on past transactions where the seller held the
Iinancing. This can be a more eIIicient way to get the inIormation you
want and can give you the opportunity to network with the real estate
proIessionals.
Research Companies
There are companies who make a business oI researching real estate
transactions and then selling that inIormation in book Iorm or on
microIilm. This can be very expensive. except that it is oIten carried in the
public library. in which case it can be free. Try your local library Ior 1he
Lusk Report or the Redi-Data report. II you don't Iind anything under
those titles. tell your librarian what you are trying to Iind and you will
probably get the help you need. There is someone providing this kind oI
inIormation Ior your area.
Advertising
Newspaper advertising generally does not work well. especially in maior
metropolitan newspapers. It tends to draw the competition or the
sophisticated note seller who will probably negotiate you to death and
make a reasonable transaction impossible. He is looking Ior the
unsophisticated buyer who will buy risky notes at a premium price. I don't
even read those ads anymore.
II you do use print advertising. you will probably want to do so in a
MAKE MONEY TRADING MORTGAGES
27
smaller local paper. a Iraternal type newsletter or magazine. or a Thriftv
Nickel/Pennvsaver type oI Iree publication.
While there are many more expensive and sophisticated ways to Iind
prospective note sellers. these are the most commonly used... and they
work.
Contacting The Noteholders
Once you have identiIied the noteholders. you must contact them in some
way to let them know oI your interest and to determine iI they are
interested in selling. This is ordinarily done by letter or by telephone. II
they are not interested at this time. they may be in the Iuture. To make
sure that they remember you. be sure that you provide them with some
kind oI reminder that they can keep long term. It can be as simple as the
letter you send them. In your letter. suggest to them that they Iile it with
the note. II you decide to call them rather than to write them. perhaps a
Iollow up letter would end up in their Iile with the note. Here is an
example oI the importance oI the Iollow up letter being in their Iile.
A couple sold their home to their son and retired to Florida. They held the
Iinancing Ior him. When I contacted them. they wanted to keep the note
Ior their retirement income. Two years later. I got a call Irom the husband.
He had kept my letter and his circumstances had changed. His wiIe had
died; he had remarried. His new wiIe had over $500.000 earning interest
to provide their income. Suddenly. he wanted to sell the note to put an
addition on their home. do some travel in Europe and enioy liIe.
Keep in touch. Build a business.

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28
CHAPTER
NEGOTIATING THE PURCHASE
nce you have contacted an interested seller. you must decide on how
much to oIIer and then successIully negotiate an agreement to purchase.
This is probably the part oI the process that is most diIIicult and requires
the most skill. To succeed. you need to learn two things.
First. you must learn negotiating skills as they apply to purchasing notes.
Second. you will need to learn how to structure the transaction so that you
can be saIe. be proIitable. and meet the sellers needs. Let's look at the
second part Iirst.
In our earlier discussion oI basic concepts. we learned that we need to buy
the house at a discount in order to increase our returns. The bigger the
discount. the better our return. In a like Iashion. we need to buy the
mortgage note at a discount in order to improve our return on investment.
The Average Note Seller
The average note seller does not want to take a large discount Irom the
Iace value oI his note. The Iace value is his perceived value oI the note. II
the note says that $100.000 is owed. he does not want to take $65.000 Ior
it. That is because he doesn't understand the 1ime Jalue Of Monev. He has
not heard the $5 bill vs. the $10 bill story. Here it is again.
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29
II I oIIered you a Iive dollar bill or a ten dollar bill.... Iree. which would
you take? OI course. you would take the ten dollar bill. II. however. I
made you the same oIIer but told you that you could have the Iive dollar
bill now but.... you would have to wait IiIteen years to get the ten dollar
bill. what would you do? Chances are. you would elect to take the Iive
dollar bill now. How long would you wait Ior the larger bill? Ten years?
Five years? One year? A week? As you are beginning to see. money now
is worth more than money later.
You and the note seller must realize that iI we buy their note today. we are
paying Ior it in today's dollars. We may have to wait Ior thirty years to get
our investment completely paid oII. Doesn't it make sense that we would
have to buy at a discount?
Alternative Approaches
There are alternative approaches that we can use which do not involve
large discounts Irom the Iace value. These approaches can be used to
increase our return. improve our saIety and avoid the seller's discount
obiectives.
For example. in the case oI a thirty-year mortgage. could we purchase the
Iirst one-third oI the payments? That means that we would pay some
amount oI cash in a lump sum and in exchange Ior our money. we would
get to collect the next ten years worth oI payments. In eIIect. we will own
the mortgage Ior ten years and then. aIter we have received the payments
due us. return it to the previous owner to collect the remaining payments.
Yes. you really can do that. We do it very regularly. We will discuss the
amazing impact oI some oI these pricing strategies later.
Now. iI we can buy ten years worth oI payments. could we buy Iive years
worth instead? Or 20 years? Or any other amount that meets the seller's
needs? We will discuss a number oI these approaches in detail later but
Ior now. I hope one thing begins to be very obvious. I could pay any
number oI diIIerent prices Ior the note. depending on how we structure the
MAKE MONEY TRADING MORTGAGES
30
transaction. This means that we must know what the seller's immediate
cash needs are. Without this knowledge. we are sure to oIIer him the
wrong price. II we do this. we will lose the transaction.
Discover the Note Seller's Need and Satisfy It
To carry this idea Iurther. most people will sell a note Ior one oI two basic
reasons. The first reason is that there is a problem with the note or thev are
afraid there will be. Maybe the payer is not making the payments? Maybe
the note seller is aIraid that he will have to Ioreclose? It is usually a
certainty that he doesn't want the house back aIter he sold it the Iirst time.
It's an emotional thing. Rationally. iI he got an adequate downpayment on
the original property sale. he could reposses it (Ioreclose) and sell it a
second time Ior another proIit.
The second reason thev might want to sell is because thev have a verv
specific need for cash for a verv specific reason. II we can discover that
need. the rest oI the negotiating is easy. II someone is selling out oI Iear.
you are in the driver`s seat as to pricing. II it is a speciIic need and we can
discover it. then it is no longer a matter oI how much we will pay but
rather what part oI the note he must give us Ior the amount oI money he
needs now. Let me say that again..... it is no longer a matter oI how much
we will pay but rather what part oI the note he must give us Ior the amount
oI money he needs now.
Clearly. iI we can discover his need and satisIy it. the negotiating is over.
Clearly too. this is where we need some very good people skills. Perhaps.
more than that. we need to know what questions to ask and then have the
selI discipline to shut up and listen.... really listen.

CHAPTER
MAKE MONEY TRADING MORTGAGES
31
PRICING THE NOTE
Since we are going to structure our oIIer to meet the cash needs oI the
seller. we must look at some basic ways to structure transactions. We also
must remember that the longer we wait to get our cash back. the less it is
worth.
There are basically two kinds oI repayment schedules that we may
encounter. These will have been predeIined. to an extent. by the terms and
conditions set up in the original note and security instrument. Remember.
this documentation was prepared. agreed upon and signed by the property
buyer and seller beIore we came into the picture. The two kinds oI
repayments will be cash flow streams and lump sum cash pavments. Let's
look at the nature oI each oI these individually.
The Cash Flow Stream
The cash flow stream means the regular payments. usually monthly.
collected over a period oI time. While we ordinarily think oI a "mortgage"
as having some Iace amount. consider this: II I oIIered you the right to
collect $500 per month Ior Iive years (60 months). would that not have
some value? What would it be worth to you? II you multiplied 60 months
times $500 per month to arrive at a value you would pay. consider this. II
you were to pay the $30.000 resulting Irom that calculation. how much
interest would you be getting on your money? You have iust spent
$30.000 in todav's dollars and it will take you Iive years to get your
$30.000 back. That looks like a zero interest loan to me. There must be
another way to look at this and there is. We will examine that in a minute.
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32
Lump Sum Cash
The second kind oI repayment. lump sum cash. means that you invest
some money today but get no monthly payments. Instead. aIter some
period oI time. you will get back a lump sum payment consisting oI all oI
your invested money plus the interest it earned while the other party had
the use oI it. Here is the question. II I am to get back a lump sum oI. say
$50.000. in Iive years. how much could I aIIord to invest in that scenario
today? Clearly. it will be less than $50.000 because the $50.000 I get in
Iive years includes interest earned. Boy. there must be a better way to
Iigure this stuII out. There is. It is done by using a special type oI
calculator which we will discuss later.
A Combination of Both
There are some very commonly Iound situations which include a
combination oI both the cash Ilow stream and the lump sum cash payment.
You may have heard oI a "mortgage" that has a balloon. In simplest terms.
this means that the mortgage note is set up on a payment schedule
(amortization schedule) as though you were going to have thirty years to
pay it oII. but...there is a special condition in the note. This special
condition requires that at the end oI some speciIied period. oIten Iive
years. any remaining balance on the loan be paid oII in lump sum cash.
Clearly. in this situation. there is both a cash Ilow stream. the payments Ior
Iive years and a lump sum. the unpaid balance at the balloon time.
II this is looking more complicated and conIusing. the Iinancial calculator
will take care oI those details. You only need to understand the concepts
and how they eIIect the earning ability oI your dollars.
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33
Assessing the Note for Pricing
When pricing the note. there are two ways in which we must assess it. The
first is based on the idea that we are going to retain the note as our
investment. In that event. we will want to decide in advance what
minimum vield or return on investment we are willing to accept. When we
know what the cash needs oI the seller are. as previously discussed. and
when we know what our minimum acceptable yield must be. those two
Iigures will be used to determine what part of the note the seller must give
up to us and what part he will be able to retain. Again. the Iinancial
calculator will give us the answers once we give it the necessary
inIormation.
The second basis for assessing the note is based on the idea that we would
buv and immediatelv resell the note for a cash profit. In this case. we don't
worry about yield but rather about cash proIit. To decide pricing Ior this
situation. we must Iirst have an investor willing to buy the note. We then
provide our potential investor with enough inIormation so that he can
decide on the price he would pay us. Your investor will decide on his
offering price based on his required vield. AIter he gives you his price. you
must subtract the transaction expenses (attorney's Iee. etc.) involved in
closing the transaction. From that point. you must negotiate to purchase
the note Ior as much less than that Iigure (your cost) as you can. The
diIIerence between your cost in the transaction.... what you pay the note
seller plus expenses.... and what your investor pays you is.... vour profit.
Don't get hung up on a speciIic yield iI you plan to resell. Look at proIit!

MAKE MONEY TRADING MORTGAGES
34
CHAPTER
GETTING THE AGREEMENT
nce you have verbally reached agreement in your negotiations. it is time
to put it in writing. Always remember this:

Until vou have a signed written agreement, vou have nothing.
When the agreement is in writing and signed by all oI the parties whose
name(s) are on the note as payee(s). you have control oI the note. You
eIIectively own the note. provided you complete the transaction. Notice
that I said iI you complete the transaction.
You are now in control and yet the nature oI a properly written purchase
agreement will allow you to abort the transaction. totally at your option
and without penalty to you. That is a powerIul position. Once you have
the agreement. you will want to do a number oI things.
After You Have the Agreemtent
As earlier mentioned. let me repeat that it is illegal to check credit on a
person unless one oI two conditions is met. One oI the possible conditions
is that the person has given vou permission in writing to do so. Since the
person making payments on the note you are buying is not obligated to
authorize this. why would he go to the trouble oI doing so? He may even
resent the Iact that the note is being sold and be totally uncooperative. It
MAKE MONEY TRADING MORTGAGES
35
does happen.
The other condition. and you should get this cleared with your own
attorney. is that if vou are financiallv at risk, vou can check their credit
without explicit authorization. When you have the signed agreement. you
are at potential Iinancial risk and thereIore should be OK to check the
paver's credit. This is how I interpret a portion oI the Iair credit reporting
act.
Again. since I am not an attorney. you will want to check with your own
attorney on this point. Do not ever check a person's credit without meeting
one oI these two conditions.
What We Will Do With the Note
With the agreement in hand. we can also begin to look at what we will do
with the note. II we decide to keep it Ior ourselves. we will complete a
series oI steps that we will explain later. II we decide to resell it Ior a
proIit we will approach it as Iollows.
We will now contact a number oI investors. both private and institutional.
to determine the best price we can get Ior the note. The investor is going
to give us a proposed price Ior which they would buy the note. II we like
their price and agree to sell to them. we will need to give them
considerable additional inIormation. usually called documentation. Ior
their evaluation. II they don't like what they see in the documentation.
they can decline to go Iorward with the purchase.
You can see why you must have the same option in your purchase
agreement. You could get stuck in the middle with a note you do not want
or cannot aIIord.

MAKE MONEY TRADING MORTGAGES
36
CHAPTER

THE DOCUMENTATION PROCESS
he note purchasing business is oIten reIerred to as the paper business.
You are about to see why.
The documents required can be classiIied into primarily Iour categories.
The Iirst is the set of documents which was created at the real estate
settlement (legal transIer oI ownership). where the note originally came
into being. They already exist. The second set oI documents will be
obtained or created during our evaluation of the transaction. The third set
will be those documents created for the final purchase and transfer
(settlement or closing) of the note ownership to us. The Iourth and Iinal set
oI documents will result Irom certain activities that must be handled aIter
closing or. iI you will. post closing.
The Three Initial Documents
Initially. we must see three speciIic documents. Obviously. the Iirst
document we will want to see is a copy oI the promissorv note because that
is what we are buying. It will deIine loan amount. payment amount.
interest rates and the Iinancial terms we are potentially going to buy.
The second document we will need to read is the securitv instrument.
either the mortgage or the trust deed. This is to determine that there are no
conditions in it which are negative to us. We will also want to make sure
that certain conditions important to us are not omitted. Remember the case
MAKE MONEY TRADING MORTGAGES
37
oI the South Carolina note. mentioned earlier. where the due on sale clause
was omitted?

The third document we will want to evaluate is the settlement statement.
commonly reIerred to as the HUD-1. which was created at the time oI the
real estate settlement. This document is usually prepared under the
supervision oI an attorney or licensed settlement oIIicer. It will reveal
many things including:

· The contract sale price.
· The legal description oI the property.
· The amount oI the down payment.
· The existence oI any other Iinancing beyond the note you may buy.
who holds it. the terms oI their note. and it's relative position to the
note you are considering. Is their's a Iirst or second mortgage? In the
event oI Ioreclosure. who gets paid Iirst. you or the other
noteholder?
· Whether there was title insurance purchased to protect your note
and. iI so. Irom whom it was purchased. Remember the earlier
"whose house is it story?" Just because the property owner is
insured doesn't mean you are insured. You need lender's title
insurance.
· Who issued the hazard insurance on the property and Ior how much?
Again. iust because the home owner is insured doesn't mean that
you are. You must be added as an additional loss pavee.
· The name(s) oI the real estate companies involved and how much
commission they were paid.
· The amount oI taxes charged on the property.
MAKE MONEY TRADING MORTGAGES
38
These are only a Iew oI the important things that you can discover about
the transaction Irom the HUD-1. You should make it a point to study such
a sample document and learn what it can reveal. Knowing its contents
may be important to your Iinancial saIety. You might be able to get one
Irom your Iriendly real estate agent or a title attorney's oIIice which has
already been Iilled out. It will be much more revealing. A blank sample
has been included in Appendix D Ior your review.
These initial three documents are absolutely mandatory beIore you can
make even a preliminary iudgment as to whether you will be interested in
purchasing the note. II problems are revealed in the documents. sometimes
the problem can be solved and sometimes you have to decline and walk
away Irom the transaction. II we decide to decline the purchase at this
point. we must notiIy the note seller. in writing. that we are canceling the
note purchase agreement. There are some notes to buy and keep. some to
buy and resell. and some to walk away Irom.
There may be other documents in this Iirst set that you will eventually
want to see. but Ior preliminary evaluation. you will need to add only a
credit report. With this inIormation. you should be able to make a
reasonably good decision as to whether the transaction is viable.
Obviously. these same documents are the ones your investor will initially
want to see as well.
The Next Set of Documents
The next set oI documents we will want to see will include:
· An appraisal.
· Copies oI all senior debt instruments (Iirst mortgage iI we are
looking at a second mortgage. etc.).
MAKE MONEY TRADING MORTGAGES
39
· Senior loan status veriIication (What iI the Iirst is in deIault? They
could be in the Ioreclosure process while we are buying our
second!).
· Payers Estoppel AIIidavit. This gets the payer to conIirm his
agreement that the outstanding balance and other terms are as you
have been told. We will want that conIirmation to become an
oIIicial part oI the settlement process. too.
· And iI it is a commercial property. we will want to see Iinancial
inIormation on the business. This would include a credit report on
the business.
The Appraisal
How to go about getting the appraisal raises an interesting question. Do
you think the person making the payments will want to have an appraiser
come stomping through their house to do an appraisal? Do you think they
will take time oII Irom their iob to meet the appraiser there? Not likely.
As mentioned earlier. we will order a drive bv appraisal instead. This kind
oI appraisal can be a negative iI the appraised price comes in too low to
support our LTV requirements Ior the note.
Many homes have had added Ieatures installed that are not apparent to the
appraiser Irom the outside oI the house. These might increase the value
and make your prospective note more saleable. An extra bath? A game
room in the basement? You will want to ask the note seller about any such
extras and make the appraiser aware oI same. This is important because
the maior basis Ior the appraised value oI the subiect property is the
comparison oI the sale price oI similar or "comparable" properties recently
sold. The "comps" may not have these extras.
Also. as mentioned earlier. we will want our appraisal to include photo
comps. We want to see photos oI not only the "subiect property" securing
our note but also oI the other properties the appraiser used to arrive at his
MAKE MONEY TRADING MORTGAGES
40
appraised value. Sometimes they don't choose appropriate comps and that
can result in a Iaulty appraisal.
Senior Debt Instruments
Copies oI the senior debt instruments are oIten available Irom the note
seller. II they are not. they should be recorded in the land records. You or
anyone else can get a copy Irom there. It's public inIormation and the
courthouse has copy Iacilities.
Senior Loan Status Verification
The senior debt status can be obtained Irom the current lender in most
cases. They may charge as much as $25 Ior it. they may provide it at no
charge and they may reIuse to provide it at all. Normally. the best way to
obtain the senior debt status is to use a standard Jerification Of Mortgage
Form (JOM). Most mortgage brokers or title attorneys will have one. An
alternative way is to request the mortgage payoII balance on the senior
loan. as though you were going to reIinance it and pay it oII. This works
very well iI the settlement attorney requests the inIormation Ior you.
Estoppel Affidavit
The estoppel aIIidavit is a Iormal letter sent to the payer requiring their
conIirmation oI the note terms. conditions and status as oI a speciIic date.
It is oIten most eIIective iI it is sent by the closing attorney. It should
always be sent certiIied with return receipt requested as prooI that the
letter was sent. It is a must that such an aIIidavit be obtained to avoid
Iuture disagreement with the payer.
MAKE MONEY TRADING MORTGAGES
41
Commercial Property
For owner-occupied commercial properties. you will need to look at the
business as though it were a person. The business represents the income
source to make the note payments. We will want the counterpart
documentation Ior the business that we would get Ior a person. In many
cases. the commercial property note is also guaranteed by the person
owning the business and the property. In that case. you will want the
Iinancial inIormation on both the business and the person. In general. it
is best to get started with residential notes or to get help Irom an
experienced person beIore trying the commercial note purchases. For that
reason. we will not dwell on them here.
In Summary
All oI the documentation we have discussed up until now is necessary to
evaluate the transaction and decide Ior sure whether we want to complete
the purchase oI the note. Remember that the note you are buying was
created at a previous real estate transaction. Learn everything you can
about that transaction.
The remainder oI the documentation will relate to "closing" or
"settlement" oI the transaction. This is where eIIectively all parties sit
down around the table. sign over the note. hand over the money and have
it a "done deal." This remaining documentation is normally prepared by
the settlement attorney and is discussed in the pages that Iollow.

