How To Get The Most Out Of Owner-Financed Notes With Will Henning & Rachel Sims

NC 45 | Owner-Financed Notes

NC 45 | Owner-Financed Notes


Will Henning and Rachel Sims from First National Bank of America discuss the best ways to create, buy, and sell owner-financed notes and what FNBA is looking for when it prices notes. They present some of the ways they find notes and what they are seeing regarding pricing.

They also talk about the opportunity for note investors to broker notes to them. You can submit your offers at

Want to talk to Scott? Book a call with him HERE.

Listen to the podcast here


How To Get The Most Out Of Owner-Financed Notes With Will Henning & Rachel Sims

That was a great previous session. We have got an even more amazing section here with two amazing folks who are great at what they do. They are awesome. This might be one of the most beneficial sessions for you guys as you are out marketing and getting people to reach out to you. You are a note investor. Do you buy notes? Maybe you don’t have the capital stuff out there, but you can always still look at maybe potentially brokering, and we are honored to have Will Henning and Rachel Sims from First National Bank of America join us here at one of the biggest buyers of owner finance notes. Will and Rachel are joining us from Lansing, Michigan. I’m glad to have you guys here on the show. Awesome stuff there. How’s business for you guys? Booming?

Staying busy. This has been a weird year, there’s no doubt about it but staying busy. People still need to sell their notes.

Let’s dive into that a little bit here for everybody out there, unless you guys have a presentation you want to go through, go back and forth here, or how’d you guys want to roll with it? Maybe share some of your specifics or what.

We do have a presentation. We are happy to go over that quickly. It might answer quite a few questions right off the bat, and then we can go into some other things after.

Let’s do that. That’ll be great there. That’ll help answer some questions there for you. Once again, I know you guys are busy. I know you are always running around looking at deals, making offers, brokers, and stuff like that. Thanks so much again for being on the show.

No problem. Rachel is going to take the reins on this, but the presentations may be only 15 to 20 minutes at the most. It’s open-ended and we can field some questions. We got a few questions and if we end early, that doesn’t bother us. It won’t bother probably any of you guys either, so that’s okay.

Let’s take it away.

First National, we have been buying notes since 1974. We have primarily purchased first lien performing. Performing is a must. Contracts, deeds of trust, notes, and mortgages. Lease options as long as they can get converted, and we can purchase single families, land, mobile, commercials, second homes, rentals, properties used for rentals, and multi-unit. What we don’t purchase is second lien, third performing, and the sub-properties used for cannabis or places of worship and mobile home parks. Things that we might not make an offer on.

This is a good buy criteria, Rachel. We try to keep a wide net on what we will make a bid on, but these are ones that it’s pretty much a deal killer. As we are a national bank, we don’t buy cannabis. You can’t as a national bank. It is still illegal on the federal level, so we can’t buy cannabis. These are some nice general ideas and what we won’t buy on the whole.

How does FNAC determine what we’ll pay? We look at quite a few things and we’ll look at the interest rate. We look to see if there’s a balloon in the transaction. The remaining payments and how many are left to go. We can look at a credit score, something a bit more in the 600s. It might be a little bit more attractive than something in the 500 credit score.

We look at the pay history. We look at how they might have paid the first while it’s been more the last months or if it’s been a reperforming. If we’ll have maybe a handful of payments to show that the reperforming is pretty solid. We always take into consideration the equity and then the property type. This one is to show how our notes are valued. Green is good. Red is a bit on the negative side, so that might affect some pricing, for example, over something of 700 credits over something in the 525 range.

What I like about this one is that different investors have different ways they value the note. We know a lot of investors that don’t even look at credit. It’s not an issue for them and so a lot of new brokers, even season brokers come and say, “Who cares? They have been there for two years or they have 20% equity.” This is meant to give an idea of, as an institutional buyer and bank, what we put our value on and we are much more credit sensitive than you might see in a lot of other investors. We like to lay this out for people because these are all going to be factors when pricing your note, but for us, something like the credit is exceptionally important.

A lot of investors don't even look at credit. This made a lot of new brokers don't care about it as well, even the most seasoned ones. Click To Tweet

The process is pretty straightforward. We like to start off with a quote. This broker or seller direct will provide information. We will provide a quote. Hopefully, that seller says yes. We’ll have some due diligence going on, title work and appraisals. Once those items come in, we have a final underwriting process to see if any other items might be needed. Then it goes to processing. We’ll have a processor review title and make sure it’s pretty clear. Hopefully, that’ll be leading our #CloseIt.

Let’s go back to that a little bit because this is where some folks will have questions on it. What I love about what you guys do is when somebody’s going to the fast quote part of your website and submit something in. You are getting a bid out usually within 24 to 48 hours. It depends. If you submit something on Friday afternoon, it’s not going to come out on Monday afternoon. Let’s face that, everybody.

I don’t work weekends.

I know Will doesn’t work, either. Usually, a lot of times, you come back with two offers. You come back with buying the full note or buying a partial set of payments and usually, it’s somewhere between 24 and 60 months. Cynthia says, “I sold my first partial and it made it so very easy.” The thing is that one of the things you are going to ask too. It makes sense, too, besides filling out the information. “Do we have a copy of the note?” Can we talk a little bit about why that’s important for you in the front end? A lot of people will throw crap against the wall and I’m like, “Let’s get a copy of the mortgage and note.” Why is that so important in request?