MAKE MONEY TRADING MORTGAGES
42
CHAPTER
CLOSING THE TRANSACTION

t settlement. also reIerred to as closing. the note seller is trading his note
Ior our cash. There is usually. although not always. a third party with
fiduciarv responsibilitv to see that things are handled as agreed. It could
be a settlement attorney. title oIIicer or other person knowledgeable in the
business and approved to handle these kinds oI transactions. iI such
approval is required in your iurisdiction. At settlement. one party gives
him the money and the other gives him the note. It is up to him to see to
it that all the paperwork Ior transIerring the note ownership is handled and
the Iunds disbursed as agreed between the two parties to the transaction.
The Iiduciary represents neither party to the transaction but is considered
a neutral third party. As such. he can't legally be an advisor to either party.
The additional documentation needed at settlement will vary depending on
whether you plan to hold the note Ior your own investment or you plan to
resell it immediately Ior a cash proIit. Let's Iirst look at the situation
where you are planning to keep it.
If You Plan to Keep the Note
We will need the seller to bring the original signed note and the original
signed recorded securitv instrument. That is what we are buying. There
will need to be an assignment agreement. This is the legal transIer
document transIerring the note ownership to you. It is oIten prepared by
the settlement attorney. Just because he is an attorney or even a real estate
attorney does not mean that he can prepare such an agreement properly.
Use a specialist. This is especially true iI you are buying only a part oI the
MAKE MONEY TRADING MORTGAGES
43
mortgage as earlier mentioned in our discussion on "pricing the note."
More on that kind oI agreement later.
We will need an estoppel aIIidavit Irom both the payer on the note and the
person selling the note to us. What this document eIIectively does is have
the parties agree to the amount owed. the terms and conditions oI the note
and any other conditions as oI that date. It tends to say "As oI this date.
this is the way we think it is. II you are ever going to disagree. do it now
or Iorever hold your peace." It generally avoids Iuture disputes on the
status oI things as oI the date you took ownership. It also tends to avoid
the possibility oI collusion or special side agreements between the note
seller (payee) and the payer. Yes. that does happen.
We will want a copy oI the lenders title insurance policy. II one was
issued at the time the note was created. it usually insures the note. not the
person. so that it transIers to the new legal holder oI the note. II any kind
oI oIIicial policy transIer is required. it should be at little or no cost.
Check with your closing agent on requirements Ior your transaction. II
there was no title insurance issued on the original note. you will absolutely
want to have one issued. Remember the "Whose house is it" story?
We will want a copy oI either the hazard insurance policy on the property
or at least the declaration page oI the policy describing the property
coverage. We will also want the agents name and telephone number. We
will want to make sure we get ourselves onto the policy as loss pavee
(lender) right away. There is ordinarily no cost to you Ior this.
The settlement agent will need a set oI closing instructions telling him how
we want things handled. He will also need a copy oI our note purchase
agreement. Some oI the terms oI the note purchase agreement may need
to be carried Iorward into the assignment agreement. Without a copy oI
the purchase agreement. he won't know.
Finally. we will want a signed letter Irom the note seller to the payer
notiIying him oI the sale oI the note and authorizing him to make all oI his
Iuture payments to us. Although history shows that some people are
gullible enough to change who they make their payments to without such
MAKE MONEY TRADING MORTGAGES
44
authorization. most won't. We will not depend on the note seller to send
the letter. We will send it ourselves instead.
Settlement
At settlement. the note is endorsed over to you. It is iust like endorsing a
check. The endorsement is as simple as having the seller turn the note
over and on the back oI it write Pav to the order of (vour name) and
signing it as his name appears on the Iace oI the note. Again. all oI the
noteholders whose names appear on the note must sign.
Next. the note seller(s) will need to sign the assignment agreement
transIerring the note ownership to you. They will also need to produce the
signed original oI the security instrument.
Next. iI you have not already done so. it is now time Ior you to produce the
money to buy the note. OIten. you will have deposited those Iunds with
the settlement agent a Iew days ahead oI time. You will also want to
collect the complete package oI all documents used in the settlement
process including the original of the note. At that point. the parties usually
leave and give the settlement agent the time to record the assignment
document in the land records and write a check Irom his escrow account
(he deposited your check there) to the note seller. Sometimes that check
to the note seller is handed over at the settlement table and sometimes it
is mailed a day or two later aIter the note has been recorded. As a note
buyer. I preIer to have the note assignment recorded beIore the other guy
gets my money.
Congratulations! You now own the note but there are certain things you
still have to do post- settlement.
MAKE MONEY TRADING MORTGAGES
45
Post-Settlement
We will race to the nearest telephone. call the insurance agent and ask him
to add us to the policy as a loss payee because we are now a lender. II we
are not listed on the policy and the property burns or whatever. we will not
be paid.

We will send a letter to the payer welcoming them as a customer and
instructing them where to send their payments. We will. oI course. send
the letter we received Irom the now Iormer noteholder authorizing them
to pay us.
II there are senior debt holders (iI ours is not a Iirst mortgage). we will
notiIy them that we are now a iunior noteholder and request that we be
notiIied iI there is ever a problem with their mortgage. History shows that
sometimes the payer will make payments on your second mortgage while
not making payments to the bank on it's Iirst mortgage. It seems that they
perceive we will Ioreclose more quickly than the bank.... and we should
iI we ever need to Ioreclose.
That is the way a transaction is handled iI you are going to keep the note.
Settlement Process for Note Resales
II. instead oI keeping the note. you are going to resell it. you will probably
do a double closing. Using this approach. you will not have to produce the
Iunds to purchase the note. You will use your buyer's (investor's) money
to pay your seller. Isn't that neat? Here is how it works. Assuming that
your buyer is knowledgeable. he will probably want his attorney or his in
house staII to prepare the settlement documents. He will also probably
order the appraisal required earlier as well as the credit report. Either you
or he will have to pay the closing expenses including the transIer costs and
the closing agents Iee. That should have been agreed upon in advance.
probably at the time oI signing your sales agreement with them. I preIer
MAKE MONEY TRADING MORTGAGES
46
to have my buyer pay Ior and handle the details oI the settlement. It may
mean a Iew dollars less proIit but to me it's worth it.
For a double closing. we will simply have two oI everything and hold two
settlements. one right aIter the other. Ordinarily. the note seller arrives
with the note and assigns it to us iust as they did with the "keeper note."
The note sellers are then told by the settlement agent that they can leave
and that they will receive their check in a Iew days. Then. your buyers
enter the room and you become the new note seller. You endorse the note
to them. sign an assignment agreement with them. and you can leave. The
attorney should send you a check in a Iew days. It's that simple.
You will want a copy oI both sets oI the closing documents. one Ior your
purchase. one Ior your sale. You will also want to have instructed the
attorney to be sure that your purchase assignment is recorded beIore
recording your buyer's assignment.
Post-Settlement for Resales
The only thing you will have to do as post settlement activity is to collect
your check and enioy it. Your check will be the diIIerence between your
purchase price and your resale price. Because you have the opportunity
to negotiate with both the seller and the buyer. learning good negotiating
skills can be very proIitable!
Now. all you have to do now is repeat the process over and over again.
You are about to see the incredible potential this investment or business
oIIers.

47
CHAPTER
THE INCREDIBLE POTENTIAL
upposc you wcic to icpcat thc puichasc and icsalc pioccss ovci and
ovci again with an avciagc of 1O´ piofit on cach tiansaction.... using
nonc of youi own invcstmcnt capital. Could you not makc moic moncy
than you aic making now? Woik out thc numbcis to scc iust how many
tiansactions you would nccd to complctc in oidci to accomplish this....
But, it gcts cvcn bcttci.
Using Borrowed Money
Wc havc yct to addicss thc usc of thc financial calculatoi, and wc will
latci, but considci this. !f ! puichasc a notc with a facc valuc of $25,OOO
and only pay $15,OOO foi it, ! am still collccting paymcnts on thc $25,OOO.
Mcasuicd as a ictuin on my invcstmcnt of only $15,OOO, !'m clcaily doing
a lot bcttci than thc pcison who had thc wholc $25,OOO invcstcd.
As wc saw cailici, wc might icscll thc notc foi, say $2O,OOO and pick
ouisclvcs a nicc $5,OOO piofit. Thc pcison who bought it fiom us would
still havc a good dcal bccausc hc is collccting paymcnts on $25,OOO with
only $2O,OOO invcstcd. Not as good as oui dcal but still quitc good foi
him.
!nstcad of icsclling it, supposc wc wcic to boiiow thc moncy to buy it and
thcn hold on to it. Wc would collcct thc paymcnts fiom thc payci on thc
notc and fiom thosc piocccds, wc would makc paymcnts on thc moncy wc
boiiowcd to buy it with in thc fiist placc. !f wc havc donc this iight, ae
ai|| hare same maaev |e/( arer ererv maa(h bccausc thc loan paymcnts on
MAKE MONEY TRADING MORTGAGES
48
oui boiiowcd moncy will bc lcss than thc notc paymcnts coming in to us.
Again, wc aic collccting paymcnts on $25,OOO but making paymcnts on
only thc $15,OOO wc boiiowcd to buy thc notc. Wc havc nonc of oui own
moncy invcstcd.
Supposc that ! am ablc to puichasc notcs foi a ictuin of 2O´ on my
moncy (! actually do bcttci than that) and supposc that ! could boiiow
moncy at 1O´. Docsn't that lcavc mc a 1O´ piofit cvciy month.... cvciy
ycai? !f ! could boiiow thc moncy to buy 2O of thcsc littlc $25,OOO notcs,
wouldn't that bc $5OO,OOO? And if ! am making 1O´ on that boiiowcd
moncy cvciy ycai, isn't that $5O,OOO cvciy ycai?
Do you scc that with timc, cffoit and knowlcdgc, this bcgins to look likc
a lottciy oi a ictiicmcnt plan? Do you scc that you can build a moncy
machinc that pays you cvciy month? Why would pcoplc bc willing to loan
you moncy foi this? Bccausc you will pay thcm abovc avciagc ictuins
and you will plcdgc thc vciy notc you aic buying as collatcial foi thc loan.
This is callcd hvpa(heca(iaa a/ (he aa(e. !f you don't makc youi paymcnts
on youi loan, youi lcndci can comc in and takc ovci youi position in thc
notc. Hc now gcts to collcct youi notc paymcnts at vaar vie|4, not thc
lowci intcicst hc is collccting on youi loan.
Using Your Own Money
!f you havc youi own invcstmcnt funds, you can clcaily icalizc somc
outstanding ictuins foi youisclf. By placing thcsc invcstmcnts in tax
dcfciicd vchiclcs such as youi !RA oi coipoiatc pcnsion and piofit
shaiing plan, thc compounding cffccts can givc cxplosivc icsults ovci
timc. Latci, undci THE TIME IALUE OF MONEY, you will scc thc
amazing icsults of what will happcn with a simplc invcstmcnt of $1OO pci
month.
MAKE MONEY TRADING MORTGAGES
49
Thcic aic many othci things you can do with thcsc instiumcnts, but if you
aic not gctting cxcitcd by now, somcbody had bcttci chcck youi pulsc!
Lct's go on to lcain a littlc about thc financial calculatoi so that wc can
usc it to gct to spccific numbcis and tiansaction stiuctuiing. This will lct
you scc somc of thc cvcn gicatci potcntial.

50
CHAPTIR
1HL IINANCIAL CALCULA1OR
t this point, if you do not own a financial calculatoi, you will want to
gct onc bcfoic you piocccd. Ouitc acccptablc modcls ictail foi $29.95
and aic oftcn availablc at discount officc supply stoics foi lcss. Onc in
that piicc iangc is thc Tcxas !nstiumcnts modcl BA-35. Anothci slightly
moic cxpcnsivc and highly capablc unit is thc Hcwlctt Packaid modcl HP
12C. !t oidinaiily ictails foi about $95 and can also bc puichascd foi lcss
at discount.
On thc calculatoi, you will find fivc uniquc kcys labclcd as follows:
N This kcy is uscd to spccify thc numbci of months (oi ycais) ovci which
a loan is to bc icpaid, oi how many paymcnts icmain to bc paid, oi how
many months wc must wait foi a lump sum paymcnt.

! This kcy is uscd to spccify thc intcicst iatc of thc notc, oi in othci
cascs, thc yicld wc will icccivc.
P\ This kcy is uscd to dcfinc thc presea( valuc of thc notc in today's dollais.
Rcmcmbci thc $5 bill - $1O bill stoiy? This will tcll us thc sizc discount
wc must gct in cxchangc foi waiting to gct oui moncy back.
PMT This kcy will bc uscd to calculatc thc paymcnts on a givcn loan, oncc
wc dccidc on thc itcms abovc.... intcicst iatc, tcim and amount of thc
loan.
!\ This kcy can bc uscd to scc two things. Firs(, if wc must wait foi a lump
sum paymcnt such as a balloon paymcnt foi a pciiod of timc, thc longci
wc havc to wait, thc lcss it is woith in (a4av's 4a||ar. This kcy will lct us
spccify thc amount wc gct latci. Secaa4, it can tcll us how much wc
must savc cvciy month and at what intcicst iatc it must cain foi us to
achicvc somc spccificd financial goal in thc futuic.
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51
At this point, you will want to tuin to Appcndix A to scc how to sct up
youi spccific calculatoi. !f you aic using a financial calculatoi othci than
thc oncs mcntioncd abovc, you will want to consult thc instiuction
manual foi youi spccific calculatoi. A standaid adding machinc oi
aiithmctic typc calculatoi will not handlc thcsc kinds of pioblcms. !t
must havc thc fivc kcys spccific to this kind of calculation.
Tuin to Appcndix A, sct up youi calculatoi and woik somc of thc
pioblcms shown thcic. Aftci that you will bc icady to woik on somc
advanccd piicing stiatcgics.

MAKE MONEY TRADING MORTGAGES
52
CHAPTIR
ADVANCLD PRICING S1RA1LGILS
ailici, wc discusscd thc nccd to bc ablc to buy whatcvci pait of thc notc
ncccssaiy to mcct thc scllcis nccds, achicvc oui icquiicd piicc/yicld and
kccp oui position safc. Wc also lcaincd that thcic aic two typcs of
paymcnts wc can buy. Onc is thc cash flow sticam and onc is thc lump
sum paymcnt. Whcn you stop and think about it, paymcnts aic what wc
aic puichasing.
Bcfoic wc bcgin to usc thc calculatoi on thcsc situations, lct mc tcll you
of a casc in which ! was involvcd and scc if you can't makc scnsc of it
without a financial calculatoi.
1he Builder's House
A housc was sold by thc buildci foi $152,OOO. This was duiing bad
cconomic timcs foi buildcis so hc compiomiscd by taking a $2,OOO down
paymcnt and holding a $15O,OOO moitgagc, fully amoitizcd (no balloon)
foi thiity ycais with an intcicst iatc of 1O´. This madc thc paymcnts
$1,414 pci month. Clcaily, with only $2,OOO down, this was a pictty iisky
notc. Solving thcsc kinds of pioblcms is what allows us to gct paid so wcll.
Thc buildci had no moic than 25´ piofit in thc wholc dcal so hc was
icluctant to takc much of a cash discount, yct hc nccdcd cash to gct
staitcd on anothci housc. !f hc didn't build, hc didn't cat. Hc told mc
MAKE MONEY TRADING MORTGAGES
53
that hc could gct by with $5O,OOO cash now, so hcic is what wc did.
! offcicd him onc thiid of thc facc valuc ($5O,OOO) foi thc fiist onc thiid
of thc paymcnts (1O ycais oi 12O months). ! also told him that thc way
wc would documcnt thc tiansaction would show that oui position was
scnioi to his icmaining balancc on thc notc. ! wcnt on to tcll him what
this mcant. ! cxplaincd that "i/ (his aa(e eaes /e||v ap, I ai|| aaa vaar haase
/ar $50,000 aa|ess vaa came (a (he /arec|asare aac(iaa, arer/i4 me aa4 pav a//
mv aa(e. Yaa ai|| |ase a|| a/ vaar remaiaiae ia(eres( ia (he aa(e aa4 ia (he
praper(v." Hc undcistood and acccptcd that position bccausc hc kncw hc
would find a way to pay mc off and icscll thc housc iathci than losc that
kind of moncy.... and yct hc nccdcd cash now. How is that foi a safc
position foi mc?
What was not so obvious to him was this. Hc had $15O,OOO invcstcd to
collcct $1,414 pci month. ! had only onc thiid of that, $5O,OOO, invcstcd
to collcct thc samc $1,414 pci month. !ntcicsting? !ntuitivcly, what
ictuin am ! gctting on my moncy? Think about it caicfully. What do you
concludc?
It is a Word Problem
Ycs, it is thicc timcs thc facc intcicst iatc! Now, tiy it on youi calculatoi
to confiim youi answci. Rcmcmbci that it is a woid pioblcm fiom which
wc must cxtiact thc numbcis. !n this casc, lct's fiist look at thc oiiginal
notc. !t says that thc puichasci of thc piopcity owcs $15O,OOO (P\) and
will pay that dcbt ovci a thiity ycai oi 36O month pciiod (N). !t says that
hc will pay an intcicst iatc of 1O´ oi in dccimal foim, 1O.875´ (!).
Sincc thc loan is "fully amoitizcd" (no balloon is callcd foi), !\ will bc
zcio. Sct it up as shown on linc onc bclow. Solvc foi thc paymcnt. Oncc
you havc confiimcd thc paymcnt, lcavc thc figuics in thc calculatoi (you
do not nccd to clcai it). Changc P\ to oui puichasc piicc of $5O,OOO,
changc N to 12O foi thc numbci of paymcnts wc will collcct, and solvc foi
MAKE MONEY TRADING MORTGAGES
54
(!) to dctciminc thc yicld wc will bc gctting. Rcmcmbci that thc answci
you gct will bc monthly and must bc multiplicd by 12 to gct thc annual
iatc.
41 N I PM1 PV lV
1 360 .906 ·· 150.000 0
2 120 ·· 1.414.34 50.000 0
3
4
!f you got 2.71 you aic coiicct. That is thc monthly iatc and whcn
multiplicd by 12, you havc an annual ictuin oi yicld of 32.58´. Not to
bad whcn you considci that thc buildci took no discount fiom facc valuc.
Hc is happy.... ! am happy. !f you did not gct thc abovc answcis, icvicw
youi calculatoi instiuctions and tiy again. Answcis to all pioblcms in this
book can bc found in thc answci kcy in Appcndix C. Thc pioblcm
idcntification numbci foi cach pioblcm can bc found in thc uppci
lcft-hand coinci of thc pioblcm chait.
1he Periodic Payment
Rcmcmbci that thcic aic basically two kinds of paymcnts wc can buy:
pciiodic (monthly, quaitcily, ctc.) and lump sum. Lct's usc a $5O,OOO notc
with an intcicst iatc of 12´ to cxaminc thcsc idcas. Lct's also put a fivc
ycai "call" oi balloon in this onc. This simply mcans that thc paymcnts
will bc calculatcd as though it wcic a thiity-ycai loan but at thc cnd of fivc
ycais, whatcvci amount is still owcd, is duc and payablc in full as a |amp
sam at that timc.
Lct's fiist sct up thc basic thiity-ycai notc and calculatc foi thc paymcnt
MAKE MONEY TRADING MORTGAGES
55
as shown on linc 1 on thc chait that follows. Oncc that is calculatcd wc
will look at cach puichasablc pait of thc notc individually.
42 N I PM1 PV lV
1 360 1 ·· 50.000 0
2 0
3
4
Youi answci should havc bccn $514.31 foi thc paymcnt.
Sincc thcic is a balloon aftci fivc ycais, this mcans that wc could
puichasc up to fivc ycais (6O months) woith of paymcnts. Lct's sct up to
calculatc foi how much wc would pay to collcct thosc 6O paymcnts. Thc
paymcnt amount is a known at $514.31, thc numbci of paymcnts is
known, at 6O. Thc othci two factois.... !, oui yicld and P\, what wc will
pay foi thc paymcnts aic dcpcndant on cach othci. Who gcts to dccidc
what yicld wc acccpt on aar maaev? That's iight, wc do. Lct's look at oui
cost foi thc 6O paymcnts if wc buy foi an 18´ yicld on linc onc bclow and
foi a 24´ yicld on linc 2.
43 N I PM1 PV lV
1 60 1.5 514.31 ·· 0
2 60 2.0 514.31 ·· 0
3
4
!f you got $2O,253.52 foi P\ on linc onc, that is thc coiicct amount you
MAKE MONEY TRADING MORTGAGES
56
would pay to icalizc an 18´ ictuin on youi moncy. !f you got $17,877.74
foi thc P\ on linc 2, that is thc coiicct amount you would pay to icalizc
a 24´ ictuin.
At this point, it should bccomc clcai that thc actual loan amount is only
of valuc to dctciminc thc paymcnts on thc notc. Aftci that, what wc
ically caic about is how much a month will wc gct and foi how many
months. Wc will thcn dccidc a yicld foi ouisclvcs and computc what wc
can pay.
1he Lump Sum Payment
Thc sccond kind of paymcnt is thc lump sum. \sually, this mcans that wc
put up somc moncy now but do not gct icgulai pciiodic paymcnts as wc
did abovc. !nstcad, wc must wait foi somc pciiod of timc and thcn wc gct
back a singlc lump sum paymcnt that includcs thc moncy wc put up p|as
thc intcicst it caincd whilc thc othci paity uscd it.
To calculatc this kind of situation, N will icpicscnt thc pciiod of timc wc
must wait to gct thc lump sum paymcnt. !\ will bc thc amount of thc
lump sum wc will gct back. Sincc thcic will bc no icgulai paymcnts
duiing thc waiting timc, wc will always cntci zcio in thc paymcnt column.
As bcfoic, wc gct to choosc oui yicld. With thcsc figuics in placc, wc
simply calculatc foi P\. P\, thcn, is thc amount wc can pay now to
icalizc oui yicld ovci thc timc pciiod wc must wait.
Lct's takc thc $5O,OOO notc cxamplc and fiist figuic out how much will still
bc owcd on it aftci thc fivc ycais woith of paymcnts havc bccn madc fiom
thc cailici cxamplc. To do this wc will sct up thc oiiginal pioblcm as
bcfoic and calculatc foi paymcnt. This, on linc onc of thc ncxt chait, gcts
thc numbcis back into thc calculatoi as a staiting point.
Ncxt, wc want to look at things fivc ycais down sticam. To do that, wc
MAKE MONEY TRADING MORTGAGES
57
nccd to dcduct fivc ycais oi 6O paymcnts, that havc by thcn bccn madc,
fiom N. That lcavcs us a ncw N of 3OO. Simply cntci this as N on youi
calculatoi (don't clcai it fiom linc onc) and solvc foi P\. This is thc ncw
balancc still owcd aftci fivc ycais of paymcnts. You will scc thc coiicct
answci shown in !\ in thc calculation on linc thicc.
!f wc wcic to put a valuc on thc balloon pait of this notc, it would bc as
on linc thicc bclow if wc want an 18´ yicld and as on linc foui foi a 24´
yicld.

44 N I PM1 PV lV
1 360 1 ·· 50.000 0
2 300 1 514.31 ·· 0
3 60 1.5 0 ·· 48.831.61
4 60 2.0 0 ·· 48.831.61
Suddcnly you bccomc awaic of thc timc valuc of moncy in a big way.
If We Buy the Lntire Note
!f wc wcic to buy thc cntiic notc, both thc paymcnt sticam and thc
balloon, wc could simply add thc two abovc icsults togcthci to aiiivc at
a total piicc bascd on thc yicld ae reqaire.
At 18´, that would bc $2O,253.52 + $19,986.58 = $4O,24O.1O.
At 24´, that would bc $17,877.74 + $14,883.O1 = $32,76O.75.
Most financial calculatois will calculatc both of thcsc paits of thc notc at
thc samc timc and would bc sct up foi 18´ yicld as shown on linc onc
bclow and foi 24´ on linc 2. Of couisc, you should gct thc samc answci
as whcn wc totalcd thc paits.
MAKE MONEY TRADING MORTGAGES
58
45 N I PM1 PV lV
1 60 1.5 514.31 ·· 48.831.61
2 60 2.0 514.31 ·· 48.831.61
3
4
Let's 1hink Creatively
Now that wc havc cxamincd how to puichasc cach kind of paymcnt that
wc can collcct, you nccd to bc awaic that wc can bccomc much moic
cicativc with what thc notc has availablc. 1ust bccausc thc abovc notc says
thcic aic 6O paymcnts availablc, wc don't havc to buy thcm all. Wc aic
only limitcd to 6O bccausc that's all thcic is. As an asidc, if thc pcison
making thc paymcnts on thc notc would agicc to do so, wc could of
couisc, cxtcnd thc balloon to a latci datc and havc moic paymcnts
availablc. Wc can't do that without his appioval, howcvci. Thc point is,
though, that wc could buy any numbci of availablc paymcnts that mct thc
nccds of thc paitics to makc thc tiansaction woik.
!n a similai fashion, is it ncccssaiy that wc buy all of thc balloon? Of
couisc not. Wc can buy a pait of it, too. Supposc that oui icquiicd yicld
is 24´ and supposc that thc notc scllci ically nccds $24,OOO cash. Hc
docsn't want to takc any moic of a cash discount than ncccssaiy bccausc
hc is ictiiing in fivc ycais and wants thc balloon cash to add to his
ictiicmcnt icscivcs. Hcic is what wc could do.
Wc could buy thc 6O paymcnts foi oui picviously calculatcd $17,877 (lct's
diop thc ccnts fiom hcic on). His icquiimcnt of $24,OOO cash lcss thc
$17,877 lcavcs a shoitagc of $6,123. Lct us thcn split thc balloon funds
with him in fivc ycais in such a fashion that wc can givc him thc cxtia
nccdcd $6,123 (a4av. Hcic is how it will look:
MAKE MONEY TRADING MORTGAGES
59
46 N I PM1 PV lV
1 60 2.0 0 6.123 ··
2
3
4
This says that in oidci to gct thc cxtia $6,123 (a4av (P\), wc will nccd to
collcct $2O,O89 in fivc ycais. That will comc out of his $48,831 balloon
lcaving him a pait of thc balloon to collcct in thc amount of $28,741.
With thcsc conccpts and a littlc piacticc, you can bccomc vciy cicativc
with solutions to notc scllci's aee4s. Tiy youi hand at somc of thc ical lifc
cascs shown undci Casc Histoiics in Appcndix B.

MAKE MONEY TRADING MORTGAGES
60
CHAPTIR
1HL BIGGLR PIC1URL
1he 1ime Value of Money
hc Time Ia|ae O/ Maaev is vciy oftcn dcfincd incoiicctly by thosc who
claim to know thc notc busincss. Thcy likcn it to thc buying powci of a
dollai today against thc buying powci of a dollai tcn ycais ago. Thcy
might compaic thc cost of a cai thcn and now. That cffcct, thc
diffcicntial in thc costs of goods and sciviccs, is causcd by inflation and
has absolutcly nothing to do with thc timc valuc of moncy.
Thc timc valuc of moncy is simply its ability to cain a ictuin foi you ovci
a pciiod of timc. You can piovc this if you will sct up a samplc pioblcm
and put zcio intcicst in youi calculatoi and solvc foi !\. You will scc
that thc !\ is thc samc as thc P\. !n that sctting, thc timc valuc of
moncy is zcio.
!f you ically want to gct cxcitcd about thc possibilitics of this invcstmcnt,
solvc thcsc last two pioblcms.
1. !f you wcic to invcst $1OO pci month at, say 15´, how much
would you havc at thc cnd of thiity ycais? Sct it up as shown in
linc onc bclow.
2. !f you wcic to invcst a lump sum of $1O,OOO today at 15´ foi
thiity ycais, adding no paymcnts aftci thc initial invcstmcnt,
how much would you havc at thc cnd of thc invcstmcnt?
MAKE MONEY TRADING MORTGAGES
61
4¯ N I PM1 PV lV
1 360 1.25 100 0 ··
2 360 1.25 0 10.000 ··
3
4
No, youi calculatoi isn't biokcn. !t ically is that much moncy. This, of
couisc, docsn't takc into account thc cffcct of taxcs on compounding youi
moncy. Now you undcistand thc ical mcaning of thc Time Ia|ae O/
Maaev. Lcain how to makc it tax ficc thiough youi !RA oi piofit shaiing
plan and you will scc somc amazing possibilitics.
International and Other Notes
At onc point in thc past, ! icccivcd a call fiom a fiicnd who had iust
bought a icsoit condominium in thc Wcst !ndics. !t tuins out that a lady
fiom Ncw 1ciscy had dcvclopcd thc "Sand Dollai" icsoit condominiums
thcic, sold most of thcm to pcoplc iight hcic in thc Washington, D.C.
aica, and had takcn back about 1.5 million dollais woith of notcs. Shc
wantcd to scll thc notcs to icgain somc liquidity foi hci ncxt pioicct. My
fiicnd told mc how bcautiful and pcaccful it was thcic and cvcn showcd
mc pictuics. Hc told mc that thc placc was iust about to bc "discovcicd"
and hc cxpcctcd thc valucs to skyiockct.
! invcstigatcd thc situation and found that thc titling, iccoiding and
foicclosuic pioccss in that countiy was vciy diffcicnt fiom thc \.S.
systcm. Of cqual impoitancc was thc attitudc of thc lcgal systcm thcic.
Bottom linc was that thc systcm is vciy pio-dcbtoi and foicclosuic oi
MAKE MONEY TRADING MORTGAGES
62
othci iclicf foi thc lcndci was ncaily impossiblc.
Bcautiful though it was, if ! can't iccovci thc piopcity with icasonablc
casc, ! don't buy thc notc. You should havc thc samc iulc. !n this casc,
if you want thc piopcity, iust buy it. Don't dcpcnd on gctting it thiough
foicclosuic.
Thcic is a faiily activc maikct foi notcs in Canada at this timc. Thcii
systcm appaicntly woiks OK. !n shoit, this kind of invcstmcnt should
woik anywhcic you havc thc kind of lcgal systcm that piovidcs faii
ticatmcnt undci thc law foi you and youi position as a "lcndci."
As to othci kinds of notcs, anything that can bc financcd with a
piomissoiy notc can pioducc similai icsults. Thcic aic pcoplc who buy
"cai papci" fiom thc financing of cais. Thcic is boat papci, mobilc homc
papci, homc impiovcmcnt papci and moic. Iach of thcsc may comc
undci diffcicnt financing law and ccitainly, cach has a diffcicnt kind of
iisk. !, foi onc, don't want somconc diiving aiound in my collatcial. On
thc othci hand, if you aic a cai dcalci oi know how to dcal with that kind
of collatcial, thc samc discounting conccpts apply.
As a mattci of fact, thcsc invcstmcnts woik vciy much likc ccitain
invcstmcnts sold on Wall Sticct in thc "convcntional invcstmcnt maikct."
!oi thosc of you familiai with thosc maikcts, thc balloon bchavcs cxactly
likc a zcio coupon bond. Thc paymcnt sticam bchavcs likc thc coupons.
Now You Know
With thc tools and knowlcdgc icvcalcd in this book, you should ncvci
acccpt thc paltiy yiclds offcicd by thc banks again. You should havc a fai
bcttci undcistanding of how moncy and its caining powci woiks. !f you
will put it to woik aaa, timc, youi knowlcdgc and youi cffoits will hclp
you achicvc thc financial position you want and dcscivc.
MAKE MONEY TRADING MORTGAGES
63
!n closing, lct mc shaic with you my motto in pioviding this infoimation
to you. !t is, "De4ica(e4 (a He|piae Yaa Ua4ers(aa4 Haa (a Ge( A|| (he
Maaev Yaa Nee4 /ar Yaa aa4 Yaars."
!f you want moic infoimation, go thc THI PAPIR SO\RCI wcbsitcs:
www.PapciSouiccOnlinc.com
www.cashflows.oig
My bcst to you and youis.

7 77 7~ ~~ ~· ·· · - -- -· ·· ·. .. .é éé é. .. .

MAKE MONEY TRADING MORTGAGES
64
The Process in Review
! want to icfci you back to thc placc in thc book whcic it says, kaaa|e4ee
caaqaers /ear. Yaa ai|| caaqaer /ear ar i( ai|| caaqaer vaa. I('s vaar chaice. Whcn
you icalizc that timc is a ciitical factoi in thc "Timc \aluc Of Moncy," you
should icalizc that you nccd to gct staitcd NOB!!
Hcic thcn aic thc logical stcps that you must follow to makc thc pioccss woik
succcssfully foi you.
1. Go find thc notcs
2. !ntcivicw thc scllci and collcct infoimation
including at lcast thc notc, thc sccuiity instiumcnt
and thc scttlcmcnt statcmcnt.
3. Rcvicw thc documcntation fiom stcp 2 abovc.
4. Plan piicing and ncgotiating stiatcgy bascd on
infoimation fiom stcp 2 abovc.
5. Ncgotiatc to puichasc thc notc; gct thc signcd notc
puichasc agiccmcnt; and collcct thc additional
documcntation icquiicd.
6. Dccidc to kccp oi icscll thc notc. !f icsclling thc
notc, gct thc salcs agiccmcnt and piicing of thc notc
fiom youi buyci.
7. Schcdulc all inspcctions, appiaisals, and scttlcmcnt,
including any titlc woik, oi havc youi buyci takc
caic of thcsc itcms.
8. Collcct thc chcck foi piofits fiom thc scttlcmcnt and
go cnioy thc moncy if icsclling.... oi handlc youi
post scttlcmcnt icsponsibilitics and cnioy thc high
yicld monthly incomc, if you aic kccping it.
MAKE MONEY TRADING MORTGAGES
67
APPENDIX A
Using the Financial Calculator
When Iirst starting with a new calculator. you will need to turn it on and
get it into the Iinancial mode. You will also need to set the number oI
decimal places that it displays. You should note that although you set. say
two decimal places. the calculator still does it's calculation based on all oI
the decimal places it is capable oI running. It simply displays only what
you set.
The Texas Instrumentss model BA-35 and the Hewlett Packard 12-C are
two popular brands we oIten see. We will use them here Ior explanation
purposes. II yours is diIIerent model or brand. you will need to consult
you owner's manual Ior equivalent inIormation.
Texas Instruments Model BA-35
Let's start with inIormation on the Texas Instruments model BA-35.
The ON/C key turns the calculator on. It also clears the last number
entered iI pressed only once. This can be useIul when you enter a wrong
number in the middle oI a calculation. II you press this key twice. it will
clear all oI the numbers you have entered. To totally clear the calculator
oI all numbers. those entered and those previously calculated. press OFF.
ON/C. STO.
The OFF key will turn the calculator oII. Turning it oII does not remove
the numbers stored in the calculator.
The BA-35 can operate in either the Iinancial mode or the statistical mode.
We will use it in the Iinancial mode. To select this mode. press the key
MAKE MONEY TRADING MORTGAGES
68
labeled 2nd then the key labeled FIN. You should now see FIN displayed
at the bottom center oI the display.
The BA-35 can operate in either oI two modes Ior the number oI decimal
places displayed. In the DEC 2 mode. it displays two decimal places and
is normally what I recommend using. In the Iloating point mode. it
displays as many places as necessary to display the complete answer up to
a maximum oI eight. In both cases. it does it's calculations internally
based on 11 digit numbers. without regard to what you have displayed. To
change between the two modes. press 2nd STO. Each time you press this
key combination. it will change to the other mode. You can make this
change at any time including while viewing your answer.
When you are set up correctly. you should see a zero and FIN in the
display window. II you see ANN in the display beIore beginning a
problem. you will get an incorrect answer. To remove the ANN. use the
key sequence 0 PMT. That should remove it and the calculator should be
ready to solve problems. II the ANN reappears during a calculation. do not
be concerned. It's presence is only a concern beIore we begin entering data
Ior a new problem.
To enter numbers into each oI the various Iunctions. Iirst press the number
keys to get the desired number into the display and then press the Iunction
key you want that number to represent. As an example. II the loan amount
is $10.000 (PV). you would press the number keys to put 10000 into the
display window and then press the key labeled PV. It is now properly
entered.
The term or length oI the loan must be entered in months. II the term is
expressed in years. we must convert years to months. To do this. simply
multiply the number oI years times twelve. press the equal key and then
press the N key. You have now entered the months (N) directly into the
calculator.
In a similar Iashion. we must express the interest rate in monthly terms.
To do this. enter the annual rate ordinarily stated. divide it by twelve. press
the equal key and then press the key labeled I. You have now entered the
correct monthly interest rate into the calculator.
MAKE MONEY TRADING MORTGAGES
69
On the BA-35. press "CPT" (Ior compute) and then press the key
representing the Iunction you wish to compute such as PV. I. N. FV. or
PMT. You must. oI course. provide the calculator with Iour oI the
Iunctions beIore it can compute the IiIth. As an example. the key
sequence CPT PV should compute the present value.
On some older Texas Instruments calculators. the key labeled "2nd" is
used as the compute key. II you are using other than the BA-35. consult
your owner's manual Ior the equivalent instructions. Note that when
calculating Ior I. this is a lengthy calculation. The numbers will disappear
Irom the display during the calculation. Don't think the calculator is
broken. Be patient Ior the answer.
II you are using the BA-35. skip over the HP 12C explanation that Iollows
and go to the practice problems that Iollow.
Hewlett Packard Model 12C
Next. let's do the Hewlett Packard model 12C.
First. turn it on using the "on" button in the lower leIt hand corner oI the
calculator. This also turns it oII iI you push it a second time. Next. put it
in the Iinancial mode by pressing the yellow "I" key next to the on key.
Set the decimal point by pushing the yellow "I" key Iollowed by the
number oI decimal places you want to see displayed. Two is adequate
although I habitually set mine at three.
You should now be ready to solve Iinancial type problems. First. you will
want to enter the numerical value you want Ior each Iunction and then
press the key representing that Iunction. For example. iI you want 360
months in N. simply press 360 N and it is entered.
As stated earlier. we always state our N in months and our interest rate in
monthlv interest. To accomplish this. you can take the number oI years and
multiply it by twelve to get the number oI months OR you can enter the
number oI years. then press the blue key marked G and lo and behold. it
MAKE MONEY TRADING MORTGAGES
70
automatically converts the years to months and enters it into the calculator
when you hit N. The key sequence then. Ior a 30 year loan. would be 30
G N and you should see 360 displayed. In a similar Iashion. I Ior interest
can be converted Irom annual to monthly by dividing it by 12 OR you can
enter the annual interest rate. press the G key then press the I key. Lo and
behold the conversion is done Ior you and entered into the calculation.
One thing diIIerent on the HP 12C is that the number placed in the PV
column must alwavs be a negative number. To accomplish this. key in the
number and then press the button (to the leIt oI the 7 key) labeled CHS.
This stands Ior change sign and will put a minus(-) sign in Iront oI the
number. Push it again and it will take it away. Alwavs think number.
CHS. PV. II you get a message on the display that says "error 5." you
Iorgot to change the sign on your PV. The key sequence then Ior PV is to
key in the loan amount then press CHS. PV. To compute an answer.
simply press the button Ior the Iunction you want calculated. Note that the
calculation Ior I is lengthy and the display will Ilash "running" until it is
completed.
On the HP-12C. the standard mathematical Iunctions oI add. subtract.
multiply and divide are also handled diIIerently than on standard
calculators. You will want to consult your owners manual Ior this
inIormation.
Some Sample Problems
Now that you have your calculator set up and ready to run. let's do some
sample problems to be sure that we are on the right track. These are warm
up problems Ior the calculator. Once you complete them. we will return
to calculations speciIic to the note business.
Since most Iinancial calculators retain numbers Irom the previous
calculations. even with the power turned oII. you should always take two
precautions. First. use the key sequences prescribed Ior your particular
calculator to completely clear the entire calculator. Second. when entering
the numbers Ior a speciIic problem. never leave a Iunction with nothing
entered into it except Ior the Iunction you will be calculating. When I say
MAKE MONEY TRADING MORTGAGES
71
nothing entered. I mean that you should always enter a zero where there
is no value to be used. Do not assume that a zero value is automatically
there iust because you didn't enter a value. There could be an undesired
number hiding in there Irom a previous calculation. Such an error could
cost you a lot oI money through miscalculation.
Okay? Let's go with some oI the problems. You may remember the "word
problems" we were taught when we were in grade school. The problems
we will be solving in real liIe mortgage note cases are word problems. too.
They will be read Irom the note we are going to buy.
You should always set up a chart as shown below on which you deIine the
problem and enter the original numbers as taken Irom the problem or. iI
you will. Irom the note. SpeciIically. put the problem on paper in this
Iashion beIore using the calculator to solve it. Here then is the chart setup
Iollowed by the Iirst practice problem.
< Chart setup Ior the BA-35 Calculator
N I PMT PV FV
or Ior the HP 12C
N I PV PMT FV
Set your chart up to conIorm with the layout oI the keys on your particular
calculator. Some solutions will require multiple step calculations where
the answer Irom one step will be used in the next step. To that end. either
use a separate colored pen to mark your answer Ior each step oI the
problem or circle the answer Ior each step. You will need to be able to
identiIy the calculated answer as opposed to the Iacts you gave the
calculator to work with.
MAKE MONEY TRADING MORTGAGES
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N I PMT PV FV
1
2
3
4
I will walk you through the calculation one keystroke at a time Ior the Iirst
problem or two. AIter that. you will Iind an answer key to all oI the
calculations in this book in Appendix C. The problem number is shown
in the upper leIt hand corner oI the chart.
< II I borrow $10.000 Irom the bank and must pay it back over a three
year period with an interest rate oI 9°. what will my monthly payments
be?
First. we know that three years is 36 months so we will press the keys 36
N to enter the number into that Iunction. Next. we know that the interest
rate is 9° but since the calculator expects a monthly rate. we will divide
9 by 12 to get the right number to enter. Simply key in the sequence to do
the division. press the ÷ key and then press I. Restated. 9 12 ÷ I. The
accurate number is now entered into I. Next. key in 10.000 and press the
PV key (CHS PV on the HP 12C) and the amount borrowed is entered.
Next. be sure to press 0 FV to enter zero into the FV Iunction. Now we
are ready to compute the payment. To do so. press CPT PMT on the BA-
35 or simply press PMT on the HP 12C. On the chart. it will look like
this:
MAKE MONEY TRADING MORTGAGES
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#8 N I PMT PV FV
1 36 .75 ? 10.000 0
2
3
4
II you answer was $317.99 or $318 you are correct. II not. try it again.
Note that in the I column we have entered the monthlv interest rate.
Multiply it by twelve to get the annual interest rate.
< II I can aIIord to pay $300 per month Ior a home improvement loan. and
iI the bank will lend it to me at 11° Ior 5 years. how much can I
borrow?
To start with. $300 per month is obviously the payment so the buttons you
will push are 300 PMT. Next. 11° is obviously the interest rate so the key
sequence is 11 divided by 12 (to get monthly interest) equals (÷) I. Next.
we see 5 years Ior the length oI the loan which will become our N. We
need the monthly term. so multiply 5 years times 12 months per year and
press ÷ N. Key sequence. restated is 5 x 12 ÷ N. We always put
something in every category except the one we will be solving Ior so enter
a zero in FV by pressing the key sequence 0 FV.
Since this gives us a number in Iour oI the Iive categories. we can now
solve Ior our unknown which in this case is how much we can borrow. or
PV. On the BA-35. press the keys marked cpt (Ior compute) PV and the
answer should show up. On the HP-12C. iust press the PV key and the
answer (with its minus sign) will show up. II your answer is $13.797.91
you have done the problem correctly. On the chart it looks like this.
MAKE MONEY TRADING MORTGAGES
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#9 N I PMT PV FV
1 60 .92 300 ? 0
2
3
4
< II you have $10.000 to lend and can get a payment oI $240 per month
Ior 16 years. what interest rate (yield) are you receiving?
#10 N I PMT PV FV
1 192 ? 240 10.000 0
2
3
4
For this problem. we are solving Ior I. The "I" calculation is one that takes
an incredibly long time. While the calculator is running. the screen will
usually either blink or it will go blank altogether. Don't be impatient. it
will come back with an answer. When it does. remember that it is the
monthly interest and must be multiplied by 12 to get the annual rate.
The key strokes are: 192 N then 240 PMT then 10.000 CHS PV (on the
HP 12C) or iust 10.000 PV on the BA-35 then 0 FV and Iinally I on the
HP or cpt I on the BA-35.
II your answer was 2.37 and you multiplied it by 12 to get 28.48° per
year. you are correct.
MAKE MONEY TRADING MORTGAGES
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< II your car quit and you absolutely must get a new one. and iI the car
costs $12.500. the car loan is at 14°. and you can only aIIord to pay
$260 per month. how long will it take you to pay Ior the car?
#11 N I PMT PV FV
1 ? 1.17 260 12.500 0
2
3
4
Key strokes are 14 divided by 12 ÷ I. then 260 PMT. then 12.500 (CHS on
the HP 12C) PV. then 0 FV. and then N or cpt N depending on you
calculator. II your answer was 71 months. you were correct.
II you manually entered 1.17 Ior I. you will get 72 months Ior an answer.
That is not accurate and here is why. 14 divided by 12 is actually
1.6666667. II you had your calculator set to display only 2 decimal places.
it rounds the answer up to 1.17 Ior display purposes. Don't depend on the
number displayed. Instead. do the 14 divided by 12 ÷ I. then the 1.6666667
Iigure will be used by the calculator to get the accurate answer. II any oI
the answers in the answer key (appendix C) diIIer only slightly Irom your
calculations. this may be why.
MAKE MONEY TRADING MORTGAGES
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Notes:
1. Observe that. in the previous examples. we have calculated Ior
each oI the various Iunctions available on the calculator
except Future Value. Observe. too. that each underlying
problem is a "word problem" Irom which we must derive the
inIormation needed to calculate the result.
In analyzing notes and mortgages/trust deeds. we will have to derive
the numbers Irom written documents looking very much like these
word problems. It is very important that we read these documents
careIully to identiIy each oI the Iunctions needed Ior calculations.
2. To convert a Iractional interest rate. such as 10 . you would
do 7 8 ¹ 10 ÷ ? and get 10.875 Ior your answer. These are
the same numbers. with one expressed in Iractions and the
other expressed in decimals. as required by the calculator.
Then. as beIore. do 10.875 12 to get the monthly interest
rate Ior use in your calculations.
< Introduction To Future Value
Calculate the Future Value oI $20.000 deposited. as a lump sum.
drawing no interest. Ior Iive years. What is the FV iI it draws 5°
interest? 10°? 20°? This will tell us the eIIect oI compounding at
various rates over a Iive year period. The interest rates shown in the
chart that Iollows are rounded.
#12 N I PMT PV FV
1 60 0 0 20.000 ?
2 60 0.417 0 20.000 ?
3 60 0.833 0 20.000 ?
4 60 1.667 0 20.000 ?
MAKE MONEY TRADING MORTGAGES
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< II you were to purchase something today that you expect to appreciate
at 15°/year and you expect to sell it Ior $15.000 in Iive years. how
much can you pay Ior it today?
#13 N I PMT PV FV
1 60 1.25 0 ? 15.000
2
3
4
< II you can invest at a 16° return and want to have $25.000 in 5 years.
how much must you invest now to achieve that goal?
#14 N I PMT PV FV
1 60 1.333 0 ? 25.000
2
3
4
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Summary of Use of Financial Calculator
In the Ioregoing examples. we have covered calculations Ior each oI the
Iive variables (N. I. PMT. PV & FV) used in our kind oI problem solving.
It should by now be apparent that we need Iour oI the Iive variables to
calculate Ior the IiIth. It should also be apparent that when we change our
input number to one oI the variables. the number in some other variable
will change.
In real liIe calculations. you will Iirst want to Iind out the Iacts Irom the
Iace oI the note and then calculate your answer based on the remaining
variables.
II you Ieel like you need Iurther help with the basic calculator. either
review this section again or reIer back to your calculator instruction
manual.
When you are ready. return to the main text oI the book and start working
with the problems under Advanced Pricing Strategies.