To have the terms confirmed and then, most importantly, seeing how the borrower signed. Let me clarify that the buyer can sign, for example, Rachel Sims, but if I sign as Rachel Sims LLC, sometimes knowing if it’s guaranteed right upfront will determine our pricing. If we have someone who we know it’s not personally guaranteed, it’s in a trust, business name, or the borrower’s the one who’s signing in these names. We can’t hold credit. We have to take the property back. We can’t go after an individual. We have no credit to go by, but if they assign individuals and they have superb credit, we have accurate pricing upfront and everyone wants the best and most aggressive offer, so those are good.

Time is valuable for everybody and we want to be respectful of everyone’s time. Rachel’s right. If it says LLC, that’s a game changer and now we have to price the loan differently. If we can pull their credit and it’s great or low, like we mentioned in our last slide, we put a lot of stock in that. Third, people don’t remember their terms very well. They did it years ago and they might say 5%, but it’s 2%. You could have drawn up a bid, done the amortization, and the whole nine yards on incorrect data, and have to go back and requote and that’s a pain. People hear a number and they don’t want to hear sometimes the worst number, even if it is their fault. They told you bad data. It is a pain.

NC 45 | Owner-Financed Notes

Owner-Financed Notes: Property owners don’t remember the terms of a deal they did years ago. Working on incorrect data can be a pain.


It’s a soft pull on a person’s credit to pull that, correct?


Yeah. They don’t know where to begin.

You like the fixed straight stuff because we have seen some creative, crazy stuff like the arms. I saw a loan that had been modified a few years back where it was bar makes twelve months on-time payments and then 24 months of $0.1 a month. That might have a low buy.

Something we are not going to want to get into, but I’m sales. I will be like, “We will send it. Let me see what I can try and do,” but having to play it flat interest rate overtime is preferred.

The system can handle quite a bit. Some notes are like, you always want to be 180 bits above or something like that, or the Wall Street Journal. Each quarter, the Wall Street Journal prime rate, we want to be 150 bits above that. We buy the loan. We are not going to have somebody in our processing staff look up every quarter of the Wall Street Journal rate and jump.

We’ll probably do lock that rate in, and we might even lock it in at a lower rate so that it’s agreeable for the purchaser to amend it. That stuff is very hard to manage on a large scale, but we do complex payments all the time. We bought one not too long ago that was an orchard. During the fall, payments pump were huge, and the rest of the year, nobody goes to an apple orchard. The payments dropped and it had this seasonality rotation to it. We can handle some pretty weird stuff to seller finance.

It’s a ballpark loan, a bit on it. It’s a ballpark bid of what you’ve provided so far. That bid will change once they start looking at the rest of the due diligence stocks and things like that too. I wanted to bring this up because I get people that come to me all the time. I’m like, “Here’s what I would pay for. If you want a better bid, let’s go to the fast quote, see what’s an actual pay for you, and go from there. Here’s another important thing and I know you are going to talk probably about it. I will shut up about the broker aspect. If somebody’s wanting to make money brokering, I will shut up and let you guys answer that question later on.

This one is submitting a quote. This is the quote staff, our acquisition staff. Myself, Elena Kenny, Lucas Burma, and Joe Waters. Collectively between the four of us, we have twenty years of experience in getting quotes out. We have worked with sellers and direct brokers. We have anything we have out there that we can purchase between the four of us. We can find out a way to get a good bid out on the table. You can submit a quote directly to our emails or at

You are right. The quote usually comes within a day and 48 hours is typically the most, and then all of them. The accuracy of our quote comes from whoever’s submitting it. Knowing a down payment is awesome to know about, sometimes assuming the current unpaid balance as the value can get tricky, so knowing how the property’s being used is also great.

The sooner we receive an accepted offer, the sooner we can close. I would try to suggest to get people or brokers. We give you a bid, try and let us know within 48 hours how that bid went, and let’s try and sign up that deal maybe within five days. About notes and accurate quotes, having confirmed terms, knowing it’s a Social Security Number and ITIN borrower if it’s vacant land maybe having that parcel.

Anything else about the unique characteristics of a property. For example, sometimes people don’t consider that we have a nice house and then we have this amazing pole barn in the back that’s being used as a rental. All of those are good to know that the property could be income flowing or that there are additional things that you might not see from a straight-face evaluation or drive-by evaluation going by the property.

We require to get the process going, meaning, it being the evaluation or the title work is the note and mortgage and the broker-seller agreement. Other items, the broker FNAC agreement or other due diligence, can come once the evaluation’s going pay history, something that’s going to be something an underwriter always wants to look at.

It’s also good to know that once you find a note that you want a broker, there are a lot of words here on the page and we aired on the side of showing you more. It’s not nearly as intimidating as you’d think. It’s super easy in a real sense because we need the note that will make you the bid. You bring the bid back to your seller with your spread taken out of it. If they say, “We have the documentation,” we send it to you. It’s not a lot. It’s pretty easy. You get the yes, we send you a package of, “Okay. This is what we need,” and the sooner we get it, the better everybody will be. It’s going to be not anything different than what you’d see in a lot of other due diligence. None of this time. It’s crazy.

The sooner you get it, the better the deal goes and the faster it goes. This is all super great stuff. I’m glad we wrote it down for people to get a flavor for it, but you don’t need to be an expert. We provide all of this information, can help facilitate it, and have it available to give you as a new broker.

For example, it’s putting 2 and 2 together. If you have a mobile home, you might need a mobile home title. If you have a house, you don’t need a mobile home title. We have a basic transaction checklist. These are additional items if we can get it upfront rate. The Excel sheet will be available afterwards too, but if the purchaser or seller passes away, we might need a death certificate. Additional documents we might need.