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APPLNDIX B
Case Histories


CASL J
A couple purchased a new home prior to selling their existing home. In a slow
resale market thev were unable to sell their existing home so thev ended up renting
it to help co·er the pavments on it's existing mortgage. Almost two vears had
passed and thev were íacing the íact that thev would soon ha·e a tax problem. Ií
thev didn't sell within the two vear period. thev would lose the ía·ored tax treatment
oí rolling their proíit on the existing home into their new home. Since thev had
li·ed in the existing home íor a number oí vears. the ·alue had increased
signiíicantlv and this would mean a sizeable tax bill. 1hev didn't ha·e the monev to
pav the taxes ií it went that wav.
1heir tenants wanted to buv the house but there were two problems. lirst. thev
were voung and had been irresponsible with their credit to the point that he had
pre·iouslv íiled íor bankruptcv. 1hev also had onlv íi·e thousand dollars to work
with. (losing costs alone in their state will oíten run about se·en percent oí the
purchase price. On the selling price oí >145.000. vou can see that there was a cash
problem in making the transaction work.
1he biggest problem. though. was that there was an existing mortgage on the
propertv in the amount oí >38.000. 1hat mortgage had a "due on sale clause" in it
which meant that it had to be paid oíí when the propertv was sold. \here were
thev going to get the >38.000· 1he voung couple didn't ha·e it. 1he seller didn't
ha·e it. le had spent all oí his monev on his new home. Guess who had it· 1hat's
right.... I did.
1he seller plans to retire in íi·e vears and wants to ha·e his íunds a·ailable íor that
purpose. low would vou handle this transaction· See answer kev 415.
MAKE MONEY TRADING MORTGAGES
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CASL 2
An elderlv couple wanted to sell a mixed use propertv consisting oí a small rental
house and a small retail storeíront building. 1he sale price was >225.000. 1hev had
·erballv agreed to sell it to a builder with 5° down and thev would hold the
mortgage íor one vear at 12° interest with pavments based on a thirtv-vear
amortization. 1hev suddenlv changed their mind and told the real estate agent that
thev wanted more monev now. 1hev had decided that at their ages oí ¯3 and ¯4.
it was high time that thev went to Lurope and li·ed it up a little in other areas oí liíe.
too. Since "traditional" íinancing was not a·ailable on that tvpe propertv. the real
estate agent called me to ask how to handle the situation. \hat would vour solution
be· See answer kev 416.
CASL 3
I was called bv a man who had just mo·ed here írom Pearl Ri·er. New \ork. le
had sold his home oí 1¯ vears and purchased a home on the water in Marvland. le
had sold the New \ork home to a Doctor íor >250.000 on an 80-10-10 kind oí
íinancing. 1his means that the buver put 10° down. the seller held a note and
mortgage íor 10° and the bank took a mortgage íor the remaining 80°. le
wanted to sell his >25.000 note so he could use the proceeds to remodel his
Marvland home. 1he problem is. I don't buv notes with exposure out at the 90°
le·el as was the case here. I did íigure out how to buv it saíelv anvwav. low would
vou handle it and what would vou pav íor it. See answer kev 41¯.
CASL 4
A builder in \ork. Pennsvl·ania was building and selling homes to the low end oí
the market. le was getting 5° down. the bank was pro·iding 80° íinancing and
the builder was holding a note íor the remaining 15°. Since his proíit on each
house was onlv about 25°. the builder needed to get more cash out. Again. we
íaced the situation oí a ·erv high loan to ·alue. 95°. íar to high íor our comíort
zone. And again. we íigured out a wav to make the transaction work. low would
vou handle it· See answer kev 418.
MAKE MONEY TRADING MORTGAGES
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CASL 5
A real estate in·estor sold a small house that he had owned íree and clear. 1he sale
price was >60.000. le took >10.000 down and held a note íor the remaining
>50.000. le needed monev to send his daughter to school at the rate oí >12.500 per
vear. le had worked hard to accumulate properties o·er the vears so he was
reluctant to take much oí a discount. low would vou handle this situation· See
answer kev 419.
CASL 6
A man contacted me with a note íor >125.000. le needed cash quicklv íor an
in·estment opportunitv that he had íound. I oííered him >81.250 íor it since it was
a no monev down deal to the propertv buver. 1he note could easilv go bad ií the
new propertv owner. who had nothing to lose. decided to walk awav. 1he note
seller was unwilling to take that big oí a discount but I íigured out a wav to get him
to sav ves. at that price. anvwav. low would vou handle it· See answer kev 420.
CASL 7
An industrial propertv in Mississippi had been sold íor >125.000 but onlv appraised
íor >90.000. 1he remainder oí the price was íor the business that was sold with the
building. Because oí the sellers ·erv dire íinancial problems. we were oííered the
note íor >55.000. le was unable to íind anvone else to buv an industrial note. Our
institutional buver initiallv reíused to buv it because oí the o·erpricing oí the
propertv. 1hev wanted no part oí anvthing to do with a note secured bv a business.
\e were able to restructure the transaction in a wav that would make it work. 1he
result was ·erv lucrati·e. 1rv vour hand at a solution. See answer kev 421.
MAKE MONEY TRADING MORTGAGES
82
As vou become in·ol·ed in real liíe cases. don't íorget that we are reallv dealing with
people problems. 1here will be a new twist to the problem e·erv time vou turn
around. 1his is part oí what makes the business so interesting. As vou proceed. vou
will íind that ií vou use a little imagination. vou can structure transactions to íit most
oí the needs oí a realistic seller. (heck out how we handled these transactions in the
answer guide in Appendix (.

MAKE MONEY TRADING MORTGAGES
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APPLNDIX C
Answer Key

1he answers to all calculation problems in the book are listed here. 1he problem
identiíication number is shown in the upper leít hand corner oí the chart íor each
problem.
I.D. 4
1. 32.58°
2. >514.31
3. >20.253.52 íor an 18° vield: >1¯.8¯¯.¯4 íor a 24° vield.
4. >19.986.58 íor an 18° vield: >14.883.01 íor a 24° vield.
5. >40.240.10 íor an 18° vield: >32.¯60.¯5 íor a 24° vield.
6. lV is >20.089.¯5
¯. lV íor >100 per month is >692.32¯: íor >10.000 lump sum lV is >8¯5.409
8. >318
9. >13.¯9¯.91
10. \our calculator should read 2.3¯: Multiplv bv 12 to get the annual rate oí
28.48°
11. ¯1 months
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84
12. \ou will ha·e the same >20.000 vou started with a 0°: at 5° vou will ha·e
>25.66¯.1¯: at 10° vou will ha·e >32.906.18: at 20° vou will ha·e >53.919.40
13. >¯.118.51
14. >11.292.¯6
15. lirst. we had to disco·er the problem to be sol·ed and how much cash that
would take. 1hat problem was the need to pavoíí the existing íirst mortgage.
\e had the real estate agent structure a note and mortgage íor 8.5° interest in
the amount oí >140.000. It was written íor thirtv vears with a íi·e vear balloon.
Pavments were >1.0¯6.48 per month. \e paid the required >38.000 needed to
pav oíí the existing mortgage in exchange íor recei·ing the íi·e vears worth oí
pavments beíore the balloon is due. \hen the note seller retires in íi·e vears.
he will ha·e a balloon pavment due him in the amount oí >133.686.
16. \e had the real estate agent ask the builder´buver to call us. \e con·inced him
to put down 10° rather than the 5° he had planned. \e then had them write
a note íor the remaining >202.500 with a íi·e vear balloon rather than the one
vear originallv planned. \ith a 12° íace interest rate. the pavments were
>2.082.94 per month. \e were able to purchase the íi·e vears worth oí
pavments íor >65.000. 1hat put a total oí >65.000 plus the >22.500 down
pavment in the couple's "íun monev" account. In addition. at the end oí íi·e
vears. thev ha·e a balloon pavment due them in the amount oí >19¯.¯68. At
that time. thev can spend the balloon dollars or their heirs can deal with it as
íate dictates but thev can certainlv ha·e some íun now using todav's dollars.
1¯. 1he problem here. as it oíten is. is that there is not enough equitv a·ailable in
the collateral to protect our monev. I told him that we needed more equitv or
other collateral beíore our saíetv margin could be met. Knowing that he had
li·ed in his pre·ious home íor 1¯ vears. I guessed that he had a lot oí equitv in
it. I also suspected that he had rolled most oí the proceeds írom the sale oí that
house into his new home in Marvland. Sure enough he had. so we suggested
that he pledge that equitv as extra collateral íor the note he was selling. 1his
was accomplished bv using an indemnitv mortgage. 1his is eííecti·elv a no
MAKE MONEY TRADING MORTGAGES
85
interest. no pavment mortgage. It has no eííect unless the New \ork note goes into
deíault. Ií the New \ork note were to go into deíault. we could íoreclose both
properties ií necessarv. \hen the New \ork note is paid in íull. the indemnitv
mortgage becomes null and ·oid.
18. 1hese notes had a 95° L1V or exposure íor us 80° írom the bank in íront
oí our position, ií purchased at íull íace ·alue. \e had the builder put ten notes
in a portíolio. 1hev were written at 12° íor 15 vears. \e purchased what I call
a double partial. lirst. we bought the íirst one third oí the note pavments. íi·e
vears worth. \e paid one third oí the íace ·alue oí the note. 1his had the eííect
oí tripling our vield írom the íace interest rate. 1his also cut our exposure back
to 85° since the total note is íiíteen percent and we bought the first one third.
1he second thing we did was to buv into onlv halí oí the ten notes in the
portíolio. \hich halí· 1he íirst halí that paid each month. 1his has the eííect
that more than halí oí the notes in the portíolio must go into deíault beíore we
ha·e a problem. 1hese are set up to be collected bv an escrow agent who makes
the pavments to us. Lach time the builder sells ten more houses. we can repeat
the process again.
19. \e did an installment purchase oí the note íor the íull íace ·alue oí >50.000.
\e initiallv paid him >12.500 to co·er the íirst vears tuition. 1his made us the
owner oí the note so we were collecting pavments on the entire >50.000 íor the
íirst vear with onlv >12.500 in·ested. 1he next vear. we paid another >12.500
and so on. Aíter íour pavments oí >12.500. we ended up owning the entire
twentv vears worth oí pavments. \e had a substantiallv impro·ed vield because
we deíerred pavment oí part oí the purchase price.
20. le had told me he reallv onlv needed the monev íor a vear or two. I suggested
that ií he wanted to sell me the note now íor the amount I had oííered him. I
could oííer an idea to escape the discount. I would agree to gi·e him the option
oí buving the note back írom me. at the same price I paid him íor it. anv time
between the íirst and second vear oí mv ownership. Ií he had exercised the
option. I would still ha·e collected pavments at mv vield while I held the note.
Oí course. he ne·er quite got the monev together to buv it back. 1his approach
works íor total purchases but commits vou to hold the note a·ailable íor sell
back until the option time has expired.
MAKE MONEY TRADING MORTGAGES
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21. \e were able to get the person making pavments on the note to cooperate with
us so here is what we did. \e restructured the note íor sale into two notes.
1he combination oí the two notes resulting írom the restructuring had the same
terms and conditions as the original note so there was no eííect on the paver.
\e sold the new íirst note to an in·estor íor >63.000 which put about >8.000
oí immediate proíit in our pockets. \hat do vou think happened to the new
second note we created· \ou guessed it.... we get to keep the pavments on a
>38.000 note.... and our cost íor it was zero!

MAKL MONL\ 1RADING MOR1GAGLS
87
APPLNDIX D
Sample Documents

1he sample documents that íollow in this appendix are not necessarilv legal in all
jurisdictions or in all situations. Accordinglv. it is a must that vou ha·e vour attornev
re·iew and appro·e anv document beíore vou use it. \our legal and íinancial health
mav depend on it.
Manv oí these íorms would ordinarilv be printed on legal size paper and should be
a·ailable through vour attornev. mortgage companv. or real estate oííice. On a case bv
case basis. there will likelv be other documents required bevond those presented here.
1he íirst three documents can be easilv acquired at anv title companv. so thev are not
reproduced here.
1. A a lUD Dept.. Oí lousing and Urban De·elopment, appro·ed promissory
note. All real estate related notes should ha·e the basic elements shown in bold
print included. \ou will íind a wide ·arietv oí notes written bv indi·idual attornevs.
1his is sometimes done to tailor a note to an unusual set oí circumstances but it is
more oíten done so thev can collect an extra íee íor doing so. Beware that these
customized notes are not alwavs competentlv written. 1his simplv means that vou
should know the basic elements required and not onlv read the documents but
understand what vou are reading. It reallv isn't diííicult ií vou use a little common
sense. howe·er. ií in doubt. get proíessional help.
2. A lUD-appro·ed Deed oí 1rust. used as the security instrument with the
promissorv note mentioned abo·e and is a lUD appro·ed Deed of 1rust.
Although lUD appro·ed. each state amends the document so that it complies with
that state's law.
Ií vou will read it completelv. vou will íind that it stipulates se·eral important things
including:
< 1hat it is the securitv instrument íor the note associated with it.
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88
< A ·arietv oí responsibilities the borrower must complv with to a·oid
ha·ing the note become immediatelv due and pavable. 1hese include
keeping the propertv insured. maintained. taxes paid. and other items
intended to keep the collateral propertv, at or abo·e it's initiallv stated
·alue. It also savs the pavments must be paid item 1,. the propertv
must not be sold item 1¯,. the associated note mav be sold or
transíerred item 19, or the entire unpaid balance can immediatelv
become due and pavable.
A careíul reading oí this instrument will make the importance oí it ob·ious. As
with the promissorv note mentioned earlier. customized ·ersions are sometimes
written. 1hat can be okav but certainlv thev need to co·er the issues outlined in this
lUD ·ersion.
3. A lUD-appro·ed Settlement Statement commonlv know as a HUD-J. 1his
looks almost like a íinancial accounting tvpe document in appearance. 1hat's
because it is in íact a balance sheet oí the íinancial acti·ities between the two parties.
It should include an explanation oí e·erv pennv spent.
lrom it vou can learn ií 1itle Insurance was purchased íor the
borrower/homeowner, the first mortgage holder. and íor the note you are
about to buv. \ou can also determine the price the propertv sold íor. the amount
oí down pavment made and much. much more. Learn to read this document as ií
vou were a detecti·e and vou can learn a tremendous amount about the original
transaction.
4. Agreement - A simple note purchase agreement that can be used to purchase
either a partial position or the entire note. It works with or without a balloon
in·ol·ed. \arranties mav or mav not be attached as required. 1he next document
4 5 that íollows, contains a good set oí general warranties.
Special properties mav require special warranties. Gasoline stations or automoti·e
related business properties mav need a warrantv related to en·ironmental issues.
Buildings built beíore the elimination oí lead paint or asbestos materials mav need
a special warrantv related to those issues.
MAKL MONL\ 1RADING MOR1GAGLS
89
5. Promissory Note and Mortgage Purchase Agreement - A more complex
purchase agreement that includes warranties. Similar ·ersions exist íor ·arving
circumstances. 1his example is íor purchase oí the entire note.
6. Partial Assignment of Mortgage -1his ·ersion oí the assignment
agreement is íor the purchase oí a partial position. One oí the ·erv important
pro·isions oí anv assignment oí a partial interest in a note deals with how matters
are handled in the e·ent oí earlv pavoíí or íoreclosure. Since vou ha·e bought onlv
part oí the note. what will vou get and what will the pre·ious noteholder note
seller, recei·e írom the pavoíí íunds. ií the borrower pavs the note oíí beíore vou
ha·e collected the pavments vou were due·
It is important that these issues be addressed írom the outset. 1he paragraph
beginning with "It is expresslv understood....." gi·es a good description oí how it
should work. \ou will want to trv an example or two using vour íinancial calculator
to see the result. 1he kev íactors are: the number oí pavments vou purchase: the
face interest rate oí the note: and the monthlv pavment amount. (alculate PV at
anv gi·en pavoíí or íoreclosure time N, to determine what vou are due. \our proíit
and vield are automaticallv built into the agreement when vou use this ·erbiage.
It is the assignment document that is recorded among land records to e·idence vour
ownership oí the note.
¯. Another example oí an assignment agreement. 1his is a ·erv simple íull
transíer document.
8. Documentation Requirements List - 1his documentation check list is a guide
to making sure vou ha·e collected all oí the iníormation required. Some
transactions mav require additional documents and others mav need íewer. It is
important. howe·er. that vou understand whv each document is needed and make
sure it is included. ií it is reallv needed.
9. Preliminary pricing information sheet - A preliminarv pricing iníormation
sheet used to pro·ide the in·estor with the basics necessarv to pro·ide vou a price
thev will pav. 1heir pricing is normallv conditioned on certain assumptions
including good credit and suitable
L1V's. Ií the credit is not as it should be. thev mav still buv the note but
vou should expect the price to be adjusted downward to compensate íor that íact.
10. Mortgage Lvaluation Sheet - L·aluation sheet íor vour use in assessing the
qualitv and ·alue oí the note. Use this iníormation to check the loan to ·alue
MAKE MONEY TRADING MORTGAGES
90
and as a basis íor determining how vou can structure the transaction to meet the
seller's needs. while achie·ing vour goals. 1his kind oí iníormation is essential
to making judgements on a transaction.
11. Sample oí an estoppel letter. A similar ·ersion oí this letter is used with both
the note seller and the paver borrower, to make certain that all parties agree to
amounts owed and other terms and conditions as oí the date vou buv the note.
Bv their agreement. thev are eííecti·elv eliminating the possibilitv oí íuture
disagreement on the items co·ered.
12. Insurance notification letter. 1his is a tvpical letter used to notiív the
insurance companv oí vour ·ested interest in the propertv as a result oí the note
ownership and to request that thev add vou to the policv as an additional
insured or loss pavee. \ou will want to be sure that vou recei·e a copv oí the
insurance endorsement showing that the requested changes ha·e been made.
13. Senior lender notification and request letter. \ou should attempt to get
some acknowledgement oí their receipt oí same íor vour íiles. lopeíullv thev
will be willing to send vou a letter. Lither wav. be sure vou ha·e sent it certiíied
and keep the return receipt in vour íile.
14. Notification letter to payer. 1his letter must be obtained at settlement and
must be the original as signed bv the note seller. 1here are wavs to circum·ent
the absolute necessitv oí this letter but it is easiest done this wav.
1here mav be other documents or other ·ariations oí these documents that will be
used in a gi·en set oí circumstances. \ou must be aware oí the documentation process
and what each step means. \ou must take íinal responsibilitv íor seeing that each step
is implemented properlv. \ou should depend on vour proíessionals such as attornevs
and settlement oííicers to pro·ide the documents coníorming to vour geographic area
and the particular transaction with which vou are in·ol·ed.
MAKL MONL\ 1RADING MOR1GAGLS
91
Don't Let the Paperwork Intimidate You
Do not let the documentation and paperwork intimidate vou. scare vou or keep vou
írom doing vou íirst transaction. It is not nearlv as complicated as it mav appear. lere
is a true storv where such íears kept a person írom
mo·ing íorward.
I attended a seminar in llorida at which actual note buving opportunities were
presented. Members oí the public. bv wav oí ad·ertising. were in·ited to bring their
notes íor presentation to in·estors at the seminar. 1he moderator presented the note
iníormation in íront oí about 200 people and anvone interested in the note could
request to meet with the note seller out in the hallwav oí the hotel where the meeting
was being held.
I selected the íirst note I wanted to buv and met the gentleman in the hall. 1here were
se·eral other seminar attendees standing nearbv. Aíter we had concluded our
negotiations and arranged íor a settlement attornev to close the transaction the next
dav. we parted companv. I was immediatelv approached bv a ladv who asked ií I would
mind sending her a copv oí the "documentation and paperwork" írom the transaction.
She expressed considerable concern about that part oí the business. lere is the
surprise.
In her hometown in Georgia. she was known as the house ladv. She was married to
a Doctor but did her own thing in the real estate in·estment business. I íound out that
she had bought. repaired. scrubbed íloors and rented.... nineteen houses oí her own.
(learlv. she was not a newcomer to settlements or the real estate business and vet she
was intimidated bv the paper work íor our business. Don't let that happen to vou.
1he truth is that most real estate buvers identiív with the "sticks and bricks" and don't
e·en know what thev are signing. Our paperwork is a lot more simple than that needed
íor a standard real estate transaction.
MAKE MONEY TRADING MORTGAGES
92
In Summary
In summarv. vou must learn to read. understand and use this kind oí paperwork and
vou must get a good attornev specializing in this kind oí transaction to look o·er vour
shoulder in the beginning. Remember. it is the "paper business" and.... it's a
fantastic business!

MAKL MONL\ 1RADING MOR1GAGLS
93
SAMPLL
AGRLLMLN1
(ase 4:
Date: Re: Note & 1rust Deed
Against the propertv at:

1he undersigned Sellers, herebv agree to sell the abo·e reíerenced
Note & 1rust Deed to Buver, and´or assigns according to the íollowing
conditions:
1, 1he sale price is > . 1he buver is purchasing the next pavments in the amount oí >
due on . and a balloon pavment in the amount oí > due on
. lirst pavment is due to buver on .
2, Ií anv oí the abo·e pavments are recei·ed bv the seller prior to completing this transaction. such
pavments shall be pro·ided to buver at settlement.
3, Buvers' purchase is contingent upon their appro·al oí all documentation. appraisal. title
examination. and adequate creditworthiness oí pavors, on the abo·e reíerenced Note & 1rust
Deed.
4, 1he seller does warrant and guarantee that the entire transaction is as represented at this time and
at the time oí the settlement. Seller íurther warrants that there are no claims as to irregularities.
oíísets. counterclaims and íurther. that the obligation will be current and will ha·e been paid on
a current basis. Seller warrants that this is Note & 1rust Deed.
5, Buver to order and pav íor appraisal and credit report on pavor. Buver to pav íor anv other
assignment costs.
6, 1his agreement is ·alid íor 30 davs aíter all reports and documentation ha·e been pro·ided unless
extended an additional 30 davs bv the buver who shall ha·e the sole discretion to do so.in the
e·ent the seller íails to deli·er the required documents within 10 davs or íails to close the
transaction. seller shall pav buver a penaltv oí 10° oí the oííered purchase price plus actual
expenses incurred including attornev's íees as liquidated damages and this agreement shall become
null and ·oid.
¯, 1his transaction is contingent upon buvers simultaneous reassignment and closing oí the herein
described note and securitv instrument with disbursement to be made aíter prooí oí recordation
oí said reassignment.
MAKE MONEY TRADING MORTGAGES
94
Agreement continued,
\itness Seller
\itness Seller
\itness Buver
1lIS AGRLLMLN1 IS SUBJL(1 1O 1lL \ARRAN1ILS A11A(lLD.
MAKL MONL\ 1RADING MOR1GAGLS
95
SAMPLL
PROMISSORY NO1L AND MOR1GAGL PURCHASL AGRLLMLN1
(Iull Purchase)
1lIS AGRLLMLN1. made bv and between note seller . whose address is
. hereinaíter called "Seller" and . hereinaíter called "Purchaser":
\ I 1 N L S S L 1 l :
\lLRLAS. Seller is the owner and holder oí a Mortgage 1ype . hereinaíter called
"Mortgage." dated Note Date and recorded on Recorded Note Date . in Book . Page
. public records oí (ountv. State . securing a Promissorv Note in the original amount oí
> . and a copv oí said Mortgage and Note being attached hereto and incorporated herein. and
\lLRLAS the Seller has assigned said Mortgage and Note to the Purchaser. upon the terms
and pro·isions more speciíicallv set íorth herein. and endorsed said Note without recourse.
NO\. 1lLRLlORL. IN (ONSIDLRA1ION oí the premises and the mutual co·enants
herein contained. the parties agree as íollows:
1. SLLLLR'S \ARRAN1ILS. 1he Seller co·enants. represents and warrants:
a, 1he Mortgage and Note are good and ·alid instruments. ha·ing been prepared
and´or recorded bv a licensed attornev or an accredited title insurance
companv and constitute a ·alid Jst, 2nd, etc. mortgage lien against the real
propertv described therein.
b, Seller is ·ested with a íull and absolute title to said Mortgage and Note has
authoritv to assign and transíer the same which are presentlv íree and clear oí
all encumbrances.
c, 1he initial principal íace amount oí the Mortgage and Note has been ad·anced
to the Mortgagor and there are no deíaults existing at the present time under
anv oí the co·enants contained in the said Mortgage and Note.
d, 1he Mortgage and Note were not originated or closed in a manner which
·iolated. or now ·iolates. anv lederal. state or local laws. ordinances.
MAKE MONEY TRADING MORTGAGES
96
regulations or rulings including. without limitation. lederal and state truth-in-
lending laws and anv other consumer protection laws. all lederal and state
equal credit opportunities. anv applicable state usurv laws. the requirements oí
the Real Lstate Settlement Procedures Act oí 19¯4. the applicable requirements
oí the Ser·iceman's Readjustment Act oí 1944. and the National lousing Act.
e, 1here are no undisclosed agreements between the Mortgagor and the Seller
concerning anv íacts or conditions whether past. present or íuture which might
in anv wav aííect the obligations oí the Mortgagor to make timelv pavments
thereon.
í, 1here are no ·alid legal deíenses which would ad·erselv aííect the collectibilitv
oí the Mortgage and Note.
g, 1he Mortgage and Note documents were executed bv persons purporting to
be the Mortgagor and contain no íorged or unauthorized signatures. and the
parties named therein were oí íull age and capacitv to contract.
h, 1he present and unpaid balance as shown on the Mortgage and Note is >
Current Balance . and the next monthlv pavment in the amount oí >
is due and pavable Next pmt. due date . 1994. to Purchaser.
i, 1he Mortgage and Note and anv other document. instrument or record
representing. e·idencing or relating thereto. is true. correct. undisputed. and
reílects íull. correct and accurate iníormation as to the balance and status
thereoí that no credit hereto has been gi·en the Mortgagor which was
gratuitous or was gi·en íor a pavment made bv an emplovee or agent oí Sellers
or has arisen írom a renewal granted íor the purpose oí concealing a
delinquencv.
j, 1here exists no e·ent oí deíault under anv other mortgage which mav also
encumber the real propertv described therein.
k, 1he Mortgage and Note are íree oí usurv and oí anv set-oíí. counterclaim or
deíense oí anv nature whatsoe·er: that no settlement. pavment or compromise
has been made with respect to the Mortgage and Note and that no special
promise or consideration has been made to the Mortgagor.
2. SALL AND (ONSIDLRA1ION. Seller herebv sells the total remaining monthlv
pavments due under the said Mortgage and Note to Purchaser íor the sum oí >
total. receipt oí which the Seller herebv acknowledges.
3. INDLMNIlI(A1ION. Seller agrees to indemniív and sa·e Purchaser harmless írom
and against anv and all loss. damage. liabilitv and expense including itsreasonable
attornev's íees and cost oí litigation, sustained or incurred bv Purchaser arising out oí.
or based upon the inaccuracv or breach oí anv warrantv or representation made bv
MAKL MONL\ 1RADING MOR1GAGLS
97
Seller to Purchaser under this Agreement and breach bv Seller oí their obligation or
co·enant períormed bv them under this Agreement.
4. 1IML AND BINDING LllL(1. 1ime shall alwavs be oí the essence and this
Agreement shall inure and be binding upon the respecti·e heirs. representati·es
successors. and assigns oí the parties hereto.
5. (ONS1RU(1ION Ol DO(UMLN1. \here the term "Mortgage" is used in this
document. it shall be construed to mean a Mortgage which is presentlv in existence.
6. DLlINI1IONS. lor the purposes oí this Agreement. "Mortgage" shall mean a
mortgage. deed to secure debt. deed oí trust or mortgage deed. as the case sh
Sellers,

\itness Name

\itness
Purchasers,

\itness
Name

\itness

(ontinued on next page,
MAKE MONEY TRADING MORTGAGES
98
State oí
(ountv oí
On this the dav oí . 20 . beíore me. . personallv appeared
known to me to be the persons, whose names, subscribed
to the within instrument and acknowledged that s,he´thev executed the same íor the purposes
therein contained.
In witness whereoí I hereunto set mv hand and oííicial seal.
seal,
Notarv Public
Mv commission expires:
MAKL MONL\ 1RADING MOR1GAGLS
99
SAMPLE
PARTIAL ASSIGNMENT OF MORTGAGE
COUNTY OF
STATE OF
WHEREAS. the undersigned. .
hereinaIter reIerred to as ASSIGNOR(S). being present owner(s) and holder(s) oI the
hereinaIter described mortgage. on which the present outstanding principal balance
is $ . and which mortgage indebtedness accrues at the rate oI ° per annum
and is payable in monthly installments to principal and interest oI $ . the next
said payment oI principal and interest being due and payable on the day oI .
20 . do hereby GRANT. BARGAIN. SELL. CONVEY. TRANSFER. ASSIGN. and
DELIVER unto . hereinaIter reIerred to as ASSIGNEE.
consecutive payments due and payable under said mortgage. commencing with the
payment due and payable the day oI
. 20 . and continuing until the said ASSIGNEE has received a total oI said
payments. and do Iurther hereby GRANT. BARGAIN. SELL. CONVEY.
TRANSFER. ASSIGN. and DELIVER unto the said ASSIGNEE. that certain
mortgage executed by dated the day oI
. . and recorded on the day oI . . in the OIIice oI Land
Records oI County. Maryland. in Book . at page .
It is expressly understood and agreed between ASSIGNOR(S) and ASSIGNEE
that until such time as ASSIGNEE has received the agreed mortgage payments as
herein sold. transIerred and assigned by ASSIGNOR(S) to ASSIGNEE. that
ASSIGNEE is deemed to be the sole and exclusive owner and holder oI said mortgage
and the real estate conveyed thereby. subiect however to the condition and provision
that at such time as ASSIGNEE has received the agreed payments. hereby sold.
transIerred and assigned. that ASSIGNEE will transIer and assign without recourse
back to ASSIGNOR(S) the remaining outstanding portion oI said mortgage. In the
event oI a deIault by mortgagors in the payment oI said required monthly installments.
at any time prior to payment in Iull to ASSIGNEE oI said payments. the
undersigned ASSIGNOR(S) covenant(s) and agree(s) that as owner and holder oI said
mortgage. ASSIGNEE shall be Iully authorized to pursue such collection procedures
as ASSIGNEE deems necessary or advisable. including the Iull right to institute and
complete Ioreclosure oI said mortgage. pursuant to the mortgage provisions. and the
undersigned ASSIGNOR(S) covenant(s) and agree(s) to cooperate in Iull with the said
ASSIGNEE in the enIorcement. and Ioreclosure iI necessary. oI said mortgage. In the
MAKE MONEY TRADING MORTGAGES
100
event oI the Ioreclosure oI said mortgage by ASSIGNEE. it is Iully understood and
agreed between ASSIGNOR(S) and ASSIGNEE that ASSIGNEE is Iully authorized
to bid Ior said property at such Ioreclosure sale. the gross amount still due ASSIGNEE
under the within assignment. including collection. enIorcement and attorney's Iees. and
it shall be ASSIGNOR(S) Iull duty and responsibility to bid or provide bidders at such
Ioreclosure sale Ior any amount which ASSIGNOR(S) expects to realize Irom said
Ioreclosure sale. over and above the prior Iunds to which ASSIGNEE is Iirst entitled.
otherwise ASSIGNEE is Iully authorized to Ioreclose the property Ior only such
amount as is due ASSIGNEE.
In the event oI early payoII. the amount due ASSIGNEE shall be in accordance
with an amortization schedule based on the number oI payments purchased at the Iace
interest rate oI the underlying debt instrument. Should the seller oIIer to sell remainder
interest in the assigned debt instrument. purchaser shall have the Iirst right oI reIusal
to purchase said remainder interest on the best terms and conditions so oIIered.
TO HAVE AND TO HOLD. to the said ASSIGNEE. said mortgage indebtedness
and mortgage security. and the real estate conveyed thereby. as herein provided. its
successors and assigns Iorever.
IN WITNESS WHEREOF. we have hereunto set our hand(s) and seal(s) this
day oI . 20 .
Witnesses: Assignor(s):


COUNTY OF
STATE OF
I the undersigned Notary Public in and Ior the above mentioned County and
State. hereby certiIy that known
to me to be the individual described by said names in the Ioregoing instrument. and
who executed the said instrument. and acknowledged that they executed Ior the
purposes therein set.
Given under my hand and seal this day oI . 20 .

My commission expires:

MAKL MONL\ 1RADING MOR1GAGLS
101
SAMPLE
TRANSFER AND ASSIGNMENT
WHEREAS. Aoteholder(s) hereinaIter called "Assignor" is the holder oI a Real
Estate Note dated . in the principal sum oI $ Original PJ . executed by
Client Aame(s) hereinaIter called "Mortgagor". and;
WHEREAS. said Real Estate Note is secured by a Mortage Tvpe oI even date
executed by the said Mortgagor above in Iavor oI Aoteholder(s). said Mortage 1vpe
being oI record in Book . Page in the OIIice oI Land Records oI
County. Citv . State conveying certain real estate described therein. and;
WHEREAS. Assignor has sold. transIerred and delivered the said Real Estate
Note hereinabove described to . hereinaIter called "Assignee";
NOW THEREFORE. in consideration oI the premises. the undersigned Assignor
does by these presents transIer to Assignee all oI its right. title and interest under said
Mortgage 1vpe as security Ior payment oI said Real Estate Note. and said Assignee
shall have all rights. powers. and security originally belonging to said Assignor under
the terms and conditions oI said Mortage 1vpe .
Executed this day oI . 20

Witness Assignor - (Noteholder)

Witness Assignor - (Noteholder 2nd)
STATE OF
COUNTY OF
On this the day oI . 20 . beIore me. . the undersigned
oIIicer. personally appeared . known to me to be the person whose
name(s) subscribed to the within instrument and acknowledged that (s)he/they
executed the same Ior the purposes therein contained.
In witness whereoI. I hereunto set my hand and oIIicial seal.