You don’t have to go back to it, but you say, “Ma’am, there’s all this documentation.” What we used to do is get the bare minimum in the door to sign the file up. When it got to processing the title work, then we’d look and say, “Where’s the mobile home title?” Let’s go back and ask the seller. “They are deceased.” Let’s get the death certificate. By that time, they were already two weeks with the process.

It seems done, but we created a checklist that we would give to any broker of the top twenty things that are like, “Are they deceased? Is it in an abstract state? Is it an LLC? Do you have corporate docs? Are you the executive of the state?” If you don’t apply to them, you can go through that checklist. That starts the process much sooner, and we started that back in January of 2022, and we are closing on average about a week and a half faster than we did historically, and a big part of that is because you are asking for it sooner in the process. It also leads you to set expectations. This is an abstract in Iowa and you don’t have the original. From day one, we are going to tell you that’s going to push out your closing. It just is. Better to know that now than after the appraisal comes back and after it goes to underwriting once you start processing.

The thing is it’s like the loan officer. As a mortgage broker, they used to tell us, “When you submit your package, you want to make sure that when you get conditions back, every condition is like an open door.” You want to make sure that you’ve got all those conditions covered because if there’s not something and they got to look into that open door, that will drag stuff out. It’s like having a sticky note on every door there that you’ve got. Everything is covered and in place, so they can’t close ASAP. Everybody hates like, “We are going to close at the end of the month. I need these other four more documents down. I can’t get those in by the end of the month. It’s got to go push to next month.”

There’s always that balance of like the guys have to try it and you sign the deal up. In our mind, we are going to make what we need upfront known to you, but then we have a checklist of like, “You must have this to move the deal forward.” Then the other things we want you to start working on ASAP, but if it takes you a week to get a death certificate, that’s okay but let’s go ahead and get the process started, but at least you got to get it.

David asked a question. He said, “Didn’t you imply that if a note is owned by an LLC that it’s probably a no-go for you?

No. First National, we can make a bit as long as it’s current first lien and not tied to cannabis properties, mobile home park or something like that. If the seller is an LLC, all we are saying is we’ll need the LLC documentation for when they go to sign that closing that yes. They are signers for this company that they can quote. If the purchaser isn’t an LLC, so the borrower signed mister in their business name, we don’t need their documentation because they are not signing for anything. That’s simply how we price.

We don’t have LLC buyers and sellers in our due diligence. During this process, we are getting an appraisal order. Our appraisals usually take 2 to 5 days. This is a drive-by appraisal. Usually, the borrower at this time does not know that they are coming to have an evaluation done if they do great, but they are not going inside the property at all. They are going to take photos of the home, make sure the roof is in contact and there’s no obvious missing door, and that they are going to run comps around the neighborhood.

Title works also be in order. We have a national title company. They have been seller. They get title back within 7 to 10 days to us, but if a seller does prefer us to use a certain title company a bit more local, we are absolutely happy to submit that order through their preference of a title company also. During this time, we might find out if a purchaser interview might be required and then the file goes to our underwriting process.

Can you explain what the purchaser interview is a little bit?

A purchaser interview, sometimes you might hear us say PI or we might email the word PI. That’s what it is, a purchaser interview. That is pretty much a quick touch base with the borrower to make sure they are utilizing the property. Maybe confirm I had properties where an evaluation came in coupled in Florida after a hurricane that there was obvious roof damage.

NC 45 | Owner-Financed Notes

Owner-Financed Notes: A purchaser interview is a quick touch base with a borrower to ensure they are utilizing the property.


The equity was a bit tight. We had somewhat of a pay history and to get the file finally approved. It was me calling the borrower and saying, “We see that some of the shingles are missing. Is there any leaking in the roof?” The borrower was like, “Absolutely not. We are going to have this all tidied up here in the next week or so.” That’s absolutely great to know. We end the call and that’s it. Sometimes we see all types of contracts. Sometimes the escrow is not fully funded, so maybe a borrower having a conversation to either move a payment date back or roll over additional funds for an escrow account can help a deal get approved instead of being short.

We are sensitive very much so to the likelihood of a payoff. We have internal documents that help us determine this is eligible to be waived because we totally get it. That’s a real threat. If you’ve got a guy with good equity and he’s at an 8% interest rate. He doesn’t know the sale is happening and that can jeopardize it. We need them. They are important, but it’s not a blanket statement that we need every transaction. We realize they sometimes come with a risk, so we want to be sensitive towards that.

If someone has good credit and good equity but doesn't know how the notes sale is being handled, the whole deal can be jeopardized. Click To Tweet

That’s the thing, too is you are getting whoever owns the note. You are getting permission to talk to the borrower too. You are not straight calling them up. You are not violating. Wasn’t it illegal to call? No. It’s not illegal if you’ve gotten permission from the bank or the existing noteholder to contact the actual borrower on the phone. It happens sometimes. You see that happening lot on commercial loans and stuff like that. If you are selling the note, like you said, you want to say, “We are calling to touch base with you.” One of the things you talked about too is also if they were in a contract for deed, maybe the possibility of them converting to a traditional mortgage too is checking in with them on that too. Does that still happen or not?

That still happens. That’s becoming less common in Texas. Most of the contracts for deeds we see are in Texas and we often like to convert those to a deed of trust.

Something like that car might need the sign. A lot of officers, they were requiring purchasers to stop the letters even, but no. We don’t need them.

That was a hot thing in Texas. Several years ago, where every title company wanted a stop sign. I don’t know what got into mind, but we didn’t enforce it.

As he said, we’ll always get permission. We’ll have a conversation. If it makes sense, fair not to do it. I’m always hesitant about sharing this one because I’m always going. I’m on sales. We always want someone to think like an underwriter when they bring us the file. I would say, “If you are a broker and you are looking, you get a note or you know the address, Google the address.”

Take a look online and utilize Google Maps. We like to walk through cities all the time, even though we’ll be sitting at Will’s desk. We’ll walk through how it’s going. How’s the next-door neighbor look? Are you having a lot of sales in the area under $20,000? Do you have a lot of rougher areas in the property or in the neighborhood? If you know things like if there’s insurance, why not? Sometimes collateral, you can’t get certain insurance. If you can look over the file and see if it’s something that you might be willing to invest in yourself, send it over, but if it’s current performing, I’m going to tell you to send it to me anyway. Each deal is unique seller financing. If it was a generic loan, it would have gotten generic financing. We like unique.

NC 45 | Owner-Financed Notes

Owner-Financed Notes: Brokers should use Google Maps to familiarize themselves with the client’s address. This allows them to walk through cities even without going outside.


There’s also this frustration we find with people that come from traditional lending where you have a check box. Check and the deal’s going to get approved and you have to in a lot of traditional financing. You have regulations and compliance issues. If they do A, B and C, then D must follow. These loans don’t fit that. If they fit generic, then they wouldn’t be in seller financing.

The deals will be unusual and the underwriting will require more of a hands-on approach. Also, because you are not lending, you’re buying, you don’t have to be put into a box. You don’t have to invest in what you don’t want to invest in. We have that luxury to be able to say, “I don’t want to buy this commercial property. I don’t like the area.” That might be harder to do more of a traditional lender.

The reason I say that is that it works for and against you, but it creates some grayness in the transaction where we say, “You get our best pricing on homes with good credit and good equity,” but what if it’s a dome house that runs off the grid and collects rainwater? That’s not a home, but we get that. That’s totally a real-life example and they were frustrated because it’s a home. It’s not a home or the credit is 700, but the guy filed a BK and he’s got one trade line that he’s paying on. He will look at that and handle it. The thinking like an underwriter is meant to say, “As you are looking at this file, here are some red button topics.”

Did it sell for a third of the price? A few years ago, is there a bad type of ownership? That leads to frustration. That frustrates people because it’s not a guaranteed yes upfront. It’s a likelihood and we want to sign up deals that are going to get approved. We don’t want to waste anybody’s time, but I do think inside our company and outside, there has to be a recognition that there is going to be a hands-on approach and they are going to make a judgment call on some of this stuff.

Buying owner finance is a lot by buying nonperforming. There are yeses and noes to everything. There are things that look good on one thing and then other things are killers or other things that do pricing on this stuff. I don’t want to say it’s choose your own adventure, but it is like that. As you said, every deal is unique. Every deal has a different story behind it and you’ve got to read between the lines of what a lot of people are normally seeing to see what’s going on in the asset.

One of the things that make our top brokers so great is they do vet their deals. They don’t know spaghetti against the wall. They fight hard to close everything and so do we, but they have that maturity and experience to say, “This isn’t going to close. I thought it would. The appraisal came in and it’s a dome house. First National had to kill the deal or reprice it. I’m not going to lose my Cool. I get it.” It happens.

Let me ask the question here. Are you rewriting a mortgage? If it’s a true first lien they are buying, they are not rewriting the mortgage. If it’s a contract for deed and they are going to buy that, they’d like to prefer it on a mortgage then you would put it into a traditional 30-year mortgage and you notice that stuff, but they are not rewriting terms. That would be a modification. You would need the borrower to sign off on any type of modification.

Sometimes the contracts have disagreements between the note and deed of trust. We’ll need to reconcile that. One contract says, “The other one says this.” Sometimes we won’t buy the transaction unless there’s an escrow, so then we’ll have to amend the contract to get the purchaser to agree for us to escrow. Sometimes the contract says, “This note can’t be sold.”

The seller’s responsible for insurance or something where it’s like, “We are not going to do that.” We’ll then have to amend the contract. Any amendment that is not in the purchaser’s favor must be signed off by both parties. If you had a balloon coming due in a year, we don’t have to get your approval to kick it out two years or to load your interest rate. That’s in your favor, we go ahead and wave that balloon or lower it or whatever, but anything else requires both parties.

This is more for some of our processing of what they are doing. They look at the title work. Usually, it takes them a few days. They want to review it to make sure it’s clear and they want to close it. Processing is the biggest thing. They always want to see a file get closed.

That’s the thing that’s beautiful about this. You can be flexible. It’s not a traditional property sale, so you can do it. Signing a few docs, making sure everything’s there for the most part, and then that servicing is transferred. It’s not like a traditional showing up to closing the property sale to notes sale, so there’s a lot less when it comes to closing.

Closing docs are sweet. They take seven minutes to do. That’s if you are going slow. I’d say 90% of the time, we have a mobile notary. They come to you, you sign the docs, we fund, and then we handle the recording. All that jazz. Some of the stuff you are signing your life away. This one’s not so bad and it’s an assignment. It’s a couple of docs. It’s pretty not noncontroversial, and then we wire you the money. We don’t do cashier’s checks anymore. It’s almost 100% bank wires.

Getting started. Your first step is learning a bit more about First National, and we look forward to seeing any quote requests come over. If you are brokering with First National, we would need to complete W-9 and your wiring instructions, and a couple of those items are also on our website too. For more of our information,, and then this slide will be available too for any point of contact emails or phone numbers you might need.