Notary Public
(OIIicial seal and expiration stamp)
My commission expires:
MAKE MONEY TRADING MORTGAGES
102
SAMPLE
DOCUMENTATION REQUIREMENTS LIST
Seller: Date
Property Adress:
Contact InIormation:
INITIAL ITEMS REQUIRED
1) Executed Note Purchase Agreement.
2) Completed Note Evaluation Sheet.
3) Copy oI Closing Statement When Note Created.
4) Copy oI Executed/Recorded Security Instsrument.
5) Copy oI Fully Executed Note.
6) Fire Insurance InIo (Company. Agent & Policy Number).
7) Credit InIormation on Payor with Authority to Check
(SS#. etc.).
PRIOR TO COMMITTMENT (PreIerably at 1st Meeting)
8) Amortization Schedule.
9) Copy oI Plat.
10) Photos oI Property.
11) Appraisal oI Real Estate.
12) Copies oI All Underlying Debt Instruments.
13) Senior Loan Status VeriIication.
14) Payor's Estoppel AIIidavit.
15) Credit Approval.
16) P&L & Licensing InIormation (II Commercial).
DOCUMENTS AT SETTLEMENT
17) Escrow Instructions. Especially Re: Disbursement/Recording.
18) Original Note with Properly Executed Assignment.
19) Executed Assignment oI Security Instsrument.
MAKL MONL\ 1RADING MOR1GAGLS
103
20) Mortgagee's Title Policy Check Exceptions .
21) Estoppel AIIadivit Irom Payor.
22) Estoppel AIIidavit/Purchase Agreement Irom Payee.
23) Copy oI Insurance Policy on Dwelling.
IMMEDIATELY AFTER SETTLEMENT
24) Loss Payee Letter to Insurance Company.
25) Payee to Payor NotiIication Letter.
26) Senior Loan Letter/Request Ior Notice.
MAKE MONEY TRADING MORTGAGES
104

1HL WLLLING1ON COMPANY, INC.
2579 Rutland Road Ë ËË Ë Davidsonville. Maryland 21035
Telephone: 301-858-1170 Ë ËË Ë Fax: 301-261-3922
From: Phone: Date: Company:
Fax:
Property Location & Address:
Property Type:
Owner Occupied Rental Commercial Selling
Price: Current Value: Down Payment:

First Mortgage/T.D. Payor Name:
2nd Mortgage/T.D.
NOTE FOR SALE O T H E R
LIENS
Origination Date
Original Balance
Terms in Months
Interest Pate
Payment Amount
Date oI First Payment
Date oI Next Payment
Balloon Date
MAKL MONL\ 1RADING MOR1GAGLS
105
Balloon Amount
Number oI Payments Made
Number oI Payments LeIt
Current Balance
Comments on Property. Payor. Etc. Please Provide as Much InIormation as Possible
with Special Emphasis on the Note Seller's Needs and Motivations.*







* Please Use Exact Dates and Amounts -- Use Extra Pages, Ìf Needed.
Notes Disk, A:\PrePrice.Frm


MAKE MONEY TRADING MORTGAGES
106
SAMPLE
MORTGAGE EVALUATION SHEET
NOTE OWNER/SELLER DATE
Name: Phone
Address:
ReIerral Source: Seller Motivation:
NOTE DATA
Original Face Value $ Interest Rate ° Term
Payment: $ Type: Origination Date: Payment
Date: Payments: Remaining: Current Balance:
$ Down Payment: $
How Acquired: Position:
UNDERLYING DEBT
Original Face Value: $ Interest Rate ° Term
Payment: $ Origination Date:
Payment Date: Payments Remaining:
Current Balance: $ Who Holds Underlying?
Name: Phone:
Address:
Current Balance: $ Payment Current on Both?
PROPERTY DATA
Type: Location:
Address: Age:
Market Value/how Determined
Sales Price/when Sold: $ Use:
PAYOR DATA
Occupation: Income: $
Credit App/report: Timeliness oI Payment
Name Phone
Address
(continued next page)
MAKL MONL\ 1RADING MOR1GAGLS
107
N I PV PMT FV
Price Quoted: For:
Meeting Set: Date:
Place: Disposition:
OTHER NOTES AVAILABLE:
MAKE MONEY TRADING MORTGAGES
108
SAMPLE
MORTGAGEE ESTOPPEL STATEMENT
The undersigned. owners oI a Note and Deed oI Trust on the property at (Address)
in County. (State) agree and conIirm as Iollows:
The original note amount was $ . dated . recorded in Deed Book
. at Page . among the land records oI County. (State). The current note
balance is $ ; the note interest rate is ° per annum; monthly payments are
in the sum oI $ ; amount past due is $0.00; last note payment was made
20 ; and the date oI the next regular note payment is . 20 .
The undersigned hereby states that the note is current. that there are no deIaults.
deIenses or oIIsets to said note. and that all other provisions oI said Note and Deed oI
Trust securing the same are in Iull Iorce and eIIect.
Dated this day oI . 20 .
(Signature)
Name
(Signature)
Name
Witness:

Additional InIormation:
Insurance:

Address & Telephone:

MAKL MONL\ 1RADING MOR1GAGLS
109
SAMPLE
INSURANCE NOTIFICATION LETTER
NOTEHOLDER(S)
Noteholder(s) Street Address
City State Zip
Date
Insurance Company
Street Address
City State Zip
Gentlemen:
Re: Insurance Policy No.:
Name oI Insured:
Property: Street Address
Citv State Zip

I/We have purchased the Iirst mortgage on the property at the above
reIerenced address as per the enclosed copy oI the assignment document. Accordingly.
please add our name as the loss payee in lieu oI the previous note holder. Any
correspondence relating to the note ownership should be sent to:
Name Assigned To
Street Address
City State Zip
Telephone:
II there is any lapse oI coverage due to nonpayment oI premium or Ior any
other reason. please notiIy Aame Assigned 1o at the address or telephone number
above.
Sincerely.

Noteholder(s)
MAKE MONEY TRADING MORTGAGES
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SAMPLE
SENIOR LENDER NOTIFICATION
NOTEHOLDER(S)
Street Address
City State Zip
Date
ABC BANK & TRUST
Address
City State Zip
ReIerence: Your Mortgage Loan #
on the Property at


Gentlemen:
We are iunior lien holders on the above reIerenced property. We request notiIication
in the event there is ever a problem with the mortgage you hold on the property II such
problems do occur. we may be in a position to remedy those problems.
Our address is . We can be reached by telephone
at .
Would you please retain this letter Ior your possible Iuture use.
Sincerely.
New Note Holder
MAKL MONL\ 1RADING MOR1GAGLS
111
SAMPLE
NOTIFICATION LETTER TO PAYOR
NOTEHOLDER(S)
Noteholder(s) Street Address
City State Zip
Date
Payer Name
Street
City. State. Zip
Re: Mortgage on Property Located At:
Propertv Street Address
Citv State Zip
Dear Mr./Mrs./Ms. (payer):
I/we have assigned my/our interest in the Iirst mortgage which I/we have held
on your property located at Propertv Street Address , Citv State Zip . to the Iollowing:
Name Assigned To
Street Address
City State Zip
Telephone:
You will be receiving a letter Irom Aame Assigned 1o containing inIormation
on how and where to remit your remaining payments due.
Beginning with your payment due on Aext Pmt Due Date . 19 . your present
principal balance is $ Current Balance. Your next monthly payment in the amount oI
$ Aext Pmt will be due to Aame Assigned 1o at the address listed above.
Sincerely.

Noteholder(s)
MAKE MONEY TRADING MORTGAGES
112
GLOSSARY

This Glossary is intended to give a brieI deIinition oI mortgage-related terms based
on common usage.
ABSTRACT OF TITLE - A condensed
history oI the title oI a property. An abstract
oI title should be a chronological history oI all
recorded instruments that aIIect the title oI the
subiect property. In some states. an attorney
will perIorm a title search using the abstract.
and then issue an opinion which can be used
to obtain title insurance.
ACCELERATED REMITTANCE CYCLE
(ARC) - An option available to Freddie Mac's
sellers and servicers which allows the lender
to decrease the management and guarantee
Iee in return Ior remitting principal and
interest payments early.
ACCELERATION CLAUSE - A clause in a
note. bond. mortgage or deed oI trust that
gives the lender the right to demand the
remaining balance due and payable because
oI some event that has an adverse eIIect on
the lender - i.e..
Failure to pay the PITI (Principal.
Interest. Taxes and Insurance).
Placing additional liens on the property
without the consent oI the lender. when
said consent is required (FNMA
required their consent in certain cases).
Extreme abuse or deterioration oI the
improvement or other events that can
aIIect the lender's security.
ACCRUED INTEREST - Interest earned but
not paid since the last due date - a term used
Irequently in discussion oI adiustable-rate
mortgages that allow negative amortization.
Accrued interest Ior these loans is the
negative amortization.
ADD-ON INTEREST - Interest added on to
the amount oI the loan on the Iront end or
beginning oI the loan repayment period.
Balance is then paid by installment. A much
more expensive Iorm oI interest than simple
interest as it is paid on the entire amount Ior
the entire term oI the loan.
AFFIDAVIT OF TITLE - A sworn statement
by a seller that the title being conveyed is Iree
Irom any clouds or deIects.
ALL-INCLUSIVE TRUST DEED (AITD) -
A new deed oI trust securing a balance due on
an existing note plus new Iunds that are
advanced. Also known as a wraparound
mortgage.
A LT E R N AT I V E - M O R T G A G E
INSTRUMENT (AMI) - Pertains to a
mortgage without a level payment.
AMORTIZATION - The paying oII oI a debt
or mortgage. usually by monthly payments.
The schedule can show the payment number.
interest payment. principal payment. and
unpaid principal balance.
ANNUAL PERCENTAGE RATE (APR) - A
method Ior calculating an interest rate as it
relates to the interest collected. discount
MAKL MONL\ 1RADING MOR1GAGLS
113
points charged to either purchaser. seller or
both. and certain costs related to closing and
mortgage insurance premiums.
APPRAISAL - Opinion oI value. Normally.
a written statement oI an appraiser's opinion
oI value Ior a speciIic purpose oI a described
property on a given date.
ARBITRAGE - The buying and selling oI
mortgages. Iutures. contracts. or mortgage-
backed securities in various markets Ior the
purpose oI creating a proIit Irom the
diIIerences in price.
ASSIGNMENT OF MORTGAGE - TransIer
oI a mortgage Irom one mortgagee to another.
In some cases. FHA will accept and
assignment oI a mortgage to assist a qualiIied.
distressed mortgagor.
ASSUMPTION OF MORTGAGE - A
purchaser assumes a mortgage on the subiect
property. The seller is still liable unless a
release oI liability is obtained Irom the lender.
ATTORNEY-IN-FACT - An individual. not
necessarily an attorney. who is authorized to
act Ior another in a speciIic or general
assignment. This individual has privileges
aIIorded as under power oI attorney.
BALLOON PAYMENT - Final payment oI a
loan. said payment paying the loan oII in Iull.
"Balloons" are oIten used with a long-term
amortization period such as 30 years with the
balance being paid in Iull at some pre-
designated time. such as at the end oI Iive or
ten years. This Iinal payment is reIerred to as
the "balloon" or "bullet."
BASIS POINTS - A term used in relationship
to interest rates. One basis point is equal to
one 100th oI one percent. The diIIerence
between 9° and 9.5° is 50 basis points.
BINDER - This term (in real estate) is used
Irequently in connection with title insurance.
A binder is a report on certain real estate as oI
a certain date. It is not the same as a title
insurance policy. but it can be used to obtain
a policy. A binder is less costly than a policy
and will oIten meet a lender's title insurance
requirement Ior a short-term loan. such as a
construction loan. A binder covers a speciIic
time. In hazard insurance. it is an agreement
to insure Ior a speciIic time period. In real
estate contract law. it is a preliminary
agreement between the seller and purchaser.
BI-WEEKLY MORTGAGE - A mortgage
requiring 26 payments per year as opposed to
a monthly payment. Each payment is halI the
size oI the required regular monthly payment
and the resulting eIIect is quicker loan
amortization and reduced interest cost.
BLANKET MORTGAGE - A single
mortgage used to secure a debt Ior money
loaned on several properties such as the lots a
builder owns in a subdivision.
BLENDED-RATE - This term has a dual
meaning:
A Iirst mortgage lender can use it in an
advertisement to induce his mortgagors
to reIinance and pay oII the old low-
interest-rate Iirst mortgage. The Iirst
mortgage lender could oIIer a 10°
interest loan as compared to the going
rate oI 12° iI the mortgagor will
reIinance the existing mortgage which
is at 8°.
A second mortgage lender or a wrap-
around lender will advertise to not pay
oII the old mortgage with the low rate
and short term remaining. but instead.
place a second mortgage or wrap-
around loan behind the Iirst and have a
blended rate at below-market interest
rates Ior Iirst mortgage loans.
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114
BRIDGE FINANCING OR BRIDGE
LOANS - Short term mortgage Iinancing
between the end oI one loan and the
beginning oI another. A bridge loan is
usually based on the amount oI equity in the
borrower's current home with the proceeds
going towards the purchase oI a new home.
The loan helps to "bridge" the gap between
one home to another without the beneIit oI
cash proceeds Irom the sale oI a previous
home. A bridge is sometimes reIerred to as a
swing loan.
BUYDOWN - A buydown plan involves a
party "buying-down" the interest rate on
either a temporary or a permanent basis.
Normally used by builders and even lenders
to attract the consumer - i.e.. a 3-2-1
buydown; assuming a rate oI 13°. a 3-2-1
buydown would result in a rate oI 9° Ior the
Iirst year. 10° Ior the second year. 11° in
the third year. and 12° in the Iourth and
remaining year.
A permanent buydown is costly. The
rate is brought down Ior the liIe oI the
loan by paying additional discount
points. For example. FHA. VA or
conventional loan quotes might contain
the Iollowing inIormation: 13.5° with
a 1° discount. 13° with 3° discount.
or 12.5° with a 6° discount.
CAP RATE - The capitalization rate or the
return on investment required to retire the
debt in a speciIied period oI time. Similar to
yield.
CERTIFICATES FOR AMORTIZING
REVOLVING DEBT (CARDS) - Credit-card-
backed securities which give the owner a
prorata share in a Iixed pool oI credit card
accounts.
CERTIFICATE OF CLAIM - A contingent
promise to reimburse an insured lender Ior
certain costs arising Irom a Ioreclosure.
Contingent upon the proceeds Irom the
Ioreclosure sale being suIIicient to cover the
lender's claim.
CERTIFICATE OF TITLE - An attorney's
written opinion as to the status oI the title to
real property based on public records.
CHATTEL MORTGAGE - A loan secured
by personal property.
CLEARING ACCOUNT - A bank account
kept by a mortgage banker Ior the deposit oI
mortgage payments which are later cleared
out Ior transmittal to the investor. A clearing
account can also be used Ior the deposit oI
escrow Iunds.
CLOSED-END MORTGAGE - A Iixed
mortgage amount which cannot be increased.
CLOSED PERIOD - A portion in the term oI
a mortgage during which it cannot be prepaid.
CLOSING - Actual transIer oI title Irom
seller to purchaser.
CLOSING COSTS - All costs related to
closing except the prepaid or escrow items -
i.e.. loan origination Iee. discount points. sales
commission. attorney Iees. charge survey.
title insurance premiums. appraisal Iee. credit
report. termite report cost. amortization
schedule cost. recording Iees. document
preparation Iee. mortgage insurance
premiums. the VA Iee. and loan transIer or
assumption Iee.
CLOSING STATEMENT - Accounting oI
the debits and credits incurred at closing.
CLOUD ON TITLE - Existence oI a claim or
MAKL MONL\ 1RADING MOR1GAGLS
115
encumbrance that impairs the owner's claim
Ior clear title. but usually can be removed by
iudicial procedure.
CMO - Collateralized Mortgage Obligation.
An amortizing debt instrument collateralized
by mortgages or mortgage-backed securities
and characterized by cash Ilow sizing tech-
niques and diIIerential allocation oI cash
Ilows to investors. Provides payment predict-
ability with respect to mortgages that are
pooled and packaged into mortgage-backed
securities (MBS).
COLOR OF TITLE - Title that appears to be
good or clear but usually has a deIect.
COMMERCIAL PAPER - Short-term. unse-
cured note used to raise capital. Many mort-
gage lenders use commercial paper as an
excellent primary source Ior Iunds to be used
Ior their lending purposes.
CO-MINGLING FUNDS - Money that has
been mixed into an account that would be
deemed improper or illegal. Money in a
single account. but separately accounted Ior
or owned.
CO-MORTGAGOR - An individual who
ioins in the mortgage and ownership oI the
property. Is iointly and individually liable Ior
the mortgage.
COMPOUND INTEREST - Interest paid on
the balance plus accumulated unpaid interest.
CONDUIT - In the secondary mortgage
market. the term is used to describe a Ilow oI
mortgages Irom the originating lender to the
investor. A "conduit program" would be an
investor approving lenders and setting Iorth
guidelines by which loans will be purchased.
CONFORMING - Implies that loan amounts
and underwriting guidelines are in conIormity
to those used by agencies such as FHLMC
and FNMA. In appraising. means that a
subiect property is in like use. as compared to
other properties in the same area.
CONTRACT FOR DEED - Title to the
property remains in the seller's name while
the buyer received equity title and possession
oI the property and assumes the obligation to
purchase the property. When conditions oI
the contract are IulIilled. legal title passes to
the purchaser.
CONVENTIONAL LOAN - Real estate
mortgage not aIIiliated with FHA or VA.
CONVERTIBLE STANDBY COMMIT-
MENT - A commitment Irom FNMA to
purchase mortgages that can be converted to
the same yield as oIIered in the most recent
Free Market Auction.
CO-SIGNER - Individual who lends his name
and thereIore his character and credit to an-
other individual in hopes that it will help
obtain credit. Co-Signer is liable Ior the loan.
but does not share in the title.
COVENANT - A promise written into a deed
to perIorm or not perIorm certain acts. or the
existence or nonexistence oI certain Iacts.
CREATIVE FINANCING - Financing other
than through traditional sources - can take the
Iorms oI seller Iinancing. wraparound Iinanc-
ing. balloon mortgages. sale/lease-backs.
substitution oI collateral. and other alternative
mortgage instruments.
DEBT RATIO - Comparison oI mortgage
payment to the borrower's income.
DEBT SERVICE - Principal and interest
payment due on a mortgage.
MAKE MONEY TRADING MORTGAGES
116
DEBT INSTRUMENT - Document that evi-
dences a debt - a mortgage note.
DECLARATION OF TRUST - Instrument
which identiIies property held by a trustee Ior
another individual.
DEED - An instrument used to transIer oI
ownership oI property.
DEED-IN-LIEU OF FORECLOSURE -
Owner deeds the property to the lender to
avoid Ioreclosure.
DEED OF TRUST - Instrument that transIer
title to property to a trustee Ior the duration oI
a loan. Trustee conveys title to the owner
when the debt is paid.
DEED RESTRICTIONS - Limitations to the
use oI property as noted in the deed.
DEFAULT - Failure to perIorm a legal obli-
gation. In residential mortgages. an owner
who Iails to pay the monthly payment is in
deIault.
DEFEASANCE - A provision in a mortgage
which allows the debtor to reclaim property
that has been Ioreclosed. iI certain conditions
are met.
DEFECTIVE TITLE - A title that is not
clear.
DEFICIENCY - In relationship to a mort-
gage. a deIiciency is created when the highest
bid at Ioreclosure sale is less than the out-
standing balance plus Ioreclosure-related
costs.
DEFICIENCY 1UDGMENT - A iudgment
allowing the lender to pursue any legal mea-
sure to recover a loss created by a deIiciency.
DEMAND NOTE - A debt instrument that
allows the lender to call the balance due at
any time without prior notice.
DISBURSEMENT - Cash payment Ior a draw
according to the terms and provisions oI a
loan. usually a construction loan.
DRAW - In mortgage terms. it implies a cash
payment Irom the lender to the contractor or
builder according to the terms and conditions
oI a construction loan.
DRY CLOSING - Act oI closing without
distribution oI Iunds. Reasons Ior delay in
Iunding are normally unIulIilled conditions oI
loan approval or lack oI a satisIactory Iinal
inspection oI the subiect property.
DUE DATE - Date upon which a mortgage
payment is due. Payments made aIter the due
date are delinquent even though they may not
involve a delinquent Iee.
DUE-ON-SALE CLAUSE - A clause in a
mortgage allowing the lender to call the
mortgage due and payable upon resale oI a
subiect property.
ENCUMBRANCE - Outstanding claim or
lien on a property. A property with a mort-
gage is said to be encumbered by a mortgage.
EQUAL CREDIT OPPORTUNITY ACT
(ECOA) - In 1975. a Iederal law was enacted
to prohibit any lender Irom discriminating
against any purchaser on the basis oI race.
sex. color. religion. national origin. marital
status. age or receipt oI public assistance.
ESCROW - Deposit oI valuable consider-
ations such as money or documents with an
impartial third party. Items oI value are
placed in escrow to assure the successIul
MAKL MONL\ 1RADING MOR1GAGLS
117
compliance oI an agreement such as a con-
tract oI sale.
ESCROW ACCOUNT - For mortgage
purposes. it is an account that a mortgagee
maintains Ior the periodic payment oI real
estate Iees and insurance premiums Ior the
mortgaged property. Also is used Ior the sepa-
ration oI money between parties such as a
seller and purchaser. Funds held in escrow
are to be deposited in an account maintained
solely Ior the saIekeeping oI money by an
impartial third party.
ESCROW PAYMENT - The portion oI the
monthly payment applied to obligations other
than the principal and interest required oI the
mortgage.
ESTOPPEL - A legal doctrine preventing one
Irom asserting a contention because oI prior
Iacts and circumstances which are contrary to
the present contention. II a person signs a
certiIicate acknowledging a balance owned on
a mortgage oI $50.000. the Doctrine oI
Estoppel would prevent that person Irom later
contending that the balance owed was only
$25.000. The document signed by a party
acknowledging the balance oI a debt is termed
an Estoppel CertiIicate.
EVIDENCE OF TITLE - Legal documenta-
tion supporting ownership oI real property.
Normally. a deed is evidence oI title.
EXCEPTION - A term normally used in
connection with title insurance Ior matters
that are "excepted" Irom coverage against
loss. Title insurance policies usually will
make an exception to a public utility
easement.
EXCULPATORY CLAUSE - Clause in a
mortgage which prevents personal liability.
EXCULPATORY LANGUAGE - Language
in a note meaning the same as nonrecourse.
The creditor will seek satisIaction in the
security Ior the debt. and not Irom personal
liability on the part oI the debtor.
FACE INTEREST - The amount oI interest
stated on a mortgage or a note.
FACE VALUE - The par value oI an
instrument such as a mortgage. bond. or note.
FAIR CREDIT REPORTING ACT - Federal
law. enacted in 1971. that requires a lender to
disclose to a borrower the nature and source
oI credit inIormation. Gives an individual the
right to examine his credit history and any
other inIormation which may be on Iile with
a credit reporting agency. within established
guideline.
FHA LOAN - A loan which is insured by the
Federal Housing Administration.
FIDUCIARY - One who acts in a Iinancial
role Ior the beneIit oI another.
FLEXIBLE LOAN INSURANCE PLAN
(FLIP) - A graduated payment mortgage with
a pledged account.
FLEXIBLE PAYMENT MORTGAGE
(FPM) - A loan which allows interest only Ior
a speciIic period. then principal and interest
suIIicient to amortize the mortgage.
FORECLOSURE - Legal action allowing a
mortgagee to sell a mortgagor's property in
attempt to satisIy the debt.
FRAUD - The intentional misrepresentation
oI Iacts or Iigures to purposely deceive
another party.
FULLY-INDEXED RATE - An interest rate
MAKE MONEY TRADING MORTGAGES
118
on an Adiustable Rate Mortgage which equals
the index plus the margin.
GRACE PERIOD - A time period. aIter
maturity. by which one can act without
penalty. i.e.. as in making a loan payment or
redeeming a time deposit.
GRADUATED PAYMENT AD1USTABLE
RATE MORTGAGE (GPARM) - Most GPM
loans are Iixed-rate loans. GPARM. payments
are graduated. but the interest rate is based on
an adiustable-rate mortgage - normally used
to lower the monthly payment. which helps
the applicant qualiIy Ior the loan. They
normally involve negative amortization.
GRANTEE - The party who is the recipient oI
property.
GRANTOR - That party who transIers title to
another party.
GROWING EQUITY MORTGAGE(GEM) -
Structured prepayment oI a mortgage. Pay-
ments increase. usually on an annual basis. Ior
a speciIied period oI time. AIter the period oI
increases. payments level and early
prepayment oI the mortgage is achieved.
G R A D U A T E D M O R T G A G E
CERTIFICATE (GMC) - The bond-like
instrument issued by the FHLMC
representing ownership in a large pool oI
residential mortgages. Principal is returned
annually and interest in paid semi-annually.
HEDGING - The purchase or sale oI
mortgage Iutures contract to oIIset cash
market transactions to be made at a Iuture
time.
HIDDEN DEFECT - Cloud on a title that is
not Iound by a search oI public records.
HOLDBACK - A provision whereby money
is withheld until certain perIormance is made.
HOLDER IN DUE COURSE - A doctrine
allowing a person who acquires a bearer
instrument in good Iaith to keep said
instrument Iree oI certain claims.
HOLD HARMLESS CLAUSE - Provision in
a contract whereby a party is protected Irom
claims.
HYPOTHECATE - To pledge property as
collateral Ior a debt without giving up title or
possession.
IMPOUND - See Escrow.
IMPUTED INTERESTED - An interest rate
imposed by the Internal Revenue Service
because the interest stated in the mortgage is
unrealistically low or no interest is stated.
INCHOATE - Describes something that has
begun. but is not yet completed. i.e.. a lien
that is going to be recorded. but has not yet
actually been recorded. or a signed an
acknowledged deed that has not yet been
made a public record.
INDEMNIFY - The act oI insuring or pro-
tecting a person against loss or damage.
INDENTURE - An executed deed to which
two or more persons having diIIerent interests
enter into corresponding grants or obligations
to each other.
INSTALLMENT SALE - A method oI sale in
which the property owner accepts a mortgage
as part payment and reports the principal
collected in a taxable year as income.
INSURABLE TITLE - A title oI such quality
MAKL MONL\ 1RADING MOR1GAGLS
119
that title insurance can be obtained.
INTEREST RATE - Cost Ior the use oI
money expressed as a percentage oI the sum
oI money borrowed or the rate oI return Irom
an investment in a mortgage.
1OINT AND SEVERAL LIABILITY - An
obligation or liability Irom one or all oI the
borrowers to their lender whereby a lender
can sue one or all oI the borrowers Ior satis-
Iactory perIormance.
1UDICIAL FORECLOSURE - Takes place
through court action as opposed to power oI
sale given to a trustee.
1UNIOR MORTGAGE - Generally. a mort-
gage subordinate to or behind a prior mort-
gage. i.e.. a second mortgage.
LIEN - A claim or charge against property
thereby causing the property to be used as
security Ior the payment oI the claim or debt.
A mortgage is a lien.
LIEN THEORY - This theory treats the
mortgage as a secured debt against property
by which the owner retains title. It diIIers
Irom the title theory which supports the belieI
that mortgage property is transIerred to the
lender or his representative and the title is not
reconveyed until the debt has been paid.
LIS PENDENS - A recorded notice indi-
cating that there is a pending suit aIIecting
property within this iurisdiction.
LOAN-TO-VALUE (LTV) - The total
amount oI all mortgages on a property versus
current market value - expressed as a
percentage. An 80° LTV would require the
loan to be no more than 80° oI the lesser oI
the purchase price or the appraised value.
LOSS-PAYABLE ENDORSEMENT - An
endorsement to the property insurance policy
speciIying lender as payee in event oI
property damage. Protects lender's interest in
proportionate value to the loan outstanding.
MARKETABLE TITLE - Title to real estate
which is Iree Irom deIect.
MASTER DEED - Conveyance document
used Ior sale oI condominiums.
MECHANIC'S LIEN - A lien given by law to
protect and secure the payment Ior labor or
materials.
MORTGAGE CONSTANT (MC) -
Percentage ratio between annual debt service
and principal loan amount. Dividing oI
annual debt service by principal loan amount
will equal mortgage constant.
MORTGAGEE - The lender.
MORTGAGE INSURANCE - Policy which
protects against deIault and consequent
potential loss to lender. FHA deals in
mortgage insurance. See Private Mortgage
Insurance.
MORTGAGOR - The borrower.
MOTHER HUBBARD CLAUSE - A
provision in a mortgage allowing a mortgagee
not only to Ioreclose on a mortgage in deIault
but also to Ioreclose on the mortgagor Ior any
other mortgages that are owed to the
mortgagee.
NET EFFECTIVE INCOME - Gross income
minus income taxes - an FHA term.
NOMINAL LOAN RATE - Face rate oI
interest.
MAKE MONEY TRADING MORTGAGES
120
NONCONFORMING LOAN - Normal usage
implies loans which do not meet standard
underwriting guidelines as set Iorth by
Freddie Mac and Fannie Mae regulations.
NONDISTURBANCE CLAUSE - An
agreement which mortgagee allows lessee to
continue occupancy under a lease in event
there is Ioreclosure oI the mortgage - eIIective
providing mortgage lien is recorded prior to
the lease in question.
NON1UDICIAL FORECLOSURE - Power
to sell property at Ioreclosure without court
procedure. Can be used by a trustee named in
a deed oI trust.
NONNEGOTIABLE INSTRUMENT - An
instrument such as a mortgage. which must be
transIerred by assignment.
NONRECOURSE LOAN - A loan secured by
property only. Holder oI the note cannot seek
liability Irom the debtor.
ORIGINAL FACE - Original principal
amount oI a mortgage-backed instrument.
ORIGINAL-ISSUE DISCOUNT (OID) -
Debt instrument that is issued Ior less than its
stated redemption price at maturity.
ORIGINATION FEE - Charge by the lender
to help deIray or possibly cover cost oI
originating a loan.
ORIGINATOR - Person who solicits loans
Ior a lender.
OWNERSHIP FORM - Type oI ownership.
i.e.. partnership. corporation. limited
partnership. ioint tenancy. tenancy in
common. Sub-Chapter S Corporation. tenancy
in severalty. tenancy by the entireties.
community property. and trust.
PARTIAL RELEASE - Provision in a mort-
gage allowing some oI the property pledged
as collateral to be Iree. provided speciIic
payment is made. Example: a Iive-acre tract
oI land serves as collateral Ior a mortgage.
The owner wishes to pay the mortgagee halI
oI balance owed in return Ior a partial release
Ior one-halI oI the land (two and one-halI
acres) pledged as collateral.
PATENT - Instrument by which the gov-
ernment conveys title oI its land to an
individual.
PIGGYBACK LOAN - Two lenders partici-
pating in the same loan. One lender with a
senior position oI ownership and a lender with
a iunior interest.
PLEDGED ACCOUNT MORTGAGE -
Home mortgage in which cash is contributed
to an account and pledged to the lender.
Money is drawn periodically to supplement
mortgage payments. The mortgage is a
graduated payment mortgage - also known as
a FLIP mortgage.
PRECLOSING - A meeting prior to Iormal
closing in which documents are reviewed and
signed and estimated prorations are made.
PREPAYMENT CLAUSE - Clause in a mort-
gage giving borrower right to pay a mortgage
oII beIore it is due.
PREPAYMENT PENALTY - Fee imposed
by lender Ior the prepayment oI a mortgage.
Illegal in some states.
PRESENT VALUE (PV) - Current worth oI
a sum oI money due on a speciIic Iuture date.
MAKL MONL\ 1RADING MOR1GAGLS
121
PRINCIPAL - The amount oI debt excluding
interest.
PRIVATE MORTGAGE INSURANCE
(PMI) - Insurance written by a private
company beneIitting the mortgage lender in
case oI deIault.
PROMISSORY NOTE - Written promise to
pay a speciIied sum to a speciIied person Ior
speciIied terms.
PURCHASE MONEY MORTGAGE - Any
mortgage given on real property by a
purchaser to secure all or part oI the balance
oI the purchase price is technically a purchase
money mortgage. However. the common
usage is a mortgage given by a buyer to a
letter as part or all oI the purchase price oI a
parcel oI real estate. The technical term Ior
paper.
QUIET TITLE - Court action to settle a title
dispute. A quiet title suit or action is Ior the
purpose oI removing a deIect or cloud on the
title adverse to owner's interest.
QUITCLAIM DEED - A deed which conveys
only the grantor's rights in the property
without disclosing the nature oI the rights and
with no warranties oI ownership. A deed by
which grantor releases to grantee any interest
or title in the property which the grantor
possesses.
RECASTING - Changing term oI mortgage.
10-year remaining term could be recast by
extending the term to 20 years and lowering
the monthly payment.
RECISION OR RIGHT OF RECISION - A
3-day business period (72 hours) during
which time the borrower can cancel the
transaction. This regulation is part oI the
Truth in Lending Act. Regulation Z. Under
certain emergency circumstances. this
requirement can be waived.
RECONVEYANCE - Conveying title back to
original owner. When a mortgage is paid in
Iull under a deed oI trust. title is reconveyed
Irom the trustee to the equity owner.
RECORDING - Making written instruments
a part oI public record.
RECOURSE - Right oI lender to claim assets
Irom a mortgagor in deIault. in addition to the
subiect property serving as security.
REDEMPTION PERIOD - Time period
during which a Iormer owner can reclaim
Ioreclosed property or property which has
been sold Ior taxes. The time period is
established by state law.