We got folks on here who are looking to broker a little bit. Can we talk a little about how you guys work with brokers? Does the broker turn a file all over for you? Does a broker tell you what they are looking to make? Do they take it to the note holder to try to pitch that or do you take the file over? It could do a bit of both or how’s that work?

It works both ways, truly. Sometimes we have brokers that have not had the conversation or the seller was unwilling to disclose how much they are willing to take. The broker will provide as much information as they can. We’ll give them a quote. First National is making a quote of what we’ll pay. Then it’ll be the broker’s job to requote or not requote. To provide a different number to the seller, we don’t regulate your commissions. Whatever you have the seller sign upon, that’s fine.

It’s basically closing. There are two wires. One to the note seller original, and then the commission is sent to the broker then.

Correct. The broker’s commission is not a hut or anything that’s a completely separate document that stays between the broker and FNAC.

They don’t know we are buying it until the final funding. At the closing table, they would sign First National docs, but for a lot of our brokers, the seller doesn’t even know who the funder is until the very end and the commission is hidden. I will say one thing about that. Our average commission tends to be about 6% of the unpaid principal balance. That works out to about $4,500. Some go up and some commissions are massive. Some of you are barely making any spread, but you are closing the deal depending on how it goes.

One of the trends with our best brokers compared to our lower performers, they tend to take a reasonable commission and do more business. Often newbie brokers go for the kill and they want to get a 15% to 20% or whatever commission and what ends up happening is you end up with nothing because either people say no or the ones that say yes, those deals suck. You want to make money. You deserve to make money. Awesome. Good times. There’s give and take when you do great. Other times not so great, but on the whole, you want to pick a number that can be accepted and that builds more long-term strength.

Most newbie brokers go for the kill and aim for huge commissions. They usually end up with nothing because the deals they agree on suck. Click To Tweet

It’s pretty simple. Broker fast quote. Click there.

I would hit the resource button at the top, Scott, if you don’t mind. We have different options for videos. If you want to hit the first one that gives you forms. A lot of this is helpful. The broker submission worksheet and broker seller agreement. Maybe you are new to the business and you don’t want to give them the First National info. We have a template that you can use so you can get the deal signed up on your own whether you use us or not.

A Social Security verification form, they are going to need that. A W-9, we are going to need that. There’s also a button down there that says more tools, that’s going to have checklists, a commission agreement, template that we are going to need you to sign with us, and even if you don’t do business with us. Taking our name off and put a different investor’s name on. It’s a good agreement to have to make sure that your seller knows what they are receiving and you know that you are receiving and that there’s no miscommunication. Entity documentation if you are dealing with an LLC, but all these are common things that come up and where else do you get it? Those are helpful whether you broker or not, those are helpful docs.

That’s good stuff there for everybody. Totally agree. The forms are important there. Going back to resources here. It’s and then you see the resources tab. What’s great is if you become the new brokers here too, it gives you some of the information you’ve already talked about here, which is good.

Those videos are cool. We put together some cool videos. We did one during the pandemic about foreclosures because everyone said, “I will take the property back and resell it.” We did a pretty deep analysis into like, “What does that look like? How much money do you lose when you have to foreclose on a property?” We looked at over 1,000 loans over a 10-year timeframe and figured out how long, on average, you go without collecting the payment. Do you spend per loan in foreclosure, and how much does the value drop from when you bought it to the time you have to resale to give you a better idea of how troubling a foreclosure could be? Anyway, there’s some cool data.

The biggest mistake I made when I first started up as a note buyer was that I went to foreclose and everything versus trying to modify. I came from the real estate side. Many people want to modify and I was like, “You are a deadbeat. You haven’t paid.” This is back in 2008, 2009, and 2010 in the heyday. I look back after the light finally went off, saying, “I left so much money on the table if I left the people in the houses.” Cashflow instantly versus waiting for me to sell the property in 12 to 24 months.

Paying for the realtor, plumbing, and cleaning. I worked with our foreclosed assets during the recession and they got beat up. We got weird stuff.

When we first met, you were doing a lot of that stuff. I remember your talk about the black paint. That rings the bell there.

That’s a lot of money and white paint to go back all.

You need a couple of coats of kills. Somebody on YouTube asked the question, “Do you guys have any nonperforming notes you are looking to sell?”

The answer is no and that’s twofold. One, our delinquencies are very strong in that they are low. We have very low delinquencies, and it’s on purpose. We are picky about what we buy. Also, we do everything in-house. We’re foreclose in-house. We resell in-house. We might even finance it again in-house, and often the nonperforming buyers out there can’t see eye to eye on price. There’s not much inventory and even one inventory, there is it. Usually, we don’t come to an agreement on price.

There’s a difference there. You guys are finding it differently than most investors. You’ve got banks. You’ve got some pretty cheap capital to use to go out and buy nonperforming assets and that’s what allows you to buy maybe a little bit higher price in some cases. You’ve got your stipulations, but versus an investor like me that’s going to have the money maybe at the cheapest at 6%, 7%, 8%, and others may be at 10% to 12% where we need to ask for a bigger discount to make it work, and that’s why there’s a big difference in pricing.

That’s a real competitive advantage when you are able to borrow from the Fed. Your cost of funds, even the way we do cost of funds, is going to going to be able to pass those discounts along to the seller because our spread and our net interest margin, we don’t need as much because one of your biggest year expenses is the money you borrow and equal rates on the increase, we can still borrow at a good rate.

The only downside to that is when you are borrowing money from the Fed as a bank, there are certain regulations. Delinquencies it’s called non-accrual status or a classified asset. When those loans go delinquent past a certain point, you need to keep way more money in reserve as part of your FDIC and things like that.

When borrowing money from the Fed as a bank, there are certain regulations to follow. When your loans go delinquent past a certain point, you need to keep more money in reserve as a part of your FDIC. Click To Tweet

There are delinquencies that happen. There’s a risk. We get it. No problem, but there are a lot of negative consequences that come with us if a loan is in delinquency and it ties up a lot of our cash. We’d rather pay a little bit more to get something that’s going to perform. Like a non-performer, we have no appetite for nonperforming loans, but there’s great money in it. For the money we are borrowing the business we have, it’s not our thing, but that’s not to say seconds nonperforming don’t make great money. I have got friends in both and they do phenomenally.

The thing is, you mentioned a good thing. Being a bank, if you have a nonperforming note on, you’ve got to add your reserves accounts. You’ve got to have that in there based on FDIC requirement and that’s a huge amount.

Allocation for loan loss goes up. That loan has to fall under additional audits. It’s a mess. If you get it, but you don’t want to get it.

As a bank. Exactly. I know you guys are always running numbers and you mentioned 6% on average commission for a lot of your good brokers and stuff like that. Are there any numbers as far as the property value or percentage of LTB or UPB that you guys have bought with your numbers and stats? You can look at not holding you to any specific purchase price.

I’d say most of our UPBs are going to be in about the $90,000 range. We’ll look at any and all transactions, but once it all washes out, it’s going to have a UPB in about the 90% range. Usually, it has about three years of seasoning or bid on anything. As things wash out, it usually has a couple of years of seasoning, and then discounts do vary on how long the transaction is. We’ll go up to a 3% discount, but we’ll obviously go much lower than that. Some of that is the way the numbers work out. You got a long AMM at a low-interest rate. Even if I want a low yield, if you are at a 1% interest rate, math is what it is. What are you going to do? We’ll go up to a 3% discount.

Somebody wrote a mortgage at a 1% interest rate. They were smoking some crack. That took that owner financing class from somebody and didn’t make sense.

I have a thought about this.

When Will gets excited and gets something, you know you are going to hear some good stuff.

The no percent interest rate automatically means a higher discount. That’s the bad news. The good news is you have nowhere to go but up with that money because you are earning nothing. If you can talk to the seller, they are not in a rush to collect their money or need the money. They will say something to that extent.

NC 45 | Owner-Financed Notes

Owner-Financed Notes: The no-percent interest rate automatically means a higher discount. That is bad news. But the positive thing is that you have nowhere to go with that money but up because you are not earning anything.


You say, “Here’s the offer. It’s because it’s at a no percent interest rate. We need to discount it to make an acceptable yield.” If you took that money and even if you put it in a CD or something modest that compounds over time, I can’t think of an example where you end up often better off. If it’s a fifteen-year loan and you plop that into a CD that’s gaining interest. Nine times out of ten your net result is going to be better with no interest rate. You are right. It’s not great. I would never do that, but it does make for a good sales option to show them.

That happens. I’m working with a person right now who has a 0% rate. I never thought they would take a $100,000 discount. I never thought, but he came to me and said, “I’m paying off my mortgage. I’m getting so much money on interest. I’m able to invest at this amount with so and I’m going to make well over that discount anyway and get all this money back,” and it works out.

What do you take with that payoff? What do you take with that capital you are paying on the note? If it’s sitting not making anything, yeah. You are losing inflation every day, but if you are going to take it, make 12%. Lend it out at 7% to 8%. You are doing great to grow it versus sitting there letting it dwindle down.

In the past, we have talked about a formula. You are looking at a couple of years of seasoning, probably somewhere in a 7% to 8% interest rate. You say 8% or greater. I like that, but you are also wanting some skin in the game. You want to see some down payment from the bar in a lot of cases too or equity. If somebody’s been into it and the property’s gone up in value quite a bit, will that suffice or a down payment?

No. We’ll look at a new note. They put 20% down. That’s great. We’ll look at a note that’s been seasoned and still has 20% equity. Great. Happy to look at both of them.

I will say there’s a pretty good chance we won’t write the value up if it’s under a year old. If it’s a new note and they sold it for $100,000 and it appraises for $130,000, unless you have a very convincing argument, we are not going to automatically give you that equity. If they put 10% down, it’s 4 years later, it appraises for higher, and it makes sense, that’s another way to gain equity.

That makes a lot of sense. Rachel, you and I were dealing with a couple of those investors who rehabbed the property owner finance that were trying to sell it 90 days later. No bank is going to give you full value in less than 90 days on appraisal. You’ve got to have that seasoning. Even me foreclosing and trying to turn around and sell it as an REO, it’s been coming buy it for me as an REO, it’s still no lender would give me 90 days for it to sit in there for the appraised value to be considered in a lot of cases. It’s important for folks to know that there. There was something else I was going to ask you. Is it a good tick or a bad tick if somebody has a loan with a third-party servicing company?

That’s fine. What I like about third-party servicers is they do help secure the balance. That is a real bear when you buy from something that has not been professionally serviced if the balance is accurate. With a servicer, you don’t need to worry about that.

Third-party services help secure your balance. That's a real bear when buying from something that has not been professionally serviced. Click To Tweet

It’s nice if they are handling the escrow too.

Maybe the question is, does the algorithm for pricing take servicing into consideration? It does not. It puts the most amount of weight on credit then on then on equity, then on seasoning, and the property type. To make a land or is it your house? Those are the big four that are going to drive the pricing.