REDUCTION CERTIFICATE - Instrument
in which the lender acknowledges the
remaining balance. rate oI interest. and date oI
maturity Ior a mortgage.
REFORMATION - A legal remedy that can
correct mistakes in written instruments so that
a corrected instrument will set Iorth the true
intentions oI the parties.
REINSTATEMENT - To restore a past-due
loan to a current status.
REISSUE RATE - A reduced charge by a title
insurance company iI another policy had
recently been issued on the same property.
RELEASE - Act oI Ireeing real estate Irom a
mortgage. lien or other encumbrance.
RELEASE CLAUSE - Permits mortgagor to
pay oII a portion oI a mortgage and have that
portion oI the secured property released Irom
the mortgage.
MAKE MONEY TRADING MORTGAGES
122
RELEASE OF LIABILITY - For VA purpos-
es. it is an assumptor's being approved to
assume a VA loan and thereIore relieve the
veteran Irom liability. FHA has a similar
program. Conventional loans may or may not
oIIer a release oI liability.
REVERSE ANNUITY MORTGAGE(RAM)
- A mortgage in which the mortgagee pays a
monthly payment to the mortgagor. Designed
Ior the elderly who do not want to sell or
reIinance. but want to withdraw money Irom
their equity.
RULE OF 72 - Method oI calculating the
amount oI time it takes Ior money to double
itselI when compound interest is applied.
Divide 72 by your interest rate and the result
is the number oI years it will take Ior your
money to double.
SATISFACTION OF A MORTGAGE - A
written instrument acknowledging the Iull
payment oI a mortgage. When recorded. this
document clearly shows satisIaction oI the
mortgage debt.
SEASONED LOAN - One which has been
outstanding Ior a period oI time. FHA
required a loan to be seasoned Ior twelve
months beIore it is eligible to be considered
Ior reIinancing purposes. Secondary
marketing people normally reIer to loans that
are over one year old as "seasoned
production."
SECONDARY FINANCING - Second
mortgages or iunior liens.
SECONDARY MORTGAGE MARKET -
Market Ior the sale and purchase oI real estate
mortgages.
SKIP DEED - Process oI obtaining a signed
deed transIerring title to an eventual
purchaser. Not recorded until a new
purchaser becomes available. A process oIten
used by relocation companies.
SPECIAL WARRANTY DEED - Conveys
special warranty oI title as compared to
general warranties. The grantor warrants title
against claims held "by. through. or under the
grantor." Grantor does not warrant against
title deIects occurring beIore he owned the
property.
SPREAD - The diIIerence between the cost oI
money and the average rate at which it can be
loaned.
STANDING MORTGAGE - One without
amortization payments and requiring the
entire loan balance due at maturity. Interest is
paid at periodic intervals.
SUBMORTGAGE - The use oI a mortgage as
security Ior obtaining another mortgage.
SUBORDINATION - Act oI moving a prior
mortgage into a secondary position subiect to
agreement with holder oI the prior mortgage.
MAKL MONL\ 1RADING MOR1GAGLS
123
SUBORDINATION AGREEMENT - A
clause allowing a holder oI a prior encum-
brance to become iunior to an existing or
anticipated encumbrance.
TAX DEED - Deed that conveys property
repossessed by the government Ior nonpay-
ment oI taxes.
TAX-LIEN - A lien against property Ior the
amount oI unpaid taxes.
TENANCY BY THE ENTIRETY -
Ownership oI real estate by a married couple
which requires that one cannot sell without
the consent oI the other and also maintains
that upon the death oI a spouse. the real estate
is then owned by the surviving spouse
maintains that upon the death oI a spouse.
TENANCY IN COMMON - Ownership in
real estate by two or more persons each
owning an undivided interest without right oI
survivorship.
TENANCY IN SEVERALTY - Ownership oI
property vested in one person or one legal
entity.
TERM - The period oI time in such
documents as a lease or a mortgage.
TERMS - The conditions and obligations oI
a mortgage. a lease. or other contract.
TITLE BINDER - Written evidence oI
temporary title insurance which must be
replaced by permanent title insurance aIter a
limited time.
TITLE DEFECT - A claim against property
which clouds the title to the property and
prohibits clear title.
TITLE EXCEPTION - A condition oI the
property which title policy will not insure.
TITLE INSURANCE - An insurance policy
warranting the validity oI title to real estate.
Insures against losses arising through deIects
in title or any liens or encumbrances.
TITLE REPORT - The current status as it
pertains to any deIects. liens. easements. or
covenants. It is not the chain oI title.
TITLE SEARCH - Investigation oI public
records to determine anything which might
aIIect a title.
TRANSFER TAX - Tax imposed by state or
local governments when real estate is
transIerred Irom seller to purchaser.
TRUST - The Iiduciary relationship under
which legal title to property is held by a
person or entity with the intention that such
property be administered by the trustee Ior
the beneIit oI another who is termed the
beneIiciary and who holds equitable title to
the property.
TRUST DEED - See Deed oI Trust
TRUSTEE - An individual who holds title to
property in trust Ior another as security Ior
perIormance oI an obligation.
UNIVERSAL COMMERCIAL CODE
(UCC) - A code which attempts to uniIy all
law related to commercial transactions.
UNIFORM SETTLEMENT STATEMENT -
Standard closing statement required by
Housing Urban Development (HUD).
USURY - Act oI charging an interest rate
greater than is permitted by state law.
MAKE MONEY TRADING MORTGAGES
124
WARRANTY DEED - A deed conveying title
and containing a covenant Irom the grantor to
the grantee that title is Iree and clear oI
encumbrances. other than any stated in the
contract or deed.
WITHOUT RECOURSE - A mortgage in
which the lender will not pursue personal
liability against the borrower. The real estate
being Iinanced is the lender's security.
WORKOUT - A mutual attempt by the
mortgagee and mortgagor to assist in avoiding
Ioreclosure or bankruptcy.
WRAP-AROUND MORTGAGE - A
Iinancing arrangement in which a new
mortgage is placed in a iunior position to a
prior mortgage or mortgages. The wrap-
around mortgage payment is a combination oI
all mortgage payments. i.e.. a wrap-around
mortgage in a third position. Mortgagor
would make one payment to the wrap-around
mortgagee who would then keep his
proportionate payment and pay the mortgage
payment to the Iirst and second mortgagees.
YIELD - The amount oI income returned
Irom an investment expressed as a percentage.
For example. discount points plus interest
rates will equal the yield.
YIELD TO MATURITY (YTM) - The
percentage return oI an investment based on
the loan's reaching its maturity.
MAKL MONL\ 1RADING MOR1GAGLS
125
AI1LRWARD
!n my lifctimc ! havc sccn too many biight, ambitious pcoplc hcld back
in lifc bccausc of cconomic icasons whcn somc knowlcdgc and a
diicction could havc changcd thcii livcs complctcly.
!n wiiting this book, ! hopc that somc of thosc pcoplc will takc thc timc
to cxaminc thc possibilitics, piovc to thcmsclvcs that it can bc donc, go
on to livc a bcttci lifc and tcach othcis to do thc samc.

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C "0 % $ ) % 4H $ $ 4H % = )< $ 3 ( $ & )& & % $$ % ( B & % ' ( * $ % % % &A % ' $ ( $ ) % ( G $ $ ) GC ) 4H % ) G 4) $ 4H ( ( % % $ ' G4) ' % ) $ ' ) ( ( ( $ % & * .D- 20-3 '6 &01 26'1 1-" ' 8 G 4) * $ $ ) 3 G ) G 4) ) $ ) % G 4) ) % 6 ) 4H = %( $ % $ #1 % 0 %% ) % ) ) & % $ % /'9) 4H 4H ( ) *% % / A ( ( % C H ( ) $ $ % ) 4H $ ( C H % % $ .

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D- 20-3 '6 &01 26'1 1-" % * $ $ $ % % & % $ # 6 $ $ % B . 4 $ A % # ' F $ & +& $ ) & 3 ( $ B %( % $ % % > > 4 % % ' 2 #&& %( & ( ( %( 2# ( ( '% %() % . ' % $ )% % $ ' $ $ ' . % $ > . % "1 /'9) & '' "# " % ' % * % % % ( )% $ % % % < % < % ) % . > $ ( .

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D- 20-3 '6 &01 26'1 1-" % ' & $ . ) ( ( ) % A $ # $%1 ' % ' % )$ / 2 "&2 " # ( % $ ( % $ B & B $ = J % L $ % &A % ' A $ $ 6 ) % ) %( & ) K % ) $ / $ ) ) $ % ) ( % % $ = ( ) $ $ % $ & & $ % % $ % $ $ % % ) % $ $ % $ ( # ) . #'-6 7 .

D- 20-3 '6 &01 26'1 1-" " % ) $ $ $ $ ( $ % % $ % % % %() . ' % % % $ $ ( ' % ( $ ) % ) % $ % % * ) $ ' $ $ 6 $ $ ( / A ) % " ' % % $ % $ % G4 $ $ G4 B . )% %) "* $ ) ( $ >$ ) > + & & J: $ L) B & $ )% $ $ ( % % B 3 $ . $ G7 ) G7 ) G7 ) % $ $ $ . * $ ' ) : $ & $ % < $ $ %( ' ( ( ( F 7 .