The probably only slight downfall with them is if the sellers paying that servicing fee. It’s quite a bit. We might have to do something about it. Split in half or talk to the seller about moving forward and something like that. The only negative I could see is when the seller pays an $80 servicing monthly fee.

That would be more of a nonperforming. Most of the performing stuff is like $20 or $25 or less than a lot of cases.

$25, $35, but $25 sounds fair.

That’s not too bad. It’s like co-financial we have got on. They do $15 across the board, but they are not going to handle anything.

That’s a good price. I would say credit and equity are the big ones. We do take seasoning into consideration, but for us, we found a better indicator of performances. How do you pay other people and what skin do you have in the game? What’s your exit strategy?

Question for you rural-wise, is there a location you prefer something in town, out of town, or out in the middle of sticks? This affects your ability to collect a little bit, but is there a difference in pricing dramatically for rural versus something that’s a little bit more in town?

Maybe for vacant land? I would say as far as homes go, when the recession hit and values fluctuated, I don’t believe there was a noticeable difference between rural and urban areas where like, “This area got protected or this place because it was rural, the values moved up. As it was urban, it did not.” That didn’t seem to make a difference.

I wouldn’t say we are too sensitive if it’s a small town within Rachel’s life. If you are out in the middle of absolute stinking nowhere, that’s it. We had one we were trying to buy in Alaska and we wanted to get the appraisal done and we had to pay. We didn’t, but we would have had to pay for a helicopter to get there. It was like, “This might be a little too rural for my taste.”

I want to know what a flyby appraisal costs.

We are not buying that. I would say, especially with vacant land, we don’t buy into it. If it doesn’t make sense, we don’t care what the comps say. Some of vacant land and lots, we look at it and we are like, “Yeah. No. I don’t care about your equity. I don’t care about your seasoning. We are not putting $100,000 into that.”

Here in Texas, I’m always looking for land in that case and we are like, “Let’s see what we find for 100 acres owner financing.” I was like, “I don’t think FNAC would ever end up buying this because it’s way out in the middle of the boonies.”

Maybe on partial and not at a smaller yield.

At 5% interest. I don’t think FNAC would be nice, otherwise, it might be something for broker. Let me ask you a question. Mobile home loans. You are looking at those as long as they already have a certificate of attachment. Correct. Not the mobile home or the ZIP code changes every five minutes unless driving down the road, right?

Correct. It can’t be a mobile without land. They don’t necessarily have to surrender title by all means, but as long as we had to take the property back for whatever reason, we are also getting that land that it’s on.

For those out there, if it’s on there, that means the tires are often removed or the tongue gets cut off and it’s attached to the lane of some sort. It doesn’t have to be on a concrete foundation, but it’s attached to that aspect. You can pull it out and take it off, put the Beverly Hillbillies on the back, not the same. We were somewhere in the house and we were like, “That house ZIP code is changing every five minutes.”

I will say RVs are different. If it’s an RV, we don’t consider that mobile. That’s not a part of the land at all. It’s the land that we would look at that.

With home affordability stuff in the need for that increase, are you seeing maybe an increase in owner financing in tiny homes? Have you seen any of that pop up? Where it’s not on a trailer, how does that?

What are they? They almost look like trains. Those shells like cart. What are they?

Storage containers.

Big storage containers. I have been on something like that. The reason why I was able to is they had solid photos inside and outside. There was good acreage on it. They had been there for a very long time. It wasn’t brand-new. Here, let me throw this together. There are no inside photos or anything like that to look at. Sometimes we look at it as land value. The land value’s still there, but we have a few of those.

You talk about bidding on those. Is there a note you guys bought and Will, this might be a better question for you who has been around longer, but a borrower on a note you regretted buying the note on? Any trouble borrowers?

We had one that was completely fraudulent. The note didn’t exist. That one was no buy at all.

That was bad. There was no purchaser.

That was a weird one, but that’s crazy. That’s 1 out of 1 million.

About that one where they were like collateral is damaged and unlivable. What is that note in you? They all want to know.

They all run together. We have had a couple where you buy them and they dispute the balance. The ones that we are trying to clamp down on is will they repay? Yes, but you want to make sure that they know the note terms and that they agree to the balance. I forgot to tell you that the balance was paid down, so now you are stuck where the purchaser deserves a lower balance, but now you got to talk to the seller and get that figured out.

They have already received their funds and so that’s probably something that we are trying to sharpen our pencil on right now to make sure we are probably going to re-release our purchase and sale agreement with more specific and tighter wording to make sure that we get the right balance. We do the vast majority of the time. That seems to be something that we are encountering that we are trying to tighten up on.

Melanie, answer a good question which would be my next question. What are some of your top brokers doing to find notes for sale, Rachel?

I would say they are still utilizing the counties. They are still using that are online. The state of Florida law of their notes is available. If anyone knows that online, it’s all the states. You can click on Florida. All the counties will pop up. You’ll click on a handful of them. You can type in note mortgage. I forget the exact wording, but it’ll come up note mortgage, and then you have the note in front of you.

You can look at the terms, you can get a bid and sometimes you’ll find the mortgage right there and then the mortgage will have the seller’s address and then you can mail out the letter and just like that. It didn’t cost you for that lead, right? I will always show people that Paperstac is a great place where they can find notes for sale. Usually, it always has their balance. It’s quick to get any missing information there. ListSource is another one. I want to say there’s one more that’s not coming right off the top of my head.

A lot of our brokers do also work more local leads.

Facebook REO groups, real estate investment groups, title companies, and closing attorneys. We are not going to be able to work those small leads, but there’s little business there.

Even having conversations like we will have a realtor’s network and it’s mostly a different origination. Let real estate agents know or other servicing companies know to contact them. A lot of people can have leads for you. You got to get in front of them.

It all comes down to marketing. I’m not a fan of doing a lot of direct mail to get a low response rate direct mail. It’s always those good relationships; the more you can market out, the easier it is for people to respond to you. A lot of those get a lot of letters and tire kickers, but that’s why you find somebody and leverage your local relationships. Your local realtors and market. Especially now with rates going up and things like that. There are a lot of great ways. If you have a troubled property or a borrower’s situation, owner financing can be a potential strategy to buy on and make some things work.

Once you buy a list or you get a name. There’s a lot of life in that. For example, half of our closings in 2022, we quoted more than once. I’m not saying we quoted a day later. We gave them the quote. You have a pocket that will convert right away and then you have a completely different pocket that’s quoted and then three months later, you follow up with them. Finally the light bulb goes off and you get the yes. As like, “Maybe I got 10 leads and I only got 2 of them to convert, but that doesn’t mean that the eight are gone. There’s a lot of juice left in that eight.

No means not now.

I was going to say a good tip when you get the seller on the phone, whether it be the 1st or the 2nd time, always try and get their email because then that’s a free week way for you to follow up with them. You don’t have to send out more mailers to them and email goes a long way, I would say, a lot of times too.

NC 45 | Owner-Financed Notes

Owner-Financed Notes: When you get a seller on the phone, whether the first or second time, always try to get their email address so you can send them follow-up messages.


It’s also cost-effective. You mail a lot of leads too there for you, but it also makes it easier for you to put them in a CRM. One of the things I like doing is pre-writing the email. There are so many of them say, “I’m going to go ahead pre-write the email and schedule it to go out in 90 days or 30 days.” Put them on my list to touch base and so it looks like it’s a warm email, but it’s something that’s massed to my leads that didn’t convert.

That’s awesome. That’s a good idea.

What other questions do you guys have for Rachel and Will out here? Anything you folks are focusing on here in the fourth quarter? You guys putting some money aside because you think you’ll see a lot more stuff here in the fourth quarter or the first of next year or any economic stuff you are looking at, Will, to affect your pricing?

Cost of funds. Is it bear this year? I would say that is a struggle. Even rates have gone up so fast. The paper you are buying is 2 years old or 18 months old. A few years ago, 5.5% or 6% probably was a pretty decent loan and well above prime and now you are not going to be buying at a 5% or 6%. I’d say that’s a real issue we are working through.

Rising rates is an issue we are working through, but other than that is seller finance does seem to have a little bit of insulation from the outside world, because this happens in the market doesn’t necessarily mean it happens in the seller finance market. Sometimes the rates go up that affects our pricing and that can work for or against you. By and large, recordings and calls are still coming in. People still need to sell their loans. We’ll be curious to see how appraisals do if the market holds, but you do the best you can. You try to make smart decisions based on the info you have, but those are some of the big things we are looking at.

Somebody asked about New York. Are you buying notes in New York and New Jersey?

Yeah. New York and New Jersey. Ohio is another big one with land contracts that we get questions about. We keep that in the back of our minds. Maybe we have to price it accordingly. Maybe we underwrite it with a little bit more of a skeptical eye, but we’ll buy in those states.

What about some institutional scratch and dent stuff? Do you guys ever look at that stuff?

That is not our division. We have another division in the bank that has their own process. The two are totally processed differently, but we are very active in the scratching and dent business.

One of our students got a small portfolio and the discount that they were looking at, I was like, “This might be doable.” It’s right by you guys over there to see it and came back. I was like, “We might be able to make this work.”

We have a strong scratching and dent business.

That’s something most people didn’t know about. I was like, “Let’s call our friends in Michigan, Lansing there.” Do you guys still have an office here in Austin?

We do. Right on West Avenue. Not far from 6th Street. Maybe a couple of blocks from 6th Street. It’s a very cool spot. Real close to the downtown. We do a lot of business in Texas.

Texas is the best state. They originate in a lot of cases here. The fast foreclosures.

Your property values hold and your laws are agreeable. Have a lot of contracts to buy. We find ourselves doing a lot of business down south, but Texas in particular. It’s cool down in Texas. A cool spot to be.

One of the things are you putting these newly rich because we have got Max Bailey coming on from calling the underwriter here after that there a little bit there. On the originate stuff, how much Dodd-Frank compliance are you guys looking at too during your offering?

I would probably defer that question to that group that specializes in it. I don’t know, but they have a full team that would underwrite and review it and know how to close these things real fast, but they have got a whole process worked out.

The best way for folks to go is to the website. Go on there and get everything submitted. Rachel and Will, thank you so much for coming on the show and sharing your time. I know it’s a busy week for you. Rachel, thank you for coordinating with Will.


I appreciate seeing you.

Same here. It was funny. Rachel is like, “Don’t worry about it. I’m booking him and I’m going to herd him in.”

I’m glad you did. It was fun to see you guys.

We got to get together sometime soon as well. Thanks, guys. We’ll see you guys later.


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About Will Henning

NC 45 | Owner-Financed NotesWill Henning is Vice President at First National Acceptance Company. First National has been a leader in the note buying industry for over 45 years. Will oversees a group of note buyers, in both Texas and Michigan, who purchase private contracts in all 50 states. Last year alone his team purchased nearly 900 contracts with balances exceeding $95,000,000.

Before joining the Acquisitions team, Will had an extensive history with the company’s REO department. He currently lives in East Lansing, Michigan with his wife Hannah and their four children: Liam, Moira, Ruth, and Ilsa.

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