G4 ) B ) ) ' % % % ) $ ) $ %( = $ $ $ $ %( % $ % ) $ & % $ G4 ) $ % & ) ) $ & & $ $ % % & G4 ) .D- 20-3 '6 &01 26'1 1-" 0*' 0* " ' % $ $ ( $ ) $ . ) & % %* #&" #%& %( % ' % $ 3 $ $ J $ F ) % ) ) $ & ( % % ( $ = $ ) $) % $ % 3 % % % % ) % $) $ % % % % $ $ % $$ % >$ $ L % % $ % $ > $ % $% & $ $ ' ) % $ $) % % % 7 .

% % % ) A % . % ) $ ) % % ) ' ) $ $ $ %% $ % $ % % $ ' % ) % $ % % * A % % % % $ % $ ' $ & % % % ) . % 8 $ % * 3 J ) J % $ % L A ) %L % % ' / ( M 77 . % & $ ( $ $ % ( ) ) $ % (% % #$#&$ % %% % .D- 20-3 '6 &01 26'1 1-" #&.

D- 20-3 '6 &01 26'1 1-" . $ JL % & 3 $ $ J L) ) % $ % % ' $ ) $ ) 2 % % % % $ % % 0 3 % ( $ ) %0 $ % "1 $ 2 * & % %( % % " % $ ( F ) % $ B . #'-6 % % $ $ & $ + ) $ . $ % & 7 .

% $ ) % %( % % ) 2D % % & $ % ) % %( % %( A % $ " .D- 20-3 '6 &01 26'1 1-" ' ) ! % ) ) % ( & ' . $ % % & % 3 % % $ % $ 3 % %( % % $ % % ) % * # % ( % # ( ) % % % $ & ) % % $) $ ) A ( % $ $ % % % $ % $ ) ' & ) ( $ ) 74 . $ & % .

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D- 20-3 '6 &01 26'1 1-" ' % $ $ $ & % ' $ ( % $% $ $ % ) $ ) % 2 ) . % $ % $ < & % $ $ ' $ % $ $ .! $ 3 % % $ % $ * $ $ $ $ & ) $ ( % $ $ $ % $ ) $ % $ % ) 3 $ $ ( D % % % % A % ( % $ % % $ % % % % ( ) ) $ $ ( $ ) $ ' ) $ ( % 5 ' @ @ ( % $ * % $ %( %$0* & % + $ ) %L J $ 7C .

) > < % % $ * % > % > $ ( % $ B 3 $ ( $ ' ' $ * $ < % > % B % % $ % = ( $ $ ) % % $ $ $ ( $ < $ B $ B 0 ' ( ( ( = 7 . % B ' @ # ' % % $ % $$ % % ) ) ' % % $ $ % $ % $ @ $ % '' "# " . % $ ( $ % /'9 $ $ $ ( $ * $ < % $ ' ) >% $ > $ $ .D- 20-3 '6 &01 26'1 1-" @ " % % ML $ . % % % J.

( $ = %'' ' % & $ $ % & $ % $ $)% ((#2"1# = % = % % & % $ % .D- 20-3 '6 &01 26'1 1-" " $ $ % A % % $ &#% $ & % % % % ) % $ & % 0* & $ % &A % $ 3 &#% ' % % " ) $ % ' $ % $ $ = %"& $ % "0 $ G 4 #(#$" #%& % ) $ 0 $ ) + % % ' $ ( $ ' -+ '.

D- 20-3 '6 &01 26'1 1-" %** $#" 8 % % $ % ) % * ) % $ %% $ ( % $$ % & $ % $$ % ' $ %' ) . % & $ % ) & $ ) 8 ( % $ % $$ % % & 0**" % $ % % % % ' > > $ $ $ > ) > ' $ % % $ % $ % ' ) $ % $ >% > % 6 $ $ % / % % % $ % .

"& % ' ' % ' ' & % $ $ ! % $ ' I % % % % $ . #'-6 $ % $ ) ' ) = < ( ) % ) ) & % % ( % $ & ( % $ ) $ % ) % $ $ ' % % ) % A $ % ( / A % % ' $$ % $ $ ( ( %0 .D- 20-3 '6 &01 26'1 1-" .

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)$ A .D- 20-3 '6 &01 26'1 1-" F . * & % %( $ ' ) $ %( $ $ JL ' % 0 *) $ $ % % % $ J $ )& $ $ M 3 $ % % % $ % % %( L $ % $ % %( % $ %( % $ ) % $ " $ $ % %% $ % %( $ $ $ ) 2 ) $ 3 $ $ % $ / % $ $ $ % & < J ) ( L 0 *) % .

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. #'-6 ! ! ! # %! & " " !" # %! #$%! ! #%! #$ ! * ! ) #$%! + ! "' #$%! #$%! ( #$ ! " ! ! " ! 5 .

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D- 20-3 '6 &01 26'1 1-" ( ! " ! ( 2( ( " ) ( 2 (! ( 4 .

D- 20-3 '6 &01 26'1 1-" ! ! 8 ! + = ! " ' ! ( # % ! # !> > . ) " ! " # # %$! ! ) #$! ! ) 1 #$! . $% ! ' ! ' 0 4 .

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A! 4 ' 4 ' ) " #$ !$%: %$ . B ! B ) #% > : ! "! ) B $> $ ' C ! .A ! 44 . -B #% > : ! .D- 20-3 '6 &01 26'1 1-" 8 @ .

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#$>! + 8 0 0 B # D!CDD #B! $: 0 . 0 + #B! $: 4 < #$>! 2 # D!CDD ' 4C . %$ ." ! ' I ' ( ! ! ) ! ! " $> ' ! ! .D- 20-3 '6 &01 26'1 1-" $# * ! B B ! 2 ' ! 2 ! .

D- 20-3 '6 &01 26'1 1-" ) #$ ! C7 ) 2 #B! $: -.A.! #>C!C: #$C!D> ! ' 0 ) ( 2 4 .

A " ! ! " # ! .D- 20-3 '6 &01 26'1 1-" ! ( %" ) + ) ! ) ! ) @ 1 EA 1 " 2 EA @ . % ! $ " ! # ! % ! : .

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! ! ?.(.8F3 K < $! - & :7 .D- 20-3 '6 &01 26'1 1-" " " ! " .K3 . ! ! ! . 8 ? )0K .

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0 $ ( > > 74) % % % $ ( & % % * ) 0 *) 8 ) % % " $ & 3 $ $ ( 0) $ ) ' $ $ ) %% $ % A .# ( & & = % % % % $ % % ) % ' A ( .D- 20-3 '6 &01 26'1 1-" 2 . 74) % > #'> J % $ % $ L % % % ( #9) &) 0) 89) * $ ) ( # ' 3 $ ) % ) % % % $ = % #' #9 % $ 2 $ '* % $ A $ &) . % % 74) ( $ . . # %( > ' % $ %$ %$ > "$+" 2 $ %2 9: % % >>( >> ( $ * ' 0 *) ( = % $ % % 7: 0 8 $ % * $ ) 8 % ) 7: *%& ) % ( $ $ $ $ ( $ ( 1 : 0 % ) .

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D- 20-3 '6 &01 26'1 1-" < & 4H? $ % % % $ * % B * % G 4) ) % R 7 0 : & 4 # ' #9 B 89 4) 7 < & % $ % $ :H % B G 4) 4 ) R 0 : & 777 # ' #9 B 89 4) 7 55 .

D- 20-3 '6 &01 26'1 1-" 0**" & & % % $ % & % % % ) %( %( #&"&$#" % % ( " $0 " % % $ % * $ ) % J0) &) # ') #9 T 89L & ) $ $ % % % $ $ & $ . ( % %( % % % % % ) % ) $ % $ # % * " ( ( 5C .

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

D- 20-3 '6 &01 26'1 1-" % &#.' / ( ' ' ' $ + " &#( $&' . % ." &# &/ ! ! " #.. # $ '$&!' ' ' . %! $& .+ '&% + ' # #" &! &! ' / $ ' % * ! ' . !&# !! ! &#' !'&#( ! + "+ $& /&#" ' ' &/ + ! &'' &% (&# '& # + # !' ' ' #! '& #! ' /&' % !' / ' # "! / &!'& ! 2 * ' $ $ #" " ' ! ' #! '& #! &# ' #!$ ( &" &# #"&) 2 !+ . C .

% ? 9 4 4 4 4 &! 4 / 4 4 > 9 % #' ! ' ! " " B '& + . * &" #'&/& '& # # %.+ 4 % #' &! 4 B/ 4 / / / # # 9 +& "B 4 9 +& "B 4 # 9 +& "B 4 / / / &!' " # /' . % '/ 9 +& " 9 +& " 9 +& " % ! % &! 4 ' ( '' ## ' / C7 .D- 20-3 '6 &01 26'1 1-" / . %! &# ' . &! ! $# &# ' /' #" . #!$ ! ' '& # .

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

&# '& # / ' '$ # ' ! ! '&#( / % ' !' ' &#( " ' ! % ' %! #" #"&'& #! ! ' &(&# # ' ! ' $ ! # // ' # ' + 6 ! " ' # $ /& !' # ' ' # &#.D- 20-3 '6 &01 26'1 1-" . ' ( '' ! # % *&#( +% #'! # ' # ' ' ' $&' &! $ ' $ "&" 6 !' ' " ' # ' / ! &#' '$ # ' ! %.!' / 4 $ & ' . '4 / &%% "& ' /&' &# * '! 6 ' " + ' &#* # "' ' # $ ! #" # ' $ ' " > ( !! " &' $ ( ' ' * ' +% #'! # 4 # ' #" !' / &' $ ! 1 H 6 $ !! C: .

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

D- 20-3 '6 &01 26'1 1-" ((% $ * #" # ! %% + + % !' #' " #" !' #" #" ! ' &! *&#" / + % !' ( ' ( " '' # + ! & &1&#( &# ' &! *&#" / ' #! '& # ' * . . (&##&#( = % %.+ ! " &# ' . &' &! ' 5 . !&# !!5 #" $# % +% $% $ ) ' .

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

D- 20-3 '6 &01 26'1 1-" ( % #' F #'&# "G 0 0 A + 0 0IAL.? 6&'# !! 6&'# !! 6&'# !! 7 0 8=. ..0 27.2 3 7. 6 == . .

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D- 20-3 '6 &01 26'1 1-" " #/- < " # % & $ + + + < L -* % L 7L L 4L :L 8 5L & & J""R) % L J# CL L L # L L 7L " L # 4L :L #T/ T / % & $ J& $$ % L / A $ F # # 6 ! " 9 % & $ "% L -* % 8 $ 0 0 # % " $ " .% CL 2 L -* % & 0 % )# $ % 6 + -* % $ $ ?6 % " % & $ . " % 0 J $ # ) T# % 0 $ %( L 0 & $ $ ?6 % -* % % & $ 5L .

3 .D.0 L L L 7L & A ' # % # $# 0! ?# % % # % $ $# L / 4L # :L " # # / / 0 / & % ?6 = % / 0 $ % 7 .> = ? 8 3= 8 8.

. 7?9!@8@!99=? Ë "5. 7?9!:A9!7>:: 8 $+ # 8 *+ + + $ + # # 2 # % + / % ' 2%% + T + 6 9 + $$ % " # $ + 8 ?' ?' # 0 $ + 02'. % 2 ' .6 0 * # $ .826 " //&-0" 2 2 ' $ & # $ 8 # $ # $ .D- 20-3 '6 &01 26'1 1-" & 9 > :8=> 0 "&2 %"2 Ë "1#2 %&1# 4 " "&2 :9?78 ' %& . .

> = ? 8 3= 8 8.D. $ # $ # $ % / U U $$ " % # -$ )# ) -% # 0 " # A 0 % & $ V # V 4 . 0 $ 0 $ .0 . 3 .

! # + # $ ' $ + B % +G . %= + G ' # $ + # $ + & 2 6 6 $ H' $ + + + # $ .D- 20-3 '6 &01 26'1 1-" " #/- B 0 $ + 6 + " % + " + # 2 8 % 9 # $ +G + G . . % +G + . % + + G # 2 # $ # $ 0 $ + 8 % 9 +G +G + . & 6 H + 2 # $ 6 $ . B ' + + ( 9 ? # % ? $ " +G ! + / % + + " 2%% 0 $ + ? + '$ # J% * L & % $ +G # $ : .

3 .-6 02'-" 9 &/ .> = ? 8 3= 8 8./-+ 5 .0 0 & #9 # ' 89 # % W + 8 + + + " + # % + 2'.D.

( ' $ % $ UUUUUUU H O $ * G $ % ) O ) ' % $ ) # 0 $ $ # 0 $ .D- 20-3 '6 &01 26'1 1-" " #/- ' ) ) J" L 0 % G % O ) $ ' + ) % ) J" L $O $ $ ) ) 0 % % J L ' ) # % $ O ' ) $ G G $ . + $ & & % + $ + T' + C .

3 .D. % $ % % & ) " % ) 0 JL .2/ -6J"L J L" " X & " " 1 6 + % X $ + $ & 0 $ # % # & + % 0 + + ( % # ( 1 % % % $ $ + 0 $ " " ' + % % $ $ $ $ X ' % $ %% ) &?.0 " #/- 0 02'-.> = ? 8 3= 8 8.

% $ % % .D- 20-3 '6 &01 26'1 1-" " #/- 02'-. $ + < $ $ %% ) $ $ $ .2/ -6J"L " " X . = % & % 2 . . . 0D T '6!"' " X 6 % + 3 # / R 1 . " % ) 0 0 .

% % ! / G# $ 2 % $ X + $ $ ! / * $ ) $ $ % % $ ? ( J ( 1 L+ $ ? / ' $ # % &? ) % / % + 6 + ( % ( 1 + 3 G " % ) 0 JL .2/ -6J"L J L" " X # " 0 $ )" )X # / # ? &? % 0 $ " " ' 3 % $ . 3 .D.> = ? 8 3= 8 8.0 " #/- 0 02'-.

D- 20-3 '6 &01 26'1 1-" ' 1 % $$ % % % % < % $ % $ & $ % % % ) %) % % . $ 8 % $ $ $ % ) $ $ ) 8 & # % )' * % % = -* $ $ $ % = % % & #&'& J# % L) % ) ) $ $ % % % $ % $ % %A $ $ $ %% $ ! $ % * $ $ F & $ F $ $ $ $ % $ C D % $ % $ ! % * % ( % % C % D C $ ) J80 % % E L) ' $ % % ) % $ ) % ' ! D $ # $ $ % $ $ $ ) ) A % & C $ $ % % % % ) < D % % = % .

3 . $ > F % $ ) > ' > > % $ > $ 2 % H 4H 4 ' % 7 $ $ $ $ $ H % CH % $ % % $ * $ $ $ % % % = % $ $ ) ) $ ( $ 7 .D. $ %% = : $ = $ .0 % ) $ % % % 2 $ % % $ $ % % ) = % 0 $ A % ) % % ' % & % ) $ = % $ % & % $ $ ! = $ F ) $ F $J % % $ % % A $ % % ) % % $ ) ) L % % % % % % $ & $ % $ $ %( % ) % % % ' ) % $ % ) $ $ ( F % ' $ & $ $ % $ $ $ ) 8.% $ % % = %( % $ $ % ' $ $ $ < % $ % % $ ! % % $ ' ! ) % % F ) $ ! + $ $ % ' $ % % $ ' H $ $ 8 ) >.> = ? 8 3= 8 8.

) 9 = $ % $ + 7 4H ) 7H 7H % :H % F = $ "$ % E % % % % % % -* % $ $) $ ) ' $ 8 % H % 4H % % ) % ) % $$ *% ) ) % $ % ) 9 $ $) % % ) C % * D! $ ) ) ) $ % ) % % % ) ) )% F % $ % $ % % $ $ % $ H ) % H $ ) 7 7H) 7 H ) H %% % % > $ ( $ $ $ $ ( % % % ! $ $ % % % * ' % $ % %( %% % %% % % $ .D- 20-3 '6 &01 26'1 1-" $ " $ $ % % % A % ' % $ $ % > $ $ $ $ $ % > = % $ A % $ % $ $ % % % $ % A % % % ( %% > $ 0 $ % O ) $ $ % % * $ ) 8.

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% % $ % % $ % G 4) %( % % % % $ % %( % & % G4 ) ) % ' % $ % % / 0 $ 6 % % > *% ' $ ( $ % 6 $ % ! 5 6 *% > % $ % % % ' ) $ % $ % % $ C 6 D % % % $ C 6 D %% % $ 2 % % % 8 , $

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C * ) < % $ ' $ = $ $ $ ) F " % $ % % < " % $ % % % ) $ $ ) $ $ $ % $ C # ) % %( $ D! ) % % % % ' C $ $ # % $ % ' $ $ ( $ % % % % $ % % % % C % % $ % * $ %% D ' 8.D- 20-3 '6 &01 26'1 1-" < * 6 $ $ % % = % ) $ % $ $ % $ ) $ ) ) $ % $ ( % $ $ $ % % %= ( $ # 1# $ % % $ ' % ' % % % $ ./ * % $ % ( % % ) % % $ ) $ & 6 -% $ D 1# 6 ) " $ % ' ) ) $ % $ % % $ % = .

3 . % % = % % $ $ = % ' $ 1 ) $ $ # % % % % $ % $ D % % % $ % $ $ % $ .D. C % $ D ' 1 $ % $ % % $ $ % % $ $ $ % ' % & $ & % % " # 8.0 % % % $ $ $ . $ $ * % $ $ ! $ $ # % A % % ' % $ % % % % . ) ) % % % $ $ % $ # % ' $ % $ $ % % % < ! $ % % % $ ( C H /'9 $ C H % ! $ * = 8 % $ % $ * 8.> = ? 8 3= 8 8. % % $ % / '( % $ C .

$ 2 %( % $ 8/&# $ ! $ $ C % $ D % % $ $ % $ % ( .D- 20-3 '6 &01 26'1 1-" $ 8 % 8 % 0 $ $ % $$ ) # $ $ % % % % $ $ % % $ %% % % $ = ' $ % % # % $ L % % ) $ -* $ % + $ J % & $ % % $ . $ $ %% $ $ $ ' 2 % % % % ' $ $ % $ ( $ $ $ $ $ $ % % # % 8 $ ' ) ) % ) " ) % $ % % ) $ $ & $ C D % % $ $ ) ) % $$ ) " ) < ) % . % % $ % $ $ % $ $ ) % $ < % .

$ ) % % % $ $ . % % ) % % $$ % * ' $ % % $ '$ % % % $ $ $ < % ) % % % $ ( = $ .> = ? 8 3= 8 8.0 !' $ *% % = $ $ % % % % $ % ) %( C D % $ % & % $ $ . % $ % 6 $ % $ % $ $ % ' % % % % $ & < = $ A < A % % % % % $ $ * $ $ $ $ 7 % % ' / $ ' %) 6 X ! $ J5 % L % % % $ $ ) $ % $ % % % % $ # $ % $ % % $ $ $ % % ' ! % % % % $ % % ( $ $ $ % % % % % $ $ % % ) $ %( ) $ % % .D. 3 .

$ 9 % % $ $ % C D % $ > 1 % %% $ $ ' % % % % % $ ' > ) ) 0 % % $ % % $ % $ $ % ) = =: $ % $ 5 $ $ $ % $ $ % % ( $ $ $ ( $ F % % $ $ 2 = & $ % $ $ $ $ % %( . % % ) % ' $ % $ 2 % $ % " % $ 8. % $ $ < % $ = $ % $ ( % > " % $ < $ > ( $ # % % .D- 20-3 '6 &01 26'1 1-" 8 ) $ $ 9 $ $ A 8.

> = ? 8 3= 8 8. % ! $ = $ J. 3 .D.! L $ D % % % $$ % $ % $ $ % $ $ % % ' . % % $ $ % % % % 6 % 7 % $ % $ $ % % C % % $ % " .0 % % % % 6 $ 6! $ * & % 2 % % = % $ ) $ ' 2 $ % $ % % % $ $ 6 $ % % $ * % & % $ < % $ % % $ * & % $ % % % % % $ ' % % ) % % ) $ ) % % $ '* $ % % $ % = 2 " ' % $ ' ) % ) .

D- 20-3 '6 &01 26'1 1-" % % $ % % ) % % $ % % $ % % $ $ % $ ( % A ' % $ ! % $ $ $ $ $ $ ( $ $ $ ' $ 8 * $ = ) $ % $ * % $ % $ % $ ( $ $ % $ $ ) ) $ < ' % $ % % A % $ C $ D ' .

D.> = ? 8 3= 8 8. - !# ! " !- 4 .0 & # # - .! " # . 3 